-
USCA1 Opinion
February 19, 1993
UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
____________________
No. 92-1536
UNITED STATES,
Appellant,
v.
BARKER STEEL CO., INC., AND
ROBERT B. BRACK,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
___________________
____________________
Before
Cyr, Circuit Judge,
_____________
Bownes, Senior Circuit Judge,
____________________
and Fuste,* District Judge.
______________
____________________
Peter A. Mullin, Assistant United States Attorney, with whom
_______________
A. John Pappalardo, United States Attorney, and Andrew E.
____________________ __________
Lauterback, Special Assistant United States Attorney were on
__________
brief, for appellant.
Paul F. Ware, Jr., with whom John C. Englander, Jeremy
___________________ __________________ ______
Sternberg, and Goodwin, Procter & Hoar, Earle C. Cooley, and
_________ ________________________ ________________
Cooley, Manion, Moore & Jones were on brief, for defendants,
________________________________
appellees.
____________________
February 19, 1993
____________________
____________________
*of the District Court of Puerto Rico, sitting by designation.
BOWNES, Senior Circuit Judge. The government appeals
____________________
the dismissal of an Information which charged the defendants,
Barker Steel Co., Inc. and Robert B. Brack, with engaging in
a conspiracy to defraud the United States in violation of 18
U.S.C. 371. The Information alleged that the defendants
fraudulently obtained Minority Business Enterprise and
Disadvantaged Business Enterprise (MBE) "set aside"
contracts. The district court found that the Information was
insufficient to sustain the charges and dismissed it.1 For
the reasons that follow, we reverse and remand for trial.
I.
I.
Standard of Review
Standard of Review
__________________
On appeal from the dismissal of an information, we
take the factual allegations in the information as true, and
we must reverse the dismissal if we find that, as a matter of
law, the information sufficiently sets forth the elements of
the offense charged. United States v. Torkington, 812 F.2d
_____________ __________
1347, 1354 (11th Cir. 1987). We read an information as a
whole and we construe the allegations in a practical sense,
with all necessary implications.2 United States v.
_______________
____________________
1 United States v. Barker Steel Co., Inc., 774 F. Supp. 65
_____________ ______________________
(D. Mass. 1991).
2 Prior to 1971, 18 U.S.C. 3731 limited government appeals
from dismissed informations or indictments to issues of law.
On appeal, the court was bound to accept the lower court's
-2-
nom., Zero v. United States, 459 U.S. 991 (1982); United
____ ____ _____________ ______
Cincotta, 689 F.2d 238, 242 (1st Cir.), cert. denied sub
________ _____ ______ ___
law, including the lower court's interpretation of a statute,
(5th Cir.), cert. denied, 427 U.S. 903 (1978). Questions of
_____ ______
States v. Cadillac Overall Supply Co., 568 F.2d 1078, 1082
______ ____________________________
are reviewed de novo. United States v. M.I.M., 932 F.2d
__ ____ _____________ ______
construction by lower court).
-3-
States v. Besmajian, 910 F.2d 1153, 1154 (3d Cir. 1990)
______ _________
and removed the restrictions on appeal. But see United
___ ___ ______
(following former rule and limiting review of allegations to
An information should be "a plain, concise and
An information is sufficient if it "first, contains the
constituting the offense charged." Fed. R. Crim. P. 7(c)(1).
elements of the offense charged and fairly informs a
definite written statement of the essential facts
second, enables him to plead an acquittal or conviction in
defendant of the charge against which he must defend, and,
1016, 1019 (1st Cir. 1991).
bar of future prosecutions for the same offense." Hamling v.
_______
United States, 369 U.S. 749, 763-64 (1962); United States v.
_____________ _____________
language of the statute as long as the core facts of the
information is sufficient when allegations are made in the
criminality charged are also included. Russell 369 U.S. at
_______
Penagaricano-Soler, 911 F.2d 833, 839 (1st Cir. 1990). An
__________________
____________________
764; Penagaricano-Soler, 911 F.2d at 839-40; United States v.
__________________ ________________
United States, 418 U.S. 87, 117 (1974); accord Russell v.
_____________ ______ _______
construction of allegations. Congress amended 3731 in 1971
Allard, 864 F.2d 248, 250 (1st Cir. 1989) ("The test for
______
sufficiency, therefore is not whether, in hindsight, the
indictment or information could have been more complete, . .
. but rather whether it fairly identifies and describes the
offense." (citations omitted)). Therefore, we examine the
Information as a whole to determine whether it sufficiently
charges the offense proscribed by the conspiracy statute.
II.
II.
The Information
The Information
_______________
To begin, we summarize the key allegations of the
Information. The government's allegations concerning the
defendants' conspiracy to defraud the United States focus on
the MBE programs of several federal agencies, the U.S.
Department of Transportation (DOT), the Environmental
Protection Agency (EPA), and the General Services
Administration (GSA). These federal agencies intended the
MBE programs to "support[] the fullest possible
participation of firms owned and controlled by certain racial
minorities and women in the construction programs funded and
assisted by these departments and agencies." Information at
6. To that end, the MBE programs required that recipients
of funds from federal agencies establish goals or set aside a
percentage of federal funds received for contracts to
certified MBE businesses. Information at 7.
-4-
Federal agencies with MBE programs rely upon state
and local governments to certify applicants as qualified
minority businesses. Information at 9. To qualify for MBE
certification, at least fifty-one percent of the ownership of
the enterprise must be by certain minority groups, and the
minority owners must also control the daily operations of the
business. Information at 6. To implement the MBE program,
the entity receiving federal agency funding hires general
contractors to perform the work, who in turn award
subcontracts to certified MBEs to meet the percentage goal
for the project. For subcontract work to qualify for MBE
goals or set aside contracts, the MBE certified firm must
perform a "commercially useful function in the execution of
the project by actually performing, managing and supervising
the work involved." Information at 10. For materials and
supplies to qualify, the MBE certified firm must "either
produce the goods from raw materials or substantially alter
the goods before reselling them." Information at 10.
The Information alleges that from about October,
1982, until at least July, 1986, Barker Steel Company
(Barker) and its president, director and majority
stockholder, Robert B. Brack (Brack), conspired with others
to use Rusco Steel Company (Rusco) as a front company to win
MBE set aside contracts for Barker. Information at 13.
Barker was a Massachusetts corporation which furnished
-5-
fabricated steel reinforcing bars (re-bars) and other
products to the construction industry throughout New England.
Barker was never a certified MBE. Information at 1, 11.
Rusco, located in Rhode Island, had been certified as an MBE
in several states before the scheme with the defendants
began. Information at 3, 15.
The steel re-bar industry includes two distinct
functions: fabricators and erectors. Firms which operate as
fabricators "cut and bend the re-bars to meet the
specifications of a particular construction project and then
deliver the re-bars to the construction site." Information
at 5. The industry term for the work done by fabricators
is "furnish" work. Id. Firms known as erectors "place the
___
fabricated re-bars within the forms, at the job site, prior
to the pouring of the concrete." Information at 5.
Erector firms do "erection" work. Id.
___
In October, 1982, Barker agreed with Rusco that
Barker would finance a new division of Rusco for erecting
steel re-bar, "erection" work. Information at 5, 16. In
exchange, Rusco would allow Barker to market its steel
products through Rusco for re-bar "furnish" contracts to take
advantage of Rusco's MBE certification. Information at
13, 16. Prior to 1982, Rusco had operated as a broker of
steel re-bar but had not fabricated re-bar or erected re-bar.
Information at 15. Beginning in 1982, Barker employees
-6-
managed all aspects of the fabrication, sales and shipping of
steel re-bar and other products in its own name and in
Rusco's name when contracts required MBE certification.
Information at 16, 19, 20. Barker employees and Brack
exercised substantial control over Rusco throughout this
period. Information at 22, 25. In 1985, the defendants
merged a subsidiary company into Rusco, to deceive state MBE
certifying agencies about Rusco's eligibility for MBE
certification. Information at 25, 43.
As part of the scheme, Rusco submitted documentation
to various state and local agencies for the purpose of
obtaining or maintaining certification as an MBE.
Information at 32, 26, 41, 47. The documents submitted by
Rusco contained false, misleading and fraudulent statements
as well as material omissions. Id. The Information concludes
___
that as a result of the conspiracy, more than $5 million in
federally funded and federally assisted construction
contracts were improperly credited toward MBE goals when the
contracts actually benefitted Barker, which was not an MBE
firm. Information at 15. The conspiracy, according to the
Information, impeded, impaired, obstructed and defeated the
implementation, execution and administration of the MBE
programs of DOT, EPA and GSA. Information at 12.
III.
III.
Discussion
Discussion
__________
-7-
The district court dismissed the Information on the
grounds that: (1) it failed to allege a violation by the
defendants of any MBE program statute; (2) it did not
clearly state a violation by the defendants of a duty owed to
the federal government, and (3) it failed to allege direct
contact with federal agencies. The defendants contend that
because the MBE program does not impose criminal penalties or
any obligations upon them, they were not fairly warned that
the conduct alleged in the Information could give rise to
criminal charges. In further support of the dismissal of the
Information, the defendants add that their alleged conduct
was not fraud because it did not deprive the federal
government of any money or property. The government counters
that the Information properly and sufficiently alleged that
the defendants conspired to defraud the federal government in
violation of 18 U.S.C. 371.
A. Legal Sufficiency of the Information
A. Legal Sufficiency of the Information
____________________________________
The Information charges that the defendants conspired
with others to defraud the United States in violation of 18
U.S.C. 371. The pertinent language of 371 provides as
follows:
If two or more persons conspire either
to commit any offense against the United
States, or to defraud the United States,
or any agency thereof in any manner or
for any purpose, and one or more of such
persons do any act to effect the object
of the conspiracy each shall be fined not
-8-
more than $10,000 or imprisoned not more
than five years, or both.
18 U.S.C. 371. To sufficiently charge a conspiracy to
defraud, the Information must allege the three essential
elements of section 371: "an agreement, the unlawful
objective of the agreement, and an overt act in furtherance
of the agreement." United States v. Hurley, 957 F.2d 1, 4
______________ ______
(1st Cir. 1992), cert. denied, 61 U.S.L.W. 3256 (U.S. Oct. 5,
_____ ______
1992). The objective of the agreement is unlawful if it is
"'for the purpose of impairing, obstructing or defeating the
lawful function of any department of Government.'" Dennis v.
_________
United States, 384 U.S. 855, 861 (1966); (quoting Haas v.
_____________ ____
Henkel, 216 U.S. 462, 479 (1910)).
______
In this case, the government alleged the defendants'
conspiracy to defraud in the language of the statute as
follows:
the defendants herein, BARKER STEEL CO.,
INC. and ROBERT B. BRACK, did knowingly,
willfully and unlawfully combine,
conspire, confederate and agree with
others, known and unknown, to defraud the
United States by impeding, impairing,
obstructing and defeating the lawful
governmental function of various
departments and agencies of the United
States, including particularly USDOT, EPA
and GSA, in the implementation, execution
and administration of their respective
MBE programs.
. . .
(All in violation of Title 18 United
States Code, Section 371.)
-9-
Information at 12, and final statement at page 13. The
Information also includes detailed factual allegations to
substantiate the cursory statutory allegations. The
defendants conspired with Rusco and others to establish Rusco
as a front company which the defendants used to obtain MBE
set aside contracts for furnishing steel re-bar on
construction projects funded in part by federal agencies.
The defendant corporation, Barker, was not an MBE and was,
therefore, not entitled to MBE contracts. Although Rusco may
have been a properly certified MBE at one time, during the
relevant period of the defendants' scheme, they financed and
controlled Rusco, thereby destroying its eligibility as an
MBE. Rusco maintained its MBE certification by supplying
false and misleading documentation to certifying agencies.
We continue our analysis of the sufficiency of the
Information to determine whether 371 provided fair warning
to the defendants that their conduct, as alleged, violated
the statute.
B. Sufficiency of the Allegations of Conspiracy
B. Sufficiency of the Allegations of Conspiracy
____________________________________________
The defendants do not contend that the Information
failed to allege a conspiracy, nor did the district court so
find, and we find no deficiency. "The gist of conspiracy is
an agreement to disobey or to disregard the law." United
______
States v. Drougas, 748 F.2d 8, 15 (1st Cir. 1984); accord
______ _______ ______
United States v. Batista-Polanco, 927 F.2d 14, 19 (1st Cir.
_____________ _______________
-10-
1991); Penagaricano-Soler, 911 F.2d at 840. The Information
__________________
alleges that the defendants conspired with others, known and
unknown, to defraud the government and goes on to allege
conduct by the defendants, their employees, Rusco, and others
in furtherance of the conspiracy. Information at 12 and
passim.
______
The defendants argue, however, that because Rusco was
not named or charged as a co-conspirator in the Information,
actions by Rusco cannot be alleged to support the charges
against the defendants. There is no requirement that co-
conspirators be identified in an information, nor is there a
requirement that co-conspirators be charged with the same
offense to sustain the conviction of one co-conspirator.
Penagaricano-Soler, 911 F.2d at 840 n.5; United States v.
__________________ ______________
Sachs, 801 F.2d 839, 845 (6th Cir. 1986). Although Rusco is
_____
not charged or named as a co-conspirator, the Information
alleges action which includes Rusco as a participant with the
defendants in the scheme to defraud the MBE programs.
Information at 13, 16. The reasonable inference from
those allegations is that Rusco was operating as a co-
conspirator. Further, the Bill of Particulars specifically
identifies Rusco as a co-conspirator.3 It is well settled
____________________
3 While a bill of particulars cannot cure a defective
indictment, it can provide notice of detail missing from an
information. See Fed. R. Crim. P. 7(e); 1 Charles A.
___
Wright, Federal Practice and Procedure Criminal 2d 129
(1982); United States v. Prince, 868 F.2d 1379, 1384 (5th
_____________ ______
-11-
that members of a conspiracy are legally responsible for the
actions of a co-conspirator taken in furtherance of the
scheme. Pinkerton v. United States, 328 U.S. 640, 646-47
_________ _____________
(1945); United States v. Baines, 812 F.2d 41, 42 (1st Cir.
_____________ ______
1987); United States v. Fusaro, 708 F.2d 17, 21 (1st Cir.
_____________ ______
1983). Therefore, actions by Rusco to obtain or maintain MBE
certification are properly alleged as elements of the
conspiracy.
C. Sufficiency of the Allegations of Fraud
C. Sufficiency of the Allegations of Fraud
_______________________________________
The conspiracy statute proscribes two different
conspiracies: one to commit a specific offense, the "offense
clause," and the other to defraud the United States "in any
manner or for any purpose," the "defraud clause." Hurley,
______
957 F.2d at 3. The defendants were charged under the
"defraud clause" of 371.
At the start of our analysis, we acknowledge that the
defraud clause of 371 has been criticized for its general
language and potentially broad sweep. Dennis v. United
______ ______
States, 384 U.S. 855, 860 (1966). Further, because there are
______
no common law crimes against the United States, we must
determine whether the defendants' alleged conduct is
"'plainly and unmistakably' within the province of [ 371]."
____________________
Cir. 1989) (observing that an information, unlike an
indictment, may be easily amended absent prejudice to
defendants).
-12-
United States v. Gradwell, 243 U.S. 476, 485 (1917). We,
_____________ ________
therefore, scrutinize the Information carefully to determine
whether it sufficiently and properly alleges criminal conduct
in violation of 371.
The defendants contend that they lacked fair warning
that the conduct alleged in the Information would violate the
defraud clause of 371. The fair warning doctrine invokes
due process rights under the Fifth Amendment and requires
that the criminal statute at issue be sufficiently definite
to notify persons of reasonable intelligence that their
planned conduct is criminal. United States v. Harriss, 347
_____________ _______
U.S. 612, 617 (1953) ("The constitutional requirement of
definiteness is violated by a criminal statute that fails to
give a person of ordinary intelligence fair notice that his
contemplated conduct is forbidden by the statute."); United
______
States v. National Dairy Corp., 372 U.S. 29, 31 (1963);
______ _____________________
United States v. Anzalone, 766 F.2d 676, 678 (1st Cir. 1985).
_____________ ________
We examine the statute, as we must, in the context of the
facts of this case. United States v. Mazurie, 419 U.S. 544,
_____________ _______
550 (1975); United States v. Angiulo, 897 F.2d 1169, 1179
_____________ _______
(1st Cir. 1990).
The defendants assert that 371 did not provide fair
warning that their alleged actions defrauded the MBE programs
of federal government agencies because the MBE programs did
not impose any duties on them. The district court found that
-13-
the MBE programs did not impose criminal sanctions or
penalties, or any obligations on subcontractors, such as the
defendants, and held that because the defendants had not
violated any duty imposed upon them by the MBE programs, they
could not have violated 371. The defendants primarily rely
on United States v. Murphy, 809 F.2d 1427 (9th Cir. 1987);
_____________ ______
United States v. Anzalone, 766 F.2d 676 (1st Cir. 1985), and
______________ ________
United States v. Porter, 591 F.2d 1048 (5th Cir. 1979). We
______________ ______
find them inapposite to this case.
In United States v. Anzalone, 766 F.2d 676 (1st Cir.
_____________ ________
1985), we addressed the problem of criminal prosecution of an
individual for alleged violations of the currency reporting
requirements before the applicable statutes were amended to
include such transactions. Anzalone did not involve 371.4
________
The government claimed that the defendant failed to notify
the bank that his deposits were part of the same event and
should have been reported as a "structured" transaction. The
essence of the government's charges was "that the appellant's
failure to inform the Bank of the 'structured' nature of his
transfers constituted an illegal scheme to avoid detection of
these payments by causing the Bank to fail in its duty to
report them." Id. at 679. We held that the defendant could
___
____________________
4 The defendant was not charged under 371 and 371 was not
discussed in the case. The defendant was charged and
convicted of violating 18 U.S.C. 2, 1001 and 31 U.S.C.
5313, 5322.
-14-
not be held criminally liable under the crimes charged for
failing to report the transaction when the Reporting Act did
not impose a duty on him to do so.
Our analysis in Anzalone is easily
________
distinguishable from this case. In addition to the fact that
Anzalone does not address 371, the defendant was charged
________
with a crime for failure to act. As we held in Anzalone,
_______ ________
omission can only constitute a crime if the accused had a
duty to act. In this case, however, the defendants are
charged with defrauding the government by their actions, not
by failure to act, and therefore, the analysis in Anzalone is
________
inapplicable.
Similarly, in United States v. Murphy, 809 F.2d
______________ ______
1427 (9th Cir. 1987), the defendants' alleged crimes arose
from their failure to act. The defendants were charged with
violating 371 because they failed to disclose the source of
the funds they deposited which the government alleged
constituted a conspiracy to impair the function of the
Internal Revenue Service in the collection of taxes. The
court found that the defendants had honestly and accurately
completed the currency transactions reports which were
required, had no duty to inform anyone of the source of the
deposited money, and therefore had not committed any illegal
activity. The court, in dicta, suggested that violations of
371 require violation of other criminal statutes. Id. at
___
-15-
1432. Moreover, the Ninth Circuit has explained and limited
its decision in Murphy:
______
Dicta in Murphy can be construed to
______
require that a conspiracy charge under
section 371 be based upon conduct that
has "been proscribed by criminal
statute." Id. Any such construction is
__
incorrect in light of Dennis. We read
______
Murphy and Varbel [United States v.
______ ______ _______________
Varbel, 780 F.2d 758 (9th Cir. 1986)]
______
only to mean that a section 371
conviction may not be based upon a
failure to volunteer information that is
not required to be provided to the
government, or upon the furnishing of
correct information; such acts do not
sufficiently impair the functioning of
the government to support a criminal
conviction.
United States v. Tuohey, 867 F.2d 534, 538 (9th Cir. 1989).
_____________ ______
In Tuohey, the court held that the government had properly
______
charged the defendants under 371 because the defendants had
failed to report currency transactions as they were required
to do by statute.
In United States v. Porter, 591 F.2d 1048 (5th
_____________ ______
Cir. 1979), the government charged a group of doctors and a
laboratory operator with Medicare fraud and conspiracy to
defraud the government under 371. On appeal, the court
reversed the convictions and dismissed the indictments
finding that the government had not properly charged or
proved a conspiracy to defraud the government under 371. In
summary, the government alleged that the doctor defendants
had sent lab work to the laboratory operator defendant's
-16-
manual laboratories because they received a payment for doing
so, rather than to automated laboratories which might have
processed the work more quickly and more cheaply. Although
the facts relating to the practice which provided payment
back to the doctors are complex, the effect was obvious--the
doctors sent their lab work to the laboratories which
provided the payments and not to the automated laboratories.
The charges to Medicare, however, were not increased by the
practice and were within the guidelines for lab work in the
area, and the quality of the work was not an issue. Further,
the defendants did not violate any Medicare rules,
regulations or other requirements by using manual
laboratories. The government charged that the practice,
nevertheless, violated 371 because it defrauded the
government's "right to have the Medicare program conducted
honestly and fairly." Id. at 1056. The government's
___
allegations established that the defendants failed to use the
most cost effective laboratories, the automated laboratories,
but did not show that the defendants were required to do so,
and the allegations also showed that the defendants complied
with the applicable rules and regulations of Medicare. The
court found that the government did not prove that the
defendants had interfered with lawful functions of the
Medicare program as required for criminal liability under
371.
-17-
None of the cases relied upon by the defendants
involve the situation before us: affirmative acts of
misrepresentation and deceit to thwart the operation and
purpose of a government program. Conspiracy to thwart the
operation and purpose of a government program through deceit
and trickery is prohibited by 371. Hammerschmidt v. United
_____________ ______
States, 265 U.S. 182, 188 (1924); United States v. Bucey, 876
______ _____________ _____
F.2d 1297, 1312-13 (7th Cir.), cert. denied, 493 U.S. 1004
_____ ______
(1989).
As noted earlier, 371 proscribes two distinct types
of conspiracies: (1) conspiracies to commit a specific
offense against the United States, included elsewhere in the
criminal code, and (2) conspiracies to defraud the United
States. The essence of the defendants' theory is that if no
other federal law or regulation proscribes alleged conduct,
then the defendants cannot be held criminally responsible
pursuant to 371 because they owe no duty to the federal
government.5 The defendants' theory reflects a
____________________
5 This theory is distinguishable from United States v.
______________
Minarik, 875 F.2d 1186 (6th Cir. 1989), where the defendants
_______
were charged and convicted under the defraud clause of 371
although a specific provision of the Tax Code proscribed
their conduct. In Minarik the court overturned the
_______
convictions on the grounds that the case should have been
brought under the offense clause of 371 to avoid confusion
to the defendants concerning what conduct was considered
illegal.
-18-
misunderstanding of the function of the two clauses of
371.6 If the second clause were interpreted to require
commission of a specific offense, it would have the same
meaning as the first clause thus rendering the second clause
redundant. Whenever possible, we will not interpret a
statute in such a way as to cause redundancy. Breest v.
______
Cunningham, 752 F.2d 8, 10 (1st Cir. 1985).
__________
Recently we examined the defraud clause of 371 in
the context of an appeal from conviction for conspiracy to
impair the function of the IRS in United States v. Hurley,
_____________ ______
957 F.2d 1 (1st Cir. 1992), and held that the defraud clause
does not depend on allegations of other offenses. In Hurley,
______
the defendants helped a drug smuggler hide and invest $5
million of his illegal earnings thereby thwarting the lawful
function of the IRS to levy and collect income taxes. The
defendants in Hurley argued that the indictment was invalid
______
for failing to charge them under the offense clause of 371
with specific tax code violations. The defendants also
argued that because there were no laws prohibiting their
particular money laundering activities, they had no duty to
the government under 371 not to engage in money laundering.
We found that the defendants had engaged in a long-standing
____________________
6 The defendants' theory does not raise the due process
problems presented in United States v. Haga, 821 F.2d 1036
_____________ ____
(5th Cir. 1987), where the defendants were charged under the
offense clause of 371 but were convicted, apparently, under
the defraud clause.
-19-
and complex conspiracy to deceive the IRS rather than a
limited scheme proscribed by a single section of the tax
code. We held that the defraud clause was properly charged
because it can best address a conspiracy which encompasses a
broad range of conduct for the unlawful purpose of impairing
the function of the IRS. See also Dennis v. United States,
___ ____ ______ _____________
384 U.S. at 860 (holding that the true nature of the crime
was the entire conspiracy to falsely obtain benefits from the
N.L.R.B., in violation of 371, and not merely the false
statements made in furtherance of the conspiracy); United
______
States v. Bucey, 876 F.2d at 1312-13 (holding that actions
______ _____
which are themselves legal may constitute a criminal
conspiracy in violation of 371 if they are part of a
conspiracy to obstruct by deceit, craft or trickery the
lawful function of a government agency).
In the present case, the government alleges that the
defendants concocted an elaborate scheme with Rusco to use
Rusco as a front company to procure MBE set aside contracts
for steel re-bar furnish work which would actually be done
by the defendants. The scheme, as alleged, began in 1982 and
continued into 1986. Although Rusco was indicted for the
specific offense of filing false statements in violation of
18 U.S.C. 1001, the defendants' conspiracy aimed at a
broader goal, impeding the purpose and function of the MBE
programs. The defendants' scheme is the kind of complex
-20-
conspiracy which the defraud clause is intended to proscribe,
and which might not be prosecuted adequately by addressing
separate occurrences of illegal conduct.7
The defendants in Hurley fared no better with their
______
second argument. They argued that because their money
laundering activities were not prohibited by specific
statutes, they lacked fair warning that they could be
prosecuted under the defraud clause of 371. We rejected
their argument and held that if the "defendants knowingly
participated in laundering drug proceeds, inevitably
hindering the IRS in its ability to collect . . . taxes,
their convictions under 371's defraud clause are
unassailable." Id. at 4; accord United States v. Cambara,
___ ______ _____________ _______
902 F.2d 144, 147 (1st Cir. 1990) ("The conspiracy statute
does not require that unlawful means be used to achieve the
unlawful goal of the conspiracy.").
____________________
7 In Dennis, 384 U.S. 855, the defendants argued that they
______
should have been charged, if at all, under the offense clause
of 371 for the substantive offense of making false
statements but for the time bar of the statute of
limitations. The Court held, however, that the charge of
conspiracy to defraud the government properly stated the
nature of the defendants' offense and was not "an attempt by
prosecutorial sleight of hand to overcome a time bar." Id.
___
at 863. In this case, we also reject the defendants' claim
that the government resorted to 371 to circumvent the
statute of limitations barring a charge pursuant to 18 U.S.C.
1001. As in Dennis, while it is true that the defendants
______
may have violated 1001 in perpetration of the conspiracy,
the gravamen of the charge is the scheme to defraud the MBE
program and not merely the making of false statements.
-21-
Taken as a whole, the Information charges that the
MBE re-bar "furnish" contracts obtained in Rusco's name were
merely passing through Rusco, as a front, to Barker. The
defendants used Rusco to win MBE contracts to "furnish" re-
bar because the defendants could not have obtained those
contracts directly. The result was that a non-MBE got the
benefit of contracts which the MBE program intended for
minority businesses. Both the defendants and the district
court below rely on the fact that Rusco was a certified MBE
during the existence of the conspiracy, implying that
contracts which went to Rusco were proper under the affected
MBE programs.
A scheme to use a minority business as a front
company was addressed in United States v. Anderson, 879 F.2d
______________ ________
369 (8th Cir. 1989). The court found that the minority
business certification requirements of the Small Business
Administration were intended to insure that front companies
did not usurp program benefits:
To become certified for the [SBA
minority business] program, a business
must establish that it is socially or
economically disadvantaged, is owned by a
minority person and not a mere front for
a non-[minority certified] business, is
actually controlled by a minority person,
and will be performing at least 15
percent of the government contract.
Id. at 372. The Anderson defendants used a certified
___ ________
minority business as a front to obtain SBA set aside
-22-
contracts when the contract work was actually subcontracted
to other, non-minority, businesses. Compare United States v.
_______ _____________
Porter, 591 F.2d 1948 (5th Cir. 1979) (affirming dismissal of
______
an indictment which charged doctors and a laboratory worker
with a kickback scheme to defraud Medicare in violation of
371 because there was no Medicare policy or regulation which
prohibited doctors from taking such payments and Medicare
costs were not increased).
It is reasonable to infer that the MBE certification
requirements for the agencies alleged in this case are
intended to prevent non-MBEs from taking advantage of MBE set
aside contracts.8 The MBE certification requirements impose
duties upon the defendants and others not to subvert the
system established to benefit minority businesses. Because
Rusco did not do the re-bar "furnish" work specified in the
contracts, Rusco was operating as a front for Barker which
____________________
8 The Information summarized, rather than citing, the
regulations which control the MBE programs of the DOT, EPA
and GSA which provides sufficient understanding of the
function of the programs. Nevertheless, the pertinent
language of the regulation for MBE certification for the DOT
is instructive:
To ensure that this part benefits only
MBEs which are owned and controlled in
both form and substance by one or more
minorities or women, DOT recipients shall
use Schedules A and B . . . to certify
firms who wish to participate as MBEs in
DOT under this part.
49 C.F.R. 23.51.
-23-
did the "furnish" work and received the contract payments.
As the government alleges, MBE contracts can only be awarded
to MBEs who actually do the work, and therefore, the
defendants' use of Rusco was a fraud on the MBE programs.
Just because the defendants used Rusco, a certified MBE, to
subvert the MBE requirements does not make their actions less
reprehensible.
The Information also alleges that Rusco fraudulently
maintained its MBE certification after 1982. The defendants
counter that the Information cannot properly charge them with
defrauding the government based upon false documentation
submitted by Rusco to various MBE certifying agencies because
there is no allegation that the agencies relied upon the
false documentation to certify Rusco. In Dennis, 384 U.S.
______
855, the Supreme Court found that an indictment which charged
members of a mine workers' union who submitted false
affidavits, stating that they were not Communists, in order
to procure the services of the National Labor Relations
Board, properly stated a conspiracy to defraud the
government pursuant to 371. The defendants objected that
the affidavits did not defraud the Board because it did not
rely on the veracity of the non-Communist affidavits, but
instead relied only on the fact that they were filed. In
response, the Court held as follows:
The facts are, according to the
indictment, that petitioners and their
-24-
co-conspirators could not have obtained
the Board's services and facilities
without filing non-Communist affidavits;
that the affidavits were submitted as
part of a scheme to induce the Board to
act; that the Board acted in reliance
upon the fact that affidavits were filed;
and that these affidavits were false.
Within the meaning of 371, this was a
conspiracy to defraud the United States
or an agency thereof.
Dennis at 862. The effect of the conspiracy and the false
______
affidavits was that the defendants' trade union gained the
benefit of the Board's services and facilities despite the
fact that the union was not qualified because some of its
officers were Communists. The Court held that the conspiracy
defrauded the government by impeding the function of the
Board to implement its policy to exclude unions with
Communist officers. Similarly, in this case, Rusco could
not have maintained its certification as an MBE without
filing the required documentation. Because the defendants
had taken control of Rusco, the documentation filed by Rusco
contained false and misleading information and material
omissions which directly affected Rusco's eligibility as an
MBE. Unless Rusco maintained its MBE certification, the
defendants' scheme to obtain MBE set aside contracts would
have failed. The state and local MBE certification agencies
granted MBE certification to Rusco in response to Rusco's
fraudulent documentation. Therefore, Rusco's filings for MBE
certification were at the core of the defendants' conspiracy
-25-
and may be considered as a part of the fraudulent activity in
furtherance of the conspiracy. Even if Rusco had been a
properly certified MBE, however, "[a] method that makes use
of innocent individuals or businesses to reach and defraud
the United States is not for that reason beyond the scope of
371." Tanner v. United States, 483 U.S. 107, 129 (1986).
______ _____________
This court has considered the meaning of the defraud
clause in 371 and its substantially similar predecessors,
and found actions which defrauded the United States in a
variety of circumstances. Curley v. United States, 130 F. 1,
______ _____________
11-12 (1st Cir. 1904), cert. denied, 195 U.S. 628 (affirming
_____ ______
the sufficiency of an indictment charging conspiracy to
defraud the government by a defendant who took a civil
service exam for another man to help him gain a position as a
letter carrier and defining defrauding the government as:
"'any act committed with a view of evading the legislation of
Congress passed in the execution of any of its powers, or of
fraudulently securing the benefit of such legislation, may
properly be made an offense against the United States.'");
Harney v. United States, 306 F.2d 523 (1st Cir. 1962), cert.
______ _____________ _____
denied sub nom. O'Connell v. United States, 371 U.S. 911
______ ___ ____ _________ _____________
(affirming indictment for hampering the lawful operation of
the Bureau of Public Roads of the Department of Commerce in
the administration of the Federal Aid Highway program);
-26-
United States v. Pappas, 611 F.2d 399 (1st Cir. 1979)
______________ ______
(affirming conviction of conspiracy to defraud government
based on a scheme to misuse funds intended for the CETA
program).
Finally, dishonest conduct is at the heart of the
crime of defrauding the government. The Supreme Court
defined "defraud" in a substantially similar predecessor
statute to 371 as follows:
To conspire to defraud the United
States means primarily to cheat the
government out of property or money, but
it also means to interfere with or
obstruct one of its lawful governmental
functions by deceit, craft or trickery,
or at least by means that are dishonest.
It is not necessary that the government
shall be subjected to property or
pecuniary loss by the fraud, but only
that its legitimate official action and
purpose shall be defeated by
misrepresentation, chicane, or the
overreaching of those charged with
carrying out the governmental intention.
Hammerschmidt v. United States, 265 U.S. 182, 188 (1924).
_____________ ______________
The defendants in Hammerschmidt were indicted for
_____________
distributing leaflets and other materials urging resistance
to the draft during World War I. The Court held that
although the defendants' conduct was aimed at impairing the
function of the Selective Service, a lawful government
function, it was open defiance and not a scheme involving
deceit or trickery, and therefore, could not be charged
within the meaning of defrauding the government.
-27-
The allegations in this case do not present a
situation where defendants conspired to do something which,
in itself, was innocent, but which had the unintended effect
of thwarting the MBE programs. Nor were the defendants
engaging in open defiance or protest against the MBE
programs. The defendants' actions, as alleged, involved
deceit and trickery to benefit the defendants by hampering a
lawful government function. A conspiracy of this kind has
long been recognized to defraud the government.
The Information alleges that "[p]ursuant to this
unlawful conspiracy in excess of $5 million in federal and
federally assisted construction contracts were improperly
credited towards the MBE goals of the various departments and
agencies of the United States."9 Information at 14.
While this allegation could be more forcefully stated, taking
the Information as a whole and with all necessary
implications, the meaning is clear: the defendants conspired
with others to defraud the DOT, EPA and GSA, agencies of the
United States, in the implementation of their MBE programs by
using Rusco to win MBE set aside contracts which the
defendants would not otherwise have been eligible to receive.
____________________
9 The defendants do not challenge the validity of the MBE
program. It is uncontroverted, in this case, that the MBE
program is a lawful function of government. And see
___ ___
Fullilove v. Klutznick, 448 U.S. 448 (1980) (upholding
_________ _________
constitutionality of an MBE program).
-28-
As a result, the scheme diverted $5 million in contracts from
MBEs to Barker.
In thirteen pages containing forty-eight paragraphs,
the Information details actions by which the defendants,
Rusco and others accomplished their objective to obtain MBE
contracts for the benefit of the defendants. The allegations
show that the defendants were well aware of the purpose of
the MBE programs, certification requirements, goals and set
aside contracts, and that any reasonably intelligent person
in the defendants' situation should have known that their
conspiracy could have criminal consequences. Taken as a
whole, the Information sufficiently alleges fraudulent
conduct by the defendants and their co-conspirators to
impair, defeat, or obstruct the function of the MBE programs
involved in this case. We move on to consider whether the
fraud was perpetrated against the United States.
D. Sufficiency of Allegations of Contact with United States
D. Sufficiency of Allegations of Contact with United States
________________________________________________________
The defendants assert, and the district court held,
that the Information fails to allege that the defendants
conspired to defraud the United States or an agency of the
United States. In Tanner v. United States, 483 U.S. 107
______ ______________
(1987), the Supreme Court considered whether a kickback
conspiracy to procure and keep a construction contract on a
project which was funded by federally guaranteed loans
constituted defrauding the United States within the meaning
-29-
of 371. In Tanner, 483 U.S. 107, the Rural Electrification
______
Administration (REA) guaranteed loans for the construction of
a power plant for an electric cooperative (Seminole) in
Florida. The procurement manager for Seminole conspired with
his friend to get contracts for the project with kickback
payments to the manager.
The defendants argued on appeal that the evidence at
trial showed that the target of the conspiracy was Seminole
and not the federal government. The government responded
that, because Seminole's construction project received
federal financial assistance and some federal supervision, a
conspiracy to defraud Seminole was the same as a conspiracy
to defraud the government. The Court rejected the
government's explanation and held:
The conspiracies criminalized by 371
are defined not only by the nature of the
injury intended by the conspiracy, and
the method used to effectuate the
conspiracy, but also and most
importantly by the target of the
______
conspiracy.
Tanner at 130. The Court also held, however, that
______
conspiracies to defraud the federal government may be
accomplished through intermediaries, innocent third parties,
and the Court remanded the case to determine whether the
defendants conspired to cause Seminole to make
misrepresentations to the REA. Tanner at 132.
______
-30-
In this case, the government alleged that the MBE
programs of the involved federal agencies were the target of
the defendants' conspiracy to defraud. Information at 12.
The Information supports the general allegation in statutory
language with detail of the workings of the MBE programs and
the actions by the defendants which harmed the MBE programs.
The Information alleges that the defendants' scheme caused
"in excess of $5 million in federal and federally assisted
construction contracts [to be] improperly credited towards
the MBE goals of the various departments and agencies of the
United States." Because the purpose of the MBE programs, as
alleged, is to insure that at least ten percent of federal
and federally assisted construction project contracts be
awarded to MBE companies, the defendants' scheme to divert
MBE contracts through Rusco to benefit themselves obstructed
the proper function of the MBE programs. The Information
taken as a whole clearly alleges that the target of the
defendants' conspiracy was $5 million worth of MBE set aside
contracts which should have been awarded to minority
businesses.
The Information does not allege that either the
general contractors or the state agencies implementing MBE
certification were operating as federal agencies based on
their receipt of federal and federally assisted funds. The
misrepresentations and fraud to general contractors and MBE
-31-
certifying agencies by the defendants and co-conspirators
were the means to the end, using innocent third parties to
effect their scheme. The Information sufficiently alleges a
conspiracy which targeted a federal function, the MBE
programs of the DOT, EPA and GSA, and therefore, properly
charges a conspiracy to defraud the United States.
E. Sufficiency of Allegations of Harm to the United States
E. Sufficiency of Allegations of Harm to the United States
_______________________________________________________
The defendants argue that the Information fails to
allege a crime under 371 because it does not allege that
the defendants defrauded the federal government of money or
property. There is no basis for the defendants' argument.
The language of the statute itself is broad: "If two or more
persons conspire . . . to defraud the United States, or any
agency thereof in any manner or for any purpose. . ." 18
_______________________________
U.S.C. 371 (emphasis added). At least since Haas v.
____
Henkel, 216 U.S. 462 (1910), the Supreme Court has recognized
______
that 371 (and its substantially similar predecessors) were
not limited to conspiracies which defraud the government of
money or property: "The statute is broad enough in its terms
to include any conspiracy for the purpose of impairing,
obstructing or defeating the lawful function of any
department of Government." Id. at 479.
___
Although the Supreme Court has limited the scope of
mail fraud, 18 U.S.C. 1341, to the protection of property
-32-
rights, that limitation is restricted to the mail fraud
statute. McNally v. United States, 483 U.S. 350, 360 (1987);
_______ _____________
and id. at 368 (Stevens, J., dissenting); United States v.
___ ___ ______________
Smith, 891 F.2d 703, 713 (9th Cir. 1989), modified on other
_____ ________ __ _____
grounds, 906 F.2d 385, cert. denied 111 S.Ct 47 (1990)
_______ _____ ______
(McNally's narrow definition of "defraud" does not extend to
_________
371.). We decline to extend the McNally limitation to
_______
371.
IV.
IV.
Conclusion
Conclusion
__________
We hold that the Information sufficiently alleges a
conspiracy to defraud the government pursuant to 371 in
the language of the statute and with sufficient supporting
detail to adequately notify the defendants of the charges
against them. The history of interpretation of 371
demonstrates that the statute proscribes conspiracies, such
as the defendants' conspiracy, which target federal programs
and which intend to deceitfully secure the benefit of those
programs. In other words, the defendants had a duty imposed
pursuant to 371 not to divert the benefit of the MBE
programs from their intended recipients, qualified and
certified minority businesses, to themselves. The statute
itself provides fair warning that the defendants' alleged
conspiracy may be charged as criminal under 371.
-33-
Therefore, we reverse the decision of the lower court and
remand for trial.
-34-
Document Info
Docket Number： 92-1536
Filed Date： 2/19/1993
Precedential Status： Precedential
Modified Date： 3/3/2016