United States v. Bernegger

• Decision Date: 20 October 2011
• Docket Number: No. 09–60932.,09–60932.
• Citation: 661 F.3d 232
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Peter BERNEGGER, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

661 F.3d 232

UNITED STATES of America, Plaintiff–Appellee,

v.Peter BERNEGGER, Defendant–Appellant.

No. 09–60932.

United States Court of Appeals, Fifth Circuit.

Oct. 20, 2011.

Clyde McGee, IV, Robert J. Mims (argued), Asst. U.S. Attys., Oxford, MS, for Plaintiff–Appellee.

Merrida P. Coxwell, Jr. (argued), Charles Richard Mullins (argued), Coxwell & Associates, P.L.L.C., Jackson, MS, for Defendant–Appellant.

Appeal from the United States District Court for the Northern District of Mississippi.

Before WIENER, CLEMENT, and ELROD, Circuit Judges.

PER CURIAM:

Defendant, Peter Bernegger, appeals his conviction for mail and bank fraud. He also appeals his sentence of seventy months in prison and restitution of approximately $2 million. We AFFIRM as modified.

I.

Peter Bernegger and Stephen Finch were charged in a six-count indictment with various counts of mail fraud, wire fraud, bank fraud, and conspiracy for inducing investors to invest money in their two start-up companies, We–Gel and Citrus Products International (CPI). We–Gel purported to make gelatin out of catfish waste, and CPI sought to make limonin out of lemon seeds.

Attempting to obtain capital for their new businesses, Bernegger and Finch held several meetings for potential investors, explaining their knowledge of the processes used to make gelatin and limonin out of waste products. One witness testified that Bernegger and Finch claimed there was nothing they did not know about these processes and that the gelatin was perfected and ready to be sold. Two witnesses testified that Finch said he and Bernegger had a contract with Nutri–West that was worth $3.2 million. Following these meetings, several individuals invested in both We–Gel and CPI.

Bernegger and Finch were never able to manufacture a sellable product, however, often pouring the results of their attempts in a ditch behind the plant. In fact, they were only able to make viable batches of the product a couple of times. As a result, We–Gel had no customers, and never made any sales. Nonetheless, Bernegger sent e-mails and letters to investors telling them how well things were going. Among other things, he told the investors that “We–Gel is producing product, shipping and invoicing customers,” “we have contracted orders from 2 large customers totaling 3,000 metric tons per year,” and We–Gel had “completely sold out of gelatin at a good price.” He further told investors that the United States Navy had expressed interest in the process being used at We–Gel. David Cooper, an investor who also worked as a chemist with Finch and Bernegger, testified that he asked Bernegger why he did not tell the investors the truth in these letters, to which Bernegger replied, “They can't handle the truth.”

Later, Bernegger mailed a letter to We–Gel investors asking for additional funds “to finance [We–Gel's] accounts receivable” and asking each investor to contribute at least $25,000. In that letter, he noted that in order to “sweeten the pot,” “a letter of intent has been signed with a Texas fish processing company named GAF.” In a letter sent three days later, he said that GAF “is paying” We–Gel $1.2 million, which was purportedly “on top of the 50% of pre-tax profits from the second plant and is expected to be paid in about 4 months from now.” Bernegger testified that he believed that We–Gel did have a letter of intent with GAF, pointing to an agreement We–Gel had with L&S Consulting, a company that hoped to broker a deal between We–Gel and GAF. That letter stated that “L&S is negotiating a deal with GAF such that GAF and We–Gel will form a 50–50 partnership for fish waste processing.” The document was signed by Bernegger and Larry Mobley, a partner at L&S. Bernegger claimed that he believed Mobley was signing on behalf of GAF.

The jury heard testimony from GAF's general manager, GAF's executive vice president, and Mobley, each of whom testified that GAF never signed a letter of intent with We–Gel. The only document signed by GAF was a confidentiality agreement in anticipation of GAF's visit to We–Gel's plant. Although GAF employees did visit the We–Gel plant, they did not think the process was sufficiently developed to warrant doing business with We–Gel.

As a result of the letters Bernegger mailed, We–Gel obtained additional funding from some of its investors. One investor gave another $25,000 just days after receiving the second letter. Other investors did so shortly thereafter. At the end of February 2005, Donnie Kisner, who had invested $100,000 in CPI, called his relative, Leo Bieneck, to tell him what he had learned about We–Gel during the investor meetings. As a result of that conversation, Bieneck wrote a check to We–Gel for $25,000. At the time of trial, none of the investors had received any return on his investment.

In addition to funding from his investors, Bernegger obtained grants of $250,000 each from both Clay County, Mississippi and the Mississippi Land, Water and Timber Board. Bernegger signed both a grant agreement and a security agreement with the state. As collateral for the security agreement, the state received the first and only lien on any equipment purchased with the money for five years. We–Gel was expected to meet certain other requirements, such as employing at least fifty-five employees after two years, turning in timely reports, and not selling the company. If We–Gel did not meet any of those obligations, the state could foreclose on the equipment.

A few months after signing the security agreement with the state, Bernegger sought a loan from BancorpSouth, hoping to pledge the same equipment as collateral. He sent the loan officer a letter with a list of equipment, valuing it at $1 million and stating, “We–Gel owns this equipment and it is paid for in full.” The letter did not mention the state's security interest. We–Gel's office manager testified that, when Bernegger asked her to put together information about the equipment to give to the bank, she told him that the equipment was owned by the state. Asked what his response was, she said, “He kind of shrugged me off and told me not to worry about it. That, no, that was our equipment.” Later, Bernegger took the loan officer on a tour of We–Gel and reiterated that it owned all of the equipment free of any liens. As a result, Bancorp agreed to issue a loan to Bernegger secured by the equipment.

As a condition of closing the loan with Bancorp, Bernegger gave the bank a lien on his home in Wisconsin, which was already the subject of three liens. Before closing the loan with Bancorp, however, he borrowed $100,000 from another bank, pledging his home as collateral. Nonetheless, he signed an affidavit at the closing with Bancorp purporting to set forth all of the liens on the house, but omitting the new lien of $100,000. When Bancorp received the title opinion revealing the fourth lien, it refused to fund the remainder of the loan. Bancorp estimated its total loss from We–Gel at $125,000.

The indictment included six counts.¹ The jury acquitted Finch of the two counts against him and acquitted Bernegger of two of the five counts against him, but convicted Bernegger of mail fraud and bank fraud. Bernegger was sentenced to seventy months in prison and ordered to pay restitution of $2,100,000.

II.

Bernegger makes several arguments on appeal, challenging both his conviction and his sentence.

A.

Bernegger first contends that the district court erred in refusing to sever the bank fraud count from the mail and wire fraud counts. Under Federal Rule of Criminal Procedure 12(b), “objections based on defects in the indictment, as well as [r]equests for severance of charges or defendants ... must be raised prior to trial.” United States v. Mann, 161 F.3d 840, 861 (5th Cir.1998) (internal quotation marks omitted). Bernegger never moved to sever Count 6, however. Instead, he points to a Motion to Sever filed under Federal Rule of Criminal Procedure 8(b), requesting that the district court “sever[ ] the case against him from that of the case of the Co–Defendant, Stephen Finch.” Bernegger renewed that motion several times during the trial, but at all times he referred only to severing his case from that of his co-defendant.

Bernegger nonetheless asserts that his motion below preserved the issue because Rule 8(b) controls all severance motions in cases in which multiple defendants are tried, regardless of whether the movant is seeking to sever offenses or defendants. Bernegger, however, never mentioned severing Count 6 in his motion to the trial court. A defendant waives his offense-severance argument when he argues below only that severance of defendants was required yet maintains on appeal that severance of offenses is necessary. See Mann, 161 F.3d at 861 n. 58 (distinguishing motions to sever offenses from motions to sever defendants for preservation purposes). Nor is this result changed by United States v. Holloway, 1 F.3d 307 (5th Cir.1993), cited by Bernegger at oral argument. There, the defendant moved to sever the charge of being a felon in possession of a weapon from his robbery offenses, citing Rule 14 but not Rule 8(a). Id. at 309–10. We held that the defendant need not cite the particular rule when his argument is made clear to the district court. Id. at 310 n. 2. Critically, here, Bernegger neither cited the proper rule nor made his argument that the charges should be severed to the district court. As a result, he did not preserve the issue, regardless of which rule controls.

Alternatively, Bernegger argues that this court should review the failure to sever for plain error. When an appellant does not show cause for failing to move for severance prior to trial, we need not address the merits of the severance argument at all, but we retain discretion to review for plain error. Mann, 161 F.3d at 862; United States v. Tolliver, 61 F.3d 1189, 1198–99 & n. 6 (5th Cir.1995), vacated and remanded on other grounds, 516 U.S. 1105, 116...