U.S.A v. Schluneger, 98-5200

• Citation: 184 F.3d 1154
• Decision Date: 09 July 1999
• Docket Number: No. 98-5200,98-5200
• Parties: (10th Cir. 1999) UNITED STATES OF AMERICA, Plaintiff -Appellee, v. STEVEN L. SCHLUNEGER, Defendant - Appellant
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1154

184 F.3d 1154 (10th Cir. 1999)

UNITED STATES OF AMERICA, Plaintiff -Appellee, v. STEVEN L. SCHLUNEGER, Defendant - Appellant.

No. 98-5200

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

July 9, 1999

Appeal from the United States District Court for the Northern District of Oklahoma (D.C. No. 97-CR-98-C) [Copyrighted Material Omitted] Robert G. Green, Tulsa, Oklahoma, for Defendant-Appellant.

Stephen C. Lewis, United States Attorney, Tulsa, Oklahoma, and Gordon B. Cecil, Special Assistance United States Attorney, Muskogee, Oklahoma, for Plaintiff-Appellee.

Before TACHA, MAGILL,^* and BRISCOE, Circuit Judges.

MAGILL, Circuit Judge.

A jury convicted Stephen Schluneger on one count of conspiracy to defraud the government. The district court denied Schluneger's motions for a judgment of acquittal and for a new trial, and sentenced Schluneger to twelve months' imprisonment. Schluneger appeals both his conviction and his sentence. We affirm.

I.

In February 1988 the United States Army Corps of Engineers (Corps) awarded a $1.8 million contract to Frank Minelli, doing business as Swiss Craft Professional Painters, for sandblasting and painting various locks and dams along the Arkansas River (Minelli contract). As a condition of the contract, Minelli was required to provide the Corps with payment and performance bonds. Thomas Rhoades and Schluneger furnished the bonds as sureties in case Minelli defaulted on the government contract.

Minelli eventually defaulted on the contract, and on July 18, 1989, the Corps terminated him as the contractor. The Corps then demanded that Rhoades and Schluneger satisfy their obligations and liability under the terms of the bonds. The unpaid balance at the time of termination was approximately $1.69 million. Under the bonds' terms and relevant federal acquisition regulations, Rhoades and Schluneger had three options: complete the work with a contractor of their choice that was acceptable to the government, complete the work with their own resources, or discharge their liability under the bond by payment to the government. Rhoades and Schluneger opted to complete the work with a contractor of their choice.

Rhoades and Schluneger subsequently accepted a bid from Skyline Painting, Inc. (Skyline) to complete the work on the Minelli contract for $1.2 million. On August 4, 1989, Rhoades and Schluneger informed the Corps of their intent to have Skyline finish the contract and asked to sign a takeover agreement. The Takeover Agreement, as executed by Rhoades and Schluneger with the Corps, restricted Rhoades and Schluneger from receiving any compensation for the work performed except for "actual costs and expenses incurred in the completion of the work." Takeover Agreement at 8. The Takeover Agreement provided that Rhoades and Schluneger were not to be compensated for "any amount in excess of [their] total expenditures necessarily made in completing the work and discharging" their liability under the performance bond. Id. at 10. The Takeover Agreement was eventually signed on August 14, 1989.

Between the time they notified the Corps of their intent to have Skyline finish the Minelli contract and the time they signed the Takeover Agreement, Rhoades and Schluneger entered into a series of agreements, not disclosed to the Corps, which had the intent and effect of billing the government for more than their actual costs and expenses. Although Skyline's bid to complete the Minelli contract was $1.2 million, Rhoades and Schluneger requested that Skyline sign an agreement (Skyline Subcontract), prepared by attorney T. Robert Hughes, stating that Skyline would complete the work for the "agreed contract price of $1,690,000," the entire amount remaining on the Minelli contract. Skyline Subcontract at 1. This agreement was signed on August 10, 1989.

Skyline understood, however, that it was to receive only $1.2 million, and that the difference was to be paid to Rhoades and Schluneger as finder's fees and engineering consulting fees. Although Skyline believed these fees to be legitimate, in fact they were bogus, and, as the evidence at trial showed, neither Schluneger nor his associates ever performed any consulting work. This fee arrangement was memorialized in another agreement, prepared by Hughes and signed on the same day as the Skyline Subcontract, obligating Skyline to pay to ARCO Business Services, Ltd., a business trust administered by Hughes, finder's fees and engineering consulting fees (Skyline/ARCO Fee Agreement). Under this agreement, Skyline would pay ARCO Business Services approximately twenty-nine percent of each progress payment paid by the government to Skyline during the course of the work, plus any remaining amounts paid by the government to Skyline in excess of $1.2 million.

On August 14, 1989, Rhoades and Schluneger signed the Takeover Agreement. They did not disclose to the Corps either the arrangement for finder's fees and consulting fees or Skyline's initial bid to complete the work for $1.2 million.

Before Skyline commenced work on the project, Hughes prepared another agreement (ARCO/Rhoades Fee Agreement), on August 18, 1989, obligating ARCO Properties, Ltd. (another Hughes business trust) to pay kickbacks to Rhoades equal to fifty percent of all money received by ARCO Business Services under the Skyline/ARCO Fee Agreement.

The payment scheme, which took place over the next three years, was carried out in the following manner: Nancy Norvell, president of Skyline, prepared all requests for progress payments, which included the bogus finder's fees and engineering fees. She included these fees in her progress reports based on the misrepresentations by Rhoades and Schluneger that they were incurring costs and expenses to ARCO Business Services in their performance of the government contract. Norvell submitted these progress payment requests to Rhoades who reviewed and approved them. Rhoades then sent the requests for payment to the Corps.

Payments were mailed to Rhoades and made jointly payable to Rhoades and Schluneger. After obtaining Schluneger's endorsement, Rhoades usually made disbursements to Skyline. Skyline then made disbursements to ARCO Business Services, which in turn made disbursements to ARCO Properties. Both ARCO companies made kickback payments to Rhoades, Schluneger and Rhoades's spouse. Schluneger received about $38,000 throughout the course of the scheme. The scheme was uncovered when Skyline abandoned the project due to financial problems, and Rhoades and Schluneger defaulted on the contract.

The government indicted Schluneger, Rhoades, Hughes, ARCO Business Services and ARCO Properties each on one count of conspiracy to defraud the government. The jury returned guilty verdicts against all defendants.¹ Schluneger and the other defendants moved for judgments of acquittal and a new trial. The district court denied all motions. Schluneger was subsequently sentenced to twelve months' imprisonment and three years' supervised release, and was ordered to pay $10,000 in restitution.

II.

Schluneger argues that the district court erred in denying his motion for a judgment of acquittal or alternatively for a new trial. We review the district court's decision to deny a motion for a new trial for an abuse of discretion. See United States v. Byrne, 171 F.3d 1231, 1235 (10th Cir. 1999). We review de novo the district court's decision to deny a motion for judgment of acquittal. See United States v. Janusz, 135 F.3d 1319, 1323 (10th Cir. 1998). When applying de novo review, this Court views the evidence in the light most favorable to the government and asks whether "any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Id. (quotation marks omitted) (emphasis in original).

A.

Schluneger first argues there was insufficient evidence to convict him of conspiracy to defraud the government. We disagree.

It does appear from the record that Schluneger was not involved in creating the two Fee Agreements (the Skyline/ARCO Fee Agreement and the ARCO/Rhoades Fee Agreement). Nevertheless, there is more than sufficient other evidence demonstrating Schluneger's participation in the conspiracy to overcharge the government. Schluneger signed the Takeover Agreement, limiting himself and Rhoades to actual costs and expenses. He also signed the Skyline Subcontract, which stated that the amount necessary to complete the work would be $1,690,000, even though the Skyline bid was for $1,200,000. Finally, he received $38,000 from Rhoades for work he did not do, even though he knew he was to be paid only for actual costs and expenses. Schluneger knew that the amount remaining on Minelli's contract was $1,690,000. If Skyline were to be paid the full $1,690,000, then there would have been no money for distribution to him and Rhoades.² Thus, even if Schluneger did not personally participate in creating the Fee Agreements, a reasonable jury could find that he was aware of the agreements and that he participated in the scheme to defraud.

Schluneger also argues that, because he and Rhoades were subrogated to Minelli as sureties, they were entitled to recover the full price of the original contract with the government. Thus, he contends, as a matter of law there was no fraud. This argument is without merit. Schluneger ignores the fundamental nature of the conspiracy -- that he and the other defendants submitted an inflated bid to be paid for services that they were not performing. Rhoades and Schluneger chose to enter into the Takeover Agreement and complete the work with a subcontractor and bound themselves to recover only their actual costs and expenses, which were $1.2 million under the initial Skyline bid. They were not entitled to anything more.

Thus, viewing the evidence in the light most favorable to the government, there was sufficient evidence for the jury to convict Schluneger. The district court properly denied the ...