COMMONWEALTH of Pennsylvania, DEPARTMENT OF TRANSPORTATION, Appellee, v. Harold L. MITCHELL, individually, and Mark G. Shultz, individually, and Edward A. Cummins, individually, and Harold L. Mitchell, Mark G. Shultz, Edward A. Cummins, t/a Cummins Construction Company and/or Appalachian Pipeline, Inc. Appeal of Mark G. SHULTZ.
Supreme Court of Pennsylvania.
Decided Dec. 29, 1987.
Reargument Denied Feb. 29, 1988.
535 A.2d 581
Submitted Sept. 23, 1987.
Id., 502 Pa. at 348, 466 A.2d at 615. (emphasis added).
To suggest, as the majority does, that the above quoted language only “implies” the acceptance of the tort standard of ordinary negligence is disingenuous. Furthermore, to imply that although this Court has examined this statute on numerous occasions it never properly identified the culpability requirement is impercipient, at the least.
It is our duty to determine whether legislatively defined crimes pass constitutional muster, not to define the crimes ourselves; and this Court has previously upheld the constitutionality of the present statute. See Commonwealth v. Hicks, id. Commonwealth v. Field, 490 Pa. 519, 417 A.2d 160 (1980).
Consequently, I would reverse the order of the Superior Court.
Robert M. Keener, Sayers, King, Keener & Nalitz, Waynesburg, for Harold L. Mitchell.
Before NIX, C.J., and LARSEN, FLAHERTY, MCDERMOTT, ZAPPALA and PAPADAKOS, JJ.
OPINION ANNOUNCING THE JUDGMENT OF THE COURT
FLAHERTY, Justice.
On October 19, 1978, Harold L. Mitchell, Mark G. Shultz, and Edward G. Cummins were named in a federal indictment for fraudulently obtaining state highway contracts. These three men, acting with one Stephen Koratich, formed a business entity, the Cummins Construction Company, to lease construction equipment to the Pennsylvania Department of Transportation, (hereinafter “the department“), Greene County Maintenance Office. Shultz, the appellant herein, was the Greene County Sheriff and the Democratic Chairman. He had the power to determine who would lease equipment to the department and who would be hired by the department. Mitchell worked in the department from 1971 until 1978. During this time, Mitchell personally approved and signed thirty-six rental agreements between the department and Cummins Construction Company, of which he was a secret owner.
The State Adverse Interest Act provides:
No State employe shall influence, or attempt to influence, the making of or supervise or in any manner deal with any contract in which he has an adverse interest.
NO OWNER, whether as an individual, member of a firm as partner, manager, officer, stockholder, shall be an
employee of the Department of Transportation nor be related by blood or marriage to any employee in a supervisory capacity with the Department of Transportation, nor shall any employee of the Department of Transportation have any pecuniary interest in the proceeds of the agreement either as an employee of OWNER or otherwise, and OWNER hereby certifies such to be the fact. The OWNER hereby agrees that for violation of this condition of the agreement, the agreement shall be terminated and the OWNER shall, upon demand, pay to the COMMONWEALTH under the terms of this agreement, and further, upon failure, refusal or default, OWNER or OWNERS do hereby empower any attorney, or the prothonotary of any court of record within this COMMONWEALTH or elsewhere to confess judgment against said OWNER or OWNERS for the full amount of all rentals paid by the COMMONWEALTH under and by virtue of this agreement, with the costs of suit and release of all errors, together with attorneys commission of 5% and interest, without stay of execution, waiving inquisition and condemnation of any real estate and do hereby waive the benefit of any law or laws in force or which may hereafter become in force, exempting property from levy and sale upon execution.
This contract provision requires that no department employee be an owner or have any pecuniary interest in the leasing company. However, Mitchell was a departmental employee and also an owner of Cummins Construction Company, and Mitchell and the other owners concealed Mitchell‘s ownership interest in Cummins Construction from the department. The essence of the fraud with which Shultz, Mitchell and Cummins were charged was that they made misrepresentations to the department concerning ownership of the leasing company, and as a result of these misrepresentations, were able to secure leasing contracts. Federal law was involved because the United States mails were utilized in securing signed copies of the contracts.
Shultz, Mitchell and Cummins were brought to trial on the federal indictment and the trial resulted in a hung jury.
Now if this case were to go to trial, with respect to count one, the government would have to prove three essential elements of this offense and they would have to prove it to the satisfaction of a unanimous jury, and the three essential elements which the government would be required to prove are, first, the act or acts of having devised or having intended to devise a scheme or artifice to defraud, or to attempt to defraud a department of government out of property or money or credit by means of false or fraudulent representations.
Second, the government would have to prove the act or acts of placing or causing to be placed in an authorized depository for mail matter a letter intended to be sent or delivered by the post office department as charged; and third, the act or acts of so using or causing the use of the United States mails willfully and with the specific intent to carry out some essential step in the execution of the scheme or artifice to defraud or to attempt to do so as charged....
The other section of the United States Code with which you are charged with violating is
18 United States Code, Section 2 , and it states that whoever commits an act against the United States or aids, abets, counsels, induces or procures its commission is punishable as a principal, and what that means is that if a person helps another in procuring the commission of a crime, that person may be punished just as the principal person in the commission of the crime is punished.
Reproduced Record 178a-180a.
Following this explanation and a colloquy on the defendants’ rights generally, the court questioned Shultz as follows:
Reproduced Record, 189a.1
As a result of the guilty plea colloquy, the United States District Court for the Western District of Pennsylvania accepted the guilty pleas of Shultz and Mitchell to Count One of the federal indictment, one act of mailing materials connected with their fraudulent scheme to secure leasing contracts with the Pennsylvania Department of Transportation. The remaining twenty counts of the indictment, which concerned other mailings based on the same scheme, were dismissed, and on July 6, 1979, Mitchell and Shultz were sentenced to six months in prison, three years probation, and fined $1,000 each.
Based on the guilty plea, the department moved for summary judgment. On May 20, 1985, Commonwealth Court granted summary judgment as to liability only against Shultz and Mitchell. An appeal to this Court from that judgment was quashed on November 22, 1985. Thereafter the department moved for summary judgment on the issue of damages, and on May 2, 1986 Commonwealth Court granted that motion also, awarding damages in the amount of $892,450.71, the full amount of rentals paid by the department. The damages were assessed against Shultz and the estate of Mitchell. Shultz now appeals as of right from the lower court‘s order.
The issues in this case are whether summary judgment may be granted in a civil case based upon a plea bargained admission of guilt to the charge of defrauding the Commonwealth; and secondly, whether summary judgment was properly granted in this case as to damages.
The first issue is whether summary judgment may be granted based upon a guilty plea in a criminal case, the operative facts of which are identical to those which would be litigated in the civil case, and which, if proved, would establish civil liability. In Hurtt v. Stirone, 416 Pa. 493, 206 A.2d 624 (1965), the trustee in bankruptcy of a concrete contractor sued to recover sums extorted from the contractor by one Stirone. The trustee‘s claim was that Stirone threatened to use his position as a “labor leader” to cause the contractor to lose certain construction contracts which he then had unless the contractor paid a certain sum of
In a civil suit against a convicted extortioner to recover the extorted money, is proof of the conviction of the extortion conclusive evidence of the fact of extortion?
416 Pa. at 496, 206 A.2d at 625. After noting that there is disagreement about the treatment of this issue in other jurisdictions and that in Pennsylvania “judgments in criminal cases for years were held inadmissible to establish the facts in a civil case,” this Court held that the lower court was correct in regarding the federal conviction as conclusive evidence of the fact of extortion:
The defendant was presented with more than ample opportunity to overcome the charges lodged against him while he was swathed in a cloak of presumed innocence. His case was twice presented to a federal jury which found him guilty of extortion beyond a reasonable doubt, upon the same facts which are now urged as the basis for his civil liability. To now hold that the effect of those jury determinations is nil not only would be to fly in the face of reason, but also would be a general indictment of the whole American jury system. We are not now prepared to say that the mere technical effect of the doctrines of res judicata and collateral estoppel regarding identity of parties is sufficient to overcome the policy which requires us to give conclusive effect to the prior conviction herein. The defendant should not now be heard to deny that which was established by his prior criminal conviction, without proof that his conviction was
procured by fraud, perjury or some manner of error now sufficient to upset the conviction itself.
416 Pa. at 498-99, 206 A.2d at 626.
In the present case, the fact that Shultz pled guilty to one count of the indictment does not produce a different result than if he had been convicted after a jury trial, for it is well settled that a guilty plea constitutes an admission to all of the facts averred in the indictment. Commonwealth ex rel. Walls v. Rundle, 414 Pa. 53, 198 A.2d 528 (1964). Additionally, as noted above, Shultz admitted at the guilty plea hearing that all of the facts alleged in the indictment were true. See footnote 1, supra.
Since Shultz‘s criminal conviction may be used to establish the operative facts in a subsequent civil case based on those same facts, Hurtt, supra, and since Shultz‘s guilty plea constitutes an admission to all the facts averred in the indictment, Commonwealth ex rel. Walls v. Rundle, supra, which Shultz admitted in any event, the lower court in this case was correct in granting summary judgment as to Shultz‘s liability to the department on the contract.
Next Shultz claims that it was error for the lower court to grant summary judgment as to damages. The main thrust of his argument is twofold: first, that summary judgment is inappropriate because there is a dispute as to the facts of the case, and second, that the forfeiture clause is unenforceable because it is a penalty.
As to the first claim, that there is an issue of fact in the case which requires a trial, the Commonwealth‘s amended complaint contains the following allegation:
54. The total amount paid by the Department to the Defendant, Cummins Construction Company, for the aforementioned agreements during part or all of the calendar 1971 [sic] to 1978 is $892,450.71. (Schedule of payments attached and marked as Exhibit “B.”
Shultz‘s answer to this allegation is:
54. Denied in that the answering Defendants are without such knowledge or information because the means of
proof are within the exclusive control of a hostile person or adverse party.
Had there been no motion for summary judgment, this denial, of course, would have been sufficient to raise damages as an issue at trial. The question here, however, concerns the effect of this denial, coupled with an assertion that the Commonwealth‘s figures may be wrong, in response to a motion for summary judgment.
When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided by this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.
If Shultz wished to contest the accuracy of the Commonwealth‘s statement of damages, he was required to do it, once a motion for summary judgment was made, by submitting affidavits, depositions, answers to interrogatories, or admissions on file,
As Corbin points out, there are limitations on the ability to contract:
The rules of law governing the enforcement of penal bonds and of contract provisions for penalties and liquidated damages are rules as to the validity of express promises. They prescribe limitations upon our power to make enforceable contracts.
5 Corbin on Contracts § 1054, p. 319 (1964). According to the Restatement Second of Contracts many jurisdictions treat the problem of these limitations as follows:
§ 356. Liquidated Damages and Penalties
(1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.
(2) A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-occurrence.
Restatement of Contracts, Second, § 356.
Although we express no opinion as to the validity of this section of the restatement in Pennsylvania, and our research indicates that this Court has not expressly made reference to this section, there are some parallels between the language of the restatement and our own caselaw which requires that liquidated damages be awarded only in cases where the amount is reasonable and there is a difficulty in assessing the harm that would be caused by a breach. See
In order to address the question of whether the damages agreed to in this case were “reasonable,” we must consider what it was that the parties were bargaining for. The Commonwealth‘s purpose in entering into the rental contracts with Cummins Construction Company was not only to rent equipment, but also it was to insist on and preserve a fair and impartial procedure in securing the rentals. When Shultz and the other owners of Cummins purposely and fraudulently frustrated the purpose of fair and impartial dealing and breached the contractual requirement which plainly stated that no owner of Cummins be an employee of the department and that no department employee have a pecuniary interest in the contract, the Commonwealth was substantially injured.
And what was the nature of the injury? By contracting with persons who are their own employees, the department participated, unwittingly, in a scheme which undermined and called into question the impartiality and fair dealing of a department of government. Additionally, it involved government in a scheme in which it was uncertain as to whether tax dollars were being spent for value, and a scheme which was in violation of a the State Adverse Interest Act. When government is perceived—perhaps by those who may have been told of the fraud—as no longer fair and impartial, it is seen as a center of corruption and criminal opportunity. Additionally, all branches of government become tarred, in the public eye, with the same brush as the supposedly corrupt department. In short, the injury is to the confidence that citizens may have in their government and to the certainty that value has in fact been received for tax dollars spent. If left unchecked, the injury is also that others, equally adept at fraud and deception, may themselves decide to participate in misrepresentations and scams involving government contracts.
These injuries are enormous, and the difficulty of ascertaining damages is considerable. What is the value of
Further, Shultz claims that the amount of damages is arbitrary in that the amount to be forfeited, which is the sum already paid in rental fees, depends upon when the deception is discovered. If the deception is discovered early, the forfeiture will be relatively small; if it is discovered late, the amount will be large. We disagree that this forfeiture scheme is arbitrary. In fact, far from being arbitrary, the forfeiture required is precisely proportionate to the injury inflicted by the fraud. If the fraud is discovered early, the injury will be relatively less severe and the forfeiture also will be of lesser amount. That the fraud may not be discovered for some time is an eventuality caused by the perpetrator himself and may not be used as an argument in favor of disproportionality.
Finally, there is some concern that in cases involving the fraudulent procurement of government contracts, sanctions against the perpetrators of the fraud should be left to the criminal law or to tort law. We disagree. The department‘s remedies should not be limited to actions apart from the contract. Shultz and the others need not have signed the contracts in this case. They need not have perpetrated the fraud that they did. They were not deceived or the victims of sharp practice. On the contrary, they were the deceivers, and they were made aware, by virtue of the plain
We conclude, therefore, that Commonwealth Court was not in error in awarding summary judgment as to damages as well as to liability.
AFFIRMED.
HUTCHINSON, Former J., did not participate in the consideration or decision of this case.
NIX, C.J., files a concurring opinion.
LARSEN and MCDERMOTT, JJ., note their dissents.
NIX, Chief Justice, concurring.
I have serious reservations as to the correctness of the judgment in Hurtt v. Stirone, 416 Pa. 463, 206 A.2d 624 (1965). The fact that a person is found guilty in a criminal trial should not preclude that individual from contesting his guilt of those facts in a civil trial. This does not mean that the fact of the criminal conviction may not be introduced during the subsequent civil trial. However, the court below treated the fact of the federal conviction as conclusive evidence of the facts. It does not, in my judgment, undermine the integrity of our system to allow a subsequent jury in a civil case to make its own independent judgment on the issue.
Notes
1. A partial summary of allegations contained in the indictment is as follows:
- SHULTZ, MITCHELL AND CUMMINS devised a scheme from about November 4, 1970 to defraud the Commonwealth of Pennsylvania, Department of Transportation in order to obtain money by making false and fraudulent representations and promises, knowing that such promises and representations were false when made.
- The nature of the scheme devised by defendants was to establish a construction rental company by the name of Cummins Construction Company, which would lease construction equipment to Penn DOT in Greene County.
- Part of the scheme was that the ownership and pecuniary interest of SHULTZ and MITCHELL would be concealed from the public and from Penn DOT.
- MITCHELL was employed by the Department of Transportation from February 22, 1971 until May 10, 1978 as a Superintendent of Penn DOT.
- It was also part of the scheme that SHULTZ, who was Chairman of the Greene County Democratic Committee, and MITCHELL, as a Penn DOT Supervisor, would cause Penn DOT to lease equipment from Cummins Construction Company.
- It was further part of the scheme that MITCHELL and CUMMINS would sign the lease agreements and that MITCHELL and CUMMINS would certify that no owner of Cummins Construction Company was an employee of Penn DOT and that no employee of Penn DOT had any pecuniary interest in the proceeds of the lease agreement, when CUMMINS and MITCHELL knew all the time that MITCHELL had a secret pecuniary interest in Cummins Construction Company.
2. Shultz claims that he is entitled to a setoff for the value of the services performed and the rentals received. This claim is without merit. Once it has been determined that liquidated damages are recoverable under the contract, evidence of actual damage to the Commonwealth is inadmissible. Corbin puts it this way:
Evidence as to the existence and extent of injury may be admissible to aid the court in determining the character of the contract provision; but it is no longer relevant after the court has determined that the provision is a true liquidation and does not specify a penalty.
5 Corbin on Contracts, § 1061, p. 353 (1964).