United States v. Nagle

• Decision Date: 30 September 2015
• Docket Number: 14–3422.,Nos. 14–3184,s. 14–3184
• Parties: UNITED STATES of America v. Joseph W. NAGLE, Appellant, No. 14–3184. Ernest G. Fink, Appellant, No. 14–3422.
• Court: U.S. Court of Appeals — Third Circuit

803 F.3d 167

UNITED STATES of America

v.Joseph W. NAGLE, Appellant, No. 14–3184.

Ernest G. Fink, Appellant, No. 14–3422.

Nos. 14–3184

14–3422.

United States Court of Appeals, Third Circuit.

Sept. 30, 2015.

Argued April 27, 2015.

Filed: Sept. 30, 2015.

William M. Kent, Esq., Argued, Jacksonville, FL, for Joseph W. Nagle.

Ellen C. Brotman, Esq., Argued, Griesing Law, Erin C. Dougherty, Esq., Montgomery, McCracken, Walker & Rhoads, Philadelphia, PA, for Ernest G. Fink.

Bruce Brandler, Esq. Argued, Office of United States Attorney, Harrisburg, PA, Jenny C. Ellickson, Esq., Argued, United States Department of Justice, Washington, DC, for Appellee.

Before: FISHER, HARDIMAN, and ROTH, Circuit Judges.

OPINION OF THE COURT

FISHER, Circuit Judge.

Joseph Nagle and Ernest Fink were co-owners and executives of concrete manufacturing and construction businesses. The businesses entered into a relationship with a company owned by a person of Filipino descent. His company would bid for subcontracts on Pennsylvania transportation projects as a disadvantaged business enterprise. If his company won the bid for the subcontract, Nagle and Fink's businesses would perform all of the work.

Fink pled guilty to one count of conspiracy to defraud the United States. Nagle proceeded to trial, where a jury found him guilty of a myriad of charges relating to the scheme. Both defendants filed timely appeals. Nagle challenges the District Court's order denying his motion to suppress electronic evidence discovered during searches of the businesses' offices. Both defendants challenge the amount of loss the District Court found they were responsible for in calculating the appropriate Sentencing Guidelines range. We will affirm Nagle's conviction, vacate Nagle's and Fink's sentences, and remand for resentencing.

I.

A.

The United States Department of Transportation provides funds to state transportation agencies to finance transportation projects. These funds often go towards highway construction, provided through the Federal Highway Administration (“FHWA”), or towards mass transit systems, provided through the Federal Transit Administration (“FTA”). In Pennsylvania, the FHWA provides funds to the Pennsylvania Department of Transportation (“PennDOT”), and the FTA provides funds to the Southeastern Pennsylvania Transportation Authority (“SEPTA”).

Federal regulations require states that receive federal transportation funds to set annual goals for participation in transportation construction projects by disadvantaged business enterprises (“DBEs”). 49 C.F.R. § 26.21. A DBE is a for-profit small business that is at least 51% owned by an individual or individuals who are both socially and economically disadvantaged and whose management and daily operations are controlled by one or more of the disadvantaged individuals who own it. Id. § 26.5. A state agency will announce a DBE-participation goal when soliciting bids for a contract, and bids for the contract must show how the contractor will meet the goal. If the prime contractor is not a DBE, this is usually demonstrated by showing that certain subcontractors that will work on a contract are DBEs. States themselves certify businesses as DBEs. Id. § 26.81. A business must be certified as a DBE before it or a prime contractor can rely on its DBE status in bidding for a contract. Id. § 26.81(c).

Most importantly here, in order to count towards a contract's DBE participation, a DBE must “perform[ ] a commercially useful function on [the] contract.” Id. § 26.55(c). Therefore, a certified DBE whose “role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of DBE participation” cannot be counted towards DBE participation. Id. § 26.55(c)(2).

B.

In the 1950's Joseph Nagle's grandfather established Schuylkill Products Inc. (“SPI”), a Pennsylvania-incorporated S- corporation, in Cressona, Pennsylvania. SPI manufactured concrete beams that are used in highway construction projects. In the 1980's, the Nagle family also established CDS Engineers, Inc. (“CDS”), to operate as a construction company for the concrete beams SPI manufactured. By 2004, CDS was a wholly-owned subsidiary of SPI. Neither SPI nor CDS qualified as or was certified as a DBE in any state.

In 1993, SPI was owned by two people: Nagle's father, Gordon, who owned 50.1% of SPI, and Fink, Nagle's uncle by marriage, who owned 49.9%. Gordon Nagle was the President and Chief Executive Officer of SPI, while Fink served as Vice–President and General Manager of SPI. That year, SPI entered into an arrangement with a company called Marikina Engineers and Construction Corp. (“Marikina”). Marikina was a Connecticut corporation owned and managed by Romeo P. Cruz, an American citizen of Filipino descent. Because Cruz was of Filipino descent, Marikina qualified as a DBE for FHWA and FTA projects. Marikina was certified as a DBE in Connecticut and Pennsylvania, among other states.

SPI and Marikina agreed that Marikina would bid to serve as a subcontractor for PennDOT and SEPTA contracts that had DBE participation requirements. If Marikina was selected for the subcontracts, SPI and CDS would perform all of the work on those contracts. SPI and CDS would pay Marikina a fixed fee for its participation but otherwise keep the profits from the scheme.

In practice, SPI identified subcontracts that SPI and CDS could fulfill, prepared the bid paperwork, and submitted the information to prime contractors in Marikina's name. SPI used stationery and email addresses bearing Marikina's name to create this correspondence. It also used Marikina's log-in information to access PennDOT's electronic contract management system. CDS employees who performed construction work on site used vehicles with magnetic placards of Marikina's logo covering SPI's and CDS's logos. SPI and CDS employees used Marikina business cards and separate cell phones to disguise whom they worked for. They also used a stamp of Cruz's signature to endorse checks from the prime contractors for deposit into SPI's bank accounts. Although Marikina's payroll account paid CDS's employees, CDS reimbursed Marikina for the labor costs.

In 2004, Gordon Nagle passed away. Joseph Nagle inherited his father's 50.1% stake in SPI and assumed the titles of President and Chief Executive Officer. At that time, Fink became the Chief Operating Officer and Chairman of the Board. SPI's relationship with Marikina lasted until March 2008. Between 1993 and March 2008, Marikina was awarded contracts under the PennDOT DBE program worth over $119 million and contracts under the SEPTA DBE program worth over $16 million. Between 2004 and March 2008, Marikina was awarded contracts under the DBE programs worth nearly $54 million.

C.

SPI's and CDS's offices were all located in the same compound in Cressona. None of the offices was open to the public. SPI's administrative office was a converted, two-story white house. The house was subdivided into offices and cubicles. Between twelve and fifteen people worked in the building, as well as Nagle and Fink. CDS's administrative office was also a converted house, owned by Fink and leased to CDS. The compound contained a transportation building, a production building, and various parking lots. In total, SPI and CDS employed around 140 individuals who worked in the compound.

SPI and CDS purchased a computer for nearly every employee who required one. They also created a shared network over a server. The twenty-five employees who had access to the network needed a user identification and password to access it. The network itself was compartmentalized into drives. Only five people, including Nagle and Fink, had access to all of the drives on the network. Emails sent from or received by SPI or CDS accounts were stored on the network as well. Nagle received a company computer, which he took home every night and used for business and personal purposes. He never used any other employee's computer.

In October 2007, the Federal Bureau of Investigation (“FBI”) executed two search warrants at SPI's and CDS's offices. The warrants authorized agents to seize “business records of [Marikina] and all predecessors and affiliated operating entities, [SPI,] and CDS ... including any and all” financial documents; contracts and invoices; payroll documents and personnel files; email and correspondence; phone records and calendars; and “[c]omputers and computer equipment.” Nagle Supp.App. at 5, 65. During their search of SPI's and CDS's offices pursuant to the warrants, agents found eleven computers and the shared network server. The agents imaged the computers on site. Nagle had brought his computer home with him before the search, so it was not seized and imaged.

D.

In November 2009, a federal grand jury in the Middle District of Pennsylvania returned an indictment against Nagle and Fink. The indictment charged them with one count of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371 ; eleven counts of wire fraud, in violation of 18 U.S.C. § 1343 ; six counts of mail fraud, in violation of 18 U.S.C. § 1341 ; one count of conspiracy to engage in unlawful monetary transactions, in violation of 18 U.S.C. § 1956(h) ; and eleven counts of engaging in unlawful monetary transactions, in violation of 18 U.S.C. § 1957. Cruz, the owner of Marikina; Dennis Campbell, an SPI executive; and Timothy Hubler, a CDS executive, were indicted separately, pled guilty to the charges, and agreed to cooperate against Nagle and Fink.

Nagle and Fink jointly moved to suppress the electronic evidence that the FBI agents had imaged from SPI's and CDS's computers and network server during the October 2007 search. They argued (1) that the warrants were unconstitutional general warrants, (2) that the warrants were unconstitutionally overbroad, and (3) that the agents had executed the warrant in an unreasonable manner. The United States opposed the motion, contesting each...