United States v. Kwame Kilpatrick

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 15a0186p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
UNITED STATES OF AMERICA, ┐
Plaintiff-Appellee, │
│
│ Nos. 13-2500;14-1120
v. │
>
│
KWAME M. KILPATRICK (13-2500); BOBBY W. │
FERGUSON (14-1120), │
Defendants-Appellants. │
┘
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 2:10-cr-20403—Nancy G. Edmunds, District Judge.
Argued: January 13, 2015
Decided and Filed: August 14, 2015
Before: SILER, GRIFFIN, and WHITE, Circuit Judges.
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COUNSEL
ARGUED: Harold Gurewitz, GUREWITZ & RABEN, PLC, Detroit, Michigan, for Appellant
in 13-2500. Susan W. Van Dusen, Coral Gables, Florida, for Appellant in 14-1120. Andrew
Goetz, UNITED STATES ATTORNEY’S OFFICE, Detroit, Michigan, for Appellee. ON
BRIEF: Harold Gurewitz, GUREWITZ & RABEN, PLC, Detroit, Michigan, for Appellant in
13-2500. Susan W. Van Dusen, Coral Gables, Florida, Gerald K. Evelyn, Detroit, Michigan, for
Appellant in 14-1120. Andrew Goetz, UNITED STATES ATTORNEY’S OFFICE, Detroit,
Michigan, for Appellee.
1
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OPINION
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SILER, Circuit Judge. Codefendants Kwame Kilpatrick, former mayor of Detroit, and
Bobby Ferguson, a Detroit contractor, challenge their jury convictions for bribery, extortion,
mail and wire fraud, RICO conspiracy, and tax evasion. The issues are whether: (1) Kilpatrick
was denied his constitutional right to conflict-free counsel because his two lead attorneys had
recently become “of counsel” to a firm that was suing Kilpatrick for alleged conduct related to
his criminal charges; (2) the extensive testimony by two case agents violated the Rules of
Evidence; (3) the district court erred when it allowed witnesses to report what other people had
told them about Kilpatrick and Ferguson as evidence that the witnesses feared the defendants;
and (4) the district court erred by ordering Kilpatrick to pay restitution to the Detroit Water &
Sewerage Department and to the IRS. For the reasons that follow, we AFFIRM the convictions,
but VACATE and REMAND the restitution order.
I. INTRODUCTION
The trial of Kilpatrick, Ferguson, and Bernard Kilpatrick (Kilpatrick’s father, who is not
a party in this appeal) transpired from September 2012 to March 2013. The six-month
proceeding included almost 100 government witnesses and over 700 exhibits, and encompassed
10,000 pages of transcripts. The jury found Kilpatrick guilty of 24 of the 30 counts against him.
These include one count of RICO conspiracy, 18 U.S.C. § 1962(d); four counts of extortion,
18 U.S.C. § 1951; one count of attempted extortion, 18 U.S.C. § 1951; one count of bribery,
18U.S.C. § 666(a); eleven counts of mail and wire fraud, 18 U.S.C. §§ 1341, 1343; five counts of
subscribing a false tax return, 26 U.S.C. § 7206(a); and one count of income tax evasion,
26 U.S.C. § 7201. The jury found Ferguson guilty of nine out of eleven counts: one count of
RICO conspiracy, 18 U.S.C. § 1962(d); six counts of extortion, 18 U.S.C. § 1951; one count of
attempted extortion, 18 U.S.C. § 1951; and one count of bribery, 18 U.S.C. § 666(a).
Kilpatrick and Ferguson then moved for a new trial. Among their grounds for relief were
the first three arguments they now make to this court. The district court denied the motion.
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The issues in this appeal do not require a detailed explanation of the charges and the
evidence. Suffice it to say that the government’s main theory was that Kilpatrick and Ferguson
conspired to extort money from other Detroit-area contractors by pressuring them to include
Ferguson’s companies in their city contracts—even when Ferguson’s companies were not the
most qualified candidates and even when Ferguson’s companies did no work.
II. KILPATRICK’S ATTORNEYS
We turn first to Kilpatrick’s claim that he was denied his constitutional right to conflict-
free counsel. This claim concerns Kilpatrick’s lead trial attorneys, James Thomas and Michael
Naughton. Kilpatrick initially hired Thomas in 2008 to represent him in other matters. After
Kilpatrick was indicted in this case, the district court—upon Kilpatrick’s request—appointed
Thomas and Naughton to serve as his counsel under the Criminal Justice Act.
A. FACTS
From 2005 to 2010, the year of Kilpatrick’s indictment, Thomas represented Gaspar
Fiore. Fiore eventually became a victim-witness in the government’s investigation of Kilpatrick
and Ferguson.
In July 2011, the Macomb Interceptor Drain Drainage District filed a civil complaint
against Kilpatrick as lead defendant in a case involving the Macomb Drain project—one of the
city sewer department projects that was an issue in the criminal case. The plaintiff’s counsel in
that lawsuit was the firm of O’Reilly Rancilio P.C. (“the O’Reilly Firm”). Although Kilpatrick
did not retain Thomas and Naughton to represent him in the civil case, Thomas and Naughton
filed Kilpatrick’s answer to prevent default. In April 2012, Thomas and Naughton became “of
counsel” attorneys with the O’Reilly Firm. Accordingly, they obtained an order from the court
in the civil suit allowing them to withdraw from representing Kilpatrick. Naughton certified that
he served Kilpatrick with a copy of the order and indicated Kilpatrick acknowledged receipt of
the order. In August 2012, shortly before the criminal trial, Kilpatrick told the district court that
he wanted Thomas to withdraw on account of Thomas’s previous representation of Fiore and a
breakdown in the attorney-client relationship.
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The court asked for briefing on all possible conflicts and held a hearing on August 14,
2012 (an earlier conflict hearing on August 7 did not concern the O’Reilly Firm issue). Thomas
told the court he could not ethically cross-examine his former client Fiore. He also explained
that he and Naughton maintained a separate office from the O’Reilly Firm, had separate
electronic filings systems, and had no financial ties to the Macomb Drain litigation.
To alleviate the apparent conflict, the government agreed to withdraw the charges that
concerned Fiore. Additionally, the court appointed a separate attorney to cross-examine the
witnesses related to the Macomb Drain project.1 In light of these safeguards and the uncontested
evidence that Thomas and Naughton had separate offices and separate physical and electronic
filing systems from the O’Reilly Firm and no financial relationship to the Macomb Drain
litigation, the district court declined to disqualify Kilpatrick’s attorneys.
The district court also considered Kilpatrick’s claim that he had lost trust in his attorneys
and could no longer work with them. The court denied Kilpatrick’s motion to replace his
attorneys, finding that it was merely a tactic to delay the trial. Kilpatrick does not appeal this
aspect of the decision.
The criminal trial began on September 6, 2012. On October 31, 2012, the court in the
civil case dismissed all claims against Kilpatrick. On February 11, 2013, the day closing
arguments began in the criminal trial, the court in the civil case denied the plaintiff’s motion for
reconsideration.
On appeal, Kilpatrick points out that the civil suit incorporated allegations from
Kilpatrick’s indictment, and that the civil plaintiff attempted to amend its complaint during the
criminal trial, drawing on evidence that was being developed during that trial. Thomas and
Naughton, Kilpatrick explains, “were defending Kilpatrick in the criminal case on the very same
alleged acts of corruption that the firm to which they were of counsel sought to establish in a
parallel civil suit.”
1
That attorney was Harold Gurewitz, who represents Kilpatrick in this appeal.
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B. ANALYSIS
Kilpatrick contends that (1) Thomas and Naughton had an actual conflict of interest due
to the O’Reilly Firm’s simultaneous representation of the plaintiff in the civil suit, which he
argues deprived him of the effective assistance of counsel; and (2) the district court failed to
thoroughly investigate and resolve the attorneys’ conflicts.
Whether counsel rendered ineffective assistance is a mixed question of law and fact that
we review de novo. McFarland v. Yukins, 356 F.3d 688, 699 (6th Cir. 2004). We review the
district court’s underlying factual findings for clear error. Id.
The Sixth Amendment’s right to counsel includes a “correlative right to representation
that is free from conflicts of interest.” Wood v. Georgia, 450 U.S. 261, 271 (1981). For most
ineffective-assistance-of-counsel claims, the defendant must prove both (1) deficient
performance and (2) prejudice to warrant reversal of a conviction. Strickland v. Washington,
466 U.S. 668, 687 (1984). But conflict-of-interest claims warrant a modified Strickland analysis.
Moore v. Mitchell, 708 F.3d 760, 777 (6th Cir.), cert. denied sub nom. Moore v. Robinson, 134 S.
Ct. 693 (2013). When assessing alleged conflicts of interest, courts presume prejudice exists if
the defendant demonstrates that counsel “actively represented conflicting interests” and that this
“actual conflict of interest adversely affected” the lawyer’s performance. Burger v. Kemp,
483 U.S. 776, 783 (1987) (quoting Strickland, 466 U.S. at 692).
To prove actual conflict, a defendant must “point to specific instances in the record” and
“make a factual showing of inconsistent interests.” Thomas v. Foltz, 818 F.2d 476, 481 (6th Cir.
1987) (quoting United States v. Mers, 701 F.2d 1321, 1328 (11th Cir. 1983)). The defendant
must show that the lawyer “made a choice between possible alternative courses of action, such as
eliciting (or failing to elicit) evidence helpful to one client but harmful to the other.” McFarland,
356 F.3d at 705 (quoting Thomas, 818 F.2d at 481). However, the more reasonable the lawyer’s
choice, the less likely it was the result of actual conflict. Id. at 706.
Kilpatrick’s ineffective-assistance claim fails for two independent reasons: Kilpatrick
cannot show that (1) his attorneys actively represented conflicting interests or (2) an actual
conflict adversely affected their performance. First, to establish the actual conflict, Kilpatrick
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cites the Michigan Rules of Professional Conduct and a State Bar of Michigan Opinion.
Together, the sources prohibit a lawyer (and through imputed disqualification, the firm with
which the lawyer is associated, including through an of-counsel relationship) from representing a
client if the representation is “directly adverse” to another client. Mich. R. Prof’l Conduct 1.7(a),
1.10(a); Mich. Bar Op. No. RI-102 (Oct. 1, 1991). He argues that, based on Michigan’s
professional ethics rules, Thomas’s and Naughton’s of-counsel affiliation with the O’Reilly Firm
created an actual conflict. Kilpatrick’s argument, standing alone, fails because all it suggests is a
“per se” conflict, not an “actual” conflict. Moore, 708 F.3d at 777.
The constitutional question we must answer is not whether Kilpatrick’s attorneys violated
ethical rules, but whether an actual conflict existed that adversely affected their performance.
See Nix v. Whiteside, 475 U.S. 157, 165 (1986); Hempstead Video, Inc. v. Inc. Vill. of Valley
Stream, 409 F.3d 127, 132 (2d Cir. 2005) (explaining that a violation of a disciplinary rule
should only lead to disqualification if it taints the underlying trial). Although a lawyer’s
conflicts are ordinarily imputed to his or her firm based on the presumption that associated
attorneys share client confidences, contrary to the Michigan ethics opinion, “attorneys with
limited links to a firm are not always considered to be ‘associated’ with the firm for purposes of
conflict imputation.” Hempstead Video, 409 F.3d at 133 (citing, among others, Manning v.
Waring, Cox, James, Sklar & Allen, 849 F.2d 222, 224 (6th Cir. 1988) (holding that screening
measures can rebut the presumption of shared confidences)). Here, in light of (1) the “thick
ethical wall” between Kilpatrick’s counsel and the firm; (2) the government’s decision to drop all
charges related to Fiore; and (3) the court’s decision to appoint a fourth defense attorney to
cross-examine the Macomb Drain contract witnesses, the district court plausibly determined that
no actual conflict existed. Furthermore, on account of the ethical wall separating Thomas and
Naughton from the O’Reilly Firm (and the physical distance between the two offices), the
district court properly concluded that Kilpatrick’s lawyers were not so closely associated with
the O’Reilly Firm that the firm’s conflict of interest should be imputed to them. See Hempstead
Video, 409 F.3d at 132-36 (discussing the variation in “of counsel” relationships and adopting a
functional approach that focuses on the substance of the relationship and the nature of the
screening procedures to determine whether to impute a conflict of interest). The trial record
shows that Kilpatrick’s attorneys were loyal and diligent in their representation.
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Kilpatrick asks us to apply the bright-line rule of presumed conflict from Holloway v.
Arkansas, 435 U.S. 475 (1978). But the Holloway automatic-reversal rule only applies when
“defense counsel is forced to represent codefendants over [a defendant’s] timely objection,
unless the trial court has determined that there is no conflict.” Mickens v. Taylor, 535 U.S. 162,
168 (2002). In all other cases, prejudice is only presumed when “a conflict of interest actually
affected the adequacy of [the attorney’s] representation.” Id. at 171; see also Koste v. Dormire,
345 F.3d 974, 982-83 (8th Cir. 2003).
Second, assuming there had been an actual conflict, Kilpatrick points to little evidence in
the record that suggests his counsel did anything detrimental to his defense or failed to do
something that was clearly advantageous. See Moore, 708 F.3d at 777. The most Kilpatrick’s
brief alleges is that Thomas failed to cross-examine a government witness, Derrick Miller, about
Miller’s conversations with Kilpatrick regarding certain city contracts. The allegation only
appears in a footnote, and Kilpatrick does not explain what Thomas should have asked Miller, or
why. The government argues that Miller was indeed cross-examined, but that it was done by
Ferguson’s counsel because the defendants’ attorneys had agreed before trial to take turns cross-
examining the witnesses. In any event, Thomas’s failure to cross-examine Miller was not
facially unreasonable or indicative of a pattern of divided loyalty that tainted the trial. See
Hempstead Video, 409 F.3d at 132. Because Kilpatrick has not established a conflict of interest
that adversely affected his lawyers’ performance, his constitutional claim fails.
Kilpatrick next argues the district court failed to thoroughly investigate and resolve
Thomas’s and Naughton’s conflicts after it was on notice of them because it “failed to take into
account the nature of the conflict.” When a trial court knows (or reasonably should know) that a
potential conflict exists, the court has a duty to investigate the potential conflict. Mickens,
535 U.S. at 168.
To the extent this argument is merely a repackaging of his ineffective-assistance claim,
the argument fails for the reasons stated above. The record also shows the court promptly
investigated and resolved the conflict. Kilpatrick first informed the court of a potential conflict
on August 7, 2012. At that point, Kilpatrick was concerned about Thomas’s representation of
Fiore because Fiore had alleged before a grand jury that Kilpatrick had extorted him. On
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August 9, 2012, the district court ordered the parties to brief “every possible conflict” including
“the conflict discussed in the [Detroit] Free Press this morning concerning the Macomb
Interceptor [Drain] Drainage District.” Recall that Kilpatrick knew about Thomas’s and
Naughton’s of-counsel affiliations with the O’Reilly Firm by April 2012, when he was served
with a copy of the court’s order allowing Thomas and Naughton to withdraw. Nevertheless, it
was the district court itself that first raised the potential O’Reilly Firm conflict after reading
about it in the newspaper. The court promptly ordered briefing on the matter, heard argument on
August 14, and resolved the conflict.
In his reply brief, Kilpatrick asserts that there were no facts presented to the court to
support its conclusion that Thomas’s and Naughton’s of-counsel relationships with the O’Reilly
Firm were attenuated. Although it is true that the court accepted counsel’s written submissions
as fact and did not hold an evidentiary hearing, Kilpatrick points to no contrary evidence. Nor
does he suggest the court’s findings were erroneous. In any event, this argument is best left for a
motion under 28 U.S.C. § 2255. See United States v. Ferguson, 669 F.3d 756, 762 (6th Cir.
2012) (claims of ineffective assistance of counsel are generally addressed by collateral attack
rather than on direct appeal).
III. CASE AGENT TESTIMONY
Kilpatrick and Ferguson challenge the lay-opinion testimony of two agents—
Environmental Protection Agency Special Agent Carol Paszkiewicz and FBI Special Agent
Robert Beeckman. The government never sought to qualify these agents as experts. In
aggregate, they testified 23 times throughout the trial. Because the trial portended to be
protracted, the government procured permission from the court to present its case in “chapters.”
The government used the case agents to introduce volumes of evidence at the beginning of each
“chapter.” The agents also interpreted the “shorthand” lingo the defendants used in their text
messages, discussed some of the inner workings of the Detroit government, and explained
aspects of the sewer-department contracts.
Before trial, Kilpatrick and Ferguson objected to the government’s plan to use the case
agents so extensively. The district court overruled these pre-trial objections, and later reaffirmed
its decision in its post-trial order denying the defendants’ motion for a new trial:
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As revealed pretrial and at trial, during the government’s investigation of
Defendants’ criminal conduct it had gathered about 300,000 text messages, as
well as hundreds of thousands of records from the City of Detroit, municipal
contractors, accountants, and financial institutions. It argued that many of these
text messages were highly relevant to the jury’s understanding of the facts in this
criminal case but were so cryptic they often could only be understood from the
context of other messages, records, and events that took place at the same time.
This Court agreed. Because the text messages and recorded conversations
between Defendants were communicated in an informal short-hand with little or
no explanatory detail, the Court agreed that the jury would not understand these
communications without some context and background that helps explain, or
provides a lay opinion, as to the meaning of the abbreviations, shorthand, or
nicknames used in Defendants’ communications to reference individuals,
companies, or business transactions. The foundation for those explanations or lay
opinion was the agents’ multi-year investigation and review of tens of thousands
of text messages, thousands of wiretap recordings, and hundreds of records and
pieces of information. It was not the agents’ specialized knowledge gained from
their law enforcement training, education, and experience in public corruption
cases generally. Contrary to Defendants’ arguments here, Agents Paszkiewicz
and Beeckman did not offer sweeping conclusions or generalizations that intruded
on the jury’s responsibility to determine the key facts at issue and to determine
whether the government had established, beyond a reasonable doubt, the elements
of each charged offense. They did not offer legal conclusions that directly
implicated the jury’s fact-finding and decision-making functions. Rather, the case
agents’ lay opinion testimony was properly limited after the required foundation
was established.
Kilpatrick and Ferguson challenge the admission of dozens of statements by the case
agents. Essentially, they argue their case is like United States v. Freeman, 730 F.3d 590, 595-96
(6th Cir. 2013) (vacating a conviction for evidentiary errors concerning case agent testimony).
For the reasons that follow, we find this case readily distinguishable from Freeman and that any
evidentiary errors did not prejudice the defendants.
A. STANDARD OF REVIEW
We review a district court’s evidentiary rulings for an abuse of discretion. A court abuses
its discretion when it “relies on clearly erroneous findings of fact, improperly applies the law, or
employs an erroneous legal standard,” or when we are “firmly convinced” that the trial court
“committed a clear error of judgment.” United States v. Miner, 774 F.3d 336, 348 (6th Cir.
2014) (internal citations omitted). When a defendant fails to object at trial, we review an
evidentiary ruling for plain error. United States v. Olano, 507 U.S. 725, 731-32 (1993).
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During trial, defense counsel lodged objections to much of the case agents’ testimony.
The government asks us to parse out the challenged testimony that was not subject to objection at
trial, and apply plain error review. But the defendants maintained a standing objection
throughout the trial to virtually all of the agents’ testimony. We decline to review the testimony
under the deferential plain error standard.
Even if the district court abused its discretion, this does not automatically result in a new
trial. Evidentiary errors remain subject to harmless error review. Under the “harmless error”
rule, Fed. R. Crim. P. 52(a), any “error, defect, irregularity, or variance that does not affect
substantial rights must be disregarded.”
Non-constitutional errors are subject to Rule 52(a) harmless error analysis: the
government must show by a preponderance of the evidence that the error did not materially
affect the verdict. See Kotteakos v. United States, 328 U.S. 750, 764-65 (1946) (adopting this
“substantially swayed” test for non-constitutional errors); Cummins v. BIC USA, Inc., 727 F.3d
506, 510 (6th Cir. 2013), cert. denied, 134 S. Ct. 935 (2014); see also generally 2 Handbook of
Fed. Evid. § 103:1 (7th ed.); 7 Crim. Proc. § 27.6(a)-(e) (3d ed.). In contrast, when an error of
constitutional magnitude occurs, the government must prove beyond a reasonable doubt that the
error did not affect the verdict. Miner, 774 F.3d at 342, 350 (differentiating the harmless error
standard of review for a constitutional error—an erroneous jury instruction—from a non-
constitutional evidentiary error).2 In non-constitutional evidentiary-error cases like this one,
when the record is “so evenly balanced that a conscientious judge is in grave doubt as to the
harmlessness of an error,” the judgment must be reversed. O’Neal v. McAninch, 513 U.S. 432,
437-38 (1995). The scale, if equal, tips in favor of the defendant. Ruelas v. Wolfenbarger,
580 F.3d 403, 413 (6th Cir. 2009).
2
In United States v. Baldwin, a case that involved improper character evidence (a non-constitutional error),
we mistakenly stated, “An error is harmless ‘when it appears beyond a reasonable doubt that the error complained
of did not contribute to the verdict obtained.’” 418 F.3d 575, 582 (6th Cir. 2005) (emphasis added) (quoting
Mitchell v. Esparza, 540 U.S. 12, 17-18 (2003)). But we left out the crucial word “constitutional.” The Supreme
Court in Esparza actually said, “A constitutional error is harmless when it appears beyond a reasonable doubt that
the error complained of did not contribute to the verdict obtained.” Esparza, 540 U.S. at 17-18 (quoting Chapman v.
California, 386 U.S. 18, 24 (2003)) (emphasis added, internal quotation marks omitted). Several opinions have
followed Baldwin on this point. See, e.g., Freeman, 730 F.3d at 595; United States v. Lopez-Medina, 461 F.3d 724,
741 (6th Cir. 2006).
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B. LEGAL FRAMEWORK
Kilpatrick and Ferguson argue that the case agents violated the lay opinion testimony
rule, Federal Rule of Evidence 701, by summarizing evidence and interpreting text messages,
phone calls, and other documents. Courts often qualify law enforcement officers as expert
witnesses under Rule 702 to interpret intercepted conversations that use “slang, street language,
and the jargon of the illegal drug trade.” United States v. Peoples, 250 F.3d 630, 641 (8th Cir.
2001). In contrast, when an officer is not qualified as an expert, the officer’s lay opinion is
admissible “only when the law enforcement officer is a participant in the conversation, has
personal knowledge of the facts being related in the conversation, or observed the conversations
as they occurred.” Id. This rule is derived from Rule 701, which states:
If a witness is not testifying as an expert, testimony in the form of an opinion is
limited to one that is:
(a) rationally based on the witness’s perception;
(b) helpful to clearly understanding the witness’s testimony or to
determining a fact in issue; and
(c) not based on scientific, technical, or other specialized knowledge
within the scope of Rule 702.
The party offering testimony under Rule 701 must establish that all three requirements
are satisfied. Freeman, 730 F.3d at 595-96. The function of lay opinion testimony is to
“describ[e] something that the jurors could not otherwise experience for themselves by drawing
upon the witness’s sensory and experiential observations that were made as a first-hand witness
to a particular event.” Id. at 595 (quoting United States v. Jayyousi, 657 F.3d 1085, 1120 (11th
Cir. 2011) (Barkett, J., concurring in part and dissenting in part)); see also United States v.
Garcia, 413 F.3d 201, 211 (2d Cir. 2005) (describing lay opinion testimony as an acceptable
shorthand for the rendition of facts the witness personally perceived).
Several recent cases have explored the boundaries of lay opinion testimony by law
enforcement officers who interpret intercepted communications for the jury. On one hand, “an
investigator who has accumulated months or even years of experience with the events, places,
and individuals involved in an investigation necessarily draws on that knowledge when
testifying; indeed, it is those out-of-court experiences that make the witness’s testimony helpful
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to the jury.” United States v. Gadson, 763 F.3d 1189, 1209 (9th Cir. 2014). On the other hand,
testimony of this type also poses dangers.
In Freeman, we addressed the extent to which agents may give lay opinion testimony that
interprets intercepted conversations when the agents base their interpretations on the collective
knowledge that the agency obtained through the course of the investigation. We explored the
“risk” that when an agent “provides interpretations of recorded conversations based on his
knowledge of the entire investigation,” the agent could impermissibly testify “based upon
information not before the jury, including hearsay,” and that the jury might think the agent is
privy to important knowledge about the case that the jury lacks. Freeman, 730 F.3d at 596
(quoting United States v. Hampton, 718 F.3d 978, 983 (D.C. Cir. 2013)). The risks are that the
agent (1) could “effectively smuggle in inadmissible evidence,” (2) may draw the kind of
inferences that counsel may draw in closing argument, but with “the imprimatur of testifying as a
law enforcement officer,” (3) could “usurp the jury’s function,” or (4) may be “doing nothing
more than speculating.” Id. (quoting United States v. Albertelli, 687 F.3d 439, 447 (1st Cir.
2012)). Accordingly, a trial court must ensure that the testimony hews to Rule 701’s limitations.
In Freeman, the testifying agent “repeatedly substantiated his responses and inferences
with generic information and references to the investigation as a whole.” Id. This ran afoul of
Rule 701(a) because the agent “never specified personal experiences that led him to obtain his
information but, instead, repeatedly relied on the general knowledge of the FBI and the
investigation as a whole.” These vague references to the “investigation as a whole” left the jury
“in the dark” regarding the sources of the agent’s information. Id. The agent never testified that
he was present for any surveillance, or even that he observed any activity relevant to interpreting
the wiretapped phone calls. Id. at 597. Because the agent never specified his sources or cited his
personal experiences, we were left to infer that “he was expressing an opinion informed by all
the evidence gleaned by various agents in the course of the investigation and not limiting himself
to his own personal perceptions.” Id. at 596 (quoting Garcia, 413 F.3d at 213); see also United
States v. Miller, 738 F.3d 361, 373 (D.C. Cir. 2013) (finding plain error when the agents
interpreted phone conversations without specifying the “bases (events, other calls, seizures of
contraband, etc.) upon which their opinions rested—other than broad claims about knowledge
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they had gained from the investigation”). The testimony in Freeman was so egregious that the
government conceded at oral argument that the agent “lacked the first-hand knowledge required
to lay a sufficient foundation for his testimony under Rule 701(a).” 730 F.3d at 597.
In addition to the agent’s failure to limit his testimony to his own “sensory and
experiential observations” under Rule 701(a), id. at 595, the testimony in Freeman also ran afoul
of Rule 701(b)’s helpfulness requirement. It is not “helpful” when a witness, lay or expert,
forms conclusions for a jury that the jurors are competent to reach on their own. Id. at 597. To
“merely tell the jury what result to reach” violates the rule. Id. The agent in Freeman
“effectively spoon-fed his interpretations of the phone calls and the government’s theory of the
case to the jury, interpreting even ordinary English language.” Id.; see also Peoples, 250 F.3d at
640 (reversing when the officer’s lay opinion testimony constituted several hours of “a narrative
gloss that consisted almost entirely of her personal opinions of what the [recorded] conversations
meant”). Nor is it helpful for a lay opinion witness to speculate or to repeat previously-admitted
evidence that requires no explanation. Freeman, 730 F.3d at 597 (citing United States v.
Freeman, 498 F.3d 893, 905 (9th Cir. 2007)). When it comes to interpreting language from
intercepted communications, an agent can be helpful when she uses her personal knowledge of
the case to interpret cryptic language. Id. at 598. But a case agent testifying as a lay witness
“may not explain to a jury what inferences to draw from recorded conversations involving
ordinary language” because this crosses the line from evidence to argument. Id.
Other boundaries also apply under Rule 701(b). Lay opinion witnesses should avoid
expressing a conclusion that the defendant is guilty. Garcia, 413 F.3d at 210, 213 (noting that,
while under Rule 704, a lay opinion is not inadmissible simply because “it embraces an ultimate
issue,” courts should “be wary” of opinion testimony whose “sole function” is to answer the
ultimate question of guilt). But see Gadson, 763 F.3d at 1213-14 (holding that the district court
did not plainly err in allowing an officer who testified purely as a lay witness to state his opinion
that the defendant was guilty). An agent may not, at the beginning of trial, provide a summary of
evidence that has not yet been admitted. Albertelli, 687 F.3d at 449; Garcia, 413 F.3d at 210-11,
214; Fed. R. Evid. 602. The law provides a place for such summaries and conclusions—in the
opening statement and closing argument. There is also a danger when opinion testimony “relies
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 14
on or conveys hearsay evidence, such as when an officer relies on the truth of a third party’s
statement as the basis for an interpretation of a statement in an intercepted phone call.” Gadson,
763 F.3d at 1208.
The third requirement, stated in Rule 701(c), is designed to “prevent a party from
conflating expert and lay opinion testimony thereby conferring an aura of expertise on a witness
without satisfying the reliability standard for expert testimony set forth in Rule 702 and the pre-
trial disclosure requirements set forth in Fed. R. Crim. P. 16 and Fed. R. Civ. P. 26.” Garcia,
413 F.3d at 215. If the opinion testimony draws on scientific, technical, or other specialized
knowledge, then its admissibility should be assessed under Rule 702, not Rule 701. Id.
C. ANALYSIS
Kilpatrick and Ferguson argue that this case is like Freeman, 730 F.3d at 590. It is not.
First, unlike Freeman, the agents in this case established a personal-knowledge basis for
their lay opinion testimony. They did not merely cite to the collective knowledge of their
respective agencies as the source of their information. Each agent testified on multiple occasions
concerning his or her years-long personal involvement in the case, including interviewing dozens
of witnesses, reading scores of relevant documents and thousands of text messages, and listening
to recorded phone calls. This was not a case in which the agents lacked first-hand personal
knowledge of key aspects of their testimony.
Second, few of the challenged statements could be characterized as (1) arguing the
government’s case or (2) offering interpretations of plain English language, which were issues in
Freeman. In fact, a great deal of the challenged testimony does not implicate Rule 701 or
Freeman at all. Some of the testimony is simply admissible background material. Agents are
permitted to testify regarding how they became involved in a case, what allegations they were
investigating, who the suspects were, and similar background. United States v. Goosby, 523 F.3d
632, 638 (6th Cir. 2008); United States v. Aguwa, 123 F.3d 418, 421 (6th Cir. 1997) (citing
United States v. Evans, 883 F.2d 496, 501 (6th Cir. 1989)). This sort of testimony, which is
designed to set the stage for the introduction of evidence, differs substantively from problematic
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 15
“preview testimony” that “purports to sum up (in advance of the evidence) the government’s
overall case.” Albertelli, 687 F.3d at 449.
To provide an example, the government asked Agent Paszkiewicz on October 24, 2012,
to describe her role in the investigation:
A. I was one of the principal agents investigating allegations of extortion by
members of the Kilpatrick administration in the awarding of Detroit Water and
Sewerage Department contracts.
Q. What do you mean by that, what were you exactly investigating in that regard?
A. Allegations that contractors to the Detroit Water and Sewerage Department
were either forced to have certain partnerships in contracts, were made to make
what we call no-show payments on contracts and bid rigging and contract steering
by various members of either [the] Detroit Water and Sewerage Department or the
mayoral administration.
Q. And when you say “forced,” what do you mean?
A. Well, that they were, that these contractors, whether or not they had a fear or
belief that if they didn’t do the things I mentioned, specifically the forced
partnerships or the making of the no-show payments . . . . that they would have
negative repercussions . . . .
Defense counsel objected that the agent was supplying legal definitions and arguing the
government’s case. But the court explained:
I think this is a complicated case that has a lot of different charges, that it will be
very difficult for the jury to recall from the original opening statements, which are
already like six or eight weeks ago, and if she’s explaining what her investigation
encompassed, that’s entirely proper.
Another example occurred the following day, when the same agent testified:
Q. Now, did you investigate whether African American contractors, as part of
your case, suffered financial consequences as a result of alleged efforts by the
administration to give contracts to Bobby Ferguson?
A. Yes.
Q. And that included lost city contracts?
A. Yes.
Q. Contracts that were canceled that were awarded to African American
contractors?
A. That were initially awarded, yes.
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 16
Q. And payment by African American contractors to Mr. Ferguson for work that
he didn’t do?
A. Yes.
Q. And instances in which African American contractors were forced to enter into
agreements and contracts with Mr. Ferguson in the city contracts?
A. Yes.
The agent simply explained what allegations she investigated. She did not offer conclusions or
impermissibly argue the government’s case. Explaining the allegations underlying an
investigation does not implicate Rule 701 or Freeman.
It is also permissible for an agent who has reviewed the evidence to testify concerning
what the evidence does not contain. For example, Kilpatrick and Ferguson objected when the
government asked Agent Paszkiewicz whether Kilpatrick sent text messages to any contractor
besides Ferguson, and she answered “no.” But a witness may testify that the dog didn’t bark. A
witness who has examined the records may testify that no record “of a specific tenor is there
contained.” United States v. Scales, 594 F.2d 558, 562 (6th Cir. 1979) (quoting 4 Wigmore,
Evidence § 1230 (Chadbourn rev. 1972)); see also McCormick on Evidence § 234 (2013).
Testifying to the absence of evidence also does not implicate Rule 701 or Freeman.
Another consideration is that, especially in a complicated trial, a witness may make short
“framing” references to previously-admitted evidence. Contrary to the defendants’ argument, it
was not error for the government to ask the case agents whether they recalled certain details of
prior witnesses’ testimony. These short framing questions tied the evidence together in a manner
that was helpful to the jury. See United States v. Smith, 601 F.3d 530, 540 (6th Cir. 2010)
(permitting summary-reference testimony in complex cases where the volume of evidence is
“plausibly confusing to the jury”).
The Rules also allow a witness to summarize voluminous writings or recordings. Under
Federal Rule of Evidence 1006, a party may “use a summary . . . to prove the content of
voluminous writings, recordings, or photographs that cannot be conveniently examined in court,”
provided that the other party has been given an opportunity to examine the entire record. “[T]he
point of Rule 1006 is to avoid introducing all the documents.” United States v. Faulkenberry,
614 F.3d 573, 588-89 (6th Cir. 2010) (quoting United States v. Hemphill, 514 F.3d 1350, 1359
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 17
(D.C. Cir. 2008)). Because both parties possess the entire collection of recordings or writings,
Rule 1006 witnesses can be cross-examined about the accuracy of their summaries.
In this case, when the agents explained their interpretations of ambiguous statements and
the workings of the Detroit government, they sometimes relied on groups of “surrounding text
messages” or their review of documents and interviews of witnesses as the basis for their
interpretations and identifications. Only 151 out of about 370,000 subpoenaed text messages
were shown to the jury. But, because the defendants had access to all the evidence cited by the
agents, they were free to challenge the accuracy of any summary testimony through cross-
examination.
The defendants challenge an instance in which an agent was reading a document and
made an error that was later corrected. But agents are free to read aloud from admitted
documents, even if there are minor discrepancies between the written and spoken texts. United
States v. Tragas, 727 F.3d 610, 614 (6th Cir. 2013).
Several of the challenged statements in this case concern “identifications.” The agents
supplied names for nicknames, identified people’s jobs or relationships, and explained, for
example, which city contract was being discussed in which text message. As the First Circuit
explained in Albertelli, defendants who challenge a lay witness’s identification testimony on
appeal should state some claim that the identification was faulty or debatable, and show how the
answer was prejudicial. 687 F.3d at 449.
One illustrative example of an identification derived from summary evidence occurred
when the government tried to establish a foundation for Agent Beeckman’s explanation that the
“boss” to whom city employee Vincent Anwunah referred in his text messages was Ferguson.
Agent Beeckman said the identification was based on his review of “other text messages”
between Anwunah and Ferguson.
To provide another example, on October 24, Agent Paszkiewicz was asked, over a
standing objection, to interpret a message from Ferguson to Kilpatrick. It said, “You’re
welcome, boss. Just left Victor. The date has been changed . . . to my benefit but we still have
problem on the big one. He thinks he is slick, man, with this [sic] white folks.” The agent
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 18
testified that the three lowest bidders on the project in question were “majority-owned” and that,
based on her “review of the surrounding text messages,” “the big one” was city contract number
CM-2012. This was essentially identification testimony. And we believe it was admissible
under Rule 701.
Here, based on her investigation, Agent Paszkiewicz gained first-hand knowledge of
which contractors were majority- or minority-owned. Her first-hand examination of the text
messages enabled her to opine that “the big one” was a particular contract. These interpretations
were helpful to the jury and not based on specialized knowledge. The difficulty in this example
is that (unlike many of the challenged identifications), it is not clear whether other evidence that
was submitted to the jury would have confirmed the identifications. If this were Rule 1006
summary evidence, this would not be a problem. Rule 1006 does not require that the
summarized records be submitted to the jury. But some Rule 701 cases have found error when
an agent references evidence (e.g., “surrounding text messages”) that is not before the jury. See,
e.g., Hampton, 718 F.3d at 983 (stating that when an agent based his interpretation on “all of the
calls,” but only 100 of 20,000 calls were admitted into evidence, it raised the “specter” that the
verdict could be influenced by information outside the evidence).
Nevertheless, Kilpatrick and Ferguson do not contest the accuracy of these identifications
or explain how they were otherwise prejudicial. See Albertelli, 687 F.3d at 449. If the defense
had reason to believe that the bidders were minority owned, or that “the big one” was something
other than CM-2012, they could have cross-examined the agent. See United States v. Etienne,
772 F.3d 907, 920 (1st Cir. 2014) (finding that the opportunity to cross-examine an agent
concerning his voice identifications was adequate protection for the defendant’s “substantial
rights”). Given that Kilpatrick and Ferguson do not argue that these identifications (of
someone’s name, family relationship, job title, or job function, for example) were inaccurate,
debatable, or prejudicial, we have no basis for finding harmful error.
Furthermore, Kilpatrick and Ferguson waived their challenge to many of these
identifications. The parties agreed before trial that the agents could, relying on surrounding text
messages, clarify terms such as nicknames, abbreviates, acronyms, and so on.
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 19
Finally, Kilpatrick and Ferguson allege that the case agents’ testimony occasionally
strayed into expert testimony. When an agent gives opinions that rely on the agent’s specialized
training as a law enforcement officer, that testimony is expert testimony, and the agent must be
qualified under Rule 702. See Garcia, 413 F.3d at 215-17. However, when an agent relies on
his or her personal knowledge of a particular investigation, the agent’s opinion may be lay
opinion testimony under Rule 701. See Albertelli, 687 F.3d at 446-48; United States v. Rollins,
544 F.3d 820, 830-33 (7th Cir. 2008).
For instance, Agent Beeckman testified that the standard oversight fee for Detroit sewer
department contracts was five percent. The defendants objected, and the court held a sidebar. At
the sidebar, the government pointed out that the discovery materials contained several
“boilerplate” contracts, each of which contained this five percent fee. Kilpatrick and Ferguson
do not repudiate this observation. It was not an abuse of discretion for the district court to
conclude that mentioning the five percent standard fee was not expert testimony because a
layperson could glean this information by reviewing the contracts. See Garcia, 413 F.3d at 215
(“[A] lay opinion must be the product of reasoning processes familiar to the average person in
everyday life.”). Again, Kilpatrick and Ferguson do not challenge the accuracy of the statement.
Even assuming that the reference to the oversight fee was not proper under Rule 701 or 1006 (to
which the government now cites), any error would be harmless.
Another such incident occurred when Agent Beeckman referred to a casino owner and
said that “the law is that you can’t make any political contributions if you have a casino vendor
license.” At another point, Agent Beeckman explained that the Kilpatrick Civic Fund was a
“501(c)(4), public welfare organization, tax-exempt nonprofit organization” authorized by the
IRS to solicit donations for public welfare purposes. Agent Beeckman further explained that a
§ 501(c)(4) entity could not legally contribute to a political campaign.
Although these references to laws and regulations had the ring of expert testimony or
legal argument, one could also conclude that a layperson who studied the discovery materials
(which included, for example, the Kilpatrick Civic Fund’s articles of incorporation, a Detroit
government organizational chart, dozens of contracts, thousands of text messages, and numerous
witness interviews) would have learned the basic contours of what it means to be a § 501(c)(4)
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 20
corporation and the campaign contribution limitations of certain organizations. See, e.g., Fed. R.
Evid. 701 Advisory Committee Notes to 2000 Amendments (“[T]he distinction between lay and
expert witness testimony is that lay testimony ‘results from a process of reasoning familiar in
everyday life,’ while expert testimony ‘results from a process of reasoning which can be
mastered only by specialists in the field.’” (quoting State v. Brown, 836 S.W.2d 530, 549 (Tenn.
1992))). Even if this testimony crossed the line into expert testimony, Kilpatrick and Ferguson
have not alleged the statements were inaccurate or prejudicial. The same can be said of other
challenged testimony, which included an agent’s description of the city’s process for approving a
contract, an agent’s description of Kilpatrick’s role as “special administrator” for the sewer
department, and an explanation of a city executive order giving preference to Detroit-based
businesses.
At argument, we asked Ferguson’s attorney to identify the most egregious errors in
admitting the case agents’ testimony. Ferguson’s counsel alleged several errors, but did not
argue they contained inaccuracies or explain how they harmed her client. Nor did counsel
identify any inadmissible evidence smuggled in through the agents’ opinion testimony. We
conclude that error, if any, in admitting the case agents’ testimony was harmless.
IV. “FEAR” EVIDENCE
Kilpatrick joins Ferguson’s argument that the district court erred by allowing witnesses to
recount statements made to them by others for the purpose of establishing the witnesses’ fear of
Kilpatrick and Ferguson. The defendants point to testimony by five witnesses and specify that
they objected to each statement at trial. Ferguson and Kilpatrick say these statements were
inadmissible hearsay. The government counters that the statements were not hearsay because
they were not admitted for the truth of their content. Instead, the statements were admitted as
circumstantial evidence of the extortion victims’ fear. The federal code defines extortion as “the
obtaining of property from another, with his consent, induced by wrongful use of actual or
threatened force, violence, or fear, or under color of official right.” 18 U.S.C. § 1951(b)(2).
A statement is only hearsay if it is offered to prove the truth of the matter asserted in the
statement. Fed. R. Evid. 801(c). If an out-of-court statement is offered purely to show the
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 21
statement’s effect on the hearer, then this usage is not hearsay. See United States v. Williams,
952 F.2d 1504, 1517-18 (6th Cir. 1991).
In extortion cases, statements by the victim indicating fear of the defendant are
admissible to prove the “force or fear” element of extortion. See, e.g., United States v. Kelly,
722 F.2d 873, 877-78 (1st Cir. 1983); United States v. Tuchow, 768 F.2d 855, 865-67 (7th Cir.
1985).
The victim’s fearful state of mind is a crucial element in proving extortion. The
testimony of victims as to what others said to them, and the testimony of others as
to what they said to victims is admitted not for the truth of the information in the
statements but for the fact that the victim heard them and that they would have
tended to produce fear in his mind.
United States v. Hyde, 448 F.2d 815, 845 (5th Cir. 1971); see also Williams, 952 F.2d at 1518.
Because such fear-illustrating statements also often refer to acts of the defendant, courts should,
upon request, instruct the jury that such statements may only be used as evidence of fear, not
evidence of the defendant’s acts. See United States v. Collins, 78 F.3d 1021, 1036 (6th Cir.
1996). The evidence “may not be used to show that the defendants in fact made threats or
otherwise made use of such fear.” Hyde, 448 F.2d at 845.
Such “fear” evidence in extortion cases is similar to, but distinguishable from, evidence
admissible under the hearsay exception at Federal Rule of Evidence 803(3). Rule 803(3) allows
witnesses to recount hearsay statements (that is, statements offered to prove the truth of the
statements’ factual content) when the statement’s original declarant is expressing his or her then-
existing state of mind. In this case, the district court admitted some statements under Rule
803(3) and some statements under the Williams-Collins rule for extortion cases. The difference
is this: when the out-of-court statement is an expression of fear being offered to prove the
existence of the fear expressed in the statement, this is a hearsay statement that may be
admissible under Rule 803(3). When, however, the statement is not the victim/declarant’s
expression of his or her own fear, but a statement made to (or in the presence of) the victim by
someone else that would tend to be a fear-inducing statement, such evidence is not hearsay.
Ferguson’s brief challenges ten discrete snippets of testimony. We will focus on the two
that appear to be the defendants’ strongest case. Whereas most of the challenged out-of-court
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 22
statements were made by people who themselves were also testifying witnesses at trial, these two
pieces of testimony contained statements by people who did not testify at trial. Because the
declarants themselves were not available for cross-examination regarding these two out-of-court
statements, any error in admitting the out-of-court statements would be less likely to be harmless.
The first example is from the December 19, 2012 testimony of Bernard Parker, an
employee for a subcontractor in one of the disputed sewer contracts. Parker recounted what his
colleague Tim Tousignant said to him about Ferguson’s insinuations that Kilpatrick would
prevent a contract amendment from passing if Parker’s firm did not kowtow to his demands:
Q. Okay. And what was Mr. Tousignant’s reaction?
A. That this is extortion, he felt blackmailed.
Parker’s testimony was essentially that Tousignant said, “This is extortion, I feel
blackmailed.” Clearly, this would be inadmissible to prove the truth of the matter asserted.
However, the statement also fits squarely within the Williams-Collins rule. As we explained in
Williams, “testimony of victims as to what others said to them [is admissible to show] the fact
that the victim heard them and that they would have tended to produce fear in his mind.”
Williams, 952 F.2d at 1518.
This analysis also applies to Parker’s testimony from later the same day. As Ferguson’s
brief explains it:
The court permitted, over objection, Parker to testify that [Parker’s colleagues
from another company, Walbridge,] Penrod and Hausmann told him that they
included Mr. Ferguson because “they were worried they weren’t going to get the
project.”
Here, the statement at issue from Parker’s colleagues was essentially, “we are worried
we’re going to lose the project if we don’t do what Ferguson wants.” Such statements are
admissible under the Williams-Collins rule because Parker heard them, and they would have
tended to produce fear of economic harm.
The district court did at times give limiting instructions concerning out-of-court
statements. Regarding one of the statements Ferguson now challenges, the court instructed:
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 23
And I should just tell the jury that I have ruled that the statements that [the
government] is about to elicit are admissible, but you should understand that
they’re not admitted for the truth of what those statements are. In other words,
he’s going to ask [the witness] what [another person] said, and they’re not offered
for the truth of what she said, but just to establish the witness’s state of mind for
what he did on this contract.
Before the trial resumed on December 20, 2012, the district court held a conference with
the attorneys concerning these hearsay objections. The court explained its reliance on Williams
and Collins and assured defense counsel that the court would give a limiting instruction
whenever counsel requested it. And the court gave evidentiary limiting instructions on several
occasions. The court also sustained several hearsay objections during trial. The court was
careful to distinguish between Rule 803(3) statements and non-hearsay statements. Under these
circumstances, we find no abuse of discretion in the district court’s decision to admit the
challenged statements under the Williams-Collins rule.
Ferguson argues that the court’s limiting instructions were insufficient. However, the
district court offered to give the jury Williams instructions upon request, but defense counsel
failed to request them. Counsel cannot now complain about the adequacy of the limiting
instructions when they waived their opportunity to elicit more extensive instructions at trial. See
Collins, 78 F.3d at 1036.
V. RESTITUTION
Kilpatrick alleges two sentencing errors. First, he claims the court incorrectly calculated
restitution to the Detroit Water & Sewerage Department (DWSD) based on his gain rather than
the DWSD’s loss. Second, he asserts that restitution to the IRS was not authorized by law. We
review de novo whether restitution is permitted under the law. If it is authorized, we then review
the award for an abuse of discretion. United States v. Butler, 297 F.3d 505, 516 (6th Cir. 2002);
United States v. Comer, 93 F.3d 1271, 1278 (6th Cir. 1996).
A.
Under the Mandatory Victims Restitution Act (“MVRA”), 18 U.S.C. § 3663A, when
setting a sentence for a property crime, the court “shall order . . . that the defendant make
restitution to the victim of the offense.” Congress’s intent in passing the MVRA was that “courts
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 24
order full restitution to all identifiable victims of covered offenses, while guaranteeing that the
sentencing phase[s] of criminal trials do not become fora for the determination of facts and
issues better suited to civil proceedings.” United States v. Ferdman, 779 F.3d 1129, 1133 (10th
Cir. 2015) (quoting S. Rep. No. 104-179, at 189 (1996), reprinted in 1996 U.S.C.C.A.N. 924,
931).
Restitution “is intended to compensate victims only for losses caused by the conduct
underlying the offense of conviction.” Hughey v. United States, 495 U.S. 411, 416 (1990).
Accordingly, restitution “must be based on the victim’s loss rather than the offender’s gain.”
United States v. George, 403 F.3d 470, 474 (7th Cir. 2005). “The circuit courts of appeals are in
general agreement that the defendant’s gain is not an appropriate measure of the victim’s actual
loss in MVRA calculations.” United States v. Fair, 699 F.3d 508, 513 (D.C. Cir. 2012)
(collecting cases). The government bears the burden of proving a victim’s actual loss by a
preponderance of the evidence. United States v. Zangari, 677 F.3d 86, 92 (2d Cir. 2012) (citing
18 U.S.C. § 3664(e)). Although the MVRA does not require courts to calculate restitution with
exact precision, some precision is required—“[s]peculation and rough justice are not permitted.”
Ferdman, 779 F.3d at 1133 (quoting United States v. Anderson, 741 F.3d 938, 954 (9th Cir.
2013)).
If the trial evidence and presentence report are insufficient to establish the proper amount
of restitution, the court “may require additional documentation or hear testimony.” 18 U.S.C.
§ 3664(d)(4); George, 403 F.3d at 474 (remanding with instructions for the district court to
receive written submissions from the parties to establish the victim’s loss amount). The court
may also refer the issue “to a magistrate judge or special master for proposed findings of fact and
recommendations as to disposition.” 18 U.S.C. § 3664(d)(6). Furthermore, if the court finds that
“determining complex issues of fact related to the cause or amount of the victim’s losses would
complicate or prolong the sentencing process to a degree that the need to provide restitution to
any victim is outweighed by the burden on the sentencing process,” the court may forgo
restitution. Id. § 3663A(c)(3)(B); see also Ferdman, 779 F.3d at 1133.
In the present case, the district court ordered Kilpatrick to pay restitution to the DWSD in
the amount of $4,584,423—the amount the government sought. This dollar figure originated
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 25
from the Probation Department’s calculations (for Guidelines range purposes) of the defendants’
profits from the contracts that underlie the RICO and extortion counts. In the government’s first
memorandum regarding forfeiture and restitution, it characterized this figure as reflecting “the
minimum profits from the extorted and steered contracts.” In its subsequent memorandum on
restitution, the government claimed this amount was “based upon an overall 10% profit margin
for the contracts at issue” in the RICO and extortion counts. This amount, the government said,
represented “a reasoned approximation of the amount of money the City of Detroit was
unknowingly forced to spend for contracts obtained through fraud and deceit.” The government
explained it would be “impracticable to rebid the contracts, undo the work performed and
determine the amount that the City of Detroit should have been charged for these projects.”
Accordingly, the government argued, this “reasoned approximation” was, under the
circumstances, the government’s best guess as to the city’s actual losses to the defendants’
scheme.
At the subsequent hearing on restitution and forfeiture, the government argued that
although “Ferguson’s company did provide some services under the contracts, the desired goal of
the City in having a truthful bidding process was completely corrupted.” Accordingly,
Ferguson’s performance did not provide the “consideration” for which the city bargained. The
government claimed its $4.5 million figure was “a reasonable approximation” and a
“conservative approximation” of “the difference between the services rendered and what the City
anticipated getting from a contractor who did not obtain the contract by extortion.” The
government urged the court to adopt this figure because the “actual loss” to the city would be
“inherently difficult to precisely quantify.”
In response, Kilpatrick pointed out that the Probation Department generated its ten-
percent loss calculation to determine the defendants’ “excessive gain” for the purpose of
establishing the proper Guidelines sentence—not to determine the city’s loss. The court then
asked:
If the four million plus that was determined to be the operative figure for
sentencing guidelines purposes represented at least approximately the gain to
which Mr. Ferguson was not entitled and for which he was accountable under the
RICO statute, how is that not translatable into a loss for the City? If he gained $4
million to which he was not entitled, where should that $4 million have gone? I
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 26
mean, maybe it should have gone to the contractors, but I don’t have that to sort
out in front of me today anyway.
Kilpatrick’s counsel responded that it was legally “necessary to look at whether or not the City
was benefited.” Kilpatrick argued that the government failed to prove the city lost any money.
He asserted the government did nothing to prove that the city paid more to Ferguson than it
would have paid to a competitor. In fact, Ferguson’s companies did perform some of the work
and provided a benefit to the city. The figures in the presentence report, Kilpatrick argued,
reflected none of these considerations.
Nevertheless, the court adopted the government’s restitution figure, and explained:
I don’t think there is any way to parse out what the actual loss was as opposed to
the improper gain. The law does not require that these numbers be determined
with exactness and specificity because it is impossible to do that in hindsight, in
many cases more than ten years after the fact.
****
Again, I think the $4,584,000 figure is a conservative and accurate figure based
on the defendants’ own records, and that is the number I’m going to use for
restitution.
Other circuits have confronted situations like this one, and found that the district court
abused its discretion. For example, United States v. Harvey involved contracts procured through
bribery and fraud. Because the government provided “no evidence” of the victim’s “actual loss”
amounts, the district court used the eight-percent profit margin the defendant earned on the
contracts “as a proxy for actual loss.” 532 F.3d 326, 340 (4th Cir. 2008). The Fourth Circuit
Court of Appeals held it was error for the district court to use “gain to approximate the amount of
actual loss.” Id. at 341. “[A]ny order of restitution,” the court held, “must be based on sufficient
evidence of the amount of actual loss incurred as a result of the fraudulently obtained contract.
Profit gained by the defendants may not be used in its stead.” Id.
Likewise, the court in United States v. Gallant held that using the defendants’ gain “as a
measure of loss . . . cannot satisfy the district court’s responsibilities unless the court has first
attempted to determine with some degree of certainty the general amount of loss . . . attributable
to the defendants’ criminal conduct and concluded that the defendants’ gain corresponds to that
amount.” 537 F.3d 1202, 1238 (10th Cir. 2008) (quoting United States v. Haddock, 12 F.3d 950,
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 27
961 (10th Cir. 1993)) (internal quotation marks and alterations omitted). Instead, “a defendant’s
gain may only be used as a measure of loss” when it is a “reasonable estimate” of the loss. Id.
And, when the defendant’s gain “significantly overestimates loss” or “significantly
underestimates it,” the gain is not a “reasonable estimate.” Gallant, 537 F.3d at 1238-39; see
also United States v. Galloway, 509 F.3d 1246, 1253 (10th Cir. 2007) (holding that the district
court abused its discretion when it used the defendant’s gain as an “estimate” for the victim’s
loss).
“To be sure, there may be cases where there is a direct correlation between gain and loss,
such that the defendant’s gain can act as a measure of—as opposed to a substitute for—the
victim’s loss.” Zangari, 677 F.3d at 93 (citing United States v. Berardini, 112 F.3d 606, 609-10
(2d Cir. 1997)). But before a court can convert the amount of a defendant’s gain into the amount
of the victim’s loss, the government must establish a “direct correlation” between the two.
Zangari, 677 F.3d at 93; see also Fair, 699 F.3d at 513-14 (recognizing that this may require
“additional evidentiary proceedings”).
Upon considering these precedents from other circuits, we are unable to uphold the
restitution award. The government essentially conceded that its $4.5 million figure did not
represent the city’s “actual loss.” And the district court correctly observed that absent the
defendants’ extortion, a large portion of that city money would have gone to other contractors
(who ostensibly would be additional victims). The government claimed the “actual loss” would
be “inherently difficult to precisely qualify,” and the court recognized it lacked any data
regarding what the DWSD would have paid to other contractors if the bidding had not been
rigged. It appears that the court, like the district court in United States v. Navarrete, 667 F.3d
886, 891 (7th Cir. 2012), “threw up [its] hands too soon.”
We recognize the dilemma the district court faced—especially because we have not
previously provided guidance on this issue. But the consensus among our sister circuits compels
us to conclude that a district court may not use the defendant’s gain to approximate the victim’s
loss unless the government establishes such a correlation that the defendant’s gain can act as a
measure of—not a substitute for—the victim’s loss. Zangari, 677 F.3d at 93. Accordingly, we
vacate the district court’s restitution award against Kilpatrick to the DWSD and remand for
Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 28
further proceedings limited to the restitution award. On remand, the district court may
(1) request the government to submit additional evidence; (2) hold an evidentiary hearing; and
(3) conduct further proceedings limited to the restitution award consistent with this opinion. See
18 U.S.C. §§ 3663A(c)(3)(B), 3664(d)(4), (d)(6); Ferdman, 779 F.3d at 1133.3
B.
Kilpatrick also argues that the district court erred in ordering him to pay $195,403.61 as
restitution to the IRS for unpaid taxes. The federal restitution statutes do not authorize restitution
for tax crimes under Title 26. See United States v. Butler, 297 F.3d 505, 518 (6th Cir. 2002).
However, the law gives courts wide discretion in ordering restitution as a condition of
supervised release. “[T]he Supervised Release Statute [18 U.S.C. §3583(d)], together with the
Probation Statute [18 U.S.C. § 3563], unambiguously authorizes federal courts to order
restitution as a condition of supervised release for any criminal offense, including one under
Title 26, for which supervised release is properly imposed.” United States v. Batson, 608 F.3d
630, 635 (9th Cir. 2010); see also United States v. Hassebrock, 663 F.3d 906, 923-24 (7th Cir.
2011).
At the sentencing hearing for restitution and forfeiture, the district court initially stated
that Kilpatrick’s restitution to the IRS was “collectable under 18 U.S.C. § 3663A.” When one of
the government’s attorneys questioned this conclusion, the court stated: “I’ll do it in the
alternative as a condition of supervised release. . . . [I]f for some reason the statute is found by
the Court of Appeals not to authorize a restitution award, I would alternatively award it as a
condition of supervised release.” Accordingly, the court included its instructions for the IRS
payments in the judgment’s “Special Conditions of Supervision.” The district court did not err
when it ordered Kilpatrick to pay his unpaid taxes as a condition of his supervised release.
3
The record as it exists contains some evidence the district court may use to establish actual loss.
Regarding contract CM-2014, the subject of Count 9, the jury heard testimony regarding the winning bid amount
both before and after the bidding process was manipulated in Ferguson’s favor. Specifically, the second winning bid
was $1,520,653.50 greater than the first.
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VI.
We AFFIRM Kilpatrick’s and Ferguson’s convictions and sentences. However, we
VACATE the district court’s restitution award against Kilpatrick to the Detroit Water &
Sewerage Department and REMAND for proper calculation of the award.