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11-1924
FOR THE SECOND CIRCUIT Docket No. 11-1924 UNITED STATES OF AMERICA, v. DANIEL B. KARRON,

To Be Argued By: MICHAEL J. BYARS

United States Court of Appeals

Plaintiff-Appellee,

Defendant-Appellant. ON APPEAL
FROM THE

FOR THE

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

BRIEF FOR PLAINTIFF-APPELLEE

PREET BHARARA, United States Attorney for the Southern District of New York, Attorney for Plaintiff-Appellee. 86 Chambers Street, 3rd Floor New York, New York 10007 (212) 637-2793

MICHAEL J. BYARS, SARAH S. NORMAND, Assistant United States Attorneys, Of Counsel.

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TABLE OF CONTENTS
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Preliminary Statement . . . . . . . . . . . . . . . . . . . . . . . 1 Statement of Jurisdiction . . . . . . . . . . . . . . . . . . . . . 4 Issues Presented for Review . . . . . . . . . . . . . . . . . . . 5 Statement of the Case . . . . . . . . . . . . . . . . . . . . . . . . 5 Statement of Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 A. The Advanced Technology Project . . . . . . . . 5 B. Karron Obtains ATP Funds Pursuant to a Cooperative Agreement . . . . . . . . . . . . . . . . 7 C. Karron Misuses the ATP Funds From the Start of the Project and Falsely Certifies Compliance with the Terms and Conditions of the Cooperative Agreement . . . . . . . . . . 10 D. The Award Is Suspended During the Projects Second Year . . . . . . . . . . . . . . . . . 12 E. The Criminal Proceeding . . . . . . . . . . . . . . 13 1. The Government Charges Karron with Misapplying CASI Funds . . . . . . 13 At Trial, the Government Presents Evidence That Karron Knowingly Misapplied CASI Funds .. . . . . . . . . . . 14

2.

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3.

The Jury Convicts Karron of Misapplying Funds in Violation of 18 U.S.C. 666 .. . . . . . . . . . . . . . . . . . 16 The District Court Concludes That Karron Incurred More Than $120,000 in Inappropriate Expenses . . . . . . . . . 17 This Court Affirms Karrons Conviction .. . . . . . . . . . . . . . . . . . . . . . 19

4.

5.

F. The Civil Action . . . . . . . . . . . . . . . . . . . . . 20 G. The District Courts Decision . . . . . . . . . . . 22 Summary of Argument . . . . . . . . . . . . . . . . . . . . . . 27 ARGUMENT .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 STANDARDS OF REVIEW . . . . . . . . . . . . . . . . . . . . . . . 28 POINT ITHE DISTRICT COURT CORRECTLY HELD KARRON LIABLE FOR CIVIL DAMAGES AND PENALTIES UNDER THE FCA . . . . . . . . . . . . . . . . 29 A. Legal Standards for Civil Liability Under the FCA . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 B. The District Court Correctly Held That Karron Is Estopped From Challenging Her Liability Under the FCA . . . . . . . . . . . 31

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1.

Karron Is Estopped From Contesting FCA Liability Under Section 3731(e) . 32 Karron Is Barred by Collateral Estoppel From Contesting Her FCA Liability . . . . . . . . . . . . . . . . . . . . . . . . 36

2.

C. The District Court Correctly Held, in the Alternative, That There Was No Genuine Factual Dispute That Karron Is Liable Under the FCA Because She Falsely Certified the December 2001 Federal Cash Transaction Report . . . . . . . . . . . . . . 38 POINT IITHE DISTRICT COURT CORRECTLY AWARDED FCA DAMAGES OF THREE TIMES THE TOTAL AMOUNT DRAWN DOWN BY KARRON . . . . 45 A. Where the Government Receives No Tangible, Ascertainable Value, the Appropriate Calculation of FCA Damages Is Three Times the Full Amount Received . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 B. The District Court Correctly Determined That a Reduction in Damages Was Not Appropriate Here . . . . . . . . . . . . . . . . . . . . 52 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

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TABLE OF AUTHORITIES Cases: Cifarelli v. Village of Babylon, 93 F.3d 47 (2d Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Cook County v. United States ex rel. Chandler, 538 U.S. 119 (2003) . . . . . . . . . . . . . . . . . . . . . . 46 Duch v. Jakubek, 588 F.3d 757 (2d Cir. 2009) . . . . 29 Emich Motors Corp. v. Gen. Motors Corp., 340 U.S. 558 (1951) . . . . . . . . . . . . . . . . . . . . . . 32 Falconer v. Meehan, 804 F.2d 72 (7th Cir. 1986) . . 37 New York v. Hendrickson Bros., Inc., 840 F.2d 1065 (2d Cir. 1988) . . . . . . . . . . . . . . . 31 New York v. Julius Nasso Concrete Corp., 202 F.3d 82 (2d Cir. 2000) . . . . . . . . . . . . . . . . . 31 OHara v. Natl Union Fire Ins. Co., 642 F.3d 110 (2d Cir. 2011) . . . . . . . . . . . . . . . . 34 Rock Island, Ark. & La. R.R. Co. v. United States, 254 U.S. 141 (1920) . . . . . . . . . . . . . . . . . . . . . . 45 Rojas v. Roman Catholic Diocese of Rochester, 660 F.3d 98 (2d Cir. 2011) . . . . . . . . . . . . . . 28, 29 Savage & Assocs., P.C. v. K & L Gates LLP (In re Teligent, Inc.), 640 F.3d 53 (2d Cir. 2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885 (2011) . . . . . . . . . . 20

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Stichting Ter Behartiging Van de Belangen Van Oudaandeelhouders In Het Kapitaal Van Saybolt International B.V. v. Schreiber, 327 F.3d 173 (2d Cir. 2003) . . . . . . . . . . . . . . . . 36 United States ex rel. Antidiscrimination Ctr. of Metro New York v. Westchester County, No. 06 Civ. 2860 (DLC), 2009 WL 1108517 (S.D.N.Y. Apr. 24, 2009) .. . . . . . . . . . . . . . . . . . 51 United States ex rel. Compton v. Midwest Specialties, Inc., 142 F.3d 296 (D.C. Cir. 1998) .. . . . . . . . . . . . . . . . . . . . . . . . . 46 United States ex rel. Feldman v. Van Gorp, No. 03 Civ. 8135 (WHP), 2010 WL 1948592 (S.D.N.Y. May 3, 2010) . . . . . . . . . . . . . . . . . . . 51 United States ex rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94 (2d Cir. 2010).. . . . . . . . . . . . . . . . . . 20, 24, 30, 33 United States ex rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148 (2d Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . 31, 45 United States ex rel. Longhi v. Lithium Power Techs., Inc., 575 F.3d 458 (5th Cir. 2009) . . passim United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943) . . . . . . . . . . . . . . . . . . . . . . 46 United States ex rel. Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 United States v. Canova, 412 F.3d 331 (2d Cir. 2005) . . . . . . . . . . . . . . . . . . . . . 50, 51, 54

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United States v. Ekelman & Associates, Inc., 532 F.2d 545 (6th Cir. 1976) . . . . . . . . . . . . 43, 44 United States v. Karron, 348 F. Appx 632 (2d Cir. 2009).. . . . . . . . . . . . . . . . . . . . . 19, 22, 38 United States v. Mackby, 339 F.3d 1013 (9th Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . 46, 55 United States v. Podell, 572 F.2d 31 (2d Cir. 1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 United States v. Rogan, 517 F.3d 449 (7th Cir. 2008) . . . . . . . . . . . . . . . . . . . . 50, 53, 55 United States v. Science Applications Intl Corp., 626 F.3d 1257 (D.C. Cir. 2010) . . . . . . . . . . . . . 47 United States v. TDC Mgmt. Corp., 288 F.3d 421 (D.C. Cir. 2002). . . . . . 49, 50, 53, 55 United States v. Woodbury, 359 F.2d 370 (9th Cir. 1966) . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Statutes: 15 U.S.C. 278n . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 18 U.S.C. 666 . . . . . . . . . . . . . . . . . . . . . . . . . passim 28 U.S.C. 1291 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 31 U.S.C. 3729(a) . . . . . . . . . . . . . . . . . . . . . . 46, 47 31 U.S.C. 3729(a)(1) (2000) . . . . . . . . . . . . . . passim 31 U.S.C. 3729(a)(1)(B) .. . . . . . . . . . . . . . . . . passim 31 U.S.C. 3729(b). . . . . . . . . . . . . . . . . . . . . . . . . . 30

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31 U.S.C. 3729(b) (2000). . . . . . . . . . . . . . . . . . . . 30 31 U.S.C. 3730(a) . . . . . . . . . . . . . . . . . . . . . . . . . 34 31 U.S.C. 3731(e) . . . . . . . . . . . . . . . . . . . . . . passim 31 U.S.C. 3732 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science Act, Pub. L. No. 110-69, Title III, 3012(a), (b), 121 Stat. 593 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, 123 Stat. 1617.. . . . . . . . . . 20 Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, 5131, 102 Stat. 1107 .. . . 5

Rules and Regulations: Fed R. Civ. P. 56(c) . . . . . . . . . . . . . . . . . . . . . . 28, 29 15 C.F.R. 295.1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 6 15 C.F.R. 295.1(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7 15 C.F.R. 295.3(b) . . . . . . . . . . . . . . . . . . . . . . . . . 55 15 C.F.R. 295.8 . . . . . . . . . . . . . . . . . . . . . . . . . 6, 53 15 C.F.R. 295.32(c) . . . . . . . . . . . . . . . . . . . . . . . . 56 55 Fed. Reg. 30140 (Jul. 24, 1990) . . . . . . . . . 5, 6, 53 United States Sentencing Guidelines Manual 2B1.1(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

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United States Court of Appeals

FOR THE SECOND CIRCUIT Docket No. 11-1924

UNITED STATES OF AMERICA , Plaintiff-Appellee, v. DANIEL B. KARRON , Defendant-Appellant.

BRIEF FOR PLAINTIFF-APPELLEE Preliminary Statement Defendant-appellant D.B. (formerly Daniel) Karron (Karron) appeals from a judgment of the United States District Court for the Southern District of New York (Naomi Reice Buchwald, J.) entered on April 13, 2011. (Special Appendix (SPA) 30).* That judgment was entered in accordance with a Memorandum and Order dated March 23, 2011, granting the

* As Karron did not file a joint appendix or special appendix with her opening brief, plaintiff-appellee the United States of America (the Government) is filing herewith a motion for leave to file these appendices.

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2 Governments motion for summary judgment. (SPA 1 (reported at 750 F. Supp. 2d 480 (S.D.N.Y. 2011)). The Government brought this action under the False Claims Act, 31 U.S.C. 3729 et seq. (the FCA), to recover damages and penalties relating to Karrons misuse of funds received pursuant to a cooperative agreement with the Advanced Technology Program (ATP) of the United States Department of Commerce (Commerce). The ATP, now known as the Technology Innovation Program, was designed to spur innovation by identifying and funding technology research projects that are considered high risk but may yield high rewards. The cooperative agreement provided Karron $2,000,000 for a three-year research project regarding the application of mathematics to medical uses. The research project was to be conducted by Karron and administered through Computer Aided Surgery, Inc. (CASI), a New York limited liability corporation of which Karron was the President, Chief Technical Officer and ninety-percent shareholder. Karron, however, spent a substantial portion of the funds on items that had nothing to do with, and were not authorized under, the cooperative agreement, including personal expenses. Meanwhile, Karron submitted financial reports to the ATP falsely certifying that all funds were properly spent. From October 1, 2001, until June 27, 2003, when Commerce officials shut down the project, Karron drew down $1,345,500 in ATP funds. For this conduct, Karron was convicted in 2008 of misapplying CASI funds in violation of 18 U.S.C. 666, after an eight-day jury trial. Karron received a fifteen-month custodial sentence and was ordered to pay $120,000 in restitution. Following Karrons

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3 criminal conviction, the Government filed this FCA action in November 2008 to recover civil damages in the amount of three times the nearly $1.35 million that Karron drew down from the ATP (less the amount of restitution paid) plus penalties for twenty false certifications made by Karron in order to obtain these funds. The district court granted the Governments motion for summary judgment in part, holding that Karron was liable under the FCA for civil damages of $4,036,500 (i.e., three times the total amount drawn down), less the amount of restitution paid, plus a civil penalty of $5,500 for one certification determined to be false. The district courts judgment should be affirmed. As the district court correctly concluded, by virtue of her criminal conviction, Karron is estopped from contesting her civil liability under both the FCAs estoppel provision, 31 U.S.C. 3731(e), and the common law doctrine of collateral estoppel as a result of her criminal conviction. In convicting Karron of misapplying CASI funds in violation of 666, the jury necessarily found that Karron knowingly used CASI funds in a manner not permitted under the cooperative agreement and thus necessarily determined that Karrons certifications of compliance with the cooperative agreement were knowingly false. Because the criminal case and this case both concern Karrons use of funds under the ATP cooperative agreement, and thus the same transaction under Section 3731(e), the jurys determination that Karron knowingly misused CASI funds is sufficient to establish that Karron knowingly submitted false claims to the Government in violation of the FCA. Similarly, that issue was raised, litigated and necessarily decided during the criminal case, and Karron had a full and fair

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4 opportunity to litigate the issue. Thus, the common law doctrine of collateral estoppel also bars Karron from contesting her liability under the FCA. Even apart from estoppel, Karrons FCA liability is established by the evidence presented at the criminal trial, and not materially controverted by Karron in this civil action, showing that just after receiving the first draw-down of $150,000 in early October 2001, Karron used $75,000 to pay personal debts. Thus, at a minimum, Karrons November 2001 certification that the first $150,000 draw-down was made for the purpose and conditions of the grant or agreement was indisputably false. Liability having been established, the district court properly awarded the Government treble damages based on the full amount drawn down by Karron. Where, as here, government funding is designed to benefit the public (here, by encouraging scientific advances), and produces no tangible, ascertainable benefit to the government, single damages under the FCA are properly measured by the full amount of the government funding. Statement of Jurisdiction The district court had jurisdiction over the Governments action pursuant to 31 U.S.C. 3732. On April 19, 2011, Karron filed a timely notice of appeal (Appendix for Plaintiff-Appellee (A) 507) of the final judgment of the district court, entered on April 13, 2011 (SPA 30). Accordingly, this Court has jurisdiction under 28 U.S.C. 1291.

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5 Issues Presented for Review 1.Whether the district court correctly held that Karron was liable for civil damages and penalties under the FCA, both under principles of statutory and common law collateral estoppel and because the undisputed evidence establishes that Karron presented at least one false claim to the ATP to obtain payment under the cooperative agreement. 2. Whether the district court correctly calculated its damages award by trebling the full amount that Karron drew down from the ATP. Statement of the Case The Government brought this action under the FCA and common law to obtain damages and penalties based on Karrons multiple false statements by which Karron obtained ATP funds. (A 9-10). On June 18, 2010, the Government moved for summary judgment on its FCA claims pursuant to Rule 56(c) of the Federal Rules of Civil Procedure. In a Memorandum and Order filed March 23, 2011, the district court granted the Governments motion. (SPA 1). Judgment was entered on April 13, 2011. (SPA 30). This appeal followed. Statement of Facts A. The Advanced Technology Project The ATP was authorized by Section 5131 of the Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, 102 Stat. 1107, and implemented in 1990. See 15 U.S.C. 278n (note); 55 Fed. Reg. 30140

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6 (July 24, 1990).* The ATP regulations explain that [t]he purpose of the [ATP] is to assist[ ] United States businesses to carry out research and development on high risk, high pay-off, emerging and enabling technologies. 15 C.F.R. 295.1(a). The technologies supported by ATP funding are: (1)High risk, because the technical challenges make success uncertain; (2)High pay-off, because when applied they offer significant benefits to the U.S. economy; and (3)Emerging and enabling, because they offer [a] wide breadth of potential application and form an important technical basis for future commercial applications. Id. Intellectual property rights arising from research generally vest in the recipient of the funding. See 15 C.F.R. 295.8; 55 Fed. Reg. at 30143 (ATP funding recipients will normally be granted the right to take ownership to these inventions.).**

* The ATP program was replaced by the Technology Innovation Program in 2007. See America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science Act, Pub. L. No. 110-69, Title III, 3012(a) (repealing former Section 278n), (b) (enacting current Section 278n (the America COMPETES Act)), 121 Stat. 593. ** The ATP regulations also contemplate that the program will employ[ ] cooperative agreements rather

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7 B. Karron Obtains ATP Funds Pursuant to a Cooperative Agreement Karron holds a Ph.D. from New York University. (A 132). On or about July 6, 2001, and August 6, 2001, Karron submitted a two-part proposal to the ATP on behalf of Computer Aided Surgery, Inc., entitled Anatomic Computer Modeling for Precise and Accurate Therapies (together, the Proposal). (A 90, 118, 355). Karron signed the Proposal as CASIs Authorized Company Representative. (A 91, 119, 355). According to the Proposal, CASI would develop a new computer application server that will take calibrated, encrypted raw images from a client[s] medical imaging instrumentation (MRI, CT, Ultrasound, etc.), over the Internet. Our system will rapidly generate encrypted, precise, accurate, and variable resolution three dimensional tiled models applicable for diverse applications [such] as radiation therapy, surgical planning, intraoperative guidance, rapid manufacturing of prosthesis, verification of surgical results, robotic than grants because such agreements allow ATP to exercise appropriate management oversight of projects and also to link ATP-funded projects to ongoing R & D at the National Institute of Standards and Technology [(NIST)] wherever such linkage would increase the likelihood of success of the project. 15 C.F.R. 295.1(b).

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8 surgery trajectory planning, patient communication, education and other customer specific applications[.] The novel idea[ ] that enables this technological leap forward is Digital Morse Theory (DMT). (A 355; see also A 118). The Proposal included an estimated three-year budget that, as later revised, projected CASIs costs at $2,110,500, with $2,000,000 of that expected to come from the ATP ($800,000 in year one, and $600,000 in each of years two and three). (A 356; see also A 139). The remaining $110,500 was to come from Karron (the cost share). (A 74, 139). The Proposal specified that CASI would subcontract with the City University of New Yorks Institute for Software Design and Development (CUNY) to draw upon the expected unique contribution of the faculty, visiting scientists, and PhD graduate students. (A 9293, 356). The total amount of the subcontract with CUNY was to be $420,000, including $200,000 in the first year. (A 92-93, 356). The Proposal listed fourteen team members, naming Professors George Wolberg and James L. Cox as Core Members along with Karron. (A 92-93, 356). The Proposal also noted the potential for the project to yield widespread economic and social benefits, including through the creation of new markets, improvement of medical treatments, and reduction of medical costs, employee sick leave, medical malpractice litigation and insurance costs. (A 94-95, 113-14, 356). In October 2001, the ATP notified Karron that the Proposal had been approved. (A 135, 356). Karron then signed the cooperative agreement, agreeing that Karron

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9 would comply with certain regulations* as well as other standard provisions and special conditions. (A 136, 357). The regulations required Karron to file three types of financial reports in order to draw down ATP funds and to certify the accuracy of those reports. (A 3234 (discussing requirements imposed by 15 C.F.R. Part 14)).** While the cooperative agreement permitted some flexibility in administering the funds, it required advance approval by the ATP Grants Officer of the transfer of funds among direct cost categories in the * These included 15 C.F.R. Part 14 (Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, Other Non-Profit, and Commercial Organizations) and 48 C.F.R. Part 31 (Contract Cost Principles and Procedures). ** These forms required Karron to certify as follows: I certify that to the best of my knowledge and belief the data on the reverse are correct and that all outlays were made in accordance with the grant conditions or other agreement and that payment is due and has not been previously requested.(A 33, 40-57 (Form SF-270)); I certify to the best of my knowledge and belief that this report is true in all respects and that all disbursements have been made for the purpose and conditions of the grant or agreement.(A34, 58-64 (Form SF-272)); and I certify to the best of my knowledge and belief that this report is correct and complete and that outlays and unliquidated obligations are for the purposes set forth in the award documents. (A34, 65-68 (Form SF-269)).

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10 approved budget if the transfer exceeds 10% of the approved total annual budget. (A 75 (emphasis in original)). The cooperative agreement also incorporated certain standard terms and conditions (A 136), including the following limitation on the amount of disbursements: Advances . . . shall be limited to the minimum amounts necessary to meet immediate disb ursem ent needs. Advanced funds not disbursed in a timely manner must be promptly returned . . . . Advances shall be for periods not to exceed 30 days. (A 180). In addition, the cooperative agreement anticipated that the Government would be substantial[ly] involve[d] in the project, including by reserving the right to concur in sole source procurements in excess of $100,000 and to [a]pprov[e] . . . key personnel specified in the proposal. (A 73). The cooperative agreement also recognized that Karron would retain certain intellectual property rights arising from the project. (A 79). C. Karron Misuses the ATP Funds From the Start of the Project and Falsely Certifies Compliance with the Terms and Conditions of the Cooperative Agreement

Karron applied for and received an initial drawdown of $150,000 from the ATP in early October 2001. (A 240, 358). Karron immediately diverted $75,000 of this amount to pay personal expenses, including debts to family members and her credit card bills. (A 241-42, 358). Over the first year of the project, Karron also paid

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11 herself $60,000 in rent, including for periods that predated the project. (A 233, 275, 285, 286, 359).* Karrons justification for paying herself rent was that she had cancelled the contract with CUNY and instead used her apartment as a research facility staffed by unpaid students, despite the ATPs instruction that this arrangement was not proper. (A 237-40, 323, 359). During the projects first year, Karron improperly spent ATP funds on utility bills (A 233, 275, 359), meals (A 233, 359) and cleaning expenses (A 233, 359). She also spent more than $40,000 on other categories of unauthorized expenses (A 233, 359), including, according to testimony at the criminal trial, purchases of a blender, a GPS navigation system, a digital camera, a drill set and a dustbuster. (SPA 6-7). Karron directed her project manager, Elisha Gurfein, to create financial reports that were false insofar as they did not reflect actual expenditures, but only the amounts of funds received, and Karron signed these reports for submission to the ATP. (A 246-47, 358). Karron submitted at least twenty such reports to the ATP to enable CASI to obtain the first years ATP funds. These reports were submitted on one of three types of forms, each certifying CASIs compliance with the terms of the cooperative agreement: the Request for Advance or Reimbursement (SF-270), the Federal Cash Transactions Report (SF-272) and the Financial Status

* A Commerce audit found that the improper rent charges included $18,000 from Karrons first drawdown of funds from the ATP. (A 180).

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12 Report (SF-269 or SF-269A). (A 40-68, 357).* These forms required Karron to enter the amounts of project funds spent (ATP funds as well as cost-share funds) and thus Karrons certifications of compliance applied to all uses of CASI funds, regardless of the source of the funds. (A 40-68). D. The Award Is Suspended During the Projects Second Year On June 27, 2003, the ATP suspended Karrons award after a limited scope audit confirmed that Karron had failed to comply with the cost-share requirement and had drawn down more than $200,000 above the amount authorized under the cooperative agreement. (A 144-48, 171, 358). By that date, Karron had drawn down the entire $800,000 available from the ATP during the first year, and $545,500 of the $600,000 available during the second year, for a total ATP disbursement of $1,345,500. (A 171, 358). Shortly thereafter, on August 13, 2003, Karron submitted revised Financial Status Reports admitting that the actual amount of CASIs cost-share payments was zero. (Compare A 149 ($12,320 cost share), 151 ($17,796.22 total cost share to date), 153 ($26,523.06 total cost share to date), 155 ($29,500 total cost share to date) with A 150 ($0 cost share), 152 ($0 cost share), 154 ($0 cost share), 156 ($0 cost share); see also A 157-59 ($0 * On July 24, 2002, the ATP notified Karron that funds could be drawn down through an automated payment system known as ASAP, and thus Karron no longer needed to file the Request for Advance or Reimbursement or Federal Cash Transaction Report forms. (A 37).

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13 cost share)).* An audit report dated August 25, 2004, concluded, inter alia, that Karron had made $547,426 in expenditures that were either unallowable, unallocable or [in excess of] budget limitations established in the ATP award. (A 169, 358-59). E. The Criminal Proceeding 1. The Government Charges Karron with Misapplying CASI Funds In June 2007, Karron was arrested for allegedly violating 18 U.S.C. 666 by knowingly misapplying more than $5,000 of funds under the care, custody and control of CASI, which received more than $10,000 in federal funds during a one-year period from the ATP. See United States v. Karron, 07 Cr. 541 (RPP), unnumbered docket items dated June 20, 2007, docket item no. 1 1. A Second Superseding Indictment restated the Section 666 charge, see id., docket item no. 44 1, and also included a forfeiture allegation seeking forfeiture of all real and personal property derived from proceeds traceable to the alleged Section 666 violation, including some $390,000 in cash and Karrons interest in an apartment on East 33rd Street in Manhattan, see id. 2.

* Karron submitted at least two further, and contradictory, revisions of the cost-share information in her opposition to the Governments summary judgment motion. (Compare A 397 (reflecting a total Recipient share of outlays for year one of $29,493) with A 408-15 (reflecting a total Recipient share of outlays for year one of $78,204)).

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14 2. At Trial, the Government Presents Evidence That Karron Knowingly Misapplied CASI Funds The Section 666 charge against Karron was tried to a jury over eight days in June 2008. At trial, the Government established the nature and extent of Karrons misapplication of funds through the testimony of Commerce personnel and former CASI employees, as well as extensive documentary evidence. This evidence included the following: Karron used $75,000 of the initial disbursement of ATP funds to pay for her personal debts. Karron took this action despite warnings from her business manager that such use was unauthorized. (A 241-43, 358; SPA 6 (citing Trial Tr. 1271:23-1272:8)). Karron and her business manager originally had to co-sign all expenditures over $250. However, within one week of receiving ATP funds, Karron stripped her business manager of signing authority and vested herself with sole signing authority. (A 142, 243-45; SPA 6 (citing Trial Tr. 1271:9-24)). Karron unilaterally, and without authorization from the ATP, decided not to enter into the contract with CUNY. Instead, Karron set up CASIs business location in her own apartment and then spent approximately $60,000 of ATP funds on rent. Again, Karron took this action despite receiving warnings that such use was unauthorized. (A 237-38, 359;

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15 SPA 6 (citing Trial Tr. 1266:23-1267:23, 1272:9-1273:13, 1318:8-1319:16)). During the projects first year, Karron spent approximately $18,000 of ATP funds on utility bills and approximately $2,000 of ATP funds on meals. Again, Karron made such expenditures despite warnings that these were not authorized uses. (A 233; SPA 6-7 (citing Trial Tr. 1267:25-1269:9, 1320:14-18)). Karron used more than $5,000 of ATP funds to compensate her cleaning lady. Karron also spent more than $40,000 of ATP funds on other categories of unauthorized expenses. The items that Karron purchased with federal funds included a blender, a GPS navigation system, a digital camera, a drill set and a dust buster. (A 233, 359; SPA 7 (citing Trial Tr. 1273:13-21, 1320:19-1321:25)). According to the testimony of Karrons business manager, Karron directed him to create false financial reports that did not reflect actual expenditures. Karron signed these reports and submitted them to ATP. (A 247-50, 358; SPA 7). A 2004 audit concluded that Karron had misspent $547,426 of the $1,345,500 drawn down from the ATP. (A 169, 358-59).

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16 3. The Jury Convicts Karron of Misapplying Funds in Violation of 18 U.S.C. 666 At the conclusion of the trial, the jury was instructed to determine whether the evidence showed, beyond a reasonable doubt: First, at the time alleged in the indictment, the defendant was an agent of Computer Aided Surgery, Inc., or CASI; Second, in a one-year period, CASI received a federal grant in excess of $10,000; Third, during that one-year period, the defendant without authority intentionally misapplied the grant money; Fourth, the misapplied grant money was under the care, custody, or control of[ ] CASI; and Fifth, the value of the money intentionally misapplied by defendant was at least $5,000. (A 252). With respect to the third element, the court instructed the jury to decide whether the Government had established, beyond a reasonable doubt, that Karron use[d] money under the control of CASI know i ng t ha t such use [was] unauthorized or unjustifiable or wrongful. Intentional misapplication

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17 includes the wrongful use of the money for a purpose the defendant knew was unauthorized, even if such use benefited CASI in some way. In this case, to intentionally misapply money means to intentionally apply the grant money received by CASI in a manner which the defendant knew was unauthorized under the terms and conditions of the grant. Misapplication of money, however, does not apply to bona fide salary, wages, fringe benefits, or other compensation paid, or expenses paid or reimbursed, in the usual course of business. (A 253-54). On June 11, 2008, the jury returned a guilty verdict against Karron on the Section 666 charge. (A 354). 4. The District Court Concludes That Karron Incurred More Than $120,000 in Inappropriate Expenses Following Karrons conviction, Karron received a 15-month custodial sentence (half of which was to be served in a federal facility and half in home confinement) and was ordered to pay $120,000 in restitution. (A 355). At sentencing, the district court found that more than $120,000 was lost through inappropriate expenses. (A 344; see also A 345 (It is

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18 true that the loss is at least $120,000 . . . .).* The district court also expressed concern about whether it should base its determination of the proper offense level under U.S.S.G. 2B1.1(b)(1) on the loss amount or on the amount gained by Karron. (A 299-300). The district court noted that [i]n a sense, the whole thing, the whole agreement was a loss to the [G]overnment. (A 300). Karrons counsel countered by arguing that the [G]overnment g[ot] their moneys worth because certain milestones purportedly were met, and the whole concept was that if something was developed, Dr. Karron and CASI would keep all the profits for themselves. (A 307). Karrons counsel also observed that [s]ociety would benefit from the success of the project, not the Government, and that the Government had no vested interest financially in the product of [Karrons] research. (A321). Thus, according to Karrons counsel, the loss from Karrons failure to complete the project was Karrons, not the Governments. The district court ultimately arrived at the $120,000 restitution amount by totaling the categories of Karrons expenditures during the first year of the project that did not appear on the approved budget, an alternative calculation proposed by the Government:

* Under the applicable sentencing guidelines, a loss of $120,000 corresponds to a level increase of 10, with the next increase beginning at a loss of $200,000. See U.S. Sentencing Guidelines Manual 2B1.1(b)(1)(F), (G) (2001).

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19 [Government Counsel]: . . . . [A]t the very least, if you look simply at the nonbudgeted categories, things that were not approved by NIST at all, which are those things that I mentioned beforerent, utilities, capital improvement[s], cleaning, meals, and otherthen we have a loss amount that is at a minimum just two levels less than whats in the PSR. (A 280; see also A 312-13 (THE COURT: I am going to make the findings on the basis that [Government Counsel] suggested.)). In the first year of the cooperative agreement, these non-budgeted categories included the $60,000 in rent paid to Karron (which Karrons counsel agreed was clearly improper (A 285)), as well as $9,832 in fringe benefits, $11,248 in capital improvements to Karrons apartment, $5,019 in cleaning expenses, and $43,592 in other unauthorized expense categories. (A 359; see also A 233). 5. This Court Affirms Karrons Conviction Karron appealed her conviction, asserting that (I) the jury was erroneously instructed to determine whether Karron intentionally misapplied funds, and instead should have been instructed that an intent to defraud is an element of misapplication of funds, and (ii) Section 666 is void for vagueness. See United States v. Karron, 348 F. Appx 632, 633 (2d Cir. 2009). This Court rejected these arguments and affirmed Karrons conviction by summary order dated October 7, 2009. See id.

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20 F. The Civil Action

On November 24, 2008, the United States brought this action pursuant to the FCAs former 3729(a)(1) and (2), and also asserted common law claims not at issue in this appeal. (A 9). After the complaint was filed in this action, Congress enacted the Fraud Enforcement and Recovery Act of 2009 (FERA), Pub. L. No. 111-21, 123 Stat. 1617 (May 20, 2009), which amended and renumbered the subsections of former 3729(a) and provided for retroactive application of current 3729(a)(1)(B) to claims brought under former 3729(a)(2).* Former 3729(a)(1) subjects an individual to civil liability if he or she knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the

* See Pub. L. No. 111-21, 4(f), 123 Stat. 1617, 1625 (FERAs amendments apply to conduct on or after the date of enactment, except that amendments to 3729(a)(2) and to another section of the FCA not relevant here take effect as if enacted on June 7, 2008, and apply to all claims under the [FCA] pending on or after [June 7, 2008]); see also United States ex rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94, 113 (2d Cir. 2010) (applying former 3729(a)(1) and current 3729(a)(1)(B) in case filed before, and still pending on, June 7, 2008), revd on other grounds sub nom. Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885 (2011).

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21 United States a false or fraudulent claim for payment or approval. 31 U.S.C. 3729(a)(1) (2000). Current 3729(a)(1)(B) subjects a person to civil liability if he or she knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim. 31 U.S.C. 3729(a)(1)(B). The complaint alleged that Karron submitted false or fraudulent claims to the Government, to obtain payment in connection with cooperative agreements under the ATP to CASI, a limited liability corporation of which Karron was the President and Chief Technical Officer, as well as a 90% shareholder. (A 910). The complaint further alleged that, despite being warned repeatedly, Karron willfully violated the terms of the [cooperative agreement], misapplying nearly half a million dollars towards unauthorized expenses and then lying about it, in violation of 18 U.S.C. 666. (A 14). Based on these allegations, the complaint sought recovery of treble damages and statutory penalties under the FCA, as well as remedies at common law. (A 18-22). By Order dated March 16, 2009, the district court denied Karrons request to stay this action pending an appeal of her criminal conviction. (A 24 (the March 16 Order)). On April 17, 2009, Karron appealed from the March 16 Order. (A 2, 26). On May 15, 2009, the district court denied Karrons requests to certify the March 16 Order for interlocutory appeal and to proceed in forma pauperis, noting that the Government already had proved Karrons guilt in the criminal proceeding and thus had exceeded the standard of proof in the civil case. (A 26-27). The district court also advised that it

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22 was prepared to adjourn briefing on the Governments proposed summary judgment motion pending Karrons release from custody. (A 27). On August 28, 2009, this Court dismissed Karrons appeal from the March 16 Order for lack of appellate jurisdiction. (A 29). On June 18, 2010, Karrons conviction having been affirmed, 348 F. Appx 632, and Karrons custodial sentence having been satisfied, the Government moved for summary judgment. In its motion, the Government asserted that Karron was estopped from denying liability under both the FCAs estoppel provision, 31 U.S.C. 3731(e), and the common law doctrine of collateral estoppel. The Government also set forth admissible evidence from the criminal trial and provided a declaration from the ATP attaching twenty of the forms certified by Karron that the Government asserted to be false. (A 31). The Government sought statutory penalties with respect to each of these false certifications. It also argued that Karron was liable for treble damages pursuant to 31 U.S.C. 3729(a)(1) in the amount of three times the $1,345,500 drawn down in ATP funds, based on Karrons non-compliance with the terms and conditions of the cooperative agreement. The Government contended that no reduction in the damages amount was appropriate because Karron had provided the Government with no ascertainable, tangible benefit. G. The District Courts Decision After hearing oral argument (A 478-506), and reviewing the trial transcript and jury charge in the criminal case (SPA 16), the district court granted the Governments motion in part in a Memorandum and

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23 Order dated March 23, 2011 (SPA 1). Noting that Karron had failed specifically or meaningfully to controvert the facts asserted in the Governments Local Rule 56.1 Statement, the district court first set forth the background, purpose and terms of the cooperative agreement, including the requirement that Karron certify and file certain financial reports. (SPA 1-5). It then summarized some of the extensive evidence presented at the criminal trial showing that Karron had misused CASI funds while falsely certifying compliance with the terms and conditions of the cooperative agreement. (SPA 6-7). The district court examined the jury charge, and noted that Karron had been convicted and sentenced and that the conviction was final. (SPA 7-9). The district court held that Karrons criminal conviction precluded her from denying liability under both the FCAs estoppel provision, 31 U.S.C. 3731(e), and common law collateral estoppel. (SPA 15). It reasoned that Section 3731(e) applied because the criminal conviction and this action plainly stem from the same conduct, and thus Section 3731(e)s same transaction requirement was satisfied. (SPA 15 & n.6); see 31 U.S.C. 3731(e) (providing for estoppel in any action which involves the same transaction as in the criminal proceeding and which is brought under subsection (a) or (b) of section 3730). The district court explained that three of the elements of former 3729(a)(1) were indisputably satisfied by the uncontested evidence showing that (I) Karron made multiple claims (ii) to the Government (iii) seeking payment from the federal treasury. (SPA 16); see 31 U.S.C. 3729(a)(1) (2000) (establishing civil

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24 liability for knowingly present[ing], or caus[ing] to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval); Kirk, 601 F.3d at 113. The district court concluded that the remaining elements of the Governments claim under former 3729(a)(1) were satisfied because the falsity of Karrons certifications and her knowledge that they were false were effectively determined by the jury in the criminal case. (SPA 16). The district court also noted that Karron does not dispute that her statements to the Government were false. (SPA 17). With respect to the Governments claim under 3729(a)(1)(B), the district court similarly held that falsity and knowledge were established by the criminal conviction, and that the materiality of the false statements was established by the uncontested evidence that the cooperative agreement was suspended shortly after an audit revealed Karrons noncompliance. (SPA 18). If Karron had been transparent regarding how she was really spending the funds, the district court reasoned, the ATP would have cut off further funding at that time. (SPA 18). The district court also concluded that common law principles of collateral estoppel applied to both FCA claims because the same issuesKarrons misuse of ATP funds and the falsity of her submissions to the ATPwere present in both cases and had been litigated and actually decided by the jury in the criminal case, resulting in Karrons conviction, and Karron had a full and fair opportunity to litigate them (including with the assistance of counsel). (SPA 18-19).

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25 The district court also held that the jury verdict in the criminal case disposed of several arguments raised by Karron, including her claims that the certifications were innocently erroneous, that the expenditures were proper because they were all made from Karrons bona fide salary, and that Karron allegedly could now show that she properly used and accounted for every dollar of ATP funds. (SPA 19-21).* The district court also rejected Karrons arguments that intent to defraud was not proved in the criminal case (because no such intent is required under the FCA), and that ATPs removal of the requirement of filing certain certified forms rendered the falsity of Karrons prior certifications moot. (SPA 20-21). The district court next held that the proper treble damages amount was $4,036,500 (i.e., three times the total amount drawn down, $1,345,500). Finding no Second Circuit precedent directly on point, the district court looked to decisions from the Fifth, Seventh, Ninth and D.C. Circuits that calculated damages based on the full amount of government funding received where the government had not received goods or services with an ascertainable value. (SPA 22-25). The district court concluded that this principle was applicable here because Karrons uncompleted and non-conforming project had not yielded any tangible, ascertainable

* As to this latter point, Karron proffered a declaration of approximately 900 pages (including exhibits) from Deborah A. Dunlevy (A 434), purporting to account for [e]very penny spent on the project (A 441). Dunlevy was not involved with the project while it was ongoing. (A 435-36).

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26 benefit to the Government, and because the cooperative agreement gave Karron the rights to any intellectual property developed under the project. (SPA 25). Finally, the district court held that the Government was entitled to a statutory penalty with respect to one false certification, specifically, the SF-272 (Federal Cash Transactions Report) for November 2001, which was certified by Karron on December 19, 2001. (SPA 26-28). The district court noted that Karrons uncontroverted use of $75,000 of the November 2001 draw-down for unauthorized personal expenses rendered that certification false. (SPA 27 & n.13). The district court concluded that although the Government had proved that Karron made false statements as a general matter and unquestionably [made] at least one false statement, the Government had not yet established that the remaining nineteen certifications were indisputably false. (SPA 27-28). Thus, the district court denied summary judgment with respect to penalties for the remaining nineteen certifications, and directed the Government to notify the court regarding whether the Government would continue to pursue these penalties. (SPA 28).* The Government subsequently advised the district court that it would not seek further penalties in light of the district courts decision. The district court then entered final judgment. (SPA 30). * The district court also noted that the Government at oral argument had agreed to withdraw its common law claims in the event that the district court concluded that Karron was liable under the FCA. (SPA 28; see also A 479).

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27 Summary of Argument The district courts judgment should be affirmed. The jury in Karrons criminal case determined, beyond a reasonable doubt, the key elements of the FCA claims asserted here, namely, that Karron knowingly submitted at least one false certification to the Government. The remaining elements of the FCA claims are not in genuine dispute, based on the uncontroverted evidence from the criminal trial. Karron is therefore estopped from challenging her liability under the FCA. See Points I.A-B, infra. Even if estoppel did not apply, the uncontroverted evidence shows that at a minimum, Karrons certification of the Federal Cash Transactions Report for the month of November 2001 was false, because Karron used $75,000 from that first draw-down to pay for her own personal debts. Karrons argument that the funds were a permissible salary advance does not raise a genuine issue of fact, because the terms and conditions of the cooperative agreement plainly prohibit such salary advances. See Point I.C, infra. The district court therefore properly found Karron liable under the FCA. The district court also properly awarded the Government treble damages in the amount of three times Karrons total draw-down, even though some of her expenditures may have been authorized. This is because Karron received ATP funding on the premise that she would administer her research project according to the terms and conditions of the cooperative agreement, and the funding was designed to benefit the public, and did not produce an ascertainable, tangible benefit to the Government. Thus, unlike in cases involving a standard procurement contract, where the

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28 treble damages calculation may take into account the partial value of non-conforming goods or services received and retained by the Government, the drawdowns in this case are considered to be a total loss. See Point II, infra. ARGUMENT STANDARDS OF REVIEW This Court reviews de novo the district courts grant of summary judgment to determine whether, construing the evidence in the light most favorable to the non-moving party, there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Rojas v. Roman Catholic Diocese of Rochester, 660 F.3d 98, 104 (2d Cir. 2011) (internal quotation marks omitted); Fed R. Civ. P. 56(c). A fact is material for these purposes when it might affect the outcome of the suit under the governing law. An issue is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. The mere existence of a scintilla of evidence in support of the [non-movants] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-movant]. In weighing the evidence on a motion for summary judgment, the judge must ask not whether the evidence unmistakably favors one side or the other but whether a fair-minded jury

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29 could return a verdict for the [nonmovant] on the evidence presented. Rojas, 660 F.3d at 104 (citations, internal quotation marks and alterations omitted). The burden of demonstrating that no material fact exists lies with the moving party. Id. Once the moving party discharges its burden of proof under Federal Rule 56(c), the party opposing summary judgment must set forth specific facts indicating a genuine issue for trial exists in order to avoid the granting of summary judgment. Cifarelli v. Village of Babylon, 93 F.3d 47, 51 (2d Cir. 1996); see also Duch v. Jakubek, 588 F.3d 757, 764 & n.2 (2d Cir. 2009) (same); Fed. R. Civ. P. 56(c). A district courts treble damages determination made on summary judgment is also subject to de novo review. See United States ex rel. Longhi v. Lithium Power Techs., Inc., 575 F.3d 458, 472 n.9 (5th Cir. 2009). POINT I THE DISTRICT COURT CORRECTLY HELD KARRON LIABLE FOR CIVIL DAMAGES AND PENALTIES UNDER THE FCA A. Legal Standards for Civil Liability Under the FCA Former 3729(a)(1) subjects an individual to liability if he or she knowingly presents, or causes to be presented, to an officer or employee of

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30 the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval. 31 U.S.C. 3729(a)(1) (2000). This provision thus requires the Government to demonstrate that the defendant (1) made a claim, (2) to the United States government, (3) that is false or fraudulent, (4) knowing of its falsity, and (5) seeking payment from the federal treasury. Kirk, 601 F.3d at 113 (quoting United States ex rel. Mikes v. Straus, 274 F.3d 687, 695 (2d Cir. 2001)). Section 3729(a)(1)(B) subjects a person to civil liability if he or she knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim. 31 U.S.C. 3729(a)(1)(B). The term material, in turn, is defined as having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property. Id. 3729(b)(4). Both the pre- and post-FERA versions of the FCA provide that the knowledge requirement can be satisfied in one of three alternative ways: where the person (I) has actual knowledge of the information, (ii) acts in deliberate ignorance of the truth or falsity of the information, or (iii) acts in reckless disregard of the truth or falsity of the information. 31 U.S.C. 3729(b)(1)(A)(i)-(iii); see also 31 U.S.C. 3729(b)(1)-(3) (2000) (same). [N]o proof of specific intent to defraud is required to establish liability under the FCA. 31 U.S.C. 3729(b)(1)(B); see also 31 U.S.C. 3729(b) (2000) (same). This Court has interpreted these standards to mean that [t]he requisite intent [for FCA

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31 liability] is the knowing presentation of what is known to be false. United States ex rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148, 1156 (2d Cir. 1993) (internal quotation marks omitted). Further, [t]hat the relevant government officials know of the falsity is not in itself a defense. Id. B. The District Court Correctly Held That Karron Is Estopped From Challenging Her Liability Under the FCA As a general matter, [a] criminal conviction, whether by jury verdict or guilty plea, constitutes estoppel in favor of the United States in a subsequent civil proceeding as to those matters determined by the judgment in the criminal case. New York v. Julius Nasso Concrete Corp., 202 F.3d 82, 86 (2d Cir. 2000). Criminal convictions may be given estoppel effect in FCA cases under both the statutory estoppel provision of the FCA, 31 U.S.C. 3731(e), as well as the common law collateral estoppel doctrine. The district court correctly determined that Karron was estopped from contesting her civil liability under both statutory and common law estoppel. In deciding whether and to what extent a conviction will be given estoppel effect, courts look to the indictment, the evidence, the charge, and [any] affirming opinion of the conviction to ascertain what the conviction necessarily determined. New York v. Hendrickson Bros., Inc., 840 F.2d 1065, 1082 (2d Cir. 1988) (affirming district courts determination that mail fraud convictions necessarily determined that defendants had engaged in bid rigging); see also United States v. Podell, 572 F.2d 31, 36 (2d Cir. 1978) (to

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32 determine the estoppel effect of a criminal judgment, the court in a subsequent civil case should determine precisely what was decided in the criminal case by examining the record of the criminal trial, including the pleadings, the evidence submitted, and any opinions of the court (citing Emich Motors Corp. v. Gen. Motors Corp., 340 U.S. 558, 569 (1951)). 1. Karron Is Estopped From Contesting FCA Liability Under Section 3731(e) The FCA provides that a criminal judgment shall have estoppel effect in an FCA suit involving the same transaction: Notwithstanding any other provision of law, the Federal Rules of Criminal Procedure, or the Federal Rules of Evidence, a final judgment rendered in favor of the United States in any criminal proceeding charging fraud or false statements, whether upon a verdict after trial or upon a plea of guilty or nolo contendere, shall estop the defendant from denying the essential elements of the offense in any action which involves the same transaction as in the criminal proceeding and which is brought under subsection (a) or (b) of section 3730. 31 U.S.C. 3731(e). The undisputed record shows that each requirement for the application of Section 3731(e) has been met here.

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33 First, Karrons criminal conviction is undisputably final. United States v. Karron, 348 F. Appx 632 (2d Cir. 2009). Second, although the criminal indictment did not explicitly charge fraud or false statements, the jurys determination that Karron misapplied funds in violation of Section 666 necessarily meant that Karrons statements certifying compliance in order to draw down ATP funds had to be knowingly false. (E.g., A 149-59, 246-47). As noted, under former 3729(a)(1), the Government must show that Karron presented a claim to the Government that was false or fraudulent, knowing of its falsity, and seeking payment from the federal treasury. See Kirk, 601 F.3d at 113. As the district court recognized (SPA 16), the only issues in dispute in this case are whether the claims made to the Government seeking payment were (i) false or fraudulent, and (ii) knowingly so. The jurys verdict in the criminal case necessarily resolved those issues because, to convict Karron under Section 666, the jury was required to find beyond a reasonable doubt that Karron use[d] money under the control of CASI knowing that such use [was] unauthorized or unjustifiable or wrongful. (A 253). The jury also had to find that Karron intentionally applied CASI money in a manner in which [Karron] knew was unauthorized under the terms and conditions of the [cooperative agreement]. (A 253). Having made these findings, the jury necessarily determined that Karrons certifications of compliance with the terms and conditions of the cooperative agreement were knowingly false. For the same reasons, Karron knowingly ma[de], use[d], or cause[d] to be made or used, a false record or

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34 statement material to a false or fraudulent claim, and thus her liability has been established under current 31 U.S.C. 3729(a)(1)(B). Karrons criminal conviction establishes that Karron knowingly made at least one false statement because Karron certified compliance with the terms and conditions of the cooperative agreement while knowing that project funds were being used in an unauthorized or unjustifiable or wrongful manner, and in a manner that Karron knew was unauthorized under the terms and conditions of the [cooperative agreement]. (A 253). This establishes all of the elements necessary for a false or fraudulent claim under current 3729(a)(1)(B), except for materiality. (SPA 17-18). And the district court correctly held that 3729(a)(1)(B)s materiality requirement was satisfied by the undisputed evidence that ATP suspended further funding immediately upon identifying Karrons misuse of funds through a preliminary audit. (SPA 18; see also A 144-48, 172). Had Karron not concealed her misuse of funds, the project would have been shut down earlier. Indeed, Karron does not challenge the materiality of her certifications on appeal. See, e.g., OHara v. Natl Union Fire Ins. Co., 642 F.3d 110, 118 n.1 (2d Cir. 2011) (argument not raised on appeal is waived). Third, the criminal case concerned the same transaction, i.e., Karrons draw-down of ATP funds under the cooperative agreement. Finally, the civil case was brought pursuant to 3730(a), which authorizes the Attorney General to bring a civil action under the FCA for violations of 3729. 31 U.S.C. 3730(a).

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35 Thus, Karron is estopped under Section 3731(e) from contesting the essential elements underlying her criminal conviction: (1) Karron was an agent of CASI; (2) in a one-year period, CASI received a federal grant in excess of $10,000; (3) Karron without authority intentionally misapplied the grant money; (4) the misapplied grant money was under the care, custody, or control of CASI; and (5) the value of the money that Karron intentionally misapplied was at least $5,000. (SPA 13-14; see also A 252-54 (jury charge)). Karron also is estopped from challenging the fact that her misapplication of funds was the product of [her] conscious objective to spend the money for an unauthorized purpose, rather than the product of a mistake or accident or some other innocent reason. (SPA 14 (quoting jury charge)). Karrons assertion that the district court erred in applying statutory estoppel because the underlying elements of her crime of conviction are different and distinct from the elements needed to prove a violation of the FCA, Br. 22, is mistaken. The statute does not require that the same elements be present in both the criminal and civil cases, see 31 U.S.C. 3731(e), and as explained above, the jurys determination that Karron misapplied CASI funds necessarily determined that her certifications of compliance with the cooperative agreement were false.

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36 To the extent that Karron argues, as she did in district court, that the draw-downs at issue here constitute different transactions than the improper expenditures underlying her criminal conviction, the district court correctly dismissed that argument. Both the criminal case and this case involve Karrons misuse of funds provided under the cooperative agreement between Karron and the ATP. That is the transaction at issue. As the district court correctly concluded, Karrons argument conflates the term transaction in 3731(e) with the definition of a claim in 3729(b)(2). (SPA 15 n.6; A 506). Congress notably did not limit estoppel in 3731(e) to claims, as defined in 3729(b)(2), but rather applied it more broadly to any action which involves the same transaction. 2. Karron Is Barred by Collateral Estoppel From Contesting Her FCA Liability Similarly, under the common law, a criminal conviction collaterally estops the defendant from seeking to prove a fact [in a civil action] that is contrary to any one of the elements of the crime for which that defendant was found guilty. Stichting Ter Behartiging Van de Belangen Van Oudaandeelhouders In Het Kapitaal Van Saybolt International B.V. v. Schreiber, 327 F.3d 173, 180 (2d Cir. 2003). Collateral estoppel applies where (1) the identical issue was raised in a prior proceeding; (2) the issue was actually litigated and decided; (3) the party had a full and fair opportunity to litigate the issue; and (4) the resolution of the issue was necessary to support a valid and final judgment on the merits. Savage & Assocs., P.C. v. K & L Gates LLP (In re Teligent, Inc.), 640 F.3d 53, 61 (2d Cir. 2011).

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37 Each requirement for the application of collateral estoppel is met here. First, as noted, the criminal case and this civil action raised identical issues: whether Karron used CASI funds in a manner that was not authorized under the cooperative agreement, and whether she did so knowingly. See supra at 33-34. Again, the fact that Karrons criminal charge did not require a false certification does not defeat the application of collateral estoppel. See, e.g., Falconer v. Meehan, 804 F.2d 72, 76 (7th Cir. 1986) (Collateral estoppel is proper . . . when facts giving rise to a later cause of action were adversely decided against the plaintiff in a prior action . . . .). Because the jury necessarily found that Karron used CASI funds in a manner that was unauthorized and did not comport with the cooperative agreement, her certifications of compliance with the cooperative agreement were necessarily false. Second, as demonstrated by the jury charge (A 25254), these issues were actually litigated and decided in the criminal action. As set forth supra at 14-15, the Government presented substantial testimony and documentary evidence at the criminal trial demonstrating the scope of Karrons misapplication of funds. Based on that evidence, the jury convicted Karron of violating Section 666, and thus established that Karron use[d] money under the control of CASI knowing that such use [was] unauthorized or unjustifiable or wrongful, and in a manner that Karron knew was unauthorized under the terms and conditions of the [cooperative agreement]. (A 253). Third, Karron had a full and fair opportunity to litigate these facts at her criminal trial. Defense

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38 counsel strenuously cross-examined the Governments witnesses. (A 251 (noting counsels lengthy lengthy cross-examination)). And Karron appealed her conviction to this Court. United States v. Karron, 348 F. Appx 632 (2d Cir. 2009). Fourth, in light of the jury instructions in the criminal case, it is plain that the jury actually decided the issues essential to Karrons civil liability in order to convict her on the Section 666 charge. The jury decided that Karron knowingly applied funds in a manner not permitted by the cooperative agreement (A 252-54), and thus her certifications that she had properly used the funds were necessarily false (A 40-68 (certifying that information on reports was correct, true in all respects or correct and complete, and that payments were made in accordance with, for the purpose and conditions of or for the purposes set forth in the cooperative agreement)). And, as noted, Karrons conviction is now final. United States v. Karron, 348 F. Appx 632 (2d Cir. 2009). The district court thus properly applied collateral estoppel to bar Karron from challenging her liability under the FCA. C. The District Court Correctly Held, in the Alternative, That There Was No Genuine Factual Dispute That Karron Is Liable Under the FCA Because She Falsely Certified the December 2001 Federal Cash Transaction Report

Even apart from the estoppel effect of Karrons criminal conviction, the district court correctly held that the Government had unquestionably established at least one false claim: Karrons false certification on

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39 the Federal Cash Transactions Report for the month of November 2001. (SPA 27-28). Although the district court declined to rule on the falsity of the other nineteen certifications submitted by the Government, this false statement alone is a sufficient basis to hold Karron liable under the FCA. 31 U.S.C. 3729(a)(1).* The Federal Cash Transactions Report required Karron to provide certain financial information and to certify its accuracy as follows: I certify to the best of my knowledge and belief that this report is true in all respects and that all disbursements have been made for the purpose and conditions of the grant or agreement. (A 58). As noted in the Governments Local Rule 56.1 Statement (A 358), at Karrons criminal trial, Karron admitted to Gurfein that, immediately upon receipt of the initial $150,000 draw-down of ATP funds, Karron used $75,000 of that amount to pay her personal debts: [GURFEIN:] . . . . [Karron] told me one morning when I arrived at his apartment that the money came in, the 150,000 came in. And in the same

* Under the Governments theory of damages, whether Karron is found to have submitted one or more false certifications is not material to the calculation of treble damages, which is properly based on the full amount of ATP funds that Karron drew down. See Point II, infra.

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40 sentence I recall he said, and Ive transferred $75,000 out of the account. Q. Did he say why he did that? A. Yes. He said he had some personal obligations to his family, money owed to his family, and he said that he had credit card payments to make. (A 241). Gurfein further testified that he immediately cautioned Karron that such use of the ATP funding was not permitted, but Karron was not dissuaded: Q. When you heard from the defendant that he had transferred $75,000 out of the $150,000, what, if anything, did you say? A. I told him he couldnt do that. Q. And what was the defendants response? A. He said, I have to do it. Q. Did he expand on that? A. Well, he said he had no choice; he had to get rid of those debts he had and he was taking those funds at the get initially, he had to just take those funds immediately. .... So Dr. Karron said just, okay, make it that it works; make sure that, you

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41 know, you dont raise any red flags and just submit the numbers that will make it work. And thats what we did. (A 242, 247). Karron failed to controvert this testimony with admissible evidence. (A 387-92; SPA 2 n.1, 6). In fact, Karron admitted in her Rule 56.1 Statement that the first $150,000 of ATP funds was used for salary[,] used for startup costs, computer hardware, bootstrap costs in and out of the budget (by paying the PI). (A 386 (emphasis added)). Karron thus conceded that she used ATP funds to pay for out-of-budget costs, which violated the terms and conditions of the cooperative agreement and rendered false her certification to the contrary. Karrons lawyer further conceded at sentencing that Karron was clearly not entitled to use ATP payments for rent (A 285), and yet rent undisputedly was paid from the first $150,000 draw-down (A 180). The uncontroverted evidence thus establishes that Karrons December 19, 2001 certification (A 58) of the expenditures for November 2001 was knowingly false. The Federal Cash Transactions Report for November 2001 was not true in all respects, but falsely reported that all of the $150,000 had been used for the purpose and conditions of the grant or agreement. (A 58). To the contrary, Karrons use of federal funds to pay personal debts (or any other unapproved cost) was prohibited by the terms and conditions of the cooperative agreement: By signing this award the Recipient agrees to ensure that only actual costs incurred will be charged to the award and that all costs will be reasonable, allocable, and allowable in accordance with the applicable Federal Cost

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42 Principles. (A 74; see also A 180 (audit report noting that [t]he use of federal funds as a personal loan account is completely inappropriate)). Karron does not deny that she spent $75,000 of the initial draw-down on expenditures that were not in furtherance of the project. Instead, Karron argues, as she did in district court (A 390-92), that her November 2001 certification was true because this amount purportedly was properly advanced to her as salary i.e., funds that she could spend as she pleased. See Appellant Daniel B. Karron Brief (Br.) 16-18 & nn.6581. This argument fails as a matter of law, as the terms and conditions of the cooperative agreement prohibit such advances of ATP funds. The agreement provides that ATP funding shall be limited to the minimum amounts necessary to meet immediate disbursement needs . . . [and] shall be for periods not to exceed 30 days. (A 180; see also A 37). Thus, under the cooperative agreement, Karron could take 1/12 of her annual salary each month, or approximately $14,000 a month gross, as Karrons counsel stated at her criminal trial. Br. 17 n.78. Karrons purported accounting adjustments in August 2002, Br. 16 n.65, could not transform the $75,000 taken in November 2001 into an approved immediate disbursement need[ ] (A 37, 180), as at that point it was unearned and thus neither an actual cost[ ] incurred (A 74) nor a minimum amount[ ] necessary for the project (A 37, 180). See also Br. 17 n.78 (quoting question by Karrons counsel at trial regarding whether, by the end of February [2002], [Karron] would have basically paid back the [$]75,000 taken in November (emphasis

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43 added)). Nor was such amount payable within thirty days. (A 37, 180). Thus, whether or not Karron took a lower salary at the close of the first year of the project to pay back the loan, as Karron argues, is irrelevant to whether she falsely certified compliance with the terms and conditions of the cooperative agreement at the time of her draw-down of ATP funds. See, e.g., Br. 16 n.65, 17 nn.70, 72-73, 77, 78, 80, 81. Karrons further assertion that she cannot be held liable under the FCA because the certification in question was made to the best of [her] knowledge and belief, and she purportedly believed she could give herself a salary advance, see Br. 19 & n.84, is unavailing. Karron agreed to the terms and conditions of the cooperative agreement (A 136, 355, 373, 379), including its explicit provision that draw-downs be limited to actual costs and immediate disbursement needs. (A 37, 180). The uncontroverted testimony from the criminal trial further shows that Gurfein told Karron she could not use the $75,000 as a salary advance in early October 2001 (A 242, 358, 387-89), and Karron nevertheless instructed him to falsify the reports (A 247, 358, 383-84)all prior to Karrons December 19, 2001 certification of the propriety of the November 2001 expenditures (A 58).* The undisputed

* This case is thus distinct from United States v. Ekelman & Associates, Inc., 532 F.2d 545, 549-50 (6th Cir. 1976), where the Sixth Circuit noted that a certification of truth to the best of my knowledge and belief, did not, by itself, establish knowledge of the falsity of the information contained in the certified report. The Sixth Circuit further observed in Ekelman,

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44 record thus shows that Karrons December 19, 2001 certification of the November 2001 expenditures was knowingly false. Contrary to Karrons argument, Br. 17 & n.74, the fact that the cooperative agreement permitted Karron to move 10% of the annual project budget among approved budget categories (A 75) does not excuse her improper use of the funds. Even if Karron had unilaterally increased her salary by the maximum amount permitted without authorization from ATP i.e., by 10% of the first years $800,000 budget, from $175,000 to $255,000 per yearKarron still would have been entitled to only 1/12 of that amount each month under the terms and conditions of the cooperative agreement. (A 74, 180). Thus, under this theory, Karron at best would have been entitled to $21,250 of the first $150,000 draw-down, and certainly not the $75,000 that she actually used to pay personal debts. Nor can Karron avoid liability under the FCA by asserting that ATP officials had contemporaneous knowledge of the $75,000 salary advance and the subsequent repayment of this advance. Br. 22; (see also A 390-94 (claiming that Karron had tacit permission from ATP and referencing trial testimony premised on proper accounting of expenditures according to the approved budget)). Karrons attempted government moreover, that [w]here knowledge is possible, one who represents a mere belief as knowledge misrepresents a fact. Id. at 549. Here, is it beyond dispute that Karron had knowledge of the falsity of the information contained on the Federal Cash Transactions Report that she signed on December 19, 2001.

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45 knowledge defense, Br. 21 & n.107, fails as a matter of law. See Kreindler & Kreindler, 985 F.2d at 1156 ([T]hat the relevant government officials know of the falsity is not in itself a defense. (internal quotation marks omitted)). Whether or not the ATP purportedly was negotiating with CASI/Karron to grant the allowances for utilities and power, Br. 21, which are not even the expenditures at issue here, is thus irrelevant.* For these reasons, the district court correctly concluded that there was no genuine factual dispute that Karrons December 19, 2001 certification was a false statement under the FCA. (A 58; SPA 27). This false statement renders Karron liable under the FCA. See 31 U.S.C. 3729(a)(1) (2000); 31 U.S.C. 3729(a)(1)(B). POINT II THE DISTRICT COURT CORRECTLY AWARDED FCA DAMAGES OF THREE TIMES THE TOTAL AMOUNT DRAWN DOWN BY KARRON The FCA requires those who obtain federal funds to turn square corners when they deal with the Government. Rock Island, Ark. & La. R.R. Co. v. United States, 254 U.S. 141, 143 (1920) (Holmes, J.). Any person who makes a false claim to the United

* The fact that the ATP immediately suspended the cooperative agreement upon the issuance of a limited scope audit report in June 2003 (A 144-48, 172) casts serious doubt on Karrons assertions that the ATP approved of her use of funds.

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46 States is liable to the United States Government for a civil penalty plus 3 times the amount of damages which the Government sustains because of the act of that person. 31 U.S.C. 3729(a). As a general matter, the purpose of the FCAs damages and penalty provisions is to make the government whole, not just with respect to the loss of the money improperly obtained or used, but also for consequential damages such as the costs of detecting and investigating the false or fraudulent statements. Cook County v. United States ex rel. Chandler, 538 U.S. 119, 130-32 & n.9 (2003); see also, e.g., Longhi, 575 F.3d at 462 (noting that the Department of Defense generally does not verify all of the information submitted in a proposal [for a grant from its Small Business Innovation Research (SBIR) program], and it depends heavily on the integrity of SBIR applicants); United States v. Mackby, 339 F.3d 1013, 1018 (9th Cir. 2003) (noting that the harm to the government in an FCA case includes harm to the administration and integrity of the program from which the funds were fraudulently obtained). Thus, damages in an FCA case typically are liberally calculated to ensure that they afford the government complete indemnity for the injuries done it. United States ex rel. Compton v. Midwest Specialties, Inc., 142 F.3d 296, 304 (D.C. Cir. 1998) (quoting United States ex rel. Marcus v. Hess, 317 U.S. 537, 549 (1943)). As explained below, the district court properly awarded treble damages based on the full $1,345,500 drawn down by Karron.

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47 A. Where the Government Receives No Tangible, Ascertainable Value, the Appropriate Calculation of FCA Damages Is Three Times the Full Amount Received The starting point for the calculation of the initial damages amount (i.e., the amount subject to trebling) is the total amount fraudulently obtained. See Longhi, 575 F.3d at 473 ([D]amages are limited to the amount that was paid out by reason of the false claim.). This calculation is supported by the plain language of the statute, which provides for an award of three times the amount of damages which the Government sustains because of the act of that person. 31 U.S.C. 3729(a) (emphasis added). In certain cases, typically where the fraud occurs in connection with a procurement contract, the court may adjust the damages amount to reflect the value received and retained by the government, where the government received some benefit of its bargain notwithstanding the fraud: Ordinarily the measure of the governments damages would be the amount that it paid out by reason of the false statements over and above what it would have paid if the claims had been truthful. United States v. Woodbury, 359 F.2d 370, 379 (9th Cir. 1966); see also United States v. Science Applications Intl Corp., 626 F.3d 1257, 1278 (D.C. Cir. 2010) (SAIC) (explaining that a reduction should be taken in the amount of the market value of the product [that the Government] received and retained (quoting

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48 United States v. Bornstein, 423 U.S. 303, 316 n.13 (1976)); Mackby, 339 F.3d at 1018 (following Woodbury). In such cases, the government will sometimes be able to recover the full value of payments made to the defendant, but only where the government proves that it received no value from the product delivered. SAIC, 626 F.3d at 1279. Federal circuit courts have unanimously concluded that an adjustment of damages is not appropriate where the government grant or other funding is designed to benefit a third party, or the public at large, and the government receives no tangible, ascertainable value. Although this Court has not yet directly considered the issue, the Fifth, Seventh and D.C. Circuits all have determined that a reduction of damages under a benefit of the bargain theory is inappropriate as a matter of law in circumstances similar to those presented here. In the Longhi case, the Fifth Circuit concluded that a damages adjustment was inappropriate where the defendants acts did not result in a tangible benefit to the government and the intangible benefit [wa]s impossible to calculate. Longhi, 575 F.3d at 473. There, the defendants had made false statements to the United States Department of Defense in applications for research grants for the development of ultrathin rechargeable batteries. Id. at 462-64. The Fifth Circuit affirmed the district courts determination, on summary judgment, that the proper measure of damages was the entire amount of government research funding received by the defendants. Id. at 473 & n.9. The Fifth Circuit explicitly rejected the defendants argument that the government was not entitled to damages because it had

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49 suffered no tangible injury. Id. at 472. The court explained that the full amount of the funding constituted the proper measure of damages to be trebled because the case did not involve standard procurement contracts where the government ordered a specific product or good, nor would the end product . . . belong to the [government]. Id. at 473. The court further reasoned that the defendants fraud had vitiated the governments purpose of enabling eligible deserving small businesses to develop products that they could commercially market. Id. Similarly, in United States v. TDC Management, the D.C. Circuit affirmed the district courts award of damages based on the total amount of the payments fraudulently obtained by the defendant. 288 F.3d 421, 428 (D.C. Cir. 2002) (affirming district courts calculation of damages based on what the government would have paid out had it known of the information that [the defendant] omitted from its monthly progress reports, i.e., nothing). There, the defendant served as an ombudsman for a program under which government funds were distributed to assist minority-owned enterprises in securing bonding necessary to bid on large construction projects; however, the defendant concealed that it was engaged in certain self-interested actions that violated the terms of its participation in this program, resulting in the compromise of its objectivity. See id. at 422-24. The court explicitly rejected the defendants argument that the governments net damages were zero because it got what it had paid for under the best efforts agreement. Id. at 427. Noting that the defendant had not contracted to produce a tangible structure or asset of ascertainable value, the court held that the

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50 defendants fraud had negated the value of its best efforts. Id. at 428. The court concluded that the defendants deviat[ion] from its contracted role supported the district courts finding that the defendants services had provided no offsetting value to the government. Id. The Seventh Circuit employed similar reasoning to uphold a damages award trebling the total amount of fraudulently obtained Medicare and Medicaid reimbursements, even though most of the patients for which claims were submitted received some medical careperhaps all the care reflected in the claim forms. United States v. Rogan, 517 F.3d 449, 453 (7th Cir. 2008). In Rogan, the invoices were fraudulent because they included unnecessary or unperformed services, and illegal kickbacks were paid for the referral of patients. See id. at 451-52. In denying any reduction of FCA damages based on the value of medical care actually received by the patients, the court reasoned that the United States had not received any medical services from the defendant, but rather had provided a subsidy . . . with conditions. Id. at 453. When the conditions are not satisfied, nothing is due. Thus the entire amount that [the defendants company] received . . . must be paid back. Id.*

* In the context of the loss calculation applicable for purposes of sentencing on a fraud conviction, the Court has held that the full amount of non-conforming goods or services can be considered as intended loss, even though the non-conforming goods or services might have some value to, or be considered fully acceptable by, someone other than the victim. United

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51 District courts in this circuit have relied on this case law to reject the application of a benefit of the bargain theory in cases, like this one, involving fraudulent misapplication of grant or other government funds. See, e.g., United States ex rel. Feldman v. Van Gorp, No. 03 Civ. 8135 (WHP), 2010 WL 1948592, at *2 (S.D.N.Y. May 3, 2010) (benefit of the bargain theory inapplicable because research training grant at issue was not a standard procurement contract for specific goods or services. Moreover, its end product did not become the property of the government. ), appeal filed, Nos. 10-3291(L), 11-0295(Con) (argued Jan. 30, 2012); United States ex rel. Antidiscrimination Ctr. of Metro New York v. Westchester County, No. 06 Civ. 2860 (DLC), 2009 WL 1108517, at *2 (S.D.N.Y. Apr. 24, 2009) (barring defendant from arguing to jury that its damages should be reduced under the benefit of the bargain theory, because defendant had identified no tangible asset or structure it provided to the United States v. Canova, 412 F.3d 331, 353-54 & n.23 (2d Cir. 2005); see also id. at 352 (When a party fraudulently procures payment for goods or services by representing that they were produced or provided according to certain specifications, it is not the task of a sentencing court to second-guess the victims judgment as to the necessity of those specifications. Whether the testing time on a pacemaker, the number of rivets on an airplane wing, or the coats of paint on a refurbished building is a matter of necessity or whim, the fact remains that the victim has been induced to pay for something that it wanted and was promised but did not get, thereby incurring some measure of pecuniary loss. ).

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52 States such that this theory would be applicable; it did not have a contract with the government to build any sort of facility for the governments use or to provide it with goods). As these cases demonstrate, the United States funds many grant and assistance programs that are designed to aid private entities or persons, or the public at large, by subsidizing such things as scientific research, public housing, medical care, or (as in this case) medical research. Because such programs are funded for the benefit of third parties and the public at large, the government has not received a measurable value when the recipient uses the funds for activities other than those for which it secured funding. These cases are therefore unlike FCA cases involving government contracts for goods or services where incomplete or inferior products or services are supplied and retained that nevertheless have some tangible, ascertainable value to the government. To the contrary, when a project designed to benefit the public is performed in a manner that deviates from the terms of the grant or other government funding, the United States has lost the opportunity to award the funds to a deserving recipient who would have fulfilled the terms of the funding agreement in the manner envisioned by the granting agency. See, e.g., Longhi, 575 F.3d at 473. B. The District Court Correctly Determined That a Reduction in Damages Was Not Appropriate Here The district court properly determined that the treble damages award should not be reduced to reflect any purported benefit received by the Government.

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53 As a preliminary matter, a cooperative agreement, such as Karrons agreement with the ATP, is not a standard procurement contract. Longhi, 575 F.3d at 473; Feldman, 2010 WL 1948592, at *2. The government did not contract to receive (nor did it actually receive) a tangible structure or other good or service of ascertainable value from CASI. See Longhi, 575 F.3d at 473; Rogan, 517 F.3d at 453; TDC Mgmt., 288 F.3d at 428; Feldman, 2010 WL 1948592, at *2; Antidiscrimination Ctr., 2009 WL 1108517, at *3. Rather, the benefit sought by the Government in entering into the cooperative agreement with Karron was a potential benefit to society by encouraging cutting-edge medical research. (A 307 (Karrons counsel noting that the [G]overnment gets their moneys worth here because [s]ociety would benefit); A 321 (Karrons counsel observing that the Government had no vested interest financially in the product of [Karrons] research)). In fact, by regulation, ATPs cooperative agreements typically grant the funding recipient the right to take ownership of any intellectual property generated with the ATPs financial support. 15 C.F.R. 295.8; see also 55 Fed. Reg. at 30143 (ATP funding recipients will normally be granted the right to take ownership to these inventions[.]). The cooperative agreement here was no exceptionCASI (and thus Karron) stood to gain exclusive rights to any intellectual property developed by the project, subject to certain licenses for government uses. (A 79, 307). Thus, the cooperative agreement expressly contemplated that the end product would not belong to the Government. See Longhi, 575 F.3d at 473; Feldman, 2010 WL 1948592, at *2.

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54 Nor did Karron provide the Government with what it had bargained for. The ATP funded Karrons project based on its assessment that the project was high-risk and potentially high-reward. The ATP did not condition its funding on the results of Karrons proposed research, but on Karrons compliance with procedures designed to increase the probability that the proposed high-risk research would succeed. Karrons strict adherence to the promised and approved budget, and to the procedures for amendments thereto, was an essential part of the Governments bargain. (A 73-75, 136-39). For example, Karrons unilateral and unauthorized decision not to spend $420,000 to obtain the promised expected unique contribution of the [CUNY Institute for Software Design and Development] faculty, visiting scientists, and PhD graduate students (A 93), but instead to use free graduate students working out of Karrons own apartment (A 323), rendered the research that actually was done materially different from what the ATP had decided was worthy of its funding when it made its award (A 92-93; see also 73-74 (noting ATPs intent to be substantially involved and requiring [c]oncurrence with sole source procurements in excess of $100,000 and [a]pproval of key personnel)). Absent Karrons compliance with the terms and conditions of the cooperative agreement, the value of the intangible benefit from the research that CASI actually performed is impossible to calculate. Longhi, 575 F.3d at 473; cf. Canova, 412 F.3d at 353-55 & n.3 (where precise amount of loss is not readily quantifiable, Sentencing Guidelines permit calculation of intended loss amount by reference to full price of non-conforming goods).

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55 As in Rogan, Karron received a subsidyhere, for researchwith conditions. Rogan, 517 F.3d at 453. And where the conditions of that subsidy are not satisfied, nothing is due and the entire amount . . . received . . . must be paid back. Id.; see also TDC Mgmt., 288 F.3d at 428 (district court properly found that government received no offsetting value where defendant deviated from contract); Longhi, 575 F.3d at 472 (remarking on irony that, despite their violation of FCA, defendants had developed lithium batteries that were found satisfactory by the government; deliver[y of] the hoped for ends, however, does not justify the means . . . employed to receive the . . . grants); see also Mackby, 339 F.3d at 1018 (The fact that Mackbys clinic actually performed the physical therapy for which he claimed reimbursement does not eliminate the governments injury.). Karrons claim that she is entitled to a reduction under a benefit of the bargain theory because she met [m]ilestones, Br. 25 & n.124, should be rejected. As the district court noted (SPA 25), regardless of whether the project attained any milestones, it did not provide a tangible benefit to the Government. Thus, a treble damages award based on the full amount drawn down is appropriate under the case law. Karrons suggestion that her cooperative agreement was merely suspended, and not terminated, Br. 26, is without merit. The regulation cited by Karron permits suspen[sion] . . . from continued assistance from the [ATP], and does not mention any further process of termination. 15 C.F.R. 295.3(b). There is no basis for Karrons assertion that the ATPs suspension of funding under the cooperative agreement implies that

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56 the Government intends to resume its support of her project, Br. 26, particularly as the three-year limitation on ATP awards has now elapsed with respect to Karrons project. See 15 C.F.R. 295.32(c). Accordingly, as there is no dispute that Karron drew down $1,345,500 from the ATP (SPA 22 n.11), the district court correctly held that Karron was liable for treble damages in the amount of three times that amount, or $4,036,500, less the amount of restitution paid. CONCLUSION The district courts judgment should be affirmed. Dated: New York, New York February 21, 2012 Respectfully submitted, PREET BHARARA , United States Attorney for the Southern District of New York, Attorney for Plaintiff-Appellee. MICHAEL J. BYARS, SARAH S. NORMAND , Assistant United States Attorneys, Of Counsel.

Case: 11-1924

Document: 48

Page: 65

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CERTIFICATE OF COMPLIANCE Pursuant to Rule 32(a)(7)(C) of the Federal Rules of Appellate Procedure, the undersigned counsel hereby certifies that this brief complies with the type-volume limitation of Rule 32(a)(7)(B). As measured by the word processing system used to prepare this brief, there are 13,227 words in this brief. PREET BHARARA , United States Attorney for the Southern District of New York By: MICHAEL J. BYARS, Assistant United States Attorney