United States v. Ferguson

• Decision Date: 16 February 2012
• Docket Number: Case No. 10–20535.
• Court: U.S. District Court — Eastern District of Michigan
• Parties: UNITED STATES of America, Plaintiff, v. Bobby W. FERGUSON, Michael Woodhouse, Calvin L. Hall, Ferguson Enterprises, Inc., Xcel Construction Services, Inc., and A & F Environmental Johnson Construction Services, Defendants.

844 F.Supp.2d 810

UNITED STATES of America, Plaintiff,

v.Bobby W. FERGUSON, Michael Woodhouse, Calvin L. Hall, Ferguson Enterprises, Inc., Xcel Construction Services, Inc., and A & F Environmental Johnson Construction Services, Defendants.

Case No. 10–20535.

United States District Court,

E.D. Michigan,

Southern Division.

Feb. 16, 2012.

Bruce C. Judge, Rita E. Foley, United States Attorney's Office, Detroit, MI, for Plaintiff.

Gerald K. Evelyn, Detroit, MI, for Defendants.

OPINION AND ORDER DENYING MOTIONS TO DISMISS, SEVER, AND FOR PRODUCTION OF GRAND JURY AND BRADY MATERIAL

DAVID M. LAWSON, District Judge.

The defendants are charged with various offenses concerning the formation and execution of contracts for the development of a phase of a federal housing project. The grand jury has alleged that the defendants manipulated bids for the project so they could overcharge, that they laundered the money they may have received as proceeds, and that they illegally dumped materials at the building site. The defendants contend that their part of the project—development of the infrastructure—did not involve the expenditure of any federal funds and therefore the Court has no subject matter jurisdiction, so the case must be dismissed. Some of the defendants also have moved to compel discovery and for severance. The Court heard oral argument on all of these motions on December 22, 2011 and now concludes that the motions should be denied.

I. Facts and proceedings

Defendants Bobby Ferguson, Calvin Hall, Michael Woodhouse, Ferguson Enterprises, Inc., Xcel Construction Services, Inc., A & F Environmental/Johnson Construction Services, and Shakib Deria are charged in an eight-count indictment. The indictment charges defendants Ferguson, Ferguson Enterprises, Woodhouse, Hall, and Xcel Construction Services with conspiracy to defraud the United States, in violation of 18 U.S.C. § 371 (Count One) and conspiracy to commit mail fraud, in violation of 18 U.S.C. §§ 1341 and 1349 (Count Two); defendants Ferguson, Woodhouse, Hall and Xcel Construction Services with conspiracy to launder monetary instruments, in violation of 18 U.S.C. § 1956 (Count Three); defendants Ferguson, Woodhouse, Ferguson Enterprises, and Xcel Construction with conspiracy to wilfully injure property of the United States, in violation of 18 U.S.C. §§ 1361 and 371 (Count Four); defendant Ferguson with two counts of being a felon in possession of a firearm, in violation of 18 U.S.C. §§ 922 and 924 (Counts Five and Seven) and, along with defendant Deria, conspiracy to obstruct justice, in violation of 18 U.S.C. §§ 1503 and 371 (Count Six); and defendants Ferguson, Deria, Ferguson Enterprises, and A & F Environmental/Johnson Construction Services with conspiracy to structure financial transactions, in violation of 31 U.S.C. § 5324 and 18 U.S.C. § 371 (Count Eight).

The following facts are taken from the indictment, which the defendants dispute in many material respects. Defendant Bobby Ferguson owned and operated defendant Ferguson Enterprises, Inc. In 2002, defendant Ferguson formed Johnson Construction Services, Inc., which embarked on a joint venture in May 2003 to form defendant A & F Environmental/Johnson Construction Services. Also in 2002, defendant Ferguson formed Xcel Construction services. Defendant Ferguson named defendant Woodhouse as president of defendant Xcel Construction Services in 2006.

Garden View Estates (GVE) was a housing development located on the site of the former Herman Gardens housing project. GVE was a joint project of the United States Department of Housing and Urban Development (HUD) and the Detroit Housing Commission. Between 1996 and 2005, HUD invested approximately $44 million in the demolition of Herman Gardens and the construction of GVE. That funding came in the form of both Hope VI Revitalization Grants and Major Reconstruction of Obsolete Public Housing funds.

The City of Detroit also contributed approximately $13 million in 2006 towards infrastructure development at GVE, which included installation and improvement of roads, water and sewer lines, and utilities. The Detroit Building Authority was retained to oversee the infrastructure construction at GVE. In October 2006, the Detroit Housing Commission issued a request for proposals inviting bids from entities to serve as the construction manager of the GVE infrastructure project. In December 2006, HUD and the Detroit Housing Commission agreed to provide an additional $2 million for infrastructure construction at the GVE project. In January 2007, defendant Xcel Construction, Inc. signed a contract with the Detroit Building Authority to serve as construction manager for the infrastructure phase of the GVE project.

The government alleges that defendants Ferguson, Hall, Woodhouse, Ferguson Enterprises, Inc., and Xcel Construction Services, Inc. engaged in a conspiracy through which defendant Xcel Construction Services would ensure that the companies controlled by defendant Ferguson were awarded contracts to perform the work on the infrastructure of the GVE project. The government alleges that those defendants manipulated the bidding process and submitted fabricated bids to ensure that defendant Ferguson Enterprises was the low bidder on the infrastructure phase of the project and would be awarded a contract for $11.9 million, and that the companies that submitted false bids were awarded subcontracts as compensation for their participation in the scheme. The government also states that between August 2008 and January 2009, the defendants submitted $1.5 million in change orders as part of the GVE project. The government alleges that the defendants committed mail fraud, laundered money, and structured financial transactions to avoid reporting obligations in executing the conspiracy. Between April 2007 and August 2010, the government alleges, the defendants conspired to dump soil and other refuse at the GVE site, requiring the federal government to spend more than $1.2 million to clean up the site.

The primary relevant factual dispute concerns the $2 million provided by HUD for infrastructure development. The defendants contend that no federal money was actually spent on the infrastructure phase of the GVE project (which was the only phase in which they were involved), and therefore there is no federal subject matter jurisdiction over the conspiracy and other related charges. The $2 million is referenced in a contract between the Detroit Housing Commission and the City of Detroit. The relevant contract language states:

[Detroit Housing Commission] or HUD shall place the sum of $2,000,000 in an HUD LOCCS escrow account. That sum shall be used to cover the cost of change orders to the Infrastructure construction contracts caused by site conditions at the project site. The full amount of the City's financial contribution must be spent before the escrowed funds may be used for project cost. If the bids for the infrastructure construction work exceed the City's financial contribution to the project, the City and DHC may agree that the escrowed funds may be used for the increased costs.

Defs.' Mot. to Suppress Ex. 4 at 3. The contract also includes an exhibit that states that the total City funds available for the project were $13,726,544. The contract between the Detroit Building Authority and defendant Xcel Construction provided that Xcel would be paid $557,512.16 for acting as construction manager. The defendants have not furnished a copy of the contract awarded to defendant Ferguson Enterprises, nor do they state the amount of consideration stated in the contract. However, the indictment alleges that defendant Ferguson Enterprises submitted a bid proposal in the amount of $11.9 million and that defendant Woodhouse recommended that it be awarded a contract in the amount of $12 million. The defendants assert that the full amount of the City of Detroit's financial contribution was not spent, and therefore the escrowed (federal) funds were never used.

The indictment was returned on September 1, 2010 and unsealed on September 8, 2010. After several time enlargements to accommodate the defendants' needs to review the voluminous discovery materials, five defense motions were filed in October 31, 2011. Defendant Hall filed a motion to sever his case for trial [dkt. # 116] that was joined by defendants Ferguson and Ferguson Enterprises on November 2, 2011 [dkt. # 129]. Defendants Woodhouse, Hall, and Xcel Construction services filed a motion for disclosure of the grand jury testimony of Brian Dodds and Marc Burrell [dkt. # 117] that was joined by defendant Ferguson on October 31, 2011 [dkt. # 120] and by defendant Ferguson Enterprises on November 2, 2011 [dkt. # 128]. Defendants Woodhouse, Hall, and Xcel Construction Services filed a motion for disclosure of Brady materials pertaining to Brian Dodds, Marc Burrell, and Don Roberts [dkt. # 118]. Defendants Woodhouse, Hall, and Xcel Construction Services filed a motion to sever their cases for trial [dkt. # 119] that was joined by defendant Ferguson Enterprises on November 2, 2011 [dkt. # 130]. Finally, defendants Ferguson and Ferguson Enterprises filed a motion to dismiss for lack of jurisdiction [dkt. # 124]. The Court heard oral argument on the motions on December 22, 2011. They will be addressed in reverse order.

II. Motion to dismiss

The gravamen of the defendants' motion to dismiss is that because no federal funds were spent on the infrastructure phase of the GVE project—the only phase in which the defendants were involved—and none of the defendants' contracts were paid with federal funds, there is no federal interest to protect and no subject matter jurisdiction over the conduct charged in the indictment. The defendants contend that the crimes in counts I, III, IV, VI, and VIII of the indictment should be dismissed because there is insufficient evidence that the federal government was a victim of those crimes. The defendants...