In the Matter of the Complaint Against

THOMAS M. KAPPES, III
4551 Pond Creek Road

at

Alexandria, KY 41101-9799 P. S. Docket No. PF-32

APPEARANCE FOR RESPONDENT: F. Dennis Alerding, Esq. 800 Scott Street P. O. Box 42 Covington, KY 41011-2420

INITIAL DECISION

This proceeding arises out of a Complaint issued on May 14, 1992, by the Reviewing Official of the United States Postal Service under the Program Fraud Civil Remedies Act of 1986, Pub. L. 99-509, 31 U.S.C. § § 3801-3812, and 39 CFR Parts 273 and 962. In the Complaint, the Reviewing Official ("Complainant") alleges that Thomas M. Kappes, III ("Respondent") violated 31 U.S.C. § 3802(a)(1) by making two false claims for disability compensation, contending that Respondent is liable for an assessment of $6,505.20 (twice the amount falsely claimed, i.e. $3,252.60 of workmens' compensation benefits paid during September-November of 1988) plus civil penalties of $10,000, for a total liability of $16,505.20.

On May 18, 1992 Respondent timely filed a Petition for Hearing in which he denied the allegations of the Complaint.

Prior to the hearing, Complainant filed a Motion for Partial Summary Judgment on Count 2 of the Complaint, regarding the CA-1032 claim form filed on August 22, 1989, with respect to which Respondent was found guilty of violating 18 U.S.C § 1001 for falsely stating that he had not been employed during the preceding 15 month period. At the hearing, Respondent conceded that the Motion was well taken and the Motion was granted (Tr. 5).

A hearing was held by the Administrative Law Judge on July 22, 1992, in Washington, DC. Both parties were represented by counsel. Complainant presented the testimony of William James Plunkett, Barbara Presha, Barbara Kruza, and Postal Inspector Frank O'Connor. Respondent testified for himself. Complainant also presented documentary evidence.

After the hearing, only Complainant filed a brief, and it has been duly considered. To the extent indicated below, proposed findings and conclusions have been adopted; otherwise, they have been rejected as irrelevant or contrary to the evidence. The findings of fact and conclusions of law set forth below are based on the entire record herein, including observation by the Administrative Law Judge of the witnesses and their demeanor, the brief, stipulations, exhibits, and other relevant evidence adduced at the hearing:

FINDINGS OF FACT

1. Respondent Thomas M. Kappes, III is an individual who resides at 4551 Pond Creek Road, Alexandria, KY (CX-1; Tr. 71).

2. On December 20, 1984, while employed by the Postal Service as a mechanic, Respondent claimed on an OWCP form CA-1 (Notice of Traumatic Injury and Claim for Continuation of Pay/Compensation) that he had suffered an on-the-job back injury on December 17, 1984 (CX-1).

3. On October 15, 1985, OWCP determined that his disabling conditions resulted from the above injury, and Respondent was placed on the periodic compensation rolls. As such, he began receiving compensation payments every four weeks (CX-3). Under this procedure,he would continue receiving such payments until he either returned to work or experienced a material change in his medical condition (Tr. 11-12). He was advised to "NOTIFY THIS OFFICE IMMEDIATELY WHEN YOU RETURN TO WORK" and to return any compensation checks received after returning to work (CX-4). He was also advised that this included self-employment, and that he should report any wages received, even if received "in kind" such as lodging (Id.). He was also advised that the amount of his compensation would be redetermined if he returned to work (CX-5).

4. From March 26 through September 5, 1987, Respondent was employed by Computer Mania, Inc., of Florence, KY, a computer retail store, at a rate of $5 per hour. He assembled computers and acted as a technician (Tr. 53). His total earnings for the year were $2,110 (Tr. 45-49; CX-9A, 9B; CX-10).

5. During September, October, and November of 1988, Respondent performed work for Computer Mania, Inc., as an independent contractor. His tasks included carpentry work and testing and repairing computer parts such as circuit boards and monitors (Tr. 49-53, 57-59). This work was done both at the store and at Kappes' home (Tr. 52, 58-59). Although Respondent previously admitted that he worked for Computer Mania, Inc., during that time (Ans. ¶ 5), at the hearing Respondent claimed that some of this work was actually performed by someone else, even though he was paid for it. However, even if this were true, this would not affect the decision herein, since he did substantial other work at the store in full view of the owners (Tr. 52, 58-59). In any event, Respondent's testimony in this regard was not credible.

6. Respondent initially requested that he be paid "under the table" for his work in 1988 (Tr. 56). When the store refused this request, Respondent submitted invoices for the above work, using old invoices from Kappes TV & Appliance, a defunct television repair business formerly operated by Respondent and his father (Tr. 52-53, 62, 77; CX-11). Respondent received $2,487.50 for the above work in 1988 (CX-11). During this time period, Respondent received $3,252.60 in workers' compensation benefits.

7. On April 13, 1989, Respondent submitted a CA-1032 form to the Postal Service. OWCP uses that form to determine whether a claimant has returned to work (Tr. 13-14). The form requests information covering the 15-month period prior to the date of completion and signature. It informs the claimant that his benefits may be terminated unless the form is submitted. The form specifically asked: "Were you employed by an employer during the time period covered by this form? Answer Yes or No." Respondent answered "No." It also asked: "Were you self-employed during any time covered by this form? Answer Yes or No." Again, Respondent answered "No." Respondent also certified that he understood that he must immediately report any employment to OWCP (CX-6).

8. Respondent's answer to the above question regarding self-employment was clearly false, and Respondent knew or should have known that it was false. During September through November of 1988, which was within the 15-month period prior to his completion of the form, he was self-employed as an independent contractor for Computer Mania, Inc.

9. On August 22, 1989, Respondent submitted another CA-1032 form, which also covered the 15-month period preceding his completion of the form. Again, he stated that he was not self-employed during the time covered by the form, which also encompassed the same three-month period (September through November of 1988) during which he was self-employed.

10. Again, Respondent's answer to the above question regarding self-employment was clearly false, and Respondent knew or should have known that it was false.

11. On each of the CA-1032 forms in question, Respondent was clearly advised that a false answer may be grounds for suspending compensation benefits and may result in criminal prosecution.

12. If an employee completes a form CA-1032 and indicates that he has earned money, OWCP will reduce his benefits accordingly. Also, since the employee has demonstrated the capacity to work, OWCP may determine that the employee is no longer entitled to remain on the periodic rolls (Tr. 22-23).

13. At the time of hearing, Respondent was still on OWCP's periodic roll, although OWCP issued him a proposed termination notice on or about July 1, 1992 (Tr. 63).

14. Respondent was convicted in U. S. District Court for violating 18 U.S.C. § 1001 by knowingly and willfully making the false statement denying his self-employment during the preceding 15 month period on the August 22, 1989 CA-1032 form (Count II of the Indictment filed May 9, 1990). He served about 16 months in jail for this crime (Tr. 73-74).

15. In April of 1990, the Department of Labor determined that it had improperly paid Respondent $33,868.59 for the period January 13, 1988 through August 22, 1989. In about May of 1990, OWCP began recouping this money by withholding $300 from each of Respondent's benefits checks (Tr. 71-75, 85-87).

CONCLUSIONS OF LAW
Civil Penalties

1. The first issue is whether Respondent is subject to civil penalties in the total amount of $10,000 under 31 U.S.C. § 3802(a)(1) for making two false claims for disability compensation on the CA-1032 forms dated April 13 and August 22, 1989. Complainant seeks a $5,000 penalty for each CA-1032 claim. Even though the two forms overlapped the same time period during which Respondent worked, each claim form covers a different 15-month period and constitutes a separate claim. 31 U.S.C. § 3801(b)(1). It is concluded that Respondent made materially false statements on each of the two forms indicating that he was not self-employed during the periods for which he claimed disability compensation. The fact that he was self-employed was material and pertinent to the issues of whether Respondent was totally or partially disabled, and the amount of benefits.

2. He submitted those statements in support of his claims knowing, or having reason to know, that they were false. His argument that his work for Computer Mania, Inc. was in the nature of rehabilitation rather than "self-employment" within the meaning of CA-1032 is rejected. That form clearly required Respondent to report any kind of work performed regardless of whether a profit was made or whether profits were reinvested.

3. Under these circumstances, Respondent is subject to, in addition to any other remedy that may be prescribed by law, a civil penalty of not more than $5,000 for each of the two false claims. Complainant requests the maximum penalty of $10,000. It is clear that the amount of the penalty must be determined by examining all of the circumstances surrounding the false claims, including all aggravating and mitigating factors. See, S. Rep. No. 99-212, 99th Cong., 1st Sess. 18 (1985). Many government agencies have adopted a set of model regulations proposed by the President's Council on Integrity and Efficiency, which contains a list of factors which may be considered as guidance. E.g., 45 CFR § 79.31 (1988); 52 Fed. Reg. 27423, 27432. The Administrative Law Judge is not bound by the regulations of other agencies, but has discussed some of those factors below.

4. There is a high degree of culpability in this case Respondent clearly knew that he was deceiving the government.

5. The amount of money falsely claimed is also an important factor to consider. In the instant case, a total of $3,252.60 was falsely claimed.

6. An aggravating circumstance exists where the false claims occur over a lengthy period of time or are large in number. Here, Respondent filed a total of two false claims over a four month period, which presents a slightly aggravating circumstance. On the other hand, although each form herein was a separate claim, each claim was a part of, and helped to perpetuate, a single scheme with a common falsehood. The fact that the claims covered the same time period of self-employment is a mitigating factor.

7. Finally, in determining the amount of a penalty or assessment, the Administrative Law Judge must consider that the purposes of the statute are to recompense the government for losses resulting from false claims, to deter the making of such claims in the future, and protect the integrity of the government program in question. S. Rep. No. 99-212, 99th Cong., 1st Sess. 2 (1985).

8. After considering all of the circumstances of these claims, it is concluded that Respondent is liable for civil penalties in the aggregate amount of $5,000.

9. Respondent argues that only one claim was made for the $3,252.60 in workers' compensation benefits in question, and that the two CA-1032 forms were submitted with respect to the same claim. Assuming arguendo that this is correct, the submission of the second false statement would constitute an aggravating factor, and the Administrative Law Judge would still impose a $5,000 penalty in this case.

Assessment

10. The next issue is the amount of the assessment to be imposed upon Respondent under § 3802(a)(1). The statute provides, in pertinent part, that a person making such a false claim shall be subject to an assessment, in lieu of damages sustained by the United States because of such claim, of not more than twice the amount of such claim. Since Respondent made false claims for a total of $3,252.60, he is liable for an assessment of no more than $6,505.20. Since it is not unreasonable to assume that the damages of the Postal Service, including the cost of investigation and litigation, have far exceeded this amount, and considering the aggravating and mitigating circumstances discussed above, it is concluded that Respondent is liable for the maximum assessment of $6,505.20. ^1/

Conclusion

11. The findings and conclusions herein are based upon the preponderance of the evidence. 31 U.S.C. § 3803(f). In summary, Respondent is liable to the Postal Service under 31 U.S.C. § 3802(a)(1) for a civil penalty of $5,000 plus an assessment of $6,505.20, for a total liability of $11,505.20 (less any repayment already made of the $3,252.60 falsely claimed for September through November of 1988).

Randolph D. Mason
Administrative Law Judge

1/ Although not binding herein, it is noted that the model regulations state that "[b]ecause of the intangible costs of fraud,the expense of investigating such conduct, and the need to deter others who might be similarly tempted, ordinarily double damages and a significant civil penalty should be imposed." E.g., 45 CFR § 79.31 (1988).