United States v. Peter N. Fernandez, Iii, Peter N. Fernandez, Jr., and Kenneth K. Getty

Citations: 282 F.3d 500; 2002 U.S. App. LEXIS 3591; 2002 WL 356748Docket: 99-4203, 99-4205, 99-4210

Court: Court of Appeals for the Seventh Circuit; March 7, 2002; Federal Appellate Court

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Defendants Peter N. Fernandez, Jr., Peter N. Fernandez, III, 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 from unlawful activities, and four counts of money laundering, all related to a scheme to defraud the Village of Lyons by rigging bids for municipal projects and laundering the proceeds. The court ruled on their appeal, where they contended that their actions did not fall under the scope of the mail fraud statute, that the concept of 'materiality' was not properly included in the jury instructions, that the money laundering counts were not substantiated independently of the mail fraud counts, that the jury instructions on money laundering were inconsistent, and that the government failed to prove a necessary element of the theft of funds charges. The court found these arguments unpersuasive and upheld the convictions. Getty, who served as a trustee and later as acting mayor, was noted for centralizing power and undertaking municipal projects to bolster his re-election prospects after the resignation of the previous mayor. The defendants received various sentences, with Getty receiving 66 months, Fernandez, Jr. 60 months, and Fernandez, III 48 months in prison.

Getty consulted with Peter Fernandez, Jr., the sole owner of Norman-Marc Associates Design Build Firm, for two building projects. The Board appointed Norman-Marc as the first 'Village Architect,' despite it not being a licensed architectural firm and Fernandez, Jr. lacking a license. Compensation for Norman-Marc was set at $100 per hour for consulting, plus a 9% commission on project costs. In June 1996, the Board authorized the solicitation of bids for renovating the Village Hall and constructing a new Public Works garage, estimated to cost about $1 million. Illinois law mandated a formal bidding process for projects exceeding $10,000, requiring the selection of the lowest qualified bidder. Lyons implemented a pre-qualification process to assess bidders' qualifications through submitted questionnaires.

Getty directed that a one-day notice for pre-qualification applications be placed in the Des Plaines Valley News, which had a smaller circulation than the usual Suburban Life Citizen. Despite this notice, Kerrigan, the Building Department Commissioner, testified that he did not receive any requests for pre-qualification questionnaires. Evidence at trial indicated that Getty, Fernandez, Jr., and Fernandez, III facilitated the submission of questionnaires by four companies. Notably, it was established that Randolph I. Anderson Development Company, Inc. was represented by a full-time attorney, Randolph I. Anderson, who chose not to submit a bid despite initially agreeing to provide a pre-qualification questionnaire.

Thompson Enterprises was not a legitimate company, as Jeffery Thompson, a friend of Fernandez, III, testified that he had no affiliation with it despite being listed on a pre-qualification questionnaire. In a meeting with the Fernandezes, Thompson was provided a falsified questionnaire with incorrect client and project information, which was predated. He was instructed to submit bids for projects while being advised not to communicate with anyone from the Board and to misrepresent his answering machine message to indicate he was associated with Thompson Enterprises.

Jack Andersen, a friend of Getty, testified that Getty urged Riverside to bid on projects, specifically instructing them to "bid high." Andersen noted that Getty prepared the pre-qualification questionnaire and bid forms for Riverside, which Andersen signed without completing. He received these forms from Getty the following day, dated July 29, 1996.

Fernandez, III also submitted bids on behalf of Midwest, listing three clients as references who later denied any association with the company. Although working for Industrial Construction, Inc., Fernandez, III misrepresented his bids as being for Midwest. The contracts were awarded to Midwest based on the lowest bid of $963,200, which Midwest later subcontracted to Industrial for $784,200, yielding a profit of $179,000. Notably, Fernandez, III filed Articles of Incorporation for Midwest only after the contract was awarded and did not secure necessary insurance until afterward, with assistance from Getty.

Midwest opened a bank account shortly after receiving contracts, with signatories Fernandez, III and Fernandez, Jr. Between March and April 1997, they deposited $722,960 in checks and cash from Lyons. Evidence showed that Midwest issued seven checks to 'Cash' totaling $32,200, wrote $51,400 in checks to family members, and paid $17,521.79 for personal expenses. Concurrently, Norman-Marc received approximately $148,000 from Lyons, with $136,097.50 linked to projects awarded to Midwest. Norman-Marc also wrote $126,450 in checks to 'Cash' and family members during this period. 

Fernandez, Jr. requested and received approval for change orders that increased Lyons' payments to Midwest by $320,219, resulting in a net profit of $93,271 before a 'stop-work' order was issued in April 1997. On September 8, 1998, Getty, Fernandez, Jr., and Fernandez, III were charged in a twenty-one count Superseding Indictment for mail fraud relating to a bid-rigging scheme aimed at defrauding Lyons. The indictment included counts for obtaining over $5,000 by fraud, engaging in monetary transactions involving criminally derived property, and conducting financial transactions to promote mail fraud. The jury found them guilty on all counts on October 27, 1998.

In their defense, the defendants argued that their actions did not constitute a legally recognizable scheme to defraud, that the mailings used for their convictions were not in furtherance of any scheme, and that the indictment and jury instructions failed to include 'materiality' as a necessary element of mail fraud, claiming this undermined the prosecution's case and their guilt beyond a reasonable doubt.

Defendants argued on appeal that the government needed to demonstrate 'contemplated harm to the victim' to establish a 'scheme to defraud,' but this claim lacks merit. The court clarified that to secure a conviction for mail fraud under 18 U.S.C. § 1341, the government must prove three elements: (1) participation in a scheme to defraud, (2) intent to defraud, and (3) use of the mails in furtherance of the scheme. The court emphasized that it has never required proof of contemplated harm to a victim and refuted defendants' reliance on United States v. D'Amato and United States v. Jain, asserting that fraudulent intent can be inferred from the scheme itself if the necessary result is harm to others. In this case, the defendants' actions deprived Lyons of competitive pricing for construction work and honest services.

Regarding the use of mail, defendants contended that their scheme ended on August 20, 1996, when contracts were awarded, arguing that subsequent mailings were not in furtherance of the scheme. The court dismissed this argument, stating that the scheme persisted until April 1997, when a stop-work order was issued, as payments continued to flow to Midwest and the defendants concealed their bid-rigging activities until that point. Thus, the court upheld the sufficiency of the evidence against the defendants.

The court established that mailings related to a scheme to defraud must be essential to its success. In this case, the mailings outlined in Counts 2 through 8 were integral to the defendants' fraudulent scheme, as they misrepresented the legitimacy of the bids and furthered the deception surrounding Midwest's operations. Specifically, letters notifying Thompson Enterprises and Midwest about bid outcomes were critical, creating a false appearance that facilitated the collection of payments from Lyons.

Regarding materiality, the court referenced Neder v. United States, affirming that materiality is a necessary element of mail fraud. The indictment alleged that the defendants rigged the bidding process and submitted false documentation, which inherently included materially deceptive actions influencing Lyons' decision-making. Although the defendants contested the indictment's sufficiency regarding materiality, the court found it adequately charged the offense. Additionally, the court noted that the jury instructions, while lacking explicit mention of 'materiality,' collectively covered the concept, and no objections had been raised prior to trial. Thus, any potential error in the jury instructions did not warrant reversal, as it did not meet the criteria for clear and uncontroverted error affecting substantial rights.

The judge instructed the jury that to determine if the government proved a scheme to defraud, it must establish that one or more of the false pretenses or acts outlined in the indictment were proven. A scheme to defraud is described as one intended to deceive or cheat another to gain money or property or to deprive someone of honest services. The term "intent to defraud" means the acts were knowingly done with the intent to deceive a victim for personal gain or to deprive another of honest services. Materiality is defined as having the capability to influence the decision-making body addressed. The judge's instructions sufficiently required the jury to find that the defendants made false representations that could deceive Lyons, thereby adequately addressing the concept of materiality.

Regarding the money laundering counts, the defendants challenged their convictions on the grounds of inconsistent jury instructions. The court reviewed this for plain error due to the lack of objection at trial. The jury was instructed that to convict, the government needed to prove several elements, including that the defendant knew the transaction involved criminally derived property valued over $10,000 and that it was derived from mail fraud. Defendants claimed that the instructions were contradictory because initially, the jury was told the property had to be derived from mail fraud, but later it was stated that the government only needed to prove the property was from any felony activity. The court clarified that the government did not need to prove the defendants knew the property was from mail fraud, only that they knew it was criminally derived, while also needing to show it was derived from mail fraud, indicating that the instructions were not inconsistent or contradictory.

Defendants seek to have their convictions under 18 U.S.C. § 666 vacated, arguing the government failed to demonstrate the required connection between federal interests and their fraudulent actions. The court disagrees, stating that the statute penalizes local government agents who fraudulently acquire property valued at $5,000 or more from local governments that receive over $10,000 in federal funds within a year. In a related case, United States v. Grossi, a defendant claimed that a local program's complete funding from local sources negated the federal funding requirement. The court countered that money is fungible, making the direct link unnecessary when federal funds were acknowledged to have been received. Consequently, the court affirms the convictions of Getty, Fernandez, Jr., and Fernandez, III. Additional details include various mail fraud counts against the defendants, including mailings related to corporate documents and transactions with subcontractors. The court also addressed the defendants' claims regarding jury instructions and the survivability of money laundering counts, ultimately finding no merit in their arguments.

Defendants' convictions under the mail fraud statute are affirmed, making further discussion of related arguments unnecessary. The excerpt outlines key provisions of several statutes. Under 18 U.S.C. § 1956(a)(1)(A)(i), it is illegal for anyone to knowingly conduct a financial transaction involving property that represents proceeds from unlawful activities, intending to promote such activities. Similarly, 18 U.S.C. § 1957(a) criminalizes engaging in monetary transactions exceeding $10,000 in value derived from criminal activity. 

Title 18 U.S.C. § 666 addresses fraudulent activities by agents of organizations, state, local, or tribal governments. It prohibits embezzlement, theft, or unauthorized conversion of property valued at $5,000 or more, and corrupt solicitation or acceptance of value intending to influence official actions related to substantial transactions. Violations can result in fines and imprisonment for up to 10 years. The statute applies only if the organization receives benefits exceeding $10,000 from federal programs within a year and does not cover regular salary or compensation.