Hartford Accident & Indemnity Company, Plaintiff-appellee, v. Parke Hunter Cox, Jr., Defendant-appellant, v. City of Chesapeake, Ronald S. Hallman, City Attorney,william D. Scalf, Third Party Defendants, 870 F.2d 654 (4th Cir. 1989)Annotate this Case
Argued Feb. 6, 1989. Decided March 6, 1989
Richard George Brydges (Brydges & Brydges, Jeremiah A. Denton, III, R. Craig Gallagher on brief) for appellant.
Henry Coke Morgan, Jr. (Peter C. Manson, Jr., Richard J. Beaver, Pender & Coward, P.C. on brief) for appellee.
Before ERVIN, Chief Judge, and WIDENER and MURNAGHAN, Circuit Judges.
Parke Hunter Cox, Jr., a former promotions director for the City of Chesapeake, Virginia ("the City"), allegedly defrauded the City during his tenure by filing false claims for reimbursement for entertainment expenses. Cox was tried and convicted on three criminal counts involving approximately $3,000 in claims. Hartford, surety on a bond indemnifying the City, filed a civil action seeking to recover from Cox the $50,000 which it had paid to the City under the terms of its bond. The case was tried before Judge Kellam of the United States District Court for the Eastern District of Virginia, who found for Hartford in the full amount. Cox has appealed, alleging that the evidence was insufficient to find him liable for any more than the $18,679.64 stipulated to or proved at trial. As we find the evidence more than sufficient to demonstrate a widespread and pervasive pattern of submitting false claims, totalling well over the amount of the bond, we affirm.
For fourteen years, Cox was employed by the City as the Director of the Industrial Development Department. During this period, he submitted numerous claims, seeking reimbursement for over $100,000 in various expenses, principally meals and entertainment.
In 1985, Cox was indicted on 57 counts of obtaining money under false pretenses. An initial trial resulted in a hung jury. Retried, Cox was convicted of three counts of obtaining money under false pretenses and fined $3,000. Thirty-two counts were nolle prossed and he was acquitted on the remaining twenty-one counts.
Hartford was surety on a bond indemnifying the City for losses sustained as a consequence of employee misconduct. Hartford paid $50,000 to the City, the maximum amount under the terms of its bond, and, now subrogated to the rights of the City, filed the present action in the United States District Court for the Eastern District of Virginia to recover the money from Cox. The parties stipulated that Hartford was entitled to recover $3,665.99, the aggregate amount of each item shown in the criminal counts of which Cox was convicted. The case was tried before Judge Kellam, who awarded Hartford a judgment for the entire $50,000.
On appeal, Cox has contended that the evidence at trial was, at most, sufficient to show him liable for only $18,679.64. Cox has alleged that the trial judge improperly extrapolated a "pattern" from the specific evidence introduced that allowed Cox's liability to extend to the entire $50,000. Hartford may only recover, Cox has argued, for those specific items it has shown to be false within a reasonable certainty. See Musico v. Champion Credit Corp., 764 F.2d 102 (2d Cir. 1985).1
Cox's arguments have failed to persuade us. A review of the record reveals that the trial judge's actions were clearly warranted. There was scant documentation available to substantiate any of Cox's expenses. Cox's explanations were entangled in a web of contradiction, deception and outright fantasy. The challenged expenses, all fraudulent, demonstrated a pattern of misconduct which can easily be extended to the entire range of unsubstantiated and unverified travel expense claims, amounting to nearly $100,000.00 over a three and a half year period.
Furthermore, additional direct expenses beyond the $18,679.64 were challenged. As an example, evidence was offered that thirty out-of-town trips charged to the City all occurred on weekends that coincided with antique bottle shows or auctions--as Hartford notes, "a remarkably convenient coincidence for Cox who happended to be an antique bottle collector."2
The real issue between the parties, however, has to do with Cox's entire history of billing expenses. Indeed, the parameters were set to a large degree by Cox's own obfuscation of his expense records. Pleading a need to maintain confidentiality, Cox utilized a "secret code" and produced a total lack of receipts that make it well nigh impossible to determine the specific plausibility, or even the nature, of many individual transactions. Hartford has proved that the "secret code" was false and intentionally deceptive, implying that the records, taken as a whole, are false and misleading. The clear inference is that Cox's expenses in toto have been misrepresented.3 See Chesapeake & Ohio Ry. v. Ware, 122 Va. 246, 45 S.E. 183 (1918). Cox has done nothing to rebut that inference.4
In sum, the trial court has not visibly erred by rationally inferring from a large number of specific examples of fraud and the flaws and deception inherent in Cox's entire system of record keeping proof of an overall scheme to defraud the City of the vast majority of the reimbursable expenses claimed.5
While it is true that an agent should only be liable to the principal for those duties breached, and not for those faithfully performed, see Musico v. Champion Credit Corp., supra, here there is no evidence of any reason for distinguishing any substantial amount of Cox's expenses as valid. As Samuel Johnson once observed, "You don't have to eat the whole ox to know the hide is tough."6 The trial court was clearly justified in finding Cox liable for approximately 50% of his reimbursement claims.
WIDENER, Circuit Judge, concurring:
I concur in the result.
Cox contends he is under no obligation to justify any expense not directly challenged with viable evidence by Hartford. Cox argues that, as Hartford is suing in tort, it has the burden to prove each specific deficiency, unlike the case in an equitable accounting, which may require Cox to come forward with evidence of the propriety of individual expense transactions
During those thirty trips, Cox charged to the City expenses exceeding $10,000
The trial court discussed a number of the items for which Cox sought reimbursement and then concluded:
From these examples, it is quite clear that in more than seventy-five percent of these instances, where defendant certified he furnished food and entertainment for the persons or company named, his certification was false. The pattern is clear. Having thus shown the certifications were false in such a large percentage of these specific items, plus defendant's testimony that in many other instances the persons listed were not present, there is clearly sufficient evidence, both direct and circumstantial, to establish the vast majority of certifications were false and fraudulent. Particularly is this so, where there is no credible evidence in the record to lead a cautious fact finder to believe other certifications were true and correct.
The evidence estalbishes and the Court finds that the certifications made by defendant that food and entertainment was (sic) furnished to the persons or companies listed, are false and were known by defendant to be false at the time they were made; that they were made for the purpose of defrauding the City of Chesapeake; that the City relied upon the certifications as being true and correct to its detriment; and that defendant unjustly received funds from the City and benefitted from his own false statements and misrepresentations.
Where, as here, a party has in his possession or within his control material evidence but fails to produce it, a presumption arises that such evidence, if it had been produced, would have been unfavorable to that party. Turnbull v. Mann, 99 Va. 41, 37 S.E. 288 (1900)
A civil factfinder is entitled to draw a rational inference from circumstantial evidence to find proof of an issue by preponderance of the evidence. See generally McCormick on Evidence Sec. 399 (3d ed. 1984). While the result may differ under the heightened standards of proof in a criminal trial, the evidence here was clearly sufficient to satisfy the civil burden
As quoted in Moore, Statistics: Concepts and Controversies 3 (1979)