United States v. Harris

• Decision Date: 28 April 2016
• Docket Number: No. 15–50106.,15–50106.
• Parties: UNITED STATES of America, Plaintiff–Appellee v. Thomas Gregory HARRIS, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

821 F.3d 589

UNITED STATES of America, Plaintiff–Appellee

v.Thomas Gregory HARRIS, Defendant–Appellant.

No. 15–50106.

United States Court of Appeals, Fifth Circuit.

April 28, 2016.

Joseph H. Gay, Jr., Mark Randolph Stelmach, Esq. (argued), Asst. U.S. Attys., U.S. Attorney's Office, Western District of Texas, San Antonio, TX, for Plaintiff–Appellee.

Joel M. Androphy, Esq. (argued), Rachel I. Thompson (argued), Maria–Vittoria Galli Carminati, Berg & Androphy, Quentin Tate Williams, Hilder & Associates, P.C., Maria–Vittoria Galli Carminati, Weil, Gotshal & Manges, L.L.P., Houston, TX, James O. Darnell, Esq., El Paso, TX, for Defendant–Appellant.

Appeal from the United States District Court for the Western District of Texas.

Before HIGGINBOTHAM, OWEN, and ELROD, Circuit Judges.

JENNIFER WALKER ELROD

, Circuit Judge:

Colonel Thomas Gregory Harris was convicted on sixteen counts of wire fraud under 18 U.S.C. § 1343

in connection with a scheme to obtain government procurement contracts set aside by the Small Business Administration for minority-owned small businesses. Harris challenges his conviction, arguing it is not supported by sufficient evidence. Harris also challenges his sentence, arguing that his Guidelines range was calculated based on a loss amount that improperly accounted for the entire face value of the fraudulently obtained contracts. Under our extremely deferential standard of review, we conclude that sufficient evidence supports the jury's finding of guilt and therefore AFFIRM the conviction. However, because the district court should have deducted from its sentencing loss calculation the fair market value of services rendered under the contracts by Harris and his company, we VACATE the sentence and REMAND for resentencing.

I.

A. The 8(a) Joint Venture Program

This case revolves around two government procurement contracts awarded through a program established under section 8(a) of the Small Business Act. Pub. L. No. 83–163, 67 Stat. 232 (1953). We begin by describing that program. Section 8(a) empowers the Small Business Administration (“SBA”) to arrange for the fulfillment of other federal agencies' procurement needs through contracts with qualifying small businesses. 15 U.S.C. § 637(a)(1)(A)–(B)

. All federal agencies must set goals for awarding a percentage of their procurement contracts to 8(a)-qualifying firms. 15 U.S.C. § 644(g)(2). To qualify for these “8(a) set-aside” contracts, a small business must be owned and controlled by one or more “socially and economically disadvantaged individuals,” id. § 637(a)(4), (a)(1)(C), a category defined to include certain racial minorities and members of other historically disadvantaged groups, id. §§ 631(f)(1)(B)–(C), 637(a)(5)–(6); 13 C.F.R. §§ 124.103, 124.104. The 8(a) program, in other words, is an affirmative action contracting program.¹

To become eligible to receive 8(a) set-aside contracts, a firm must participate in the SBA's business development program or otherwise obtain SBA approval. 13 C.F.R. § 124.501(g)

. Once deemed eligible, an 8(a) firm can seek contracts either through the SBA or directly from the procuring agency. Id. § 124.501(d) –(e). Some awarded contracts are executed between the procuring agency and the 8(a) firm, while others include the SBA as a third party. Id. § 124.508(a). Contracts can be awarded under the 8(a) program either competitively among multiple eligible small businesses or non-competitively on a “sole source” basis. Id. § 124.501(b)

.

Where an 8(a) firm lacks capacity to perform a particular 8(a) set-aside contract on its own, it may enter into a joint venture agreement with a non–8(a) small business for the purpose of performing the contract. Id. § 124.513(a). The agreement must be approved by the SBA before any contracts are awarded to the joint venture, id. § 124.513(e), and the SBA's regulations warn that approval will be withheld where “an 8(a) concern brings very little to the joint venture relationship in terms of resources and expertise other than its 8(a) status,” id. § 124.513(a)(2). Specifically, the agreement must provide that the 8(a) firm will serve as managing venturer, will control the performance of any contracts awarded to the joint venture, and will own at least 51% of the joint venture entity. Id. § 124.513(c)(2)–(3). Importantly for this case, the 8(a) firm must perform at least 40% of the work on any 8(a) set-aside contract awarded to the joint venture, and the joint venture agreement must detail how the parties will ensure that the labor-division requirement is met. Id. § 124.513(c)(7), (d).² An offer submitted to a procuring agency “must certify ... that [the 8(a) firm] will meet the applicable performance of work requirement.” Id. § 124.510(b). Both upon the completion of each contract and as part of its annual review, an 8(a) firm participating in a joint venture must explain to the SBA how the labor-division requirement was satisfied for each contract awarded to the joint venture. Id. § 124.513(i).

B. Background

Defendant Thomas Gregory Harris, a retired U.S. Army colonel, worked for Luster National, a non–8(a) firm with experience performing large-scale defense contracts, as a project manager and later as senior vice president. Patricia Winters (“Patricia”), along with her husband Charles Winters (“Charles”), owned and operated Tropical Contracting, an SBA-approved 8(a) firm with experience in concrete work, excavation, and other construction-related projects. At the suggestion of a mutual acquaintance, Charles reached out to Harris in 2010 and arranged a meeting among Harris, Patricia, and Charles to discuss possible collaboration between Luster and Tropical in obtaining government contracts. At the meeting, Harris initially suggested that Luster provide Tropical with “project managers,” but Patricia rejected that arrangement, suspecting that “it was going to be too expensive for [her] little business.” Charles told Harris that Tropical “w[asn't] set up for that.” At a later meeting attended by Patricia, Charles, Harris, and another Luster employee, Harris suggested that the two companies form a joint venture for the purpose of pursuing 8(a) contracts with different government entities. Harris proposed that the joint venture would provide project managers; Patricia testified at trial that she “liked the idea of that” and “agreed at that very moment,” but acknowledged that, at the time, she “didn't understand that concept or that business exactly” and “didn't know, really, exactly, what these people exactly were going to do.”

Tropical and Luster agreed to form Tropical Luster Joint Venture (“the Joint Venture”), and the two entities executed a joint venture agreement in March 2010. The agreement was created from a template that Patricia downloaded from the SBA website and e-mailed to Harris³ and was signed by Patricia and Robert Luster, the president of Luster National, but not by Harris. Per the agreement, the purpose of the Joint Venture was to bid on and perform “construction management” and “other professional services” contracts for divisions of the U.S. Army Corps of Engineers (“USACE”). The agreement expressly acknowledged that Tropical had “no prior experience in this area of business.” Charles was designated as program director, responsible for “overall contract performance,” and Harris was designated as program manager, responsible for overseeing the job-site and reporting to Charles—both designations having been suggested by Harris. Both Charles and Harris were designated as responsible for contract negotiations with procuring agencies. The agreement acknowledged both Tropical's and Luster's obligation to comply with all applicable federal laws and regulations. The agreement was submitted to the SBA and was approved in July 2010, with SBA representative Debra Dimando confirming that “[t]he firms meet the requirements of the regulations and the purpose of the Joint Venture cited at 13 C.F.R. Section 124.513

.”

Luster employee Les Hunkele testified that he had concerns about 8(a) regulatory compliance in light of Tropical's lack of relevant experience and expressed those concerns to Harris. Harris relayed to another Luster employee that Tropical was interested in large-scale project management contracts but did not have experience in that area. Harris later acknowledged to a Federal Bureau of Investigation (“FBI”) agent that he knew Patricia's background was in the hotel industry and that Tropical was a “mom and pop operation.” Between July 2010 and January 2011, Patricia e-mailed Harris several requests for information about Luster's payroll procedures and employee benefits to ensure that there would be no differences in compensation between Luster employees and Tropical employees working for the Joint Venture. With the aid of other Luster employees, Harris e-mailed Patricia the requested information.

Over the course of its existence, the Joint Venture was awarded three 8(a) sole-source contracts, of which two are at issue in this case: a construction-management consultation contract with the USACE division in Galveston (“the Galveston project”) and an energy usage assessment project with Fort Bliss U.S. Army Base in El Paso (“the Fort Bliss project”). The Galveston project was composed of two segments. First, from August to December 2010, the Joint Venture performed an assessment of USACE Galveston's standard operating procedures and project management business. Second, beginning in April 2011, the Joint Venture prepared a follow-up report with recommended improvements based on the Joint Venture's previous assessment. The follow-up contract had a one-year term and gave USACE Galveston the option of a two-year extension.

To obtain the Galveston project contract, Harris negotiated on behalf of the Joint Venture with Jason Foltyn, a project manager for USACE Galveston. The purchase order for the initial assessment phase was signed by Harris, described Harris as the Joint Venture's point of...