United States v. Fernandez, Peter N.

Citation: Not availableDocket: 99-4203

Court: Court of Appeals for the Seventh Circuit; March 6, 2002; Federal Appellate Court

Original Court Document: View Document

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Defendants Peter N. Fernandez, III, Peter N. Fernandez, Jr., and Kenneth K. Getty were convicted of multiple offenses including eight counts of mail fraud, four counts of theft of funds, five counts of engaging in monetary transactions derived from unlawful activities, and four counts of money laundering. The convictions stemmed from a scheme to defraud the Village of Lyons by rigging bids for municipal building projects and laundering the proceeds between summer 1996 and April 1997. On appeal, the defendants argued that their actions did not violate the mail fraud statute, that the jury instructions did not adequately address the element of 'materiality', that the money laundering counts were indefensible, and that the government failed to prove necessary elements of the theft counts. The appellate court found these arguments unpersuasive and upheld the convictions. The district court sentenced Getty to 66 months, Fernandez, Jr. to 60 months, and Fernandez, III to 48 months in prison. Getty had previously served as a trustee and acting mayor of Lyons, during which he centralized power and facilitated the involvement of Fernandez, Jr.’s firm, Norman-Marc Associates, in municipal projects, despite it not being a licensed architectural firm.

The Board designated Norman-Marc as 'Village Architect,' but only Getty and Fernandez, Jr. negotiated his compensation, which included $100 per hour for consulting and 9% commissions on construction project costs. In June 1996, the Board authorized Lyons to solicit bids for the renovation of the Village Hall and the construction of a new Public Works garage, with a combined estimated cost of $1 million. Due to the project costs exceeding $10,000, Illinois law mandated a formal bidding process, requiring contracts to be awarded to the lowest qualified bidder. Lyons implemented a pre-qualification process for bidders, collecting background and financial information through questionnaires.

Getty directed that a one-day notice for pre-qualification applications be published in the Des Plaines Valley News, rather than the more widely circulated Suburban Life Citizen. The notice instructed bidders to obtain questionnaires from Building Department Commissioner Michael Kerrigan, who later testified he received no such requests. Evidence revealed that Getty, Fernandez, Jr., and Fernandez, III facilitated pre-qualification submissions from four companies, including Randolph I. Anderson Development Company, which was linked to a practicing attorney and did not exist as a construction firm. Anderson, a family friend of the Fernandezes, opted not to submit a bid.

Thompson Enterprises, another listed company, was invalid; its owner Jeffery Thompson, a friend of Fernandez, III, testified that he was coerced into submitting a pre-qualification questionnaire with false information, which had been prepared by the Fernandezes. Thompson was instructed to submit bids based on amounts calculated by Fernandez, Jr. and was told to misrepresent his affiliation with the questionnaire. Riverside Construction Corporation, owned by Jack Andersen, a friend of Getty, also received a request to bid, with Getty suggesting they “bid high” due to their generally inflated prices as a union shop.

Getty completed the pre-qualification questionnaire and bid forms for Riverside, having visited Andersen on August 13, 1996, to discuss Riverside and request signatures on the blank forms. The next day, Andersen received a completed questionnaire and bid forms from Getty via fax, all intended for submission on Riverside's behalf. Andersen confirmed he did not fill out any of these forms. 

Fernandez, III submitted a pre-qualification questionnaire and bids for Midwest, citing three client references, all of whom later denied having worked with Midwest. At the time, Fernandez, III was a construction superintendent at Industrial Construction, Inc., where he believed he was bidding on behalf of Industrial, not Midwest. Zakovec, the owner of Industrial, stated that they agreed Industrial would subcontract for Midwest on the projects. 

Lyons awarded Midwest contracts totaling $963,200 due to the lowest bids, with Midwest subcontracting $784,200 to Industrial, resulting in a $179,000 profit for Midwest. Notably, Midwest only filed Articles of Incorporation and sought an Employer Identification Number after winning the bids, and did not secure necessary insurance until after the contract award, with Getty facilitating this insurance acquisition.

By April 1997, the Fernandez family had deposited $722,960 from Lyons into Midwest’s bank account, from which they issued several checks to cash and family members, including payments for personal expenses. Meanwhile, Norman-Marc provided architectural services to Lyons, receiving around $148,000, with a significant portion linked to the Midwest projects. Change orders approved by Getty increased the owed amount by $320,219, yielding a net profit of $93,271 for Midwest before a stop-work order was issued in April 1997. 

On September 8, 1998, Getty, Fernandez, Jr., and Fernandez, III faced a twenty-one count Superseding Indictment, including mail fraud charges related to a bid-rigging scheme designed to defraud Lyons and deprive its citizens of the honest services of both Getty and Fernandez, Jr.

Counts 9 through 12 charged defendants with fraudulently obtaining over $5,000 on four occasions from Lyons, a local government entity receiving more than $10,000 annually from federal programs. Counts 13 through 17 involved knowingly engaging in monetary transactions over $10,000 with property derived from mail fraud, with each count specifying a check from Midwest's account. Counts 18 through 21 addressed financial transactions involving mail fraud proceeds aimed at promoting the continuation of the fraud, again detailing individual checks used for payments to Industrial for construction projects. On October 27, 1998, the jury found Getty, Fernandez, Jr., and Fernandez, III guilty on all counts.

In their appeal, defendants presented three arguments for vacating their mail fraud convictions. First, they argued that the government did not prove a 'legally cognizable scheme to defraud' and contended that a 'contemplated harm to the victim' was necessary for such a scheme. The court clarified that to secure a mail fraud conviction under 18 U.S.C. §§ 1341 and 1346, the government must demonstrate: 1) participation in a scheme to defraud, 2) intent to defraud, and 3) use of the mails in furtherance of the scheme. The requirement of proving 'contemplated harm' was rejected, as the court noted that fraudulent intent could be inferred from the scheme itself.

Second, defendants claimed that the mailings used for their convictions were not in furtherance of a scheme. Third, they asserted that neither the indictment nor jury instructions included the concept of 'materiality' as a necessary element of mail fraud. The court dismissed the first argument as lacking merit, emphasizing that the evidence must be viewed favorably to the government, and reiterated that no requirement for proving contemplated harm exists in establishing a mail fraud conviction.

Defendants contend that the government did not prove they used the mails to further a fraudulent scheme. They argue that the alleged scheme ended on August 20, 1996, when contracts were awarded, thus claiming that the subsequent mailings listed in counts 2 through 8 occurred after this date and were merely ancillary. However, the court finds these arguments unconvincing, stating that the scheme to defraud continued until April 1997, as defendants continued to receive payments and conceal the truth about their bid-rigging. The court clarifies that a mailing is considered in furtherance of a scheme if it is essential to its success. The mailings in Counts 2 through 8, such as notifying Thompson Enterprises and Midwest about bid outcomes, were integral to the defendants’ scheme, as they falsely legitimized the bids and masked the fraudulent nature of their actions. Additionally, defendants argued that materiality is a necessary element of mail fraud, referencing Neder v. United States, which emphasizes that a false statement must influence the decision-making body. Since the defendants did not challenge the indictment prior to trial, it remains sufficient unless completely defective.

The indictment against the defendants was found to be sufficient, alleging that they participated in a scheme involving three illegitimate bids that rigged the bidding process, provided false responses to pre-qualification questionnaires, and utilized false pretenses and material omissions to financially harm Lyons. The allegations indicated that the defendants’ actions were material, significantly influencing Lyons' contract decisions. The court noted that a reasonable person, especially a Trustee, would regard the legitimacy of the bidding company, its experience, and the authenticity of its cost projections as important factors.

Regarding jury instructions, the court reviewed the lack of objection to the instructions at trial under a plain error standard. Although the district court did not specifically instruct the jury on "materiality," the overall instructions conveyed its essence, guiding the jury to assess whether the government proved the defendants' scheme to defraud. The judge defined a scheme to defraud as one intended to deceive for financial gain and explained "intent to defraud" as knowingly acting to deceive or cheat. The instructions required the jury to determine if the false representations could influence Lyons, adequately covering the concept of materiality.

On the money laundering counts, the defendants contended that the jury instructions were inconsistent. However, the court disagreed, noting that the defendants had not objected to these instructions at trial, thus reviewing for plain error. The jury was instructed on the elements of money laundering under 18 U.S.C. §§ 1957(a) and 1956(a)(1)(A)(i), requiring proof that the defendant engaged in a monetary transaction involving criminally derived property exceeding $10,000, derived from mail fraud, and occurring in the U.S. The court clarified that the government did not need to prove the defendant's knowledge that the property was specifically from mail fraud, countering the defendants' claim that initial instructions required such proof.

The district court instructed the jury that the government needed to prove only that the property was derived from any felony activity, not specifically that the defendants knew it was from mail fraud. This distinction clarified that the government had to establish the property was derived from mail fraud but did not require evidence that the defendants knew this. Defendants claimed the jury instructions were confusing and contradictory; however, the court found no inconsistencies in the instructions provided. 

Regarding the defendants' convictions under 18 U.S.C. § 666, they argued that the government failed to prove the necessary connection between their fraud and a federal interest. The court ruled that such a link was not required. Section 666 penalizes local government agents who fraudulently obtain property valued over $5,000 from a local government receiving federal funds exceeding $10,000 in any year. The court referenced United States v. Grossi, which established that funds are fungible, and therefore, the connection to federal funding was satisfied by evidence that the local government received over $10,000 from a federal program.

The court ultimately affirmed the convictions of Getty, Fernandez, Jr., and Fernandez, III. The footnotes detail specific counts charging the defendants with various mailings related to their fraudulent activities and provide definitions of relevant statutes concerning fraud.

Count 6 alleges that defendants mailed Midwest's worker's compensation and employer liability insurance policy from an insurer. Counts 7 and 8 charge defendants with mailing checks from Industrial to Mathis Plumbing for work done on the Lyons projects. The defendants claim their objection to jury instructions should be considered timely due to a recent Supreme Court ruling; however, this argument is deemed unpersuasive. Even under a harmless error standard, the outcome remains unchanged. It is highlighted that while there is no plain error, future jury instructions for 18 U.S.C. § 1344 should include materiality, referencing a previous case, Reynolds. Defendants also argue that the money laundering counts (13-21) should be dismissed independently of the mail fraud counts, but this is unnecessary to address since the mail fraud convictions are affirmed.

The mail fraud statute punishes individuals who, knowing that property involved in financial transactions represents proceeds from unlawful activity, conduct such transactions to promote specified unlawful activities. Additionally, 18 U.S.C. § 1957 penalizes those who knowingly engage in monetary transactions involving criminally derived property valued over $10,000. Title 18 U.S.C. § 666 criminalizes various forms of embezzlement, theft, and bribery involving property valued at $5,000 or more belonging to organizations or governments that receive over $10,000 in federal benefits within a year. Exceptions exist for legitimate salary or compensation. Violations can result in fines and imprisonment for up to 10 years.