Forman v. United States

61 Fed. Cl. 665, 2004 U.S. Claims LEXIS 246, 2004 WL 2137348
CourtUnited States Court of Federal Claims
DecidedAugust 31, 2004
DocketNo. 99-489C
StatusPublished

This text of 61 Fed. Cl. 665 (Forman v. United States) is published on Counsel Stack Legal Research, covering United States Court of Federal Claims primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Forman v. United States, 61 Fed. Cl. 665, 2004 U.S. Claims LEXIS 246, 2004 WL 2137348 (uscfc 2004).

Opinion

OPINION

HODGES, Judge.

We ruled in March 2002 that plaintiff Wallace Forman was not entitled to reimbursement of various expenses that he incurred in connection with an undercover FBI operation. Forman v. United States, No. 99-489 (Fed.Cl. Mar. 13, 2002) (order granting summary judgment). The Court of Appeals for the Federal Circuit remanded one of plaintiffs claims for trial. That claim relates to Forman’s request for reimbursement of his expenses of hiring Martin Reiser as a salesman. We conducted a trial to determine whether the FBI is responsible for Forman’s expenses of employing Reiser, based on the Federal Circuit’s interpretation of the parties’ contract. Plaintiff is entitled to reimbursement of salary and expenses totaling $33,051.43.

BACKGROUND

The FBI indicted Wallace Forman in connection with a sting operation known as Operation Thimble. Operation Thimble was an undercover operation launched in the late 1980’s to investigate bribery and corruption in the textile industry. Forman signed a pre-indictment plea agreement. Forman agreed to assist the FBI in a subsequent undercover operation known as Operation Extra Gold. This operation targeted Jules Wertheimer, a textile consultant and former business associate of Forman, and two Small Business Administration attorneys, Paul Pumpian and Jerry Lawson.

Plaintiffs contract with the Government required him to operate an apparently legitimate business called PyroShield as a front for the FBI. Forman established PyroShield as a subsidiary of his own company, Industrion. FBI undercover agents formed two additional businesses, Kevin Moran Associates and Northeast Investors, as financial [666]*666backers of PyroShield. The contract provided that Forman would operate PyroShield as a legitimate business to protect the undercover operation. Plaintiff was free to decide which products the business would market and how they would be marketed. The FBI agreed to reimburse expenses that plaintiff incurred as a result of the investigation so long as Forman consulted with the FBI “pri- or to incurring such expenses.” The FBI could reject any expenditure that it did not consider to be in furtherance of its investigative goals.

Forman marketed a product called Sandel through PyroShield. Sandel is a fire-retardant material similar to asbestos. The patent-holder for this material is Daniel Ferziger. Forman obtained a license from Ferziger to market and sell Sandel products. Plaintiff thought it might be the type of product that would attract the attention of Jules Wertheimer, who was one of the FBI’s targets. This would provide plaintiff an opportunity to establish contact with Wertheimer for the investigation. In fact, Wertheimer soon contacted Forman to arrange a meeting at his apartment in Manhattan. The meeting was attended by For-man, Wertheimer, SBA attorneys Lawson and Pumpian, and Martin Reiser. There, Wertheimer encouraged plaintiff to hire Reiser because he said Reiser would be a good salesman of Sandel. Reiser had connections in the health care industry. Apparently, Wertheimer wanted Reiser on the “inside” because he suspected Forman of working with the Government to obtain indictments. Reiser was Paul Pumpian’s brother-in-law.

Forman testified that he reluctantly agreed to retain Reiser at the insistence of Wertheimer and the other targets of the investigation. Forman thought Reiser could be successful in marketing Sandel products, such as fire-retardant mattress covers, to health care facilities and hospitals. Plaintiff entered into a Letter of Agreement with Reiser in-1989 regarding Reiser’s obligations as a salesman for PyroShield. Reiser started as a commissioned salesman, but Forman testified that he was pressured to pay Reiser on a weekly basis.

The FBI concluded Operation Extra Gold in January 1991. Forman testified that he was not informed of this until the FBI asked him to notify the targets of his involvement in the Operation and to testify against them. Plaintiff had paid Reiser $600 per week for 60 weeks by then, totaling $38,051.43 in salary and miscellaneous expenses. Plaintiff sought reimbursement for his expenses in March 1995. The FBI paid $5,000 to For-man, but refused to pay more.

Prior Proceedings

The FBI rejected several of plaintiffs claims for reimbursement because of a disagreement concerning Forman’s obligation to “consult” with the FBI before expending funds. We ruled on summary judgment that plaintiff was not entitled to reimbursement because he had not obtained specific approval from the FBI before incurring such expenses. See Forman v. United States, No. 99-489 (Fed.Cl. Mar. 13, 2002) (order granting summary judgment). The basis for this ruling was paragraph 5 of the contract between the parties:

The FBI shall reimburse FORMAN for expenses incurred by him which are deemed by the FBI to be reasonable and in furtherance of this investigation. FOR-MAN agrees that prior to incurring such expenses, he will consult with the FBI’s designated representative as to the nature and justification for incurring such expenses. The FBI has the right to direct FORMAN not to incur expenses which the FBI deems not to be in furtherance of its investigative goals.

The Government argued that plaintiff was required to obtain prior authorization for all expenses incurred in furtherance of the FBI’s investigative goals. Plaintiff maintained that he did not need prior approval so long as the FBI knew of and did not object to the expenses. We ruled that plaintiff was not entitled to reimbursement because he “was required to obtain specific approval before incurring expenses for which he expected to be reimbursed.” See Forman v. United States, No. 99-489 (Fed.Cl. Mar. 13, 2002).

Plaintiff appealed the ruling on summary judgment. The Federal Circuit affirmed this [667]*667court’s denial of Forman’s expenses of travel, seminar costs, and his cost of purchasing a license to sell Sandel products. Forman v. United States, 329 F.3d 837, 843 (Fed.Cir.2003). The Federal Circuit ruled that these expenses were associated with the operation of a legitimate business. See id. These costs were the type of expense incurred in the ordinary course of business and not in furtherance of the investigation. The FBI was to pay expenses that were incurred in furtherance of the investigation, but expenses related to the legitimate business operation of Pyro-Shield were beyond the scope of the agreement. Id. Forman made several loans to Ferziger, the individual from whom he bought the license to manufacture Sandel products. The Federal Circuit held that these expenses too were incurred in the ordinary course of maintaining and expanding a business. Id. The purpose of the loans was to assist in the worldwide marketing of Sandel, and such marketing efforts were not goals of the investigation. Therefore, the FBI was not responsible for reimbursing Forman’s loans to Ferziger. Id.

The court of appeals held that Forman’s claim for reimbursement of his costs of employing Reiser did not require advance approval, however, if the parties consulted with each other. The Circuit did not define the meaning of “consult” in its Opinion, but stated that the contract “clearly does not require ‘explicit’ or ‘specific’ pre-approval; rather that Forman ‘consult’ with the FBI.” Forman, 329 F.3d at 843.

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Related

Wallace Forman v. United States
329 F.3d 837 (Federal Circuit, 2003)

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Bluebook (online)
61 Fed. Cl. 665, 2004 U.S. Claims LEXIS 246, 2004 WL 2137348, Counsel Stack Legal Research, https://law.counselstack.com/opinion/forman-v-united-states-uscfc-2004.