U.S. v. De La Cruz

• Decision Date: 29 November 2006
• Docket Number: No. 05-1548.,No. 05-1549.,05-1548.,05-1549.
• Citation: 469 F.3d 1064
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Joe DE LA CRUZ and Edwardo Maldonado, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1064

469 F.3d 1064

UNITED STATES of America, Plaintiff-Appellee, v. Joe DE LA CRUZ and Edwardo Maldonado, Defendants-Appellants.

No. 05-1548.

No. 05-1549.

United States Court of Appeals, Seventh Circuit.

Argued May 31, 2006.

Decided November 29, 2006.

David E. Hollar (argued), Office of the United States Attorney, Hammond, IN, for Plaintiff-Appellee.

Kevin E. Milner, Palatine, IL, Bryan M. Truitt (argued), Tsoutsouris & Bertig, Valparaiso, IN, for Defendants-Appellants.

Before KANNE, EVANS, and SYKES, Circuit Judges.

KANNE, Circuit Judge.

Defendants Joe De La Cruz and Edwardo Maldonado were each convicted on a single count of misapplying public funds in violation of 18 U.S.C. § 666(a)(1)(A). On appeal, the defendants argue that they could not have misapplied funds in violation of § 666(a)(1)(A) because the expenditures in question were properly approved by the city government. Defendants also argue that an evidentiary ruling constitutes reversible error and that their sentences are the result of clear error. We disagree and affirm the convictions and sentences.

I. HISTORY

De La Cruz and Maldonado were both public officials in the city of East Chicago, Indiana. De La Cruz was a member of the City Council. Maldonado was the City Controller, which made him the chief fiscal officer for the City. His signature appeared on all checks paid with City money. Maldonado was also a member of the Board of Works, which was responsible for approving all public works projects.

In 1998, the Board of Works began soliciting bids for specific work to be done on the City's sidewalks. Under Indiana law, any project estimated to cost more than $75,000 must be publicly bid. A flat bid of $454,155 was received for the project from a company called Reith-Riley in June. Given the amount of work solicited, that bid came out to $5.08 per foot. No action was taken on this bid. Instead, the City Engineer at that time ordered the work to be done on a piecemeal basis, in amounts lower than $75,000.

A. The 1999 Sidewalk Program

In February of 1999, Maldonado attended a meeting of the Board of Works along with a new City Engineer, Pedro Porras.¹ Prior to that meeting, Maldonado asked Porras to ask the Board to advertise bids for work on public sidewalks. Porras obliged, even though he had no such plans before the meeting. The Board approved, and even hired an engineering consultant to oversee the prospective sidewalk plan. But the plan never got off the ground, and in March of 1999 it was postponed indefinitely.

Despite the absence of an approved plan, sidewalks were being poured in East Chicago. Several contractors were at work, despite the fact that many of them had never worked on sidewalks before. The contractors were operating without the formal approval of the Board of Works and without complying with the procedural requirements necessary to begin a city project. The orders to pour concrete came from a number of sources, including De La Cruz and Frank Kollintzas, president of the City Council.²

The work was not limited to sidewalks. Contractors also poured new driveways, patios, basketball courts, boat pads, and swimming pools—all on private property. A number of private businesses had their parking lots redone. Other residents had their trees trimmed for free.

All of this work was done against the backdrop of a primary election scheduled for May 4, 1999. Kollintzas, De La Cruz, and the Mayor of East Chicago all faced primary battles. Kollintzas would knock on doors in his district, introduce himself as a councilman and then offer free concrete. Residents openly supporting Kollintzas, the Mayor, and their political allies were provided free services, while those supporting the political opposition were refused. Millions of dollars worth of work was performed in a ten-week period between March and May of 1999. In the days leading up to the election, contractors were working 10 to 15 hours a day, 6 to 7 days a week.

Despite the fact that he was City Engineer, Porras was first informed about the concrete work through citizen complaints and from Kollintzas. Kollintzas directed Porras to provide concrete work to specific contractors. Porras did so only after conferring with Maldonado and being assured by Maldonado that the City would handle all the bills. From March to May of 1999, Maldonado's office issued millions of dollars worth of checks to pay for the work, including work done on private property.

De La Cruz frequently authorized and supervised concrete work. He, in fact, had work done at his home, including a driveway, steps, and a walkway. One East Chicago resident, who had campaign signs up for the political opposition, witnessed work in her neighbor's yard and asked De La Cruz if she too would receive new concrete. De La Cruz told her she had the wrong sign up.

After the election, the City was faced with the daunting prospect of paying all the contractors and finishing up the work. On the day of the election, the City's bank account was overdrawn by approximately three million dollars. By the middle of May, that amount increased another two million dollars, at which point the bank began dishonoring all City checks, including payroll. In the end, the City spent close to 24 million dollars in the weeks leading up to the election pouring concrete and trimming trees.

B. Ratification

The City attempted to clean up the mess by hiring an engineering consultant and a lawyer. The consultant performed an audit to determine what work had been done, what remained, and who needed to be paid. The lawyer advised the City to do what it heretofore had not—approve of the work through proper legal channels. Ordinances were passed raising millions of dollars necessary to keep the city operating. These ordinances purported to have the City Council appropriate money for the already completed work. The Board of Works then met in June of 1999 to accept the bid Reith-Riley had made nearly a year earlier. The Board accepted the bid in its $5.08 per foot form as the unit price to be paid for all outstanding claims. The City then began to settle outstanding claims with each of the contractors, requiring them to sign backdated work agreements. These agreements included paying for work done on private property. Maldonado was involved in these negotiations, and he signed the backdated agreements on behalf of the Board of Works.

C. The State Audit

The City's problems were far from over. Each year, the State of Indiana audits the financial statements of municipalities, including those of East Chicago. The State's 2000 audit report for East Chicago determined that the Board of Works violated state law by approving "nonpublic concrete work." The auditors also requested, in accordance with state law, that each member of the Board of Works reimburse the City for all money spent in violation of law.

The City responded with its own legal opinion, which was required to be included in the State's official audit report. The opinion, in short, argued that the City was in the somewhat unique position of being in control of a private nonpublic trust fund that could be used for private purposes. The source of this trust fund was a local casino. That casino generated five revenue streams for the City. Two of those revenue streams were required and authorized by statute. Two other revenue streams benefited nonprofit corporations outside of the City's control. A final, fifth fund, apparently unique to the City of East Chicago, was created as a result of an agreement between the casino and East Chicago's Mayor. This revenue stream ran through an expendable trust and then into a sub-fund, Fund 246, of the City's general fund. According to the City's legal opinion, Fund 246 "could be used for any purpose authorized [by the trust], including paying for nonpublic concrete work that improved property values within the City." The state auditors, apparently unconvinced, did not change their report.

D. Trial and Sentencing

At trial, the defendants attempted to admit into evidence the State's audit report and the City's accompanying legal opinion. The government objected, arguing that the City's response to the audit report was impermissible hearsay. While Chief Judge Miller agreed with the defendants that under Indiana law, the audit report and the City's response were a single document, he still thought it proper to treat the two separately while addressing the hearsay objection. Judge Miller was willing to allow admission of the audit report as a public record under Federal Rule of Evidence 803(8), but ruled that the City's response was impermissible hearsay.

The defendants were tried on a number of charges, but were only convicted on one count each of misapplication of public funds. They were acquitted on all other counts. These convictions occurred between the Supreme Court's decisions in Blakely v. Washington, 542 U.S. 296, 124 S.Ct. 2531, 159 L.Ed.2d 403 (2004), and United States v. Booker, 543 U.S. 220, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005). Attempting to deal with the uncertainty created by Blakely, Judge Miller submitted the question of loss amount to the jury, which came up with amounts of between $800,000 and $1,500,000 for Maldonado, and between $120,000 and $200,000 for De La Cruz.

The defendants were not sentenced, however, until after Booker, at which point Judge Miller decided he was not bound by the jury's loss amount finding.³ Judge Miller made his own finding, applicable to both defendants, of 23.97 million dollars. He agreed with the defendants that the loss amount should be offset by any value given to the City, but nevertheless determined that the City of East Chicago had received no benefit whatsoever by having its funds misapplied to pay for the work performed in the Spring of 1999. The loss amount, along with other enhancements, resulted in prison sentences for Maldonado and De La Cruz of 97 and 72 months, respectively.

II. ANALY...