United States v. Judith Paixao

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 16-50121
Plaintiff-Appellee,
D.C. No.
v. 3:13-cr-03788-JM-1
JUDITH ANN PAIXAO,
Defendant-Appellant. OPINION
UNITED STATES OF AMERICA, No. 16-50122
Plaintiff-Appellee,
D.C. No.
v. 3:13-cr-03788-JM-2
KEVIN A. LOMBARD,
Defendant-Appellant.
Appeals from the United States District Court
for the Southern District of California
Jeffrey T. Miller, Senior District Judge, Presiding
Argued and Submitted February 7, 2018
Pasadena, California
Filed March 22, 2018
2 UNITED STATES V. PAIXAO
Before: Susan P. Graber and Andrew D. Hurwitz, Circuit
Judges, and Edward R. Korman,* District Judge.
Opinion by Judge Graber
SUMMARY**
Criminal Law
The panel affirmed two defendants’ convictions for
violating 18 U.S.C. § 666, which prohibits the wrongful
taking of property from an organization that receives more
than $10,000 in federal “benefits” during a one-year period.
The charges arose from the defendants’ misuse of funds
belonging to the Wounded Marine Careers Foundation
(WMCF), a non-profit foundation they founded that was
dedicated to teaching interested veterans the technical skills
required to succeed in the film industry. The defendants
obtained funding from a Department of Veterans Affairs
program, the Vocational Rehabilitation and Employment
(VRE) Program, which provides, on behalf of specific
veterans, payments to the educational institutions that those
veterans attend; and the VA certified WMCF as a vendor
authorized to provide training.
*
The Honorable Edward R. Korman, United States District Judge for
the Eastern District of New York, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
UNITED STATES V. PAIXAO 3
The panel held that there was sufficient evidence from
which the jury could reasonably conclude that the Foundation
received “benefits” within the meaning of § 666(b). The
panel explained that an entity need not be the primary
beneficiary of a federal program to qualify as having received
“benefits,” and that the VRE Program aims to aid veterans
and to ensure the viability and quality of the organizations
that serve those veterans. The panel wrote that the
requirements imposed upon institutions participating in the
VRE Program further suggest that those institutions receive
“benefits.”
COUNSEL
Devin Burstein (argued), Warren & Burstein, San Diego,
California; James A. Alexander, Radiant, Virginia; for
Defendants-Appellants.
Helen H. Hong (argued), Assistant United States Attorney,
United States Attorney’s Office, San Diego, California, for
Plaintiff-Appellee.
4 UNITED STATES V. PAIXAO
OPINION
GRABER, Circuit Judge:
Defendants Judith Paixao and Kevin Lombard were
charged with crimes relating to their misuse of funds
belonging to the Wounded Marine Careers Foundation
(“WMCF”). The jury convicted them of, among other things,
violating 18 U.S.C. § 666, a statute prohibiting the wrongful
taking of property from an organization that receives more
than $10,000 in federal “benefits” during a one-year period.
In this opinion, we address only one issue: whether
WMCF received “benefits” within the meaning of 18 U.S.C.
§ 666(b).1 For the reasons that follow, we hold that there was
sufficient evidence from which the jury could reasonably
conclude that WMCF did, indeed, receive “benefits” within
the meaning of the statute and therefore affirm.
FACTUAL AND PROCEDURAL HISTORY
The following facts were established at trial. In 2007,
Defendants founded WMCF, a non-profit foundation
dedicated to teaching interested veterans the technical skills
required to succeed in the film industry. After encountering
fund-raising trouble, Defendants sought funding from a
Department of Veteran Affairs (“VA”) program, the
Vocational Rehabilitation and Employment Program (“VRE
Program”). The VRE Program provides, on behalf of specific
1
In a separate memorandum disposition, filed this date, we address
all other issues relevant to this appeal and affirm with respect to those
issues.
UNITED STATES V. PAIXAO 5
veterans, payments to the educational institutions that those
veterans attend.
For WMCF to receive payments, the VA had to approve
its training program. Further, WMCF had to comply with a
number of federal regulations. See 38 C.F.R.
§§ 21.120–21.162. As part of the approval process, WMCF
submitted to the VA a curriculum, education contract, and
budget. In December 2007, the VA approved the application
and certified WMCF as a vendor authorized to provide
training to wounded veterans.
Defendants recruited veterans eligible for the VRE
Program. To authorize funding, the VA required each
veteran to submit an “individualized written rehabilitation
plan.” Defendants ultimately submitted rehabilitation plans
on behalf of eight of the veterans in WMCF’s inaugural class.
Defendants submitted invoices to the VA for those veterans’
costs, and the VA, in turn, approved the invoices. The VA
also provided Defendants with accelerated payments “to help
the foundation.” Without VA funding, WMCF was not
financially viable.
Defendants repeatedly asked WMCF’s board to pay them
salaries and to reimburse their personal expenses. The board,
however, refused to approve salaries for Defendants and
declined to pay their living expenses, medical expenses, or
pensions—at least until WMCF was financially solvent.
Nevertheless, Defendants transferred significant sums from
WMCF’s account to their personal accounts. Defendants also
spent large sums of WMCF’s money on personal expenses
such as groceries, meals, medical bills, and coffee.
6 UNITED STATES V. PAIXAO
The government charged Defendants with, among other
crimes not relevant here, wrongfully taking WMCF funds in
violation of 18 U.S.C. § 666 (Counts 2–9). The jury found
Defendants guilty on all § 666 counts. The district court
sentenced Paixao to six months in custody and Lombard to
three months in custody, and ordered both to pay restitution.
Defendants timely appealed.
DISCUSSION
Title 18 U.S.C. § 666 prohibits the wrongful taking of
property from certain federally funded organizations.
Liability under § 666 is conditioned upon a showing that the
defrauded organization “receive[d] in any one year period,
benefits in excess of $10,000 under a Federal program
involving a grant, contract, subsidy, loan, guarantee,
insurance, or other form of Federal assistance.” 18 U.S.C.
§ 666(b). Defendants argue that the government failed to
present sufficient evidence that WMCF received “benefits”
within the meaning of the statute. We disagree.
A. Legal and Statutory Background
The key case concerning § 666(b) is Fischer v. United
States, 529 U.S. 667 (2000). Fischer held that healthcare
organizations participating in the Medicare program received
“benefits” within the meaning of § 666(b). Id. at 678.
The Court began by noting that § 666(b) contemplates a
variety of kinds of “benefits”—such as grants, contracts,
subsidies, loans, guarantees, and even insurance. Id. at
676–77. The Court also observed that Congress enacted the
statute with an “expansive, unambiguous intent to ensure the
integrity of organizations participating in federal assistance
UNITED STATES V. PAIXAO 7
programs.” Id. at 678; see also S. Rep. No. 98-225, at 370
(1984), as reprinted in 1984 U.S.C.C.A.N. 3182, 3511
(noting that the “Committee intends that the term ‘Federal
program involving a grant, a contract, a subsidy, a loan, a
guarantee, insurance, or another form of federal assistance’ be
construed broadly”). The Court reasoned, then, that
“Congress viewed many federal assistance programs as
providing benefits [under § 666(b)].” Fischer, 529 U.S. at
678 (emphasis added).
But, the Court explained, not all federal funds qualify as
“benefits.” Id. at 671. For example, the statute expressly
excepts any “bona fide salary, wages, fees, or other
compensation paid, or expenses paid or reimbursed, in the
usual course of business.” 18 U.S.C. § 666(c). Accordingly,
funds obtained through “ordinary commercial contracts”—for
instance, when a government agency buys equipment from a
supplier—fall beyond the statute’s reach. Fischer, 529 U.S.
at 671.
Because not all payments under federal programs qualify
as “benefits,” the Court adopted a context-specific test that
requires an examination of the federal program’s “structure,
operation, and purpose.” Id. at 681. The Court further
instructed us to “examine the conditions under which the
organization receives the federal payments.” Id. Notably, the
inquiry turns on the attributes of the federal program, not on
the characteristics of the recipient organization.
Fischer teaches that § 666 embodies a distinction between
transactions that occur “in the usual course of business” and
those that do not. There is, we think, a fundamental
difference between the role that the government plays when
it routinely makes the purchases required to maintain things
8 UNITED STATES V. PAIXAO
like federal lands or buildings and the role that the
government plays when it embarks on an enterprise meant to
aid a particular segment of the public. The inquiry is a tricky
one, though, because what may be a “beneficial” act in one
context—granting every soup kitchen in the nation funds to
purchase new ovens—may be mere maintenance in
another—granting federal courthouses’ cafeterias funds to
replace their ovens.
But even when the government acts as a benefactor, it
necessarily must make the everyday purchases required to
keep that enterprise afloat. And in those situations, it is not
always clear whether the government has disbursed
“benefits.” To return to the given examples, it is not
immediately clear whether the ovens’ manufacturer (rather
than the soup kitchen or the federal courthouses) would have
received “benefits” under the statute. The answer to that
question would depend, among other things, on the program’s
purpose, organization, and structure—that is, whether the
government meant to aid the manufacturer by establishing the
program; whether the manufacturer had to comply with
certain rules and regulations to participate in the program;
and the degree to which the program required the
manufacturer to work hand-in-hand with the government.
Those principles, applied here, demonstrate that WMCF
received “benefits” within the meaning of § 666(b).
B. The VRE Program’s Purpose
In establishing the VRE Program, Congress aimed “to
provide for all services and assistance necessary to enable
veterans with service-connected disabilities to achieve
maximum independence in daily living and, to the maximum
extent feasible, to become employable and to obtain and
UNITED STATES V. PAIXAO 9
maintain suitable employment.” 38 U.S.C. § 3100. The
statutory text reveals that the VRE Program exists primarily
to benefit veterans—just as Medicare exists primarily to
benefit patients, Fischer, 529 U.S. at 677–78. But an entity
need not be the primary beneficiary of a federal program to
qualify as having received “benefits.” Id. at 677; see also
United States v. Zyskind, 118 F.3d 113, 116 (2d Cir. 1997)
(“Nothing in the language of § 666 suggests that its reach is
limited to organizations that were the direct beneficiaries of
federal funds.”). Indeed, a federal program may have, as a
secondary purpose, the goal of establishing a “sound and
effective . . . system” for distributing benefits to their ultimate
recipients. Fischer, 529 U.S. at 680. That is, federal
payments may promote the dual purposes of reimbursing an
institution for its services while, at the same time, ensuring
that those services remain “available . . . [at] a certain level
and quality.” Id. at 679–80.
The government acted with such dual purposes here. The
VRE program exists not just to assist veterans but also “to
provide for all services and assistance necessary to [assist]
veterans.” 38 U.S.C. § 3100 (emphasis added). With that
end in mind, Congress instructed the Secretary to “actively
promote the development and establishment of employment,
training, and other related opportunities for. . . veterans.” Id.
§ 3116(a) (emphasis added). That broad programmatic
interest suggests that, in this instance, the government acted
as more than a buyer in the normal course of business.
Rather, the government established a program meant to
encourage the creation and development of institutions aimed
at providing services to veterans.
Of course, we do not think that Congress created the VRE
Program to benefit WMCF specifically. Indeed, it is likely
10 UNITED STATES V. PAIXAO
that Congress enacted the program without any particular
educational institution in mind. But the program, as Congress
described it, aims to aid veterans and to ensure the viability
and quality of the organizations that serve those veterans.
And that programmatic interest suggests that WMCF received
“benefits” under Fischer.
C. The VRE Program’s Requirements
The requirements imposed upon institutions participating
in the VRE Program further suggest that those institutions
receive “benefits.” Much like providers receiving Medicare
funds, institutions receiving VRE funding are “the object of
substantial Government regulation.” Fischer, 529 U.S. at
680. For an institution to receive VRE payments, its facilities
must have “space, equipment, instructional material and
instructor personnel adequate in kind, quality, and amount to
provide the desired service for the veteran.” 38 C.F.R.
§ 21.294(a)(1). The institution’s courses must “[m]eet the
customary requirements in the locality for employment in the
occupation in which training is given” and “[m]eet the
requirements for licensure or permit to practice the
occupation, if such is required.” Id. § 21.294(a)(3).
Moreover, the institution must agree to “cooperate” with the
VA and to “provide timely and accurate information covering
the veteran’s attendance, performance, and progress in
training in the manner prescribed by VA.” Id.
§ 21.294(a)(4)(i)–(ii). After certification, the institution must
regularly report “information on enrollment, entrance,
reentrance, change in the hours of credit or attendance,
pursuit, interruption and termination of attendance of each
veteran.” Id. § 21.4203(a)(1). Further, as the facts of this
case demonstrate, the VA requires that participating
institutions submit catalogs describing their programs and
UNITED STATES V. PAIXAO 11
costs and that VA officials visit participating institutions to
monitor their suitability for the program.
That level of government involvement distinguishes
institutions like WMCF from the contractors that the
government engages in its usual course of business. The
regulations require institutions receiving VRE Program funds
to maintain a certain level of quality. Although that fact
alone does little to set those institutions apart from other
government contractors, the VRE Program requires more than
a special level of quality from its participants. To participate
in the program, institutions must engage in an ongoing back-
and-forth with the federal government. That arm-in-arm
approach shows that the government’s interest in those
institutions differs in kind from its interest in standard
contractors.
Defendants insist that the aforementioned standards and
regulations are “not particularly rigorous.” But the facts of
this case suggest otherwise. Not even a year after WMCF
began receiving payments, the VA reviewed WMCF’s
eligibility for funds, found issues with approval standards,
and suspended WMCF’s approval. The VA re-approved
WMCF’s funding only after WMCF acknowledged and
corrected a litany of problems that the VA identified. That
degree of oversight further suggests that the funds at issue
were “benefits” and not ordinary payments.
D. The VRE Program’s Structure and Operation
Finally, Defendants argue that the VRE Program differs
significantly from Medicare in its payment structure and that
this case is thus distinguishable from Fischer. Specifically,
Defendants emphasize that the VA reimburses WMCF for
12 UNITED STATES V. PAIXAO
only the veteran’s direct costs (tuition, fees, and equipment),
whereas Medicare reimburses providers for a wider range of
costs, including some overhead and training-related costs.
Fischer, however, does not suggest that an institution
must receive reimbursement for institutional costs to qualify
as receiving “benefits.” First, the payments at issue in
Fischer reflected the reasonable cost of services rendered.
529 U.S. at 673. And second, as explained above, the Court
looked beyond Medicare’s reimbursement program to
consider the government’s purpose in making payments and
the conditions under which healthcare providers received
those payments. Thus, even accepting that the VRE Program
is structured so differently from Medicare as to render
Fischer distinguishable on this point, Fischer’s other factors
compel us to conclude that WMCF received “benefits” within
the meaning of § 666(b).
Defendants’ reliance on United States v. Wyncoop,
11 F.3d 119 (9th Cir. 1993), is unavailing. In Wyncoop, we
held that Trend College had not received § 666(b) “benefits”
simply by participating in federal student loan programs. Id.
at 123. Our decision in Wyncoop turned almost entirely on
the fact that Trend College itself never received or
administered federal funds. Id. But the VRE Program
works differently. As this case demonstrates, institutions
participating in the VRE Program receive government funds
directly (and subsequently use them to aid veterans).2
2
In Wyncoop, we observed that “there is no . . . reason to conclude
that Congress in enacting section 666 intended to bring employees at
every college and university in the country within the scope of potential
federal criminal jurisdiction.” 11 F.3d at 123. But we made that
observation before the Supreme Court decided Fischer. Fischer makes
UNITED STATES V. PAIXAO 13
Because WMCF received “benefits” within the meaning
of § 666(b), Defendants’ convictions are AFFIRMED.
clear that the “benefits” question turns on the purposes and the operation
of the specific federal program at issue. Under Fischer, we conclude that
the funds at issue here were “benefits.” To the extent that Wyncoop can
be understood to contradict the Supreme Court’s later holding, it no longer
is binding. See Miller v. Gammie, 335 F.3d 889, 893 (9th Cir. 2003) (en
banc) (noting that, when one of our prior decisions is “clearly
irreconcilable with the reasoning or theory of intervening higher
authority,” we should consider ourselves “bound by the later and
controlling authority, and should reject the prior . . . opinion as having
been effectively overruled”).