United States v. Bernegger

Citations: 661 F.3d 232; 2011 U.S. App. LEXIS 21244; 2011 WL 4990719Docket: 09-60932

Court: Court of Appeals for the Fifth Circuit; October 20, 2011; Federal Appellate Court

Original Court Document: View Document

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Peter Bernegger appeals his conviction for mail and bank fraud, alongside a 70-month prison sentence and approximately $2 million in restitution. Bernegger and co-defendant Stephen Finch were indicted on multiple counts for misrepresenting their start-up companies, We-Gel and Citrus Products International (CPI), to investors. They claimed We-Gel could produce gelatin from catfish waste and CPI could extract limonin from lemon seeds, assuring potential investors of their expertise and a purported $3.2 million contract with Nutri-West.

Despite their claims, Bernegger and Finch failed to produce a viable product, often discarding their attempts. Bernegger misled investors through emails and letters, falsely asserting operational success and contracts with large customers, notably the U.S. Navy. When questioned by a fellow investor about the truth of these communications, Bernegger suggested investors "can’t handle the truth." 

In seeking additional funds, Bernegger referenced a supposed $1.2 million agreement with a Texas fish processing company, GAF, as a means to entice further investment. However, testimony revealed that GAF never signed any such agreement, only a confidentiality agreement prior to a visit to the We-Gel plant, where GAF representatives found the production process underdeveloped. The court ultimately affirmed Bernegger’s conviction but with modifications.

Bernegger's actions led to We-Gel securing additional funding from investors, including a $25,000 check from Leo Bieneck after a conversation about We-Gel's prospects. Despite these investments, none of the investors received returns by the trial's date. Bernegger also secured two grants totaling $500,000 from state entities, which required We-Gel to meet specific conditions, including maintaining a minimum employee count and timely reporting. Failure to comply would allow the state to foreclose on the equipment purchased with the grant funds.

Subsequently, Bernegger sought a loan from BancorpSouth, misrepresenting the ownership of the equipment by omitting the state's security interest in communications with the bank. His office manager warned him that the equipment belonged to the state, but Bernegger dismissed her concerns. Bancorp accepted his claims and agreed to issue a loan, conditioned on a lien on Bernegger's home, which was already encumbered by three liens. Before closing, Bernegger secured an additional $100,000 loan against his home, failing to disclose this new lien to Bancorp. When this undisclosed lien was revealed, Bancorp refused to fund the loan, resulting in an estimated loss of $125,000 for the bank.

Bernegger was ultimately convicted of mail and bank fraud, sentenced to 70 months in prison, and ordered to pay $2.1 million in restitution. On appeal, he argued that the district court erred by not severing the bank fraud count from the other fraud counts. Bernegger did not file a formal motion to sever the bank fraud count before trial, instead focusing on severing his case from his co-defendant's. He argued that his motion preserved the issue despite not specifically requesting the severance of the bank fraud count.

Bernegger failed to raise the issue of severing Count 6 in his motion to the trial court, which constitutes a waiver of his offense-severance argument. Case law indicates that a defendant who only argues for severance of defendants cannot later claim the need for severance of offenses on appeal. Bernegger's reliance on United States v. Holloway is misplaced, as he did not clearly articulate his argument to the district court nor reference the appropriate rule. Consequently, the issue is unpreserved, and he cannot seek relief on appeal.

Additionally, Bernegger requested plain error review of the severance failure. However, without demonstrating a valid cause for not moving for severance pre-trial, the court is not obliged to address the merits and retains discretion for plain error review. Even under plain error, Bernegger is not entitled to relief, as the charges were appropriately joined under Rule 8(a), being of similar character and part of a common scheme. The district court's conclusion that the offenses were connected through fraudulent misrepresentations was not clearly erroneous. Bernegger's claim of jury prejudice was insufficient, as jury instructions emphasized the necessity of separate consideration for each count and defendant, which appeared to have been followed, evidenced by acquittals on some counts.

Furthermore, Bernegger contends that the district court violated his Sixth Amendment rights by restricting cross-examination of Donnie Kisner regarding a testimonial discrepancy. This claim is assessed de novo with a harmless error analysis. If no violation is found, the limitation on cross-examination is reviewed for abuse of discretion.

An abuse of discretion is not found unless limitations on cross-examination are shown to be clearly prejudicial. The Sixth Amendment grants defendants the right to cross-examine witnesses, but this right is subject to reasonable limitations imposed by trial judges based on various concerns, including witness safety and relevance. Defense counsel must be allowed to present facts that enable the jury to assess the witness's reliability. Evaluating potential Sixth Amendment violations involves determining if the jury had enough information to judge a witness's bias and motives.

In the case at hand, Kisner testified about his involvement in a project processing waste with David Cooper. Although he mentioned a confidentiality agreement that restricted his discussion of the project, Bernegger sought to cross-examine him on its details, arguing the relevance of potential misconduct involving the project related to his client's prosecution. The district court excused the jury and took Kisner's testimony under seal, where Kisner clarified that his wife signed the confidentiality agreement, contradicting his earlier claim. The court ruled that the new project and any potential trade secret violation were not relevant to the fraud charges against Bernegger and limited the cross-examination accordingly.

Bernegger contended that he should have been allowed to address the discrepancy in Kisner's testimony about the confidentiality agreement and assert that Kisner had a motive to see him convicted due to potential theft of trade secrets. However, Bernegger did not demonstrate that such issues were relevant to the fraud charges or that they significantly impacted Kisner's credibility.

Kisner's alleged improper use of Bernegger’s processes was deemed speculative, allowing the district court to provide Bernegger adequate latitude during Kisner's cross-examination without violating the Sixth Amendment. The review confirmed that the court’s restrictions on cross-examination did not prejudice the case, as Bernegger failed to show that a reasonable jury would have viewed Kisner's credibility differently had further questioning occurred, indicating no abuse of discretion by the district court.

Bernegger also argued for a mistrial based on the superseding indictment’s format, which he believed was confusing. However, since he did not request a mistrial at trial, the review was conducted for plain error. The indictment’s initial paragraphs described a fraudulent scheme involving both Bernegger and Finch, but only Finch was charged with executing it. The district court clarified during the charge conference that the jury instructions sufficiently indicated Bernegger was not charged in Count 1, a point agreed upon by Bernegger’s counsel. The judge provided additional instructions to reinforce this, ensuring Bernegger received the needed clarification. Thus, there was no plain error in the district court's decision not to declare a mistrial.

Finally, Bernegger contested the sufficiency of evidence for Count 3, which claimed he caused Leo Bieneck to mail $25,000. The court emphasized that it must view evidence favorably towards the verdict, focusing on whether the jury’s decision was rational and supported by sufficient evidence, rather than determining the correctness of the jury's guilt assessment. To establish mail fraud, the Government needed to demonstrate a scheme to defraud, the use of mail or wire communications, and specific intent to defraud.

The government is not obligated to prove that misrepresentations were made directly to the victim, as established in precedent (McMillan, 600 F.3d at 450). Bernegger's claims include the non-existence of a fraudulent scheme, lack of proof regarding the mailing of Bieneck’s check, and absence of evidence indicating his intent to defraud or that he influenced Bieneck to send the check. The record contains ample evidence of a fraudulent scheme, including Bernegger's misrepresentations regarding non-existent contracts, a letter of intent, production status, and collateral for loans, all aimed at securing funding for We-Gel. The jury was entitled to accept this evidence and reject Bernegger’s assertions.

Regarding the mailing of Bieneck’s check, circumstantial evidence supports the jury's conclusion that it was mailed, especially given the unusual nature of alternative transmission methods and the testimony indicating the check was indeed received by We-Gel. Furthermore, testimony from Kisner suggested that Bernegger's communications directly influenced Bieneck's decision to invest, as Bieneck mailed his check shortly after receiving information from Kisner, who had been informed by Bernegger.

Bernegger's pro se habeas corpus petition, filed under 28 U.S.C. § 2255 claiming ineffective assistance of counsel, was denied by the district court as premature, given that a conviction cannot be contested until affirmed on direct appeal. The court also noted that ineffective assistance claims are generally not reviewed on direct appeal.

Additionally, Bernegger contested the district court's calculation of the total loss from his fraudulent activities, stated to be $2,196,296, and the corresponding restitution order. Such calculations are reviewed for clear error, as per established case law (United States v. Peterson, 101 F.3d 375, 384).

Bernegger contends that the district court erred by including approximately $250,000 loans from Clay County and the Mississippi Land, Water and Timber Board in the total loss calculation, asserting that he did not obtain these loans criminally. The pre-sentence report (PSR) adopted by the court included these amounts and categorized the entities as victims. Bernegger argues that for losses to be attributed to him, the conduct must be criminal, as established by case law. No evidence was presented at trial or sentencing indicating that Bernegger obtained the loans fraudulently; the government did not allege any criminality in this regard. The PSR's designation of the loans as losses lacks factual support and bare assertions do not constitute evidence. Consequently, the district court incorrectly treated these loans as "relevant conduct" under the United States Sentencing Guidelines. Although removing the loans from the loss calculation adjusts the total loss to $1,725,000, this does not impact Bernegger’s offense level or sentence, which remains based on a loss of between $1,000,000 and $2,500,000, resulting in a consistent 16-level increase. The incorrect total loss necessitates a modification of the restitution amount, which is adjusted accordingly to $1,725,000. The judgment of the district court is affirmed as modified.