United States v. Antony Michael Upton, Santa Barbara Castle Development Corp., A/K/A Castle Construction Corp., and Ronald R. Barrick
Docket: 95-50206
Court: Court of Appeals for the Fifth Circuit; July 29, 1996; Federal Appellate Court
Ronald Barrick, Antony Upton, and Santa Barbara Castle Development Corporation were convicted for conspiring to defraud the United States Air Force and for submitting false claims regarding bond premiums, violating 18 U.S.C. §§ 286, 287, and 2. Barrick faced additional charges for making fraudulent statements under 18 U.S.C. §§ 1001 and 2. The district court sentenced Barrick to 63 months in prison, three years of supervised release, and ordered restitution of $1,804,879.99. Upton received a 24-month prison sentence, three years of supervised release, and was ordered to pay $363,813.69 in restitution. The corporation was sentenced to five years probation and the same restitution amount as Upton. On appeal, the defendants challenged their convictions and sentences, resulting in a partial affirmation and remand. Barrick, a former Air Force Colonel and lawyer, owned Benefax Surety Corporation, which facilitated surety bonds for contractors, and United Fidelity and Trust Company, which provided loans to contractors. Upton owned Castle, a company that constructed roofs and successfully bid on two contracts from Vandenburg Air Force Base, which required compliance with the Miller Act, necessitating performance and payment bonds.
Castle retained Benefax to provide individual sureties for payment and performance bonds, enlisting Martin H. McGuffin and Terry L. Kinser as sureties. Both submitted notarized Affidavits of Individual Surety (AIS), with McGuffin claiming a net worth of $3,782,677 and Kinser stating $7,417,193. Testimony revealed McGuffin signed blank bonds, and one of his AIS signatures was not his. He informed Barrick of his financial difficulties, but Barrick signed the Certificate of Sufficiency despite this. Kinser's AIS also displayed inflated figures, as Barrick raised his net worth claim to over $7,000,000, which both Kinser and Barrick acknowledged as fraudulent. The Air Force contract officers accepted these AISs based on the provided information.
Castle issued two checks to Benefax for bond fees but requested Barrick not to cash them until securing a loan or receiving reimbursement from the Air Force. Castle's attempts to obtain financing were unsuccessful, leaving it without mobilization funds to start the roofing job or pay the bonds. Barrick, through United Fidelity, agreed to loan Castle $100,000 for mobilization and arranged to wire the funds before cashing Castle's checks. Upton and Castle later sought reimbursement from the government for bond costs, submitting paid invoices from Benefax as evidence. The Air Force reimbursed Castle for the bond premiums, but Castle never completed the roofing jobs, and the sureties failed to fulfill their contractual obligations.
The Grand Jury issued an eight-count indictment against Barrick, Upton, Castle Construction, and Benefax Surety Corporation, charging them with conspiracy to defraud and knowingly submitting false claims to the Air Force, violating 18 U.S.C. §§ 286, 287, and 2. Counts five through seven involved Barrick, Benefax, and Frericks, as well as Barrick, Benefax, and Maness, for making false statements to the Air Force, also under 18 U.S.C. § 1001 and 2. Count eight charged Benefax and Maness with presenting forged documents to the Air Force under 18 U.S.C. § 494 and 2. The jury convicted Barrick, Upton, and Castle on all counts, prompting timely appeals regarding their convictions and sentences.
The appellants argued that the evidence was insufficient to support their convictions for conspiracy and false claims. The legal standard requires courts to defer to the jury's verdict, affirming a conviction if a rational jury could find that the government proved all elements of the crime beyond a reasonable doubt. To sustain a conviction for filing false claims under 18 U.S.C. § 287, the government must demonstrate that the defendant presented a false claim to a U.S. agency, knowing it was false. For conspiracy under 18 U.S.C. § 286, it must be shown that there was a conspiracy to defraud, the defendant's awareness and intent to join the conspiracy, and voluntary participation.
The record indicated substantial evidence supporting the convictions. The appellants did not dispute that a false claim was submitted to a U.S. agency but claimed ignorance of its falsity, citing ambiguity in the term "payment" related to performance and payment bonds under the Federal Acquisition Regulations. They contended that an agreement on December 4, 1989, allowed Benefax to accept two checks from Castle as full payment for Miller Act bonds, with the understanding that the checks would not be negotiated until Upton secured financing. Based on their belief that the checks represented payment for the bonds, Castle submitted claims to the Air Force for reimbursement of bond costs.
Appellants assert that the Federal Acquisition Regulations' language is ambiguous regarding the requirement for contractors to provide evidence of payment to the surety, arguing it does not necessitate that costs be incurred. However, the regulation clearly indicates that reimbursements for bond premiums imply prior payments, necessitating compensation for those expenditures. Evidence presented indicates that the appellants had no intention of cashing the checks meant for bond payments and may have engaged in a scheme to defraud the government. Correspondence and notes from Upton reveal a priority to pay Benefax for bond premiums through Air Force draws, with explicit instructions to delay check deposits until funds were transferred. Upton's bookkeeping practices classified bond checks as non-debits, suggesting an acknowledgment that they would not be cashed. Testimonies from Air Force investigators and Castle's office manager showed Upton's lack of intent for the bond payments to be processed, leading to the termination of employees who questioned these practices. Despite appellants claiming the invoices were legitimate and that they did not intend to defraud the government, substantial evidence indicates Barrick orchestrated a scheme to enable under-funded contractors to acquire government-backed loans for bond fees, thereby securing contracts they could not financially sustain. The jury had sufficient grounds to conclude that the appellants knowingly submitted false reimbursement claims to the Air Force, indicating a conspiracy to defraud.
Appellants claimed the district court erred by not including jury instructions on 'good faith' and 'ambiguity.' The court has significant discretion in formulating jury instructions, and a refusal to give a requested instruction is reviewed for abuse of discretion. To challenge such a refusal, appellants must demonstrate that their proposed instruction: 1) accurately stated the law; 2) was not adequately covered by other instructions; and 3) addressed a critical point that impaired the defense.
Appellants argued that the omission of 'good faith' instructions hindered their defense, but the court found that their defense was sufficiently addressed. They presented evidence suggesting a belief that bond fees were paid via Castle Construction's checks, allowing them to argue that they did not intend to defraud the government. The court instructed the jury on 'knowingly' and 'willfully,' which encompassed the essence of the good faith defense. Thus, the court concluded there was no abuse of discretion in its jury instructions.
Regarding the 'ambiguity' of the term 'payment' under the Federal Acquisition Regulations, the court refused to allow the jury to interpret this term, asserting that it was a legal determination rather than a factual one. The court deemed that it was not appropriate for the jury to decide on regulatory ambiguities, stating the government’s interpretation was more plausible.
The district court correctly withheld from the jury the interpretation of 52.232-5(g), as established in United States v. Vidaure, which determined that statutory interpretation is a legal question for the court, not a factual one for the jury. The court similarly ruled out jury instruction on 'ambiguity' concerning 'payment' under the Federal Acquisition Regulations, affirming that such definitions necessitate legal interpretation.
Regarding materiality under 18 U.S.C. 287, Barrick contends that the principles established in United States v. Gaudin, which required jury determination of materiality under 18 U.S.C. 1001, should also apply to 287. However, the court has not definitively addressed whether materiality constitutes an element of a section 287 charge. Previous decisions suggest that if it is an element, it remains a legal question for the trial judge.
Post-Gaudin, materiality is recognized as a factual question for jury determination, necessitating an initial decision on whether it is an element of 287 before assessing if the district court erred by not submitting this question to the jury. Various circuit courts have diverged on this issue, with some holding materiality as essential to a 287 charge, while others assert that it is not a required element.
Materiality is not an element of 18 U.S.C. § 287, as determined by the plain language of the statute, which prohibits making false claims against the United States without mentioning materiality. Judicial inquiry is deemed complete when statutory language is unambiguous, following precedents that underscore adherence to the statute's clear wording unless it is exceptionally bizarre. This conclusion aligns with decisions from other circuits and legislative history indicating no intent from Congress to include materiality as an element. Accordingly, Barrick's argument regarding the district court's omission of materiality for jury consideration is rejected.
In contrast, for violations of 18 U.S.C. § 1001 related to false statements, the jury found Barrick guilty on multiple counts. Prior to the Supreme Court's decision in Ray v. United States, a conviction on one count rendered other counts unnecessary for appellate review. However, post-Ray, the assessed fines necessitate consideration of Barrick's additional arguments. At the time of Barrick's trial, materiality was treated as a legal question for the court, and Barrick did not object to the jury instructions on this basis. Following the Supreme Court's ruling in Gaudin, which classified materiality as a factual issue for the jury, the appellate review of the district court's failure to instruct on this matter is conducted under plain error, given Barrick's lack of objection.
Under plain error review, a petitioner must demonstrate: (1) an error occurred, (2) the error was clear or obvious, and (3) the error affected the petitioner's substantial rights. The Supreme Court has established a fourth consideration, stating that a reviewing court is not obligated to correct an error unless it seriously impacts the fairness, integrity, or public reputation of judicial proceedings. In Barrick's case, despite potential errors being identified, the court decided not to correct the conviction under 18 U.S.C. § 1001, as the Gaudin error did not compromise the integrity of the proceedings.
Regarding restitution, Upton and Castle contested the district court's decision to order restitution to unnamed materialmen and suppliers. While the precedent in United States v. Pepper allows for restitution to unnamed victims if the scheme is well-defined in the indictment, Upton and Castle argued that the scheme was limited to two roofing contracts. They contended that the materialmen and suppliers were not victims of the alleged crime but rather of Castle's inability to complete the jobs. The court agreed, stating that restitution can only be awarded for losses directly caused by the specific offense of conviction. Evidence indicated that Upton and Castle had completed a significant portion of the contracts and that subsequent issues arose from labor disputes, not from the fraudulent claims. Therefore, the court ruled that the district court erred in ordering restitution for these unnamed victims and vacated the restitution assessments related to Castle's failure to complete the roofing projects.
Barrick argues that the district court wrongly applied a two-level increase in his offense level for obstruction of justice due to his failure to produce subpoenaed corporate records and his false testimony to the grand jury. He claims that since the government learned of his non-compliance during plea negotiations, such evidence should be inadmissible under FED.R.CRIM.P. 11(e)(6)(D) and U.S.S.G. 1B1.8. The court, however, maintains significant deference in applying sentencing guidelines, reviewing factual findings for clear error and interpretations de novo. Barrick's reliance on Rule 11(e)(6)(D) to protect himself from the increase is deemed incorrect, as the court found substantial evidence of his false testimony and failure to comply with subpoenas, which delayed the prosecution and allowed him to negotiate a more favorable plea agreement. The court confirmed the recommendation from the Probation Department regarding the obstruction of justice increase, stating that statements made during plea negotiations can be used in sentencing, as established in prior case law.
At sentencing, the district court relied on Barrick's own admissions of providing false testimony to the grand jury regarding his compliance with a subpoena, determining these statements to be sufficiently reliable to justify an increase in his offense level for obstruction of justice, as outlined in U.S.S.G. 3C1.1. Barrick contested this increase, arguing that his false testimony was unrelated to his conviction; however, the court upheld that obstruction of justice enhancements are appropriate when a defendant conceals material information relevant to an ongoing investigation, regardless of direct relation to the conviction.
Additionally, Barrick challenged the district court’s finding that he was a 'leader' or 'organizer' of criminal activity, which resulted in a four-level offense level increase under U.S.S.G. 3B1.1. The court, after considering evidence of Barrick's role in organizing and utilizing multiple individuals in the criminal activity, rejected his claim of being merely a 'middleman.' The court cited various factors from the guidelines that supported its determination of Barrick’s leadership role, including his decision-making authority, involvement in planning, and control over accomplices, underscoring that the scope of the criminal activities involved numerous participants beyond five individuals.
Barrick is upheld in his conviction and sentence, with affirmations for Upton and Castle Construction on all counts. However, their restitution sentences are vacated and remanded for recalculation, while all other sentences remain affirmed. The Miller Act mandates that contractors provide performance and payment bonds for public construction contracts exceeding $25,000, detailing specific bond amounts based on contract values. Amendments in 1994 removed the requirement for contracts to exceed $25,000. An Affidavit of Individual Surety (AIS) must reflect the surety's financial standing, signed by a bank officer or court official to certify its accuracy. At contract award times, federal officers were not required to verify sureties' financial solvency. Additional notes include a guilty plea by Susan K. Frericks for improper notarization and a not guilty verdict for Roland Aaron Maness. Barrick's claims regarding jury instructions on "willfully" for aiding and abetting counts and the ambiguity of "payment" were found without merit, as the court's instructions were correct and no supportive authority was cited by Barrick.
Claims made without citations or references to the record are deemed abandoned on appeal, as established in United States v. Ballard. The court acknowledges the relevance of the Eleventh Circuit's decision in White but emphasizes the need to address whether materiality is an element of 18 U.S.C. § 287, particularly after the Supreme Court's ruling in Gaudin. The Supreme Court has also granted certiorari in United States v. Wells concerning the same issue under 18 U.S.C. § 1014, which involves false statements to federally insured institutions. The lack of explicit inclusion of materiality in both statutes suggests that the Wells decision may impact this case and similar cases regarding Gaudin's interpretation of materiality. However, the court decides against delaying this case pending the Wells decision. Additionally, Barrick has waived the issue of the district court's restitution order by not raising it on appeal. The excerpt cites Rule 11(e)(6)(D), which renders certain plea discussions inadmissible, and U.S.S.G. § 1B1.8, which protects self-incriminating information provided under cooperation agreements from being used against defendants in determining guideline ranges. Lastly, the court finds no error in the district court's application of U.S.S.G. § 3C1.1 regarding the obstruction enhancement, rendering further arguments by Barrick unnecessary.
