U.S. v. D'Andrea

• Decision Date: 02 November 1978
• Docket Number: Nos. 77-1063,77-1073 and 77-1087,s. 77-1063
• Citation: 585 F.2d 1351
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Nicholas D'ANDREA, Jack Ware and Nelson Harris, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1351

585 F.2d 1351

UNITED STATES of America, Plaintiff-Appellee, v. Nicholas D'ANDREA, Jack Ware and Nelson Harris, Defendants-Appellants.

Nos. 77-1063, 77-1073 and 77-1087.

United States Court of Appeals Seventh Circuit.

Argued Jan. 31, 1978.

Decided Nov. 2, 1978.

Stephen C. Bower, Kentland, Ind., James A. Greco, Gary, Ind., Charles A. Bellows, Chicago, Ill., for defendants-appellants.

Carmen A. Piasecki, Asst. U. S. Atty., Hammond, Ind., for plaintiff-appellee.

Before SWYGERT, BAUER, Circuit Judges, and McMILLEN, District Judge. ^*

BAUER, Circuit Judge.

Jack Ware, Nicholas D'Andrea and Nelson Harris appeal from their convictions of conspiracy to defraud the United States in violation of 18 U.S.C. § 371. We affirm the convictions of D'Andrea and Ware, and reverse the conviction of Harris.

I.

As a first step toward resolving the issues presented in this appeal, we must briefly outline its factual setting. In 1964, Bishop Oscar Freeman, a minister of the Church of God in Christ, applied to the Federal Housing Authority for federal mortgage insurance on a low income housing project in Gary, Indiana. The processing of the application was delayed, however, by Freeman's inability to secure a general contractor with sufficient bonding to qualify for federal insurance. Finally, in 1969, Freeman met Nicholas D'Andrea, a New Jersey contractor and bondsman who agreed to supervise the effort to obtain the needed FHA approval. To this end, D'Andrea organized a new corporation H. Rupert and Company to serve as general contractor on the project, and enlisted George Vlatas, a Philadelphia engineer, to draw up the necessary architectural plans. In addition, D'Andrea hired Nelson Harris, a local architect, to revise the original specifications, and named Jack Ware to serve as construction superintendent.

With Freeman as its sponsor, Harris as its architect, and H. Rupert and Company as its general contractor, the housing project was finally approved by the FHA for federal mortgage insurance in April of 1970. Construction began that same year and continued until the project's demise in June of 1971. Following a government investigation, a federal grand jury returned an indictment charging Ware, D'Andrea, Harris and six others with conspiracy to defraud the United States in violation of 18 U.S.C. § 371. ¹

II.

Before turning to the specific arguments raised in this appeal, we must first examine the essential nature of the alleged fraud that was perpetrated on the United States in this case. This is especially important in view of the appellants' claim that the Government was not defrauded since it suffered no pecuniary loss through the misrepresentations that allegedly were made to the FHA. In particular, the appellants argue that the collapse of the Bishop Freeman Housing Project was the direct result, not of any misconduct on their part, but of unanticipated difficulties encountered in the course of construction principally, cost overruns in masonry and excavation expenses. Indeed, according to the appellants, there was no evidence that any federally insured money was paid out for work that was not in fact done, or that any of the alleged conspirators were unjustly enriched through their participation in the project.

Significantly, however, the Supreme Court has made it clear that the language of 18 U.S.C. § 371 embraces much more than common law fraud:

"It has long been established that this statutory language is not confined to fraud as that term has been defined in the common law. It reaches 'any conspiracy 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, 86 S.Ct. 1840, 1844, 16 L.Ed.2d 973 (1966) (citations omitted). Thus, to support a conviction of conspiracy to defraud the United States under 18 U.S.C. § 371 "(i)t is not necessary that the government . . . be subjected to property or pecuniary loss," Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S.Ct. 511, 512, 68 L.Ed. 968 (1924), nor is it necessary that the conspirators receive a pecuniary advantage, United States v. Bradford, 148 F. 413, 422 (E.D.La.1905). Rather, all that is required is an agreement to "interfere with or obstruct one of (the United States') lawful government functions by deceit, craft, or trickery, or at least by means that are dishonest." Hammerschmidt v. United States, supra, 265 U.S. at 188, 44 S.Ct. at 512.

Such an interference with one of the lawful functions of government was precisely the object of the alleged conspiracy in this case. In particular, the indictment alleged that the named parties had entered into an agreement to make false statements to the FHA in an effort to obtain federally insured money for the Bishop Freeman Housing Project. Thus, according to the Government, if the conspirators had faithfully complied with FHA requirements if they had not willfully misrepresented material items of fact then the FHA would not have approved the insurance, nor would it have continued to participate in the ill-fated venture. This continuing involvement on the part of the FHA was by no means an inconsequential matter, for the federal government lost well over two million dollars through its commitment to insure the financing of the housing project. But the more important point, at least in this appeal, is that the essential nature of the alleged conspiracy is found in the agreement to interfere with the effective functioning of the FHA through willful misrepresentations of material facts.

With this in mind, we turn now to the appellants' claim that the evidence was insufficient to sustain their convictions. As to Ware and D'Andrea, it is our view that the evidence, when viewed in the light most favorable to the Government, Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680 (1941), was sufficient to support a finding of criminal conspiracy under 18 U.S.C. § 371.

In broad outline, the Government's evidence tended to show that the conspiracy proceeded in two steps, the first being the acquisition of federal insurance for mortgage funds to build the housing project through willful misrepresentations to the FHA. On this point, the Government's evidence established that D'Andrea submitted to the FHA a fictitious financial statement on H. Rupert and Company, the corporation that he had formed to serve as general contractor on the project. The statement not only concealed D'Andrea's financial involvement in the corporation, but it also claimed assets that were not, in fact, in the corporation's possession.

The Government's evidence also tended to show that, in violation of FHA requirements, D'Andrea, acting in concert with others, concealed a financial arrangement between the sponsor of the proposed housing project and its general contractor that is, between the Freeman Church and H. Rupert and Company. More specifically, the evidence suggested that Rupert advanced a sum of $31,000 to Freeman, and this, in turn, enabled Freeman, as the project's sponsor, to meet certain financial requirements for FHA approval of the federal mortgage insurance.

Once the insured mortgage was thus secured and construction had begun, the conspiracy, according to the Government, entered its second stage: the acquisition of payments for construction costs through false statements submitted to the FHA. The evidence at trial established that the actual costs for excavation and masonry exceeded the estimates that had been submitted in obtaining FHA approval for federal insurance. This development promised to halt construction completely, for, in the case of cost overruns such as these, the FHA required the sponsor to deposit the additional funds before the work was done funds that the Freeman Church simply did not have at hand. Thus, to obtain the money needed for construction costs, Ware and D'Andrea engaged in so-called "line juggling." ² That is, according to the Government's evidence, the two men undertook to use anticipated surpluses from "line items" (for example, heating and ventilation) to cover the cost of overruns in other areas (principally, masonry and excavation expenses). This was achieved through false requisition orders which misrepresented the work that had been done in various phases of construction. With these false statements, Ware and D'Andrea were able to obtain the necessary FHA approval for continuing payments on the construction project.

When viewed in the light most favorable to the Government, the evidence on these overt acts permits a rational conclusion that Ware and D'Andrea were party to a working agreement to interfere with the effective functioning of the FHA by making false statements of material fact. For this reason, we find the evidence sufficient to sustain their convictions under18 U.S.C. § 371. ³

By contrast, however, we do not find the evidence sufficient to establish the requisite criminal intent to defraud on the part of Harris. In the proceedings below, the Government alleged that, as part of the effort to obtain the federally insured mortgage, Harris falsely certified that he had been paid a $30,039 architect's fee by the Freeman Church. It is true that Harris received only $5,000 of this sum, and that the remainder of the money was used to improve the financial condition of the Church. ⁴ But it seems clear from the record that the form which Harris certified was viewed by all of the parties including the FHA as a receipt that had been prepared in advance so that the architect's fees could be paid at the initial closing. Its intended purpose, in other words, was simply to insure that any initial payments were for work that had actually been completed. This is particularly significant since the $5,000 that Harris received represented payment for the work that he actually had done in revising the plans of Vlatas, the original architect who was properly entitled to the balance....