United States v. White
| Decision Date | 02 October 2012 |
| Docket Number | 10 Cr. 516 (SHS) |
| Parties | UNITED STATES OF AMERICA, v. JOHN RAYMOND ANTHONY WHITE, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Following a five-day jury trial, defendant John White was convicted on April 20, 2011 of mail fraud in violation of 18 U.S.C. § 1341; three counts of major fraud against the United States in violation of 18 U.S.C. § 1031; making a false statement to a federal law enforcement officer in violation of 18 U.S.C. § 1001(a); and witness tampering in violation of 18 U.S.C. § 1512(b)(3). During the sentencing phase, a dispute arose over the proper method of calculating loss pursuant to section 2B1.1 of the Sentencing Guidelines and Application Note 3(F)(ii) to that section, which addresses loss in connection with the receipt of government benefits. For the reasons set forth below, this Court concludes that where a defendant fraudulently receives a government contract that has been set aside for a targeted group and subsequently renders services to the government pursuant to that contract, the loss is the value of the benefit the defendant obtains—in this case, the actual or intended profit under the contract—not the full face value of the contract.1
White's fraud was as simple as it was brazen. Between 2007 and 2009, White's wholly owned company, Mitsubishi Construction Corporation ("MCC"),2 bid on and received four construction contracts awarded by the U.S. Department of Veterans Affairs ("VA") for construction work to be performed at VA and Army facilities in Manhattan; Baltimore; Montrose, New York; and Coatesville, Pennsylvania. These contracts had been set aside to be awarded to either small businesses owned by veterans or small businesses owned by service-disabled veterans. On numerous occasions, White represented to the VA and the Army that MCC was eligible to be awarded these construction contracts. He also represented that he had served in a college ROTC program and in the Special Forces. Those representations were false.
MCC nonetheless won the four contracts, which had a total face value of approximately $16.7 million. Although White procured the four contracts through fraud, it is not disputed that White and MCC actually performed at least part of the work MCC contracted to do. The VA paid MCC more than $4.9 million on the four construction contracts before White's fraud was uncovered and the contracts terminated.3
In the course of the VA's investigation into the fraud, White made a false statement to an investigator from the VA by telling him that one of MCC's employees, an actual veteran, was in fact the majority owner of MCC. One week after the indictment was unsealed, White compounded his wrongdoing by offering another MCC employee $5,000 to testifyfalsely as to the structure of MCC. Based on the extensive evidence presented at trial, the jury found White guilty on all counts.
The offense level for major fraud against the United States—Counts 2, 3, and 4 of the indictment—is determined largely on the basis of the total amount of the "loss," as governed by U.S.S.G. § 2B1.1. This section, as relevant to White, sets a base offense level of 7 due to his conviction for fraud. See U.S.S.G. § 2B1.1(a)(1). The government and the U.S. Probation Office took the position that the "loss" to the victim in this case was $16.7 million—the face value of the four contracts that White fraudulently obtained. This $16.7 million "loss" figure resulted in a 20-level increase in White's offense level and substantially increased his Guidelines sentence range. See U.S.S.G. § 2Bl.l(b)(l)(K).
Defendant objected to the government's loss calculation on the grounds that it did not take into account the value of the significant services White provided to the government, i.e., the value of the construction services MCC rendered to the government—in this case, physical improvements to VA and Army facilities. The government responded that White was not entitled to any credit for those services because the loss calculation is governed by Application Note 3(F)(ii) to U.S.S.G. § 2B1.1, which states in its entirety:
Government Benefits.—In a case involving government benefits (e.g., grants, loans, entitlement program payments), loss shall be considered to be not less than the value of the benefits obtained by unintended recipients or diverted to unintended uses, as the case may be. For example, if the defendant was the intended recipient of food stamps having a value of $100 but fraudulently received food stamps having a value of $150, loss is $50.
U.S.S.G. § 2B1.1, application note 3(F)(ii). The parties agree the contracts at issue are "government benefits." The government argued that the application note, read literally, provides that the loss is "not less than the value of the benefits obtained by unintended recipients or diverted to unintended uses" —i.e., the $16.7 million in contracts obtained by MCC, with no provision for any offsets for labor, materials, or any other cost toMCC. Because White was not eligible to be awarded any of the four contracts since he was neither a veteran nor a service-disabled veteran, the government contended that the entire amount of the contracts—$16.7 million—should be considered the intended loss for Guidelines purposes.
In the wake of United States v. Booker, 543 U.S. 220 (2005), courts have the discretion to impose a sentence outside of the range set by the Sentencing Guidelines. However, a district court still "must 'begin all sentencing proceedings by correctly calculating the applicable Guidelines range'" to ensure that its sentence is procedurally reasonable. United States v. Skys, 637 F.3d 146,152 (2d Cir. 2011) (quoting Gall v. United States, 552 U.S. 38, 49 (2007)). Failure to calculate the Guidelines range or erring in that calculation constitutes procedural error. See United States v. Preacely, 628 F.3d 72, 79 (2d Cir. 2010). Courts employ the traditional tools of statutory interpretation to construe the Guidelines, starting with the plain language, see United States v, Awan, 607 F.3d 306, 313 (2d Cir. 2010), cert, denied, 131 S. Ct. 969 (2011), and commentary, which is authoritative unless it violates the Constitution or a federal statute. See United States v. Walker, 595 F.3d 441, 445 (2d Cir. 2010). To interpret amendments to the Guidelines or its application notes, courts may also rely on the Sentencing Commission's reasons for making the amendments. Cf. United States v. Rivera, 662 F.3d 166, 183 & n.16 (2d Cir. 2011) ().
Application Note 3(F) (ii) does not define "government benefits," but it does provide a list of examples that qualify as government benefits, as follows: "In a case involving government benefits (e.g., grants, loans, entitlement program payments). . . ." U.S.S.G. § 2B1.1, application note 3(F)(ii). It also adds food stamps as an example of a government benefit. See id. Four U.S. Courts of Appeals have concluded that government contracts that are set aside for disadvantaged or minority-owned businesses fall within the Guidelines' definition of "government benefits." See United States v. Maxwell, 579 F.3d 1282, 1306 (11th Cir. 2009); UnitedStates v, Tulio, 263 F. App'x 258, 260, 263-64 (3d Cir. 2008); United States v. Leahy, 464 F.3d 773, 790 (7th Cir. 2006); United States v. Bros. Constr. Co. of Ohio, 219 F.3d 300, 317-18 (4th Cir. 2000). The Second Circuit has not had occasion to rule on this issue.
The list in Application Note 3(F)(ii) strongly suggests that "government benefits" should include any form of assistance that the government intends to go to a targeted group. The VA contracts set aside for small businesses owned by veterans and service-disabled veterans fall squarely within the definition of government benefits in Application Note 3(F) (ii). Just as the state program in Tulio, which required construction subcontracts to go to minority- or women-owned businesses, the VA's set-aside program is an "effort to increase the opportunities" for a class of businesses specified by Congress. Tulio, 263 F. App'x at 260; see Pub. L. No. 109-461, § 502(a)(1), 120 Stat. 3403, 3431 (codified at 38 U.S.C. § 8127(a)(1)) (ordering the VA to set goals for such contracts "[i]n order to increase contracting opportunities for small business concerns owned and controlled" by such veterans). The VA was more "concerned with who is doing the work not necessarily how much it costs ...." United States v. Campbell, No. l:CR-08-007, 2010 WL 2650541, at *3 (M.D. Pa. July 1, 2010). Therefore, the Court concludes that Application Note 3(F) (ii) will guide this Court's loss calculation for White's fraud.
As noted above, this Court reaches a different conclusion than the government concerning how to value the loss caused by White's fraud. The Application Note gives two alternative methods for calculating loss in cases involving government benefits: "loss shall be considered to be not less than the value of the benefits obtained by unintended recipients or diverted to unintended uses, as the case may be." U.S.S.G. § 2B1.1, application note 3(F)(ii) (emphasis added).
The Court can disregard the "diverted to unintended uses" test. This measure applies to benefits legitimately received but illegitimately spent— for example, food stamps used for the impermissible purpose of purchasing beer or cigarettes. See United States v. Caba, 911 F. Supp. 630, 639 (E.D.N .Y.), aff'd, 104 F.3d 354 (2d Cir. 1996); see also United States v. Peters, 59 F.3d 732, 733-34 (8th Cir. 1995) (...
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