United States v. Upton

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 95-50206
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
VERSUS
ANTONY MICHAEL UPTON,
SANTA BARBARA CASTLE DEVELOPMENT CORP.,
a/k/a Castle Construction Corp., and
RONALD R. BARRICK,
Defendants-Appellants.
Appeal from the United States District Court
For the Western District of Texas
July 29, 1996
Before GARWOOD, DAVIS, and DeMOSS, Circuit Judges.
DeMOSS, Circuit Judge:
Ronald Barrick, Antony Upton and Santa Barbara Castle
Development Corporation, a/k/a/ Castle Construction Corporation,
were convicted on numerous counts of conspiring to defraud the
United States Air Force in violation of 18 U.S.C. § 286, and for
submitting false claims and making false statements to the Air
Force for reimbursement of bond premiums in violation of 18 U.S.C.
§§ 287 and 2. Barrick was also convicted on three additional
counts of making, or causing to be made, a fraudulent statement of
material fact to the Air Force in violation of 18 U.S.C. §§ 1001
and 2. The district court sentenced Barrick to 63 months
imprisonment, three years supervised release, and ordered Barrick
to pay restitution of $1,804,879.99. The district court sentenced
Upton to 24 months imprisonment, three years supervised release and
ordered Upton to pay $363,813.69 in restitution. Castle
Construction, the corporate defendant, was sentenced to five years
probation and ordered to pay $363,813.69 in restitution. On
appeal, Barrick, Upton and Castle Construction challenge their
respective convictions and sentences. We affirm in part and vacate
and remand in part.
I. Background and Procedural History
Retired United States Air Force Colonel Ronald Barrick, a
practicing lawyer prior to these proceedings, owned Benefax Surety
Corporation (Benefax) and United Fidelity and Trust Company (United
Fidelity). Benefax, a Texas corporation, operated as a small
surety bond brokerage business and received finders fees from
construction contractors for locating individual sureties who would
provide and guarantee the payment and performance bonds required by
government contracts. The corporation had two full-time employees
and two part-time employees. Roland Maness, a certified public
accountant, and Pamela McDaniels, a licensed bonding agent and
office manager, worked full-time. Two students, Susan Frericks and
Christine McDaniels, provided part-time help. Barrick’s other
business, United Fidelity, a regulated Texas trust company, made
2
business loans to contractors who required start up or mobilization
funding.
Barrick’s co-defendant, Antony Michael Upton, owned a small
construction company, Santa Barbara Castle Development Corporation
a/k/a Castle Construction (Castle). Castle built roofs for small
residential and commercial buildings.
In the summer of 1989, Vandenburg Air Force Base in California
sought fixed price bids from civilian contractors on two roofing
contracts. Castle submitted a successful bid on Air Force
contracts, No. F04684-89-C-0047 and F04684-89-C-0052 (hereinafter
No. 47 and No. 52). The Miller Act, 40 U.S.C. § 270(a), required
Castle to provide both a performance bond and a payment bond after
its successful bid.1
1
The Miller Act provides, in pertinent part:
Before any contract, exceeding $25,000 in amount,
for the construction, alteration, or repair of any public
building or public work of the United States is awarded
to any person, such person shall furnish to the United
States the following bonds, which shall become binding
upon the award of the contract to such person, who is
hereinafter designated as “contractor”:
(1) A performance bond with a surety or sureties
satisfactory to the officer awarding such contract,
and in such amount as he shall deem adequate, for
the protection of the United States.
(2) A payment bond with a surety or sureties
satisfactory to such officer for the protection of
all persons supplying labor and materials in the
prosecution of the work provided for in said
contract for the use of each such person. Whenever
the total amount payable by the terms of the
contract shall be not more than $1,000,000 the said
payment bond shall be in a sum of one-half the
total amount payable by the terms of the contract.
Whenever the total amount payable by the terms of
3
Castle then contacted Benefax and retained it to provide
individual sureties to guarantee the payment and performance bonds.
Benefax retained Martin H. McGuffin and Terry L. Kinser as
individual sureties for the contracts. To be properly accepted as
guarantors of these bonds, McGuffin and Kinser submitted notarized
Affidavits of Individual Surety (AIS).2 McGuffin’s AIS represented
his net worth as $3,782,677, while Kinser’s AIS stated a net worth
of $7,417,193. Trial testimony revealed that McGuffin signed blank
performance and payment bonds and the information was completed
later. McGuffin also admitted that the signature on one of the
AISs was not his. McGuffin testified that he told Barrick that he
was having financial difficulties and the bank would not sign the
Certificate of Sufficiency. Barrick told him not to worry and then
signed the Certificate of Sufficiency as the President of United
Fidelity.
the contract shall be more than $1,000,000 and not
more than $5,000,000, the said payment bond shall
be in a sum of 40 per centum of the total amount
payable by the terms of the contract. Whenever the
total amount payable by the terms of the contract
shall be more than $5,000,000 the said payment bond
shall be in the sum of $2,500,000.
40 U.S.C. § 270a(a) (1986). The Miller Act was amended in 1994 to
eliminate the requirement that the construction contract exceed
$25,000. See 40 U.S.C. § 270a(a) (Supp. 1996).
2
An AIS states the assets and liabilities of the individual
surety and the resulting net worth that the surety holds to
guarantee the bond. A bank officer or officer of the court must
also sign a Certificate of Sufficiency located on the back of the
AIS. This certificate represents that the signer is aware of the
surety’s assets and that the AIS accurately represents the
financial position of the surety.
4
Apparently, Kinser’s AIS also reflected an inflated net worth.
Kinser testified that the AIS showed an inflated net worth because
Barrick raised it to $5,000,000 on the AIS and then raised it again
to over $7,000,000.3 Kinser explained that he and Barrick knew
that the AIS figures were “incorrect and fraudulent.” Later, the
Air Force contract officers approved the AISs based on the
information provided by the sureties and guaranteed by the
signatures on the Certificates of Sufficiency.4
Castle issued two checks to Benefax in payment of the bond
fees, but asked Barrick not to cash the checks until Castle
obtained either a bank loan, a loan from United Fidelity, or until
Castle received its first construction and bond reimbursement from
the Air Force roofing job. Castle sought outside financing for the
mobilization and bond fee costs but was unsuccessful.
Consequently, Castle had no mobilization money and could not start
the Air Force roofing job nor could it pay for the payment or
performance bonds.
Barrick, through United Fidelity, apparently agreed to loan
Castle $100,000 for its mobilization costs. Because Castle had no
funding, Barrick also agreed to wire transfer the loan proceeds
before negotiating Castle’s two checks written to Benefax for
payment of the bond costs. Barrick gave Upton paid receipts for
3
A Senior Vice President of Glendale Federal Savings Bank
signed the Certificate of Sufficiency for Kinser’s AIS.
4
At the time that these contracts were awarded, the federal
contract officers were not required to perform independent
investigations into the financial solvency of sureties or the
validity of an AIS.
5
the Air Force roofing job’s payment and performance bonds and held
Castle’s two checks for these bonds.
Contractors are generally paid for their work and materials on
a monthly basis by submitting a progress payment claim. See 48
C.F.R. § 52.232-5(b). Furthermore, the Federal Acquisition
Regulations provide that the government shall, upon request,
reimburse the contractor for the cost of the payment and
performance bonds upon furnishing the government evidence that the
sureties received full payment. 48 C.F.R. § 52.232-5(g).
Upton and Castle submitted to the government a request for
reimbursement of the bond costs on both contracts. As evidence
that the bonds had been paid, Upton attached the paid invoices from
Benefax. These invoices showed that Benefax had received
$27,047.40 from Castle for Contract 47 and $12,793 for Contract 52
and that Castle owed nothing on the bonds. The Air Force then
issued checks of $27,047.40 and $12,793 to “reimburse” the payment
of these premiums or bond costs. Castle never completed the
roofing jobs and the sureties did not honor their contractual
commitments.
The Grand Jury returned an eight count indictment. Counts one
through four charged Barrick, Upton, Castle Construction, and
Benefax Surety Corporation5 with conspiracy to defraud and
knowingly submitting false claims to the Air Force on two different
construction contracts in violation of 18 U.S.C. §§ 286, 287 and 2.
Count five charged Barrick, Benefax, and Susan K. Frericks a/k/a
5
Benefax did not appeal its conviction.
6
Susan K. Barrick6 with knowingly and wilfully making false
statements to the Air Force in violation of 18 U.S.C. §§ 1001 and
2. Counts six and seven charged Barrick, Benefax, and Roland Aaron
Maness7 with knowingly and wilfully making false statements to the
Air Force in violation of 18 U.S.C. §§ 1001 and 2. Count eight
charged Benefax and Maness with presenting a falsely made, forged
or counterfeit writing to the Air Force in violation of 18 U.S.C.
§§ 494 and 2. The jury found Barrick, Upton, and Castle guilty on
all charged counts. Barrick, Upton, and Castle filed timely
appeals to their convictions and sentences.
II. Discussion
A. Sufficiency of the Evidence
Barrick, Upton and Castle Construction contend that the
evidence was insufficient to support their convictions for
conspiracy and submitting false claims to the Air Force in
violation of 18 U.S.C. §§ 286, 287 and 2. As a general rule we owe
great deference to the jury’s verdict. United States v. Walters,
1996 WL 350701, *4 (5th Cir. 1996). We review a defendant’s claim
that evidence was insufficient to support a verdict in the light
most favorable to that verdict and we will affirm the conviction
“``if a rational trier of fact could have found that the government
6
Susan K. Frericks a/k/a Susan K. Barrick pled guilty to a
misdemeanor for her role in improperly notarizing the surety’s
affidavit for Contract 52. She notarized the affidavit without
being in the presence of the surety, McGuffin.
7
The jury found Roland Aaron Maness not guilty on all
charged counts.
7
proved all essential elements of the crime beyond a reasonable
doubt.’” United States v. Schuchmann, 84 F.3d 752, 754 (5th Cir.
1996) (quoting United States v. Castro, 15 F.3d 417, 419 (5th
Cir.), cert. denied, 115 S. Ct. 127 (1994)).
In order to sustain a conviction under the substantive count
for filing false, fictitious or fraudulent claims to the United
States under 19 U.S.C. § 287, the government must prove: “(1) that
the defendant presented a false or fraudulent claim against the
United States; (2) that the claim was presented to an agency of the
United States; and (3) that the defendant knew that the claim was
false or fraudulent.” United States v. Okoronkwo, 46 F.3d 426, 430
(5th Cir., cert. denied, 116 S. Ct. 1107 (1995). To sustain the
conspiracy part of this conviction under 18 U.S.C. § 286, the
government must prove: “(1) that there was a conspiracy to defraud
the United States; (2) that the defendant knew of the conspiracy
and intended to join it; and (3) that the defendant voluntarily
participated in the conspiracy.” Id.
In this case, the record shows that ample evidence exists to
support appellants’ convictions. Appellants do not contest the
first two prongs of their § 287 conviction, i.e., that a false
claim was submitted, and that the claim was presented to an agency
of the United States. Appellants argue that they did not know that
the claim was false or fraudulent. Their contention rests on the
alleged ambiguity of the term “payment” as it relates to the
payment and performance bonds under the Federal Acquisition
Regulations (FARs), 48 C.F.R. § 52.232-5 (1986).
8
Section 52.232-5(g) states: “In making these progress
payments, the Government shall, upon request, reimburse the
Contractor for the amount of premiums paid for performance and
payment bonds (including coinsurance and reinsurance agreements,
when applicable) after the Contractor has furnished evidence of
full payment to the surety.” 48 C.F.R. § 52.232-5(g). Appellants
contend that on December 4, 1989, Benefax agreed to accept the two
checks from Castle in full payment for the Miller Act bonds.
Appellants then agreed that Benefax would not negotiate these
checks until Upton obtained outside financing. Because the parties
allegedly believed that Castle’s writing of these checks
constituted payment for the bonds, Castle then submitted claims to
the Air Force for reimbursement of the bond costs.
Appellants argue that the language of the Federal Acquisition
Regulations is ambiguous in that § 52.232-5(g) requires a
contractor to furnish evidence of full “payment” to the surety and
does not require the contractor to have “incurred the cost” of the
bond. We disagree. The plain language of § 52.232-5(g) provides
for the reimbursement of bond premiums. Reimbursement necessarily
implies that something has been paid which requires compensation
for money spent.8
Furthermore, sufficient evidence exists upon which a rational
trier of fact could have found that appellants never planned on
8
Webster’s defines “reimburse” as “1. to repay; 2. to pay
back or compensate (a person) for money spent or for losses or
damages incurred.” WEBSTER’S II NEW RIVERSIDE UNIVERSITY DICTIONARY 991
(1984).
9
cashing these checks and that their “good faith” misunderstanding
of the Federal Acquisition Regulation was, in reality, a scheme to
defraud the government. Upton faxed a letter dated October 5,
1989, to Benefax stating that per their “agreement,” Castle’s first
priority was to pay Benefax for the bond premiums from Contracts 47
and 52 through use of the first draw from the Air Force. The first
draw was to cover Castle’s bonding and mobilization costs. Upton
also signed a note to Barrick which referred to their “agreement”
and asked Barrick not to deposit the checks until there was a
complete wire transfer of funds. In the note, Upton also asked for
a “paid in full” invoice to bill the Air Force. Further, the
government elicited evidence of Upton’s bookkeeping tactics. Upton
listed the bond checks as non-debits, essentially acknowledging
that those checks would not be cashed. Upton also explained to one
of the sureties, Kinser, that he could not pay for the bonds before
the job started but that he would get the money from draws against
the Air Force and then repay Benefax who would then pay Kinser.
Barrick also told Kinser that he would have to wait until Upton
received his first draw from the Air Force to receive payment for
the bond. Barrick admitted to Agent Eddingfield that, in his
business, contractors obtained bonds with the understanding that
the checks for the bonds would not be negotiated until the
contractor recovered draws from the job.
Testimony from M. Lee Shaffer, a special agent with the Air
Force Office of Special Investigations, and Kim Taylor, Castle’s
office manager/bookkeeper, revealed that Upton never intended for
10
the bond payment checks to be cashed. Upton, in fact, fired Taylor
for asking questions about the bookkeeping surrounding these checks
and why the checks were recorded as zero debit transactions. Ellen
Neal, an accountant hired by Upton in February 1990, also
questioned certain record-keeping practices by Upton and was
terminated. Based on these facts, the jury did not have to accept
the contentions of Barrick and Upton that there were no false
claims on the reimbursement of Contracts 47 and 52 because Upton
presented checks to Benefax for the payment of the bond fees.
Even though these checks were never cashed, appellants contend
that the paid-in-full invoices were not false and Barrick and Upton
did not intend to defraud the government by seeking reimbursement.
However, ample evidence suggests that Barrick did engage in a
scheme whereby under-funded contractors, such as Upton, could
obtain construction contracts and improperly obtain “loans” from
the government for the bond fees. This scheme permitted under-
funded construction companies to receive contract jobs that they
were unable to financially support. Therefore, considering the
evidence in a light most favorable to the jury verdict and
affording the government all reasonable inferences and credibility
choices, we hold that the government presented sufficient evidence
to show that Barrick, Upton, and Castle knew that the reimbursement
claims submitted to the Air Force for the two contract bonds were
false claims. Based on the facts in this record, a jury could
reasonably conclude that appellants engaged in a conspiracy to
defraud the Air Force by seeking reimbursement for these false
11
claims.
B. Jury Instructions
Next, appellants contend that the district court erred in
refusing to charge the jury on “good faith” and “ambiguity.”9 “We
afford the district court substantial latitude in formulating the
jury instructions and review a district court’s refusal to give a
requested instruction for abuse of discretion.” United States v.
Smithson, 49 F.3d 138, 142 (5th Cir. 1995) (citing United States v.
Chaney, 964 F.2d 437, 444 (5th Cir. 1992)). To successfully
challenge the district court’s refusal to include a requested
instruction, the appellants must show that their instruction “(1)
was a correct statement of the law, (2) was not substantially
covered in the charge as a whole, and (3) concerned an important
point in the trial such that the failure to instruct the jury on
the issue seriously impaired the defendant’s ability to present a
given defense.” Id.
Appellants objected to the district court’s refusal to include
“good faith” and “ambiguity” in the jury instructions and now argue
that the district court’s failure to give these instructions
seriously impaired their ability to present a “good faith” defense.
9
Barrick also contends that the district court erred in
failing to submit “willfully” to the jury as to the aiding and
abetting counts, 18 U.S.C. § 2. The district court’s instructions
followed the Fifth Circuit’s pattern instructions for these counts
and were correct statements of the law. Therefore, we find no
error with the district court’s instructions as to 18 U.S.C. § 2.
12
We disagree. This Circuit permits a district court to refuse to
submit an instruction regarding a good faith defense if the defense
“is substantially covered by the charge given and the defendant has
had the opportunity to argue good faith to the jury.” United
States v. Giraldi, 1996 WL 339177, *8 (5th Cir. 1996); and see
United States v. Storm, 36 F.3d 1289, 1294 (5th Cir. 1994), cert.
denied, 115 S. Ct. 1798 (1995). Both Barrick and Upton presented
testimony and evidence in support of their good faith belief or
understanding that the bond fees had been paid by Castle
Construction’s checks. Appellants were permitted to argue that,
based on this belief, they never intended to defraud the
government.
The good faith defense was also substantially covered by the
charge. The district court instructed the jury on “knowingly” and
“willfully.” The jury was instructed that “knowingly” “means that
the act was done voluntarily and intentionally and not because of
mistake or accident.” “Willfully” or “willingly” was defined to
“mean that the act was committed voluntarily and purposely, with
the specific intent to do something the law forbids - that is to
say, with bad purpose either to disobey or disregard the law.”
Appellants’ good faith defense was substantially covered by the
charge given and was argued to the jury. As such, we hold that the
district court did not abuse its discretion by charging the jury in
this manner.
Appellants also argue that the district court erred in failing
to instruct the jury on “ambiguity” as it relates to the term
13
“payment” under the Federal Acquisition Regulations § 52.232-5(g)
because “payment” is not defined by the regulations.10 The district
court refused to allow the jury to decide the meaning of “payment”
in § 52.232-5(g). The district court stated: “It borders on the
absurd to give an instruction to the jury as to -- they determine
regulations and statutes ambiguous. This was either a false claim
or not. The Government’s position is far more plausible than
[appellants], and that is that I should determine, as a matter of
law, payment, and then just submit the issue.”
We hold that the district court correctly refused to allow the
jury to interpret § 52.232-5(g). See United States v. Vidaure, 861
F.2d 1337, 1340 (5th Cir. 1988), cert. denied, 489 U.S. 1088
(1989). In Vidaure, we affirmed a district court’s refusal to
instruct the jury on whether aggravated robbery met the statutory
definition of the term “violent felony” under 18 U.S.C. § 924
because the answer did not depend on probative value of the
evidence but instead depended on an interpretation of the statute.
Id. Similarly, the district court in this case refused to submit
an instruction on the term “ambiguity” as it relates to the term
“payment” under the Federal Acquisition Regulations because the
definition of the term “payment” depends on an interpretation of
10
Barrick also contends that the district court erred in
denying his motion for judgment of acquittal based on evidence that
“payment” is an ambiguous term. Barrick fails to cite to authority
or present record references in support of his contention. We
decline to reach the merits of this argument because claims made
without citation to authority or references to the record are
considered abandoned on appeal. United States v. Ballard, 779 F.2d
287, 295 (5th Cir.), cert. denied, 475 U.S. 1109 (1986).
14
the statute and, as such, is a question of law for the court to
decide. Id. For the foregoing reasons, we agree that the
definition of the term “payment” under § 52.232-5(g) is a matter of
statutory interpretation and was correctly decided by the court as
a matter of law.
C. Materiality as an Element of 18 U.S.C. § 287
Barrick maintains that United States v. Gaudin, 115 S. Ct.
2310, 2320 (1995), which required the jury to determine materiality
under 18 U.S.C. § 1001, also applies to § 287. Barrick argues that
the district court committed plain error by failing to submit the
question of materiality under § 287 to the jury. This court has
not expressly addressed whether materiality is an element of § 287.
See United States v. Haynie, 568 F.2d 1091, 1092 (5th Cir. 1978)
(“[T]he issue of whether materiality is an element of a section 287
charge has not been squarely presented to and decided by this
court.”). In Haynie, we concluded without deciding that, if
materiality is an element of § 287, “the issue is one for the trial
judge to handle as a question of law.” id.; and see United States
v. White, 27 F.3d 1531, 1534 (11th Cir. 1994) (quoting same)
(holding that it is unnecessary to determine whether materiality is
an element under § 287 because the forged signatures are material
as a matter of law).11
11
Although we find the Eleventh Circuit’s decision in White
instructive, we are compelled to reach the issue of whether
materiality is an element of § 287 after the Supreme Court’s
decision in Gaudin.
15
After Gaudin, materiality is considered a question of fact for
the jury to decide. Gaudin, 115 S. Ct. at 2313-2320. Therefore,
first we must determine whether materiality is an element of § 287
and, if so, we must then ascertain whether the district court
committed plain error by failing to submit the question of
materiality to the jury. Four Circuit Courts have addressed this
issue reaching two different conclusions.12 Compare United States
v. Wells, 63 F.3d 745, 750 (8th Cir. 1995) (holding that
materiality is an essential element of a § 287 charge), cert.
granted, 116 S. Ct. 1540 (1996), and United States v. Snider, 502
F.2d 645, 652 n.12 (4th Cir. 1974) (same) with United States v.
Taylor, 66 F.3d 254, 255 (9th Cir. 1995) (holding that while § 1001
expressly makes materiality an element of the offense, § 287 does
not and Gaudin does not apply to a § 287 conviction), United States
v. Parsons, 967 F.2d 452, 455 (10th Cir. 1992) (holding that
materiality is not an element required by § 287) and United States
v. Elkin, 731 F.2d 1005, 1009 (2d Cir. 1984) (same), cert. denied,
469 U.S. 822 (1984).
In making our own determination of whether materiality is an
element of § 287, we look to the plain language of the statute.
12
We acknowledge that the Supreme Court has granted
certiorari in United States v. Wells, 116 S. Ct. 1540 (1996), on
the issue of whether materiality is an element of 18 U.S.C. 1041,
the crime of making false statements for the purpose of influencing
a federally insured banking institution. As in 18 U.S.C. § 287,
materiality is not explicitly included in the definition in § 1041.
Therefore, the Supreme Court’s decision in Wells may influence this
case and others that have wrestled with the scope of Gaudin’s
holding concerning materiality. However, we do not believe that the
decision in this case should be stayed pending the Supreme Court’s
decision in Wells.
16
Section 287 states:
Whoever makes or presents to any person or officer
in the civil, military, or naval service of the
United States, or to any department or agency
thereof, any claim upon or against the United
States, or any department or agency thereof,
knowing such claim to be false, fictitious, or
fraudulent, shall be imprisoned not more than five
years and shall be subject to a fine in the amount
provided in this title.
18 U.S.C. § 287 (Supp. 1995). The plain language of this provision
in no way suggests that materiality is an element of the offense.
“When we find the terms of a statute unambiguous, judicial inquiry
is complete except in rare and exceptional circumstances.”
Demarest v. Manspeaker, 498 U.S. 184, 190, 111 S. Ct. 599, 604
(1991) (citations omitted). The plain language of a statute must
be followed unless the language is “so bizarre that Congress could
not have intended it.” Id. at 191, 111 S. Ct. at 604. We there-
fore agree with our sister Circuits’ decisions in Taylor, 66 F.3d
at 255, Parsons, 967 F.2d at 455, and Elkin, 731 F.2d at 1009, and
hold that materiality is not an element of 18 U.S.C. § 287. Accord
United States v. Irwin, 654 F.2d 671, 682 (10th Cir. 1981) (the
legislative history of § 287 does not indicate that Congress
intended to make materiality an element of the statute), cert.
denied, 455 U.S. 1016 (1982). Because we hold that materiality is
not an element of § 287, Barrick’s argument that the district court
committed error by not submitting the question of materiality to
the jury fails.
D. Materiality as an Element of 18 U.S.C. § 1001
17
The jury found Barrick guilty of counts five, six, and seven
for making false statements in violation of 18 U.S.C. § 1001.
Prior to Ray v. United States, 481 U.S. 736, 737, 107 S. Ct. 2093,
2093-94 (1987), once a defendant's conviction on a single count has
been sustained, it was not necessary for the appellate court to
reach the merits of the other counts. See, e.g., United States v.
Strickland, 509 F.2d 273 (5th Cir. 1975) (explaining the concurrent
sentence doctrine). However, under Ray, the district court's $50
assessment for each count serves as a collateral consequence of
those convictions and, in this case, forces us to consider
Barrick's remaining arguments. Ray, 481 U.S. at 737, 107 S. Ct. at
2093-94.
At the time of trial, this circuit had held that materiality
was an element of § 1001, but it was considered a question of law
for the court to decide. United States v. Hausmann, 711 F.2d 615,
617 (5th Cir. 1983). Based on this prior precedent, Barrick did
not object to district court's failure to charge the jury on
materiality. When the Supreme Court decided Gaudin, which was
after Barrick's trial but before the case was argued on appeal,
materiality became a question of fact for the jury to decide.
Gaudin, 115 S. Ct. at 2320. We review the district court's failure
to charge the jury on the question of materiality under § 1001 for
plain error when a defendant fails to object to the district
court's tendered instruction. United States v. Jobe, 77 F.3d 1461,
1475 (5th Cir. 1996) (failure to object to a district court's
instruction requires a review for plain error).
18
Under plain error review, the petitioner must show that: (1)
error occurred; (2) the error was clear or obvious; and (3) the
error affected the petitioner's substantial rights. United States
v. Calverley, 37 F.3d 160, 162-64 (5th Cir. 1994) (en banc) (citing
United States v. Olano, 113 S. Ct. 1770, 1776-79 (1993)), cert.
denied, 115 S. Ct. 1266 (1995). The Supreme Court has added what
amounts to a fourth factor, that is, even if the petitioner
establishes these first three factors, a reviewing court “need not
exercise its discretion to correct the error unless it seriously
affects the fairness, integrity, or public reputation of judicial
proceedings.” Jobe, 77 F.3d at 1476 (citing Olano, 113 S. Ct. at
1778). Therefore, even if we assume that Barrick has shown that
error occurred; that the error was clear or obvious; and that the
error affected the petitioner's substantial rights, we may exercise
our discretion to sustain the conviction. Id.
After a complete review of the record, we cannot say that the
Gaudin error affected the fairness, integrity, or public reputation
of these judicial proceedings. Consequently, we decline to
exercise our discretion to correct the error in Barrick’s
conviction under § 1001.
E. Restitution: Upton and Castle Construction
Upton and Castle argue that the district court erred in
ordering restitution to materialmen and supplier “victims” not
19
named in the indictment.13 Appellants recognize that United States
v. Pepper, 51 F.3d 469, 473 (5th Cir. 1995), expressly allows for
restitution to be ordered for unnamed victims of a crime when the
scheme is specifically defined in the indictment. However,
appellants maintain that, in this case, the “scheme” was limited to
obtaining two roofing contracts. They assert that the district
court’s restitution assessment illogically extends Pepper to
include restitution for all losses that occurred as a result of
their successful bids on the roofing contracts. Appellants
maintain that the materialmen and suppliers are not victims of the
scheme alleged in the indictment but were merely victims of
Castle’s failure to complete the roofing jobs.
We agree. “Restitution for victims can only be awarded for
the loss caused by the specific offense that is the basis of the
offense of conviction.” Pepper, 51 F.3d at 473 (citing Hughey v.
United States, 495 U.S. 411, 413, 110 S. Ct. 1979, 1981 (1990)).
In the present case, Upton and Castle were convicted of conspiracy
to defraud the United States and of presenting false claims to the
United States in violation of 18 U.S.C. §§ 286, 287 and 2. The
charges involved the submission of fraudulent reimbursement claims
relating to bond fees for two government roofing contracts.
Nothing in the indictment suggests that the criminal conduct of
fraudulently obtaining these contracts caused losses to materialmen
13
Barrick did not raise the issue of whether the district
court properly ordered restitution on appeal. Consequently, he has
waived that issue. United States v. Miller, 952 F.2d 866, 874 (5th
Cir.), cert. denied, 505 U.S. 1220 (1992).
20
and suppliers.
The record shows that Upton and Castle completed 92 percent of
contract 47 and 78 percent of contract 52. Uncontroverted evidence
supports Upton and Castle Construction’s argument that the United
States Department of Labor froze all progress payments to Castle on
these contracts because of labor union wage disputes with its
employees. As a result, Castle walked off the job, but that
occurred seven months after it made the fraudulent claims to the
Air Force. No evidence suggests that the losses sustained by the
materialmen and suppliers were related to the fraudulent claims
charged in this indictment. Consequently, we hold that the
district court erred in ordering restitution for the materialmen
and suppliers not named in the indictment and vacate the
restitution assessments for materialmen and suppliers who suffered
losses due to Castle’s failure to complete the roofing jobs.
F. Other Sentencing Issues
1. Obstruction of Justice
Barrick maintains that the district court erred in imposing a
two level increase in his offense level for obstruction of justice
based on his failure to produce subpoenaed corporate records and
his lies to the grand jury that he had produced all relevant
records. See United States Sentencing Commission, Guidelines
Manual, § 3C1.1 (Nov. 1995). Barrick contends that, during plea
negotiations, the government discovered that he had not produced
certain records and that he had lied to the grand jury. Because
21
the government gained this information during plea negotiations,
the production of records and the veracity of his statements to the
grand jury should have been excluded from evidence under FED. R.
CRIM. P. 11(e)(6)(D)14 and U.S.S.G. § 1B1.8.15
We afford a district court great deference in its application
of the sentencing guidelines. Storm, 36 F.3d at 1295. A finding
of obstruction of justice under § 3C1.1 is a factual finding
reviewed for clear error. Id. However, we review the district
court’s interpretation or application of the sentencing guidelines
de novo. United States v. Tedder, 81 F.3d 549, 550 (5th Cir.
1996). In this case, Barrick erroneously relies on Rule
11(e)(6)(D) for protection from his false testimony before two
14
Rule 11(e)(6)(D) states:
(6) Inadmissibility of Pleas, plea Discussions, and
Related Statements. Except as otherwise provided in
this paragraph, evidence of the following is not,
in any civil or criminal proceeding, admissible
against the defendant who made the plea or was a
participant in the plea discussions:
. . .
(D) any statement made in the course of plea
discussions with an attorney for the government
which do not result in a plea of guilty or which
result in a plea of guilty later withdrawn.
15
U.S.S.G. § 1B1.8 states:
(a) Where a defendant agrees to cooperate with the
government by providing information concerning
unlawful activities of others, and as part of that
cooperation agreement the government agrees that
self-incriminating information provided pursuant to
the agreement will not be used against the
defendant, then such information shall not be used
in determining the applicable guideline range,
except to the extent provided in the agreement.
22
grand juries. The district court held hearings, heard witnesses,
and made extensive findings on Barrick’s two level increase in
offense level for obstruction of justice. The district court
explained:
Well, the objection with regard to the
recommendation of the Probation Department on
obstruction of justice is overruled. I find
factually that the testimony of Mr. Barrick in the
grand jury on Page 11 of Exhibit 11, quote, “[a]nd
there is no one else that would have any records to
your knowledge that pertain to Benefax? Answer: No,
sir. Or to Fidelity and Surety? Answer: No, sir.
Question: United Fidelity, was that the other
business?
Answer: United Fidelity and Trust Company.
Question: All right, sir. Obviously what we’re
trying to establish on this record is that we have
obtained all of the records which were sought in
the subpoena. And I take it you are willing to
assure us that you have complied fully with the
subpoena and there are no other records in
existence to your knowledge?
Answer: That is correct.”
That that [sic] was false testimony as the
undisputed evidence establishes clearly that there
were mounds of other evidence.
And then again on July 15, 1992, on Page 7 of
Exhibit 10, Line 24, “So that your testimony is you
have fully complied now with Items Number 3 and 4
and previously fully complied with Items 1 and 2?
That is correct.”
Even at that time there were more records
available that were delivered.
I also find factually that in light of the
failure to provide these records, which obviously
delayed the prosecution of this case and the
investigation by the grand jury and the
presentation of charges, so that ultimately these
cases are what I call stale. We are trying them in
23
1994 for events that occurred years before -- that
Mr. -- that one of the results and purposes of Mr.
Barrick ultimately was to attempt to negotiate a
favorable plea agreement before the Government had
all of the financial information and could see the
extent and duration of the criminal offenses that
were involved in this.
So I will sustain the recommendation of the
Probation Department with regard to the obstruction
of justice.
Barrick’s reliance upon FED. R. CRIM P. 11(e)(6)(D) to shield
him from an increase in offense level for obstruction of justice is
misplaced. We have held that Rule 11(e)(6)(D) and FED. R. EVID.
410(4) do not prohibit statements made during plea negotiations to
be used during sentencing. United States v. Paden, 908 F.2d 1229,
1234-35 (5th Cir. 1990), cert. denied, 498 U.S. 1039 (1991); and
see United States v. Medina-Estrada, 81 F.3d 981, 985-86 (10th Cir.
1996) (holding same). The two rules are virtually identical and
deserve the same treatment for purposes of their application to
sentencing proceedings. Id.; and see J. Moore & H. Bendix, MOORE’S
FEDERAL PRACTICE § 410.01[1.1] (2d ed. 1981) (suggesting that FED. R.
CRIM. P. 11(e)(6)(D) and FED. R. EVID. 410 should be treated the
same).
In Paden, we also stated that “[a]t sentencing, the district
court may rely upon evidence of defendant’s credibility and
responsibility that is ``sufficiently reliable.’” Paden, 908 F.2d
at 1225. In the present case, Barrick told the government that he
lied to the grand jury about submitting all records requested in
the subpoena. The district court correctly found these statements,
made by Barrick himself, to be sufficiently reliable and used them
24
at sentencing to increase Barrick’s offense level for obstruction
of justice. After reviewing the record, we are convinced that the
district court committed no error.
Barrick also argues that the district court erred in
increasing his offense level for obstructive conduct unrelated to
his offense of conviction. Barrick maintains that his false grand
jury testimony did not relate to the instant case and, as such,
should not be considered in applying § 3C1.1. However, the
enhancement for obstruction of justice under § 3C1.1 is proper any
time the defendant is aware of the action or investigation against
him and he conceals or attempts to conceal information material to
the investigation, prosecution, or sentencing of the instant
offense. United States v. Lister, 53 F.3d 66, 71 (5th Cir. 1995).
In this case, the obstruction enhancement was based on Barrick’s
untruthful testimony to the grand jury and his failure to produce
all relevant documents ordered by a subpoena. Even if we assume
that Barrick’s untruthful testimony and failure to produce certain
documents were unrelated to the offense of conviction, § 3C1.1 does
not require the obstructive conduct to be directly related to the
offense of conviction. Id. A sufficient nexus appears here. For
these reasons, we hold that the district court did not err in
increasing Barrick’s offense level for obstruction of justice under
U.S.S.G. § 3C1.1.16
16
Because we find no error in the district court’s
application or findings concerning U.S.S.G. § 3C1.1, we need not
address Barrick’s other arguments contesting the obstruction
enhancement.
25
2. “Organizer” of Criminal Activity
Barrick contends that the district court erred in determining
that he was a “leader” or “organizer” under U.S.S.G. § 3B1.1 and,
therefore, subject to a four level increase in offense level. We
review a district court’s finding that a defendant was a “leader”
or “organizer” for clear error. United States v. Gaytan, 74 F.3d
545, 561 (5th Cir. 1996).
Barrick’s argument appears to focus on his contention that he
was not a “leader” and that his organizational role in this offense
merely characterized him as a “middleman,” not subject to the four
level enhancement. We find this argument unpersuasive. The
district court clearly identified Barrick as an “leader” or
“organizer” under the guidelines. The court stated:
[A]s far organizers, I’ve got Mr. Barrick’s
daughter. The office manager had to know what was
going. [sic] Mr. Maness, even though he was
acquitted, was involved. Mr. Upton, Mr. Kinser,
Mr. McGuffin, Mr. Singh, Pam McDaniel, who is the
office manager; and at least five or six of the
other sureties that I’ve heard in evidence that
aren’t identified by name in the presentence
report, but that I’ve heard; and two of whom, --
Mr. Kelvington has indicated -- like Mr. Singh,
didn’t even come close on their assets. . . .I see
the organizer of five persons as a person who, in a
criminal activity does organize and use five people
for the criminal event, and there is no question
that Mr. Barrick did that with regard to the
sureties, the presentation of those records to the
Government. There are far more than five involved
in these criminal activities -- sureties that
couldn’t cover large overdrafts, much less the
millions of dollars that they were on in the
individual sureties.
United States Sentencing Guidelines § 3B1.1, comment. (n.4) lists
the following factors for a court to consider in determining
26
whether a defendant acted as a “leader” or “organizer:”
the exercise of decision making authority, the
nature of the participation in the commission of
the offense, the recruitment of accomplices, the
claimed right to a larger share of the fruits of
the crime, the degree of participation in planning
or organizing the offense, the nature and scope of
the illegal activity, and the degree or control and
authority exercised over others.
After a thorough review of the record, we find it replete with
evidence supporting the district court’s finding that Barrick meets
some, if not all, of these requirements. Therefore, we find no
clear error.
CONCLUSION
Barrick’s conviction and sentence is AFFIRMED on all counts.
Upton and Castle Construction’s convictions are AFFIRMED on all
counts. Upton and Castle Construction’s sentences with respect to
restitution are VACATED and REMANDED for recalculation consistent
with this opinion. All other sentences are AFFIRMED.
AFFIRMED in part and VACATED and REMANDED in part.
27