UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT
____________
No. 94-20611
____________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
JEREMIAH JOSEPH LEAHY, IV,
DAVID D. NECE and
SHERRY LYNN FLANAGAN,
Defendants-Appellants.
__________________________________________________
Appeals from the United States District Court
for the Southern District of Texas
__________________________________________________
April 24, 1996
Before JOLLY, DAVIS, and EMILIO M. GARZA, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
Defendants Jeremiah Joseph Leahy IV, David D. Nece, and Sherry
Lynn Flanagan appeal their convictions for various crimes arising
out of their involvement in a scheme to defraud the Veterans
Administration. Leahy also appeals his sentence. Finding no
reversible error, we affirm.
I
Nece owned and operated Great Western Roofing ("GWR") in
Houston, Texas. Flanagan was Nece's chief assistant, and Leahy
served as bonding agent for GWR. GWR successfully bid on a $1.1
million roofing project for a Veterans Administration ("VA")
building in Hines, Illinois. The contract required GWR to obtain
surety bonding, and the VA to make progress payments to GWR on a
monthly basis, as the work proceeded.1 The contract gave GWR
ninety days to complete the roofing project.
Unbeknownst to the VA, GWR was having financial problems. GWR
had filed for Chapter 11 bankruptcy protection just days before
receiving the contract on the Hines project. In addition, GWR had
a poor record of paying two of its main suppliers, Alphaguard
("AGR") and Railton. Because of GWR's past record, AGR and Railton
would not do business with GWR unless GWR set up an escrow account.
The escrow agreement required MBank, the escrow agent, to transfer
all the funds coming from the VA according to set percentages:
forty-five percent to GWR, thirty-seven percent to AGR, and
eighteen percent to Railton.
About a month-and-a-half after receiving instructions to begin
the project, GWR presented invoices to the VA requesting a progress
payment in the amount of $541,385.92, approximately half the
contract price. According to testimony at trial, this first
request was fraudulent in several respects. The invoice for the
bond was false, and GWR had altered two invoices, one from AGR and
one from Railton, to make it appear that materials had been
The contract was a "fixed-price" contract, which put the risk of
overages on GWR))if the work cost more to complete than the estimated bid, GWR
would be required to finish the project, and the VA would not be required to pay
anything beyond the set contract price.
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purchased for the Hines project. In fact, GWR had not paid for
these materials, and they had not been delivered to the job site.
Unaware of the fraud, the VA wired $450,972.31 to GWR's escrow
account in Houston as payment on this first request. As per the
escrow agreement, MBank transferred $81,175.02 to Railton,
$166,859.75 to AGR, and $202,937.54 to GWR's business account.
About ten days after making the first progress payment, the VA
became concerned because GWR was falling behind on the project, and
the quality of the work being done appeared to be deficient. The
VA sent a "cure notice" to GWR addressing the fact that only eight
percent of the project had been completed, as opposed to the
estimated twenty-five percent that should have been done by that
date. Two weeks later, GWR sent the VA a request for the second
progress payment for $422,163.20. Comparing this set of invoices
with the invoices contained in the request for the first progress
payment, the Chief Engineer noticed some striking dissimilarities
in the pricing of materials. After phoning some of the suppliers
listed on the invoices, it became clear that the first set of
invoices had contained significant misrepresentations. The VA sent
a second "cure notice" to GWR noting that it was substantially
behind on the project. Shortly thereafter, GWR walked off the job.
A grand jury indicted Nece and Flanagan for conspiracy to
defraud the VA, in violation of 18 U.S.C. § 286 (count one); making
and presenting false claims to an agency of the United States, in
violation of 18 U.S.C. § 287 (counts two and three); wire fraud, in
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violation of 18 U.S.C. § 1343 (count four); and money laundering,
in violation of 18 U.S.C. § 1957 (count five). Leahy was indicted
on all counts except count three. The defendants were tried before
a jury, and found guilty of all charged offenses. All filed timely
notices of appeal.
II
The defendants argue that the district court erred when it
removed a juror, Charles Lawrence Orr, on the grounds that his
hearing impairment, discovered only after deliberations had begun,
made him incompetent to deliberate. The defendants contend that
this particular juror was a hold-out on at least some counts.
According to the defendants, the other jurors, desiring to end the
trial more quickly, conspired to have this juror removed from the
group.2
The Federal Rules of Criminal Procedure state that "if the
court finds it necessary to excuse a juror for just cause after the
jury has retired to consider its verdict, in the discretion of the
court a valid jury verdict may be returned by the remaining eleven
jurors." FED. R. CRIM. P. 23(b); United States v. O'Brien, 898 F.2d
983, 986 (5th Cir. 1990). The district court has the discretion to
As evidence of the jury's motive to end the trial quickly, Leahy
points to the fact that the foreperson, a doctor, had attempted to have himself
removed from the jury because of the death of a patient. According to Leahy, the
district court's decision to leave this juror on the panel prejudiced the
defendants by causing a "speedy verdict." Leahy, however, voiced no objection
at the time and his attorney actually argued that the juror should not be
excused. Further, there was no evidence that the foreperson, once the district
court denied his request to be excused, failed to effectively carry out his
duties or in any way obstructed the proper functioning of the jury. We can find
no evidence that the district court's decision to leave this person on the jury
prejudiced the defendants in any way.
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remove a juror "whenever the judge becomes convinced that the
juror's abilities to perform his duties becomes impaired." United
States v. Huntress, 956 F.2d 1309, 1312 (5th Cir. 1992), cert.
denied, ___ U.S. ___, 113 S. Ct. 2330, 124 L. Ed. 2d 243 (1993)
(internal quotation marks omitted). We will not disturb the
district court's decision to remove a juror unless it has
prejudiced the defendant, and we will only find prejudice if the
juror was discharged without factual support or for a legally
irrelevant reason. Id.
Despite the defendants' suppositions concerning the removal of
this juror, the record provides ample support for the district
court's decision to dismiss juror Orr. Not only did the juror
admit his partial deafness, but all eleven other jurors testified
that Juror Orr's hearing impairment precluded meaningful
deliberation.3 Juror Orr apparently refused to discuss the case in
deliberations. Testimony indicated that juror Orr had not heard
significant amounts of testimony, and could not participate in
deliberations because he could not hear, and thus could not follow
the conversations in the jury room.4 The district court's decision
Two jurors testified that juror Orr's hearing problem may not have
been the sole cause of juror Orr's inability to deliberate, but that perhaps his
problem was caused by a combination of his hearing problem coupled with either
a desire not to pay attention or an inability to understand the proceedings.
Both jurors, however, admitted that hearing was at least part of the problem in
the jury room, and all jurors agreed that juror Orr was incompetent to
deliberate.
The defendants, citing the foreperson's letter to the court, see
infra note 6, argue that juror Orr had made up his mind regarding the guilt or
innocence of the defendants, and therefore his capacity for deliberation was
self-evident. According to the defendants, the attempt to remove juror Orr was
only a means to circumvent a holdout juror. Evidence that a juror was holding
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to remove juror Orr was further supported by juror Orr's confusion
and need for clarification when the judge instructed the jury,
except juror Orr, to return to the jury room.5 We therefore
conclude that juror Orr was not discharged for irrelevant or
factually insufficient reasons.6 See United States v. Speer, 30
out, however, does not alter the trial court's discretion in removing the juror.
Huntress, 956 F.2d at 1313. Additionally, the evidence advanced to support juror
Orr's status as a holdout is not inconsistent with evidence of his hearing
impairment))his refusal to deliberate could have been, as the district court
found, the result of his inability to hear, and not his convictions about the
case.
The defendants make much of the fact that the district court failed
to discover juror Orr's hearing impairment earlier, either at voir dire or during
questioning concerning juror Orr's improper conversations with a police officer
and a witness during the trial. While the district court's failure to discover
juror Orr's hearing problem earlier provides some support for the position that
juror Orr was not hearing impaired, so long as there is sufficient legally
relevant factual support for the district court's decision to dismiss, the fact
that some evidence points the other way does not merit reversal. As the district
court noted, "there is some testimony in the record that [juror Orr] may lip
read." This would also explain why juror Orr's partial deafness was not
discovered prior to deliberations.
The district court is in the best position to review the juror's
competence, "and the scope of the investigation is committed to the district
court's sound discretion." United States v. Coleman, 997 F.2d 1101, 1106 (5th
Cir. 1993), cert. denied, ___ U.S. ___, 114 S. Ct. 893, 127 L. Ed. 2d 86 (1994).
Here the district court conducted a thorough investigation and, based on the
testimony of the jurors and the court's own observations, concluded that juror
Orr was incompetent to deliberate. The fact that juror Orr's hearing impairment
was not readily apparent is insufficient to call into doubt the district court's
decision, based on its observation and evaluation of the jurors in the case, that
juror Orr had a hearing problem which created an inability to effectively
deliberate.
The defendants also contend that juror misconduct occurred when the
foreman of the jury submitted a note to the district court, typed on a computer
and printed on a dot-matrix printer, detailing the jury's consensus belief that
juror Orr was incompetent to deliberate. According to the defendants, this
constituted juror misconduct because the note was not written in the presence of
the jury, and the foreperson's use of his personal computer to compose the note
which was then brought in to the jury constituted outside influence. The
government is correct that the defendants have waived this issue by not raising
it below. As we have previously noted, "a defendant cannot learn of juror
misconduct during the trial, gamble on a favorable verdict by remaining silent,
and then complain in a post-verdict motion that the verdict was prejudicially
influenced by that misconduct." United States v. Wylie, 919 F.2d 969, 978 (5th
Cir. 1990) (citation and internal quotation marks omitted). Even assuming,
arguendo, that the defendants had objected below, the defendants have made no
"colorable showing" that this note contained any "extrinsic factual matter" which
"actually tainted the jury's deliberations." United States v. Jobe, No. 94-
-6-
F.3d 605, 611 (5th Cir.) (upholding district court's decision to
dismiss juror based on "her inability to understand or communicate
effectively in English"), cert. denied, ___ U.S. ___, 115 S. Ct.
603, 130 L. Ed. 2d 514 (1994); United States v. Quiroz-Cortez, 960
F.2d 418, 419 (5th Cir. 1992) (noting that a juror was dismissed
after deliberations had begun because the juror "was hard of
hearing and may not have heard all of the trial testimony");
Huntress, 956 F.2d at 1313 (upholding district court's decision to
dismiss mentally ill juror even though juror's mental illness did
not appear during voir dire or during the trial); accord United
States v. Acker, 52 F.3d 509, 515 (4th Cir. 1995) (upholding
district court's decision to dismiss juror due to an ankle injury
because "[t]he court did not know when this juror was likely to
return," and the "remaining jurors were present, ready to resume
deliberations, and the alternate jurors had been excused").
Accordingly, we find that juror Orr's dismissal in no way
prejudiced the defendants.
III
The defendants argue that the district court's instructions to
the jury constructively amended the indictment. They contend that
the instructions regarding the conspiracy allowed the jury to
50646, 1996 WL 101744 at *8 (5th Cir. Mar. 8, 1996). The district court
established that all jurors agreed with the substance of the letter, and there
was nothing factual in the letter which could be characterized as an "outside
influence." See United States v. Webster, 750 F.2d 307, 338 (5th Cir. 1984)
(distinguishing between "outside influence, such as publicity or direct appeals
from third parties," and situations where "jurors themselves have violated an
instruction of the court"), cert. denied, 471 U.S. 1106, 105 S. Ct. 2340, 85 L.
Ed. 2d 855 (1985).
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convict them of conspiring with someone other than their co-
defendants.7 Additionally, the defendants argue that this
instruction allowed the jury to convict them for prior frauds
against the "United States" rather than for defrauding the Veterans
Administration as charged.
A constructive amendment occurs, "when the jury is permitted
to convict the defendant upon a factual basis that effectively
modifies an essential element of the offense charged." United
States v. Holley, 23 F.3d 902, 912 (5th Cir.), cert. denied, ___
The defendants attribute error to the district court's use of the
Fifth Circuit's pattern jury instruction on conspiracy which was read to the jury
as follows:
For you to find the defendant guilty of this crime, you must
be convinced that the government has proved each of the following
beyond a reasonable doubt.
First: That two or more persons made an agreement to
defraud the United States;
Second: That the defendant knew the unlawful purpose of
the agreement and joined in it willfully, that is, with
the intent to further the unlawful purpose;
Third: That the unlawful purpose of the agreement was
to defraud the government through obtaining payment of
a false claim.
One may become a member of a conspiracy without knowing all
the details of the unlawful scheme or the identities of all the
other alleged conspirators. If a defendant understands the unlawful
nature of a plan or scheme and knowingly and intentionally joins in
that plan or scheme on one occasion, that is sufficient to convict
him or her for conspiracy even though the defendant had not
participated before and even though the defendant played only a
minor part.
. . . . Similarly, the government need not prove that all of
the details of the scheme alleged in the indictment were actually
agreed upon or carried out. Nor must it prove that all of the
persons alleged to have been members of the conspiracy were such, or
that the alleged conspirators actually succeeded in accomplishing
their unlawful objectives.
See Pattern Jury Instructions, Criminal Cases, U.S. Fifth Circuit District Judges
Ass'n, § 2.21 (1990).
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U.S. ___, 115 S. Ct. 635, 130 L. Ed. 2d 542 (1994). If an
instruction constructively amends the indictment, we must reverse
the conviction. United States v. Restivo, 8 F.3d 274, 279 (5th
Cir. 1993), cert. denied, ___ U.S. ___, 115 S. Ct. 54, 130 L. Ed.
2d 13 (1994); United States v. Ylda, 653 F.2d 912, 914 (5th Cir.
Unit A 1981).8
Reviewing the charge as a whole, we find that the district
court's instructions did not constructively amend the indictment.
As to the conspiracy instruction, the defendants argue that the
language requiring the jury to find that "two or more persons made
an agreement to defraud the government" allowed the jury to convict
the defendants for the conduct of "persons" not charged in the
indictment. This argument disregards the balance of the
instructions, which focused the jury's attention squarely on the
conduct of the three charged defendants. Indeed, the language the
defendants point to is the only such "general" reference in the
instruction. Further, the jury was instructed that the defendants
were "not on trial for any act, conduct, or offense not alleged in
the indictment" and that the jury should not be concerned with "the
guilt of any other person or persons not on trial as a defendant in
this case." Finally, the jury received a copy of the indictment
The defendants contend that we should apply the standard for
constructive amendment found in United States v. Keller, 916 F.2d 628 (11th Cir.
1990), cert. denied, 499 U.S. 978, 111 S. Ct. 1628, 113 L. Ed. 2d 724 (1991).
We decline to do so. Keller holds that "an amendment occurs when the essential
elements of the offense contained in the indictment are altered to broaden the
possible bases for conviction beyond what is contained in the indictment." Id.
at 634. As the Keller court acknowledges, this standard is not applied in the
Fifth Circuit. Id. at 633.
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for use during deliberations. Based on this record, we hold that
the instructions did not constructively amend the indictment on the
conspiracy charge. See United States v. Solomon, 29 F.3d 961, 965
(5th Cir. 1994) (holding that district court's instruction to jury
to convict only for the specific offenses alleged in the indictment
coupled with providing the jury with copies of the indictment
"resulted in no uncertainty about whether the jury convicted
Solomon of an offense not charged in the indictment"), cert.
denied, ___ U.S. ___, 115 S. Ct. 1115, 130 L. Ed. 2d 1079 (1995);
Holley, 23 F.3d at 912 (finding no constructive amendment of the
indictment because "the district court instructed the jury that it
was to consider only the crime that was charged in the indictment"
and "the indictment was read to the jury at the beginning of the
trial, and the jury was given a copy of the indictment for use
during the deliberations").
For similar reasons, we find that the district court did not
constructively amend the indictment through its single, isolated
use of the term "United States" in the jury instruction.9 Reading
the instruction as a whole, the district court properly focused the
jury on the defendants' conduct vis-a-vis the VA, the fraud charged
in the indictment. Although the district court admitted evidence
under FED. R. EVID. 404(b), concerning other conduct in which the
The defendants find fault with the district court's statement that
the government had to prove, among other things, that "two or more persons made
an agreement to defraud the United States." The use of the term "United States,"
the defendants argue, allowed the jury to convict the defendants on evidence that
the defendants defrauded agencies of the United States other than the V.A., the
only fraud charged in the indictment.
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defendants may have defrauded other agencies of the United States
government, see infra Part VIII, the district court took great
pains to limit the jury's consideration of that evidence. As we
have previously stated, "We see no reason to assume that the jurors
disregarded the court's charge and based their verdict on conduct
that was not charged in the indictment." Holley, 23 F.3d at 912.
Accordingly, we hold that the district court did not constructively
amend the indictment in its instructions to the jury.10
IV
The defendants next argue that the government used perjured
testimony during the trial. They argue that the government
knowingly allowed Ray Harvey, a government witness and former
associate of GWR, to lie on the witness stand to obtain the
defendants' convictions. In order to establish that the government
improperly used false testimony, the defendants must show (1) that
the witness's testimony was actually false, (2) that the testimony
was material, and (3) that the prosecution had knowledge that the
witness's testimony was false. East v. Scott, 55 F.3d 996, 1005
(5th Cir. 1995). We will reverse a conviction obtained through the
use of perjured testimony. United States v. Blackburn, 9 F.3d 353,
Leahy argues further that the district court erred (1) in its
instruction to the jury concerning the dismissal of juror Orr, and (2) in
directing the jury to re-read the instruction given, in response to the jury's
request to clarify the meaning of "intent" in the conspiracy charge. Leahy,
however, failed to object to either instruction. The district court's
instructions were both clear and accurate statements of the law as it pertained
to the case, and we see no possibility that the jury misinterpreted them. See
United States v. Lara-Velasquez, 919 F.2d 946, 950 (5th Cir. 1990) (setting forth
standard for reviewing jury instructions). Leahy has failed to show that any
error occurred, plain or otherwise.
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357 (5th Cir. 1993), cert. denied, ___ U.S. ___, 115 S. Ct. 102,
130 L. Ed. 2d 51 (1994).
Ray Harvey testified, in pertinent part, that submitting
invoices as paid when they had not been paid is "not an acceptable
practice." When asked, "Do you do it with your company?" Ray
Harvey replied, "No I do not." According to the defendants this
was a "lie" when compared with Harvey's statements to government
investigators that he had submitted false invoices on behalf of GWR
on several occasions. This argument is wholly without merit. Just
prior to the exchange at issue, Harvey testified that he now has
his own roofing company, and the reference to "your company" is
thus a reference to Harvey's current interest, not GWR. When
Harvey stated that he does not submit false invoices, he was
testifying to the fact that he does not now submit false invoices,
not that he never submitted false invoices. Harvey's reply makes
no reference whatsoever to past actions. Accordingly, this
statement cannot form the basis for a claim that the government
knowingly used perjured testimony because Harvey's statement was
not actually false. Blackburn, 9 F.3d at 357.
V
Leahy argues that the government failed to establish venue in
the Southern District of Texas for the false claims offense charged
in count two of the indictment. According to Leahy, venue was only
proper in the Northern District of Illinois, where the claim was
presented to the VA. The government carries the burden of
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establishing venue, and must do so by a preponderance of the
evidence. United States v. Fells, No. 95-10296, 1996 WL 99754,
(5th Cir., March 7, 1996); United States v. White, 611 F.2d 531,
536 (5th Cir.), cert. denied, 446 U.S. 992, 100 S. Ct. 2978, 64 L.
Ed. 2d 849 (1980).
In general, venue under the "various false claim and false
statement statutes" is proper "either where the false statement is
prepared and mailed or where it is received." United States v.
Chenault, 844 F.2d 1124, 1131 (5th Cir. 1988). We see no reason to
deviate from this rule in this case. By criminalizing the making
or presenting of false claims, the language of § 287 is in accord
with the general venue rule for false claim crimes. See United
States v. Blecker, 657 F.2d 629, 632 (4th Cir. 1981) (interpreting
§ 287 to mean that "venue lies to prosecute a violator of this
statute in either the district in which the claims were made or
prepared . . . or the one in which they were presented"), cert.
denied, 454 U.S. 1150, 102 S. Ct. 1016, 71 L. Ed. 2d 304 (1982).
The government established by a preponderance of the evidence that
GWR prepared the false invoices in Houston, and GWR received the
progress payment in Houston. Because Houston lies within the
Southern District of Texas, venue was proper within that district.
See Chenault, 844 F.2d at 1132 (finding preponderance of evidence
to show venue because Chenault's business was located within
district and progress payments were sent to that location).
VI
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Leahy next argues that the government failed to present
sufficient evidence to support his conviction for conspiracy,
making false claims, wire fraud, and money laundering. When a
defendant challenges his conviction for sufficiency of the
evidence, we must determine "whether, after viewing the evidence
and all inferences that may reasonably be drawn from it in the
light most favorable to the prosecution, any reasonably-minded jury
could have found that the defendant was guilty beyond a reasonable
doubt." United States v. Triplett, 922 F.2d 1174, 1177 (5th Cir.),
cert. denied, 500 U.S. 945, 111 S. Ct. 2245, 114 L. Ed. 2d 486
(1991). The evidence need not rule out every reasonable hypothesis
of innocence or be entirely inconsistent with every conclusion
except guilt. Id. So long as a rational trier of fact could have
found the defendant guilty beyond a reasonable doubt, the
conviction will stand. United States v. Smith, 930 F.2d 1081, 1085
(5th Cir. 1991).
A
Leahy argues that the government presented insufficient
evidence to support his conviction under count one, conspiracy to
submit false claims in violation of 18 U.S.C. § 286. To obtain a
conviction for conspiracy to defraud the United States under § 286,
the government must prove beyond a reasonable doubt that the
defendant entered into a conspiracy to obtain payment or allowance
of a claim against a department or agency of the United States;
that the claim was false, fictitious, or fraudulent; and that the
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defendant knew at the time that the claim was false, fictitious, or
fraudulent.11 See United States v. Lanier, 920 F.2d 887, 892 (11th
Cir.) (discussing the elements of § 286), cert. denied, 502 U.S.
872, 112 S. Ct. 208, 116 L. Ed. 2d 166 (1991). Once the government
has established an illegal conspiracy, "it need only introduce
`slight evidence' to connect an individual defendant to the common
scheme." United States v. Duncan, 919 F.2d 981, 991 (5th Cir.
1990), cert. denied, 500 U.S. 926, 111 S. Ct. 2036, 114 L. Ed. 2d
121 (1991).
Reviewing the record in the light most favorable to the jury
verdict, we find ample evidence to support the existence of, and
Leahy's participation in, a conspiracy to defraud the VA.
Testimony at trial indicated that Leahy arranged for false sureties
to help GWR obtain the VA roofing contract. The evidence showed
that Leahy had knowledge that the sureties submitted on the VA job
were false: one surety was fictitious, and the other refused to
honor his agreement with GWR because it was obtained through "fraud
Leahy argues that his convictions under counts one and two, for
violations of 18 U.S.C. §§ 286 and 287 respectively, were in error because in
fact no "false claim" was submitted to the VA. According to Leahy, because the
contract was a fixed price agreement, the amounts and accuracy of invoices sent
to the VA are not relevant, and cannot support convictions for submitting false
claims. In essence, Leahy argues that since the VA must pay the contractor $1.1
million, regardless of what the invoices total, no false claim was actually made.
We disagree with Leahy's interpretation of §§ 286 and 287. These statutes
prohibit the making of "false, fictitious, or fraudulent claim[s]" for the
purpose of defrauding the United States. 18 U.S.C. §§ 286, 287. Testimony at
trial indicated that the invoices sent to the VA were "false" in many
respects))items were stamped "paid" when they had not been paid for, prices had
been altered and inflated, and materials were represented as delivered to the job
site when in fact they had not been delivered. These claims certainly fall
within the statutes' prohibition. It is irrelevant that the total amount that
the VA could have been defrauded was capped at $1.1 million by the contract.
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and misrepresentation." Leahy admitted that he "possibly" prepared
the false $55,000 invoice which GWR sent to the VA, and testimony
pointed to Leahy as the party who directed a subordinate to sign
the invoice "paid" when it had not been paid. Further, it is
undisputed that GWR subsequently paid Leahy $14,300 for his work on
obtaining sureties for the Hines project. From this evidence the
jury could have inferred that this payment constituted Leahy's
agreed to "cut" of the fraudulent proceeds. Leahy also worked out
of GWR's offices, and represented himself to the VA as the
"controller" of GWR, providing further evidence of his connection
with GWR's scheme to defraud.12 Judging from the record, we
conclude that a rational trier of fact could have found that Leahy
knowingly participated in the conspiracy to defraud the VA.13
B
Leahy claims that the government presented insufficient
evidence to support his conviction for wire fraud, in violation of
18 U.S.C. § 1343. In order to establish wire fraud, the government
must prove that a defendant knowingly participated in a scheme to
defraud, and that interstate wire communications were used to
further the scheme. United States v. St. Gelais, 952 F.2d 90, 95
Although Leahy's testimony contradicted some of the other evidence
presented to the jury, that fact alone will not call the verdict into question.
We review the totality of the evidence presented, and recognize that the jury is
free to discount or credit the testimony as it sees fit.
Leahy also argues that the government presented insufficient evidence
to support his conviction for count two))aiding and abetting in "making or
presenting a false claim" to the United States under 18 U.S.C. § 287. Reviewing
the record as a whole, and in light of the facts articulated above, we find
sufficient evidence to support Leahy's conviction on this count.
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(5th Cir.), cert. denied, 506 U.S. 965, 113 S. Ct. 439, 121 L. Ed.
2d 358 (1992). In addition, beyond intent to defraud, the
government must show that the defendants intended that some harm
result from the fraud. Id. Intent to defraud for the purpose of
personal gain will satisfy the "harm" requirement of the wire fraud
statute. Id.
The evidence established that Leahy, Flanagan, and Nece
devised a scheme to defraud the VA. Their intent was to obtain as
much of the contract price as possible for their own personal gain.
To achieve the goals of the scheme, the defendants submitted
fraudulent invoices to the VA and, in accordance with GWR's wishes,
the VA wired $450,972.31 to the MBank account in Houston. Of these
funds, GWR ultimately received over $200,000, and Leahy personally
received $14,300. As in any conspiracy, it is sufficient that
Leahy knowingly joined the conspiracy in which wire fraud was a
foreseeable act in furtherance of the conspiracy. See United
States v. Basey, 816 F.2d 980, 997 (5th Cir. 1987) (holding that
once a defendant's knowing participation in a conspiracy has been
established, "the defendant is deemed guilty of substantive acts
committed in furtherance of the conspiracy by any of his criminal
partners"). Based upon the record in this case, we conclude that
a rational jury could have found that Leahy, either personally or
through the foreseeable acts of his co-conspirators, engaged in
wire fraud.
C
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Leahy argues that the government presented insufficient
evidence to support his conviction for money laundering, under 18
U.S.C. § 1957. According to Leahy, the transfer of funds from the
escrow account into GWR's primary business account))the transaction
for which the defendants were convicted under § 1957))did not
involve "criminally derived property." To obtain a conviction
under § 1957, the government must prove that the defendant
knowingly engaged, or attempted to engage, in a monetary
transaction involving criminally derived property, in excess of
$10,000, derived from specified criminal activity. 18 U.S.C.
§ 1957(a). The statute defines "monetary transaction" as "the
deposit, withdrawal, transfer, or exchange, in or affecting
interstate or foreign commerce, of funds or a monetary instrument
. . . by, through, or to a financial institution . . . including
any transaction that would be a financial transaction under section
1956(c)(4)(B)" 18 U.S.C. § 1957(f)(1). The statute requires that
the monetary transaction involve money "derived from" or "obtained
from" a criminal offense. See 18 U.S.C. § 1957(f)(2) (defining
"criminally derived property" as "any property constituting, or
derived from, proceeds obtained from a criminal offense"). Thus,
in order for a defendant to violate this statute, the funds in
question must already be "proceeds obtained from a criminal
offense" when the defendant transfers them. See United States v.
Johnson, 971 F.2d 562, 568-69 (10th Cir. 1992) (examining plain
language and legislative history of § 1957 and holding that
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proceeds must be criminally obtained prior to the transaction that
forms the basis for the § 1957 money laundering conviction); United
States v. Piervinanzi, 23 F.3d 670, 677 (2d Cir.) (reversing § 1957
conviction on the grounds that the funds were not criminally
obtained because they "never came into the possession or under the
control of the conspirators"), cert. denied, ___ U.S. ___, 115 S.
Ct. 267, 130 L. Ed. 2d 185 (1994); Cf. United States v. Gaytan, 74
F.3d 545, 555-56 (5th Cir. 1996) (applying 18 U.S.C. § 1956, and
holding that "a transaction to pay for illegal drugs is not money
laundering, because the funds involved are not proceeds of an
unlawful activity when the transaction occurs, but become so only
after the transaction is complete").
Relying on Johnson and Piervinanzi, Leahy argues that the
money obtained from the VA was not "proceeds obtained from a
criminal offense" until the escrow agent, MBank, transferred the
money into GWR's primary business account. GWR had set up an
escrow account to receive the proceeds of the VA contract, and the
escrow agreement gave MBank instructions on how to distribute the
funds))forty-five percent to GWR's business account, thirty-seven
percent to AGR, and eighteen percent to Railton. In light of this
arrangement, Leahy contends that GWR did not possess the funds sent
from the VA until they were deposited in GWR's business account.
Thus, Leahy argues, the wire fraud was not complete until the funds
arrived in GWR's business account, and therefore MBank's transfer
of funds to GWR's business account did not involve criminally
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derived proceeds, in violation of § 1957. We disagree. Fraudulent
schemes produce proceeds, "at the latest when the scheme succeeds
in disgorging the funds from the victim and placing them into the
control of the perpetrators." United States v. Allen, No. 94-
20403, 1996 WL 82627 at *12 (5th Cir., Feb. 27, 1996) (emphasis
added); see also Piervinanzi, 23 F.3d at 677 (stating that either
possession of or "control" over funds would cause a subsequent
transfer to violate § 1957). Control is established once money is
placed into a perpetrator's account. Allen, 1996 WL 82627 at *11.
Thus, we must determine, for the purposes of § 1957, whether the
escrow account was functionally GWR's account under the facts of
this case.
GWR created the escrow account into which the VA was to send
all payments on the contract. Pursuant to the contract, GWR had a
right to receive the entire payment sent from the VA.14 GWR
assigned its rights to receive these payments to the escrow
account, and, through the escrow agreement, directed MBank's
distribution of the funds. GWR's assignment to the escrow account
and directive to the escrow agent caused the funds to be sent to
the escrow account, and then to be distributed, as per GWR's
directive, forty-five percent to GWR, thirty-seven percent to AGR,
and eighteen percent to Railton. MBank had no discretion as to how
these funds were distributed. Judging from this record, we find
GWR set up the escrow arrangement to facilitate deals with AGR and
Railton, suppliers from which GWR obtained invoices used to further its scheme
to defraud.
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that GWR had sufficient control over the escrow account so that the
wire fraud was complete when the money was deposited into the
escrow account. Thus, the subsequent transfers, directed by GWR
through the escrow agreement, involved illegally obtained proceeds.
GWR set up this circuitous set of transfers, and for purposes of
§ 1957, we find it irrelevant that GWR chose to have a third party,
devoid of discretion over the funds, receive and distribute the
proceeds of GWR's fraudulent venture.15 Accordingly, we find
sufficient evidence to support Leahy's conviction for money
laundering under § 1957. The transfer from the escrow account to
GWR's business account involved "proceeds obtained from a criminal
offense," and therefore provided a legally sufficient predicate for
the § 1957 conviction. See United States v. Savage, 67 F.3d 1435,
1443 (9th Cir. 1995) (upholding § 1957 conviction even though funds
had not gone to defendant's account because the "funds were clearly
at Savage's disposal at the time of deposit))the record indicates
that the parties named on the accounts transferred the money at his
request"), cert. denied, ___ U.S. ___, 116 S. Ct. 964, ___ L. Ed.
2d ___ (1996); United States v. Smith, 44 F.3d 1259, 1266 (4th Cir.
1995) (upholding § 1957 conviction of conspirator because, although
We note that, on these facts, GWR could be held to have been in
constructive possession of the funds in the escrow account. See United States
v. DeLeon, 641 F.2d 330, 335 (5th Cir. Unit A Apr. 1981) (noting that
"[c]onstructive possession need not be exclusive," and holding that
"`[c]onstructive possession is the knowing exercise of, or the knowing power or
right to exercise, dominion and control over the proscribed substance'"); United
States v. Poole, 929 F.2d 1476, 1483 (10th Cir. 1991) (explaining that
constructive possession need not be exclusive, but rather, "requires that the
individual knowingly hold the power and ability to exercise dominion and control
over the property").
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he did not personally transfer the funds, his participation meant
that "he was . . . in constructive possession and control of the
fraudulently procured funds at the time those funds were
transferred in violation of § 1957"), cert. denied, ___ U.S. ___,
115 S. Ct. 1970, 131 L. Ed. 2d 859 (1995).16
VII
Leahy argues that the district court erred in admitting
evidence of other fraudulent acts under FED. R. EVID. 404(b). The
evidence complained of was (1) that Nece had submitted false
invoices on a roofing project at the Jacksonville Naval Air
Station; and (2) that GWR submitted false invoices on a roofing
project for Tinker Air Force Base. Extrinsic offense evidence is
properly admitted under Rule 404(b) only if: (1) it is relevant to
an issue other than the defendant's character, and (2) its
probative value is not substantially outweighed by its undue
prejudice. FED. R. EVID. 403, 404(b); United States v. Ponce, 8
F.3d 989, 993 (5th Cir. 1993); United States v. Beechum, 582 F.2d
898, 911 (5th Cir. 1978) (en banc), cert. denied, 440 U.S. 920, 99
S. Ct. 1244, 59 L. Ed. 2d 472 (1979). Evidence is relevant "if it
makes the existence of any fact at issue more or less probable than
it would be without the evidence." United States v. Williams, 900
F.2d 823, 826 (5th Cir. 1990). We review a district court's
decision to admit extrinsic evidence for abuse of discretion.
Leahy's remaining arguments relating to the sufficiency of the
evidence are wholly without merit.
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United States v. Sanchez, 988 F.2d 1384, 1393 (5th Cir.), cert.
denied, ___ U.S. ___, 114 S. Ct. 217, 126 L. Ed. 2d 173 (1993).
Having reviewed the record, we cannot say the district court
abused its discretion in admitting the extrinsic evidence. The
evidence was relevant to an issue other than character. The
evidence tended to show that the defendants had the requisite
intent to defraud the VA, and were not innocently mistaken as to
the effect of their conduct. See id. (holding that "because the
defendant had unlawful intent in the extrinsic offense, it is less
likely that he had lawful intent in the present offense"). The
district court's finding of relevance was further supported by the
fact that the conduct at issue in this case and the conduct
allegedly committed on the two other contracts was virtually
identical.17 See Beechum, 582 F.2d at 911 (holding that "relevance
[of extrinsic evidence] is a function of its similarity to the
offense charged").
We also find that the district court properly determined that
the evidence's probative value was not substantially outweighed by
its potential prejudicial effect, as required under FED. R. EVID.
403. While some danger of prejudice is always present, exclusion
of extrinsic evidence based on its prejudicial effect "should occur
The evidence concerning the Jacksonville contract showed that Nece
submitted false invoices concerning a roofing contract. This evidence was not
admitted against Leahy, and the district court properly instructed the jury not
to consider it against him. The Tinker evidence showed that GWR had submitted
false invoices, and further disclosed that Leahy had obtained sureties, which he
caused to be certified "sufficient," when in fact he had not verified their
assets.
-23-
only sparingly." United States v. Pace, 10 F.3d 1106, 1115 (5th
Cir. 1993), cert. denied, ___ U.S. ___, 114 S. Ct. 2180, 128 L. Ed.
2d 899 (1994). After reviewing the record in this case, we cannot
say that this evidence rises to the level of "undue prejudice"
necessary to block its admission. See United States v. McRae, 593
F.2d 700, 707 (5th Cir.) (noting that Rule 403's major function is
only to exclude matters of slight probative force, "dragged in by
the heels for the sake of prejudicial effect"), cert. denied, 444
U.S. 862, 100 S. Ct. 128, 62 L. Ed. 2d 83 (1979). Further, the
district court thoroughly instructed the jury concerning the
limited use of the extrinsic evidence, thereby minimizing its
possible prejudicial effect. See Buchanan, 70 F.3d at 832 (holding
that careful jury instruction "substantially reduced the
possibility of prejudice"). United States v. Henthorn, 815 F.2d
304, 308 (5th Cir. 1987) (finding that careful jury instruction
"minimized the possibility of prejudice"); United States v. Gordon,
780 F.2d 1165, 1174 (5th Cir. 1986) (holding that "improper
admission of [extrinsic] evidence may be cured by appropriate
limiting instructions"); see also United States v. West, 22 F.3d
586, 593 (5th Cir.) (citing Zafiro v. United States, ___ U.S. ___,
___, 113 S. Ct. 933, 939, 122 L. Ed. 2d 317 (1993) for the
proposition that "juries are presumed to follow their
instructions"), cert. denied, ___ U.S. ___, 115 S. Ct. 584, 130 L.
Ed. 2d 498 (1994). We hold that the district court did not abuse
its discretion in admitting the Jacksonville and Tinker evidence.
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VIII
Leahy contends that the district court erred in calculating
the amount of money laundered under § 2S1.2 of the Sentencing
Guidelines, which resulted in a two-level increase in Leahy's
offense level. See U.S.S.G. §§ 2S1.2(b)(2) (referencing
§ 2S1.1(b)(2) which allows for a two-level increase in offense
level if the value of the funds laundered exceeds "[m]ore than
$200,000"). According to Leahy, the district court should not have
used the $202,937.54 figure, the amount transferred to GWR's
business account from the first payment on the VA contract. Leahy
argues instead that in determining the value of the funds
laundered, it is necessary to offset the total amount GWR received
from the VA with the expenses GWR incurred in pursuant to the
roofing contract.
We will uphold a sentence under the Sentencing Guidelines
"unless a defendant can demonstrate that it was imposed in
violation of the law, was imposed because of an incorrect
application of the guidelines, or was outside the range of
applicable guidelines and is unreasonable." United States v.
Castenda-Cantu, 20 F.3d 1325, 1335 (5th Cir. 1994). Normally, we
review the district court's valuation of funds for clear error.
United States v. McCaskey, 9 F.3d 368, 372 (5th Cir. 1993), cert.
denied, ___ U.S. ___, 114 S. Ct. 1565, 128 L. Ed. 2d 211 (1994).
Here, however, Leahy failed to object to the district court's
calculations, and therefore we review for plain error. United
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States v. Lopez, 923 F.2d 47, 49 (5th Cir.), cert. denied, 500 U.S.
924, 111 S. Ct. 2032, 114 L. Ed. 2d 117 (1991). A finding of plain
error empowers the court, in its discretion, to correct the
mistake. The reviewing court may do so only if the error seriously
affected the "fairness, integrity, or public reputation" of the
judicial proceedings. United States v. Calverley, 37 F.3d 160, 164
(5th Cir. 1994) (en banc), cert. denied, ___ U.S. ___, 115 S. Ct.
1266, 131 L. Ed. 2d 145 (1995).
The district court's decision to sentence Leahy based on the
entire amount of the transfer to GWR's business account was not
erroneous. When calculating funds for sentencing purposes, it is
permissible to consider the entire amount the parties intended to
launder. United States v. Tansley, 986 F.2d 880, 884 (5th Cir.
1993). The record provides sufficient support for the finding that
the defendants intended to launder the full $202,937.54 sent by the
VA, and that the parties did in fact receive that amount. In
addition, there was evidence at trial that GWR intended to obtain
as much of the $1.1 million contract price as possible. We
conclude that the district court did not commit plain error in
sentencing Leahy for the $202,937.54 payment.18
Leahy also argues that the district court erred in not granting him
a downward departure from the guidelines because the district court sentenced him
under the guideline relating to money laundering, as opposed to the guideline
applicable to fraud. According to Leahy, the "heartland" of the crime committed
was fraud, and not money laundering. Leahy relies on the introduction to the
guidelines which states,
The Commission intends the sentencing courts to treat each guideline as
carving out a "heartland," a set of typical cases embodying the conduct
that each guideline describes. When a court finds an atypical case, one
to which a particular guideline linguistically applies but where conduct
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IX
Finally, Leahy argues that the district court erred at
sentencing in finding that the total loss to the VA, under U.S.S.G.
§ 2F1.1, was over $500,000. We review the district court's
determination of loss under § 2F1.1 for clear error. United States
v. Brown, 7 F.3d 1155, 1159 (5th Cir. 1993). These findings are
entitled to "substantial deference" on appeal. United States v.
Gaddison, 8 F.3d 186, 193 (5th Cir. 1993). A factual finding is
not clearly erroneous if it is "plausible in light of the record
read as a whole." United States v. Shipley, 963 F.2d 56, 59 (5th
Cir.), cert. denied, 506 U.S. 925, 113 S. Ct. 348, 121 L. Ed. 2d
263 (1992).
Reviewing the record as a whole, we find that there was ample
support for the district court's finding of loss under § 2F1.1.
There is nothing in Leahy's objections at sentencing which would
call into question the presentence report's factual determination,
adopted by the district court, that the VA suffered losses
totalling $523,631.38. The number was calculated using the amount
GWR overcharged the VA ($199,331.38), the amount of the false bond
significantly differs from the norm, the court may consider whether a
departure is warranted.
U.S.S.G., Ch. 1, Pt. A, § 4(b).
Leahy does not argue that the district court misapplied the guidelines.
Rather, Leahy believes that the district court failed to properly exercise its
discretion to depart. At trial, however, Leahy did not request a departure on
this ground, nor did he object to the district court's implicit decision not to
depart. As we have previously held, outside misapplication of the guidelines,
a "district court's decision not to depart is unreviewable on appeal." United
States v. Buchanan, 70 F.3d 818, 828 n.9 (5th Cir. 1996) (citing United States
v. Leonard, 61 F.3d 1181, 1185 (5th Cir. 1995)).
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premiums ($55,000), the amount of additional materials the VA had
to purchase to complete the project ($220,000) and the amount of
physical damage caused by GWR ($96,000).19 Additionally, because
these losses resulted directly from the defendants' scheme to
defraud, they were properly attributed to the defendants. See
U.S.S.G. § 2F1.1, comment. (n.7(c)) (allowing consequential damages
in cases dealing with "procurement fraud"); United States v.
Stouffer, 986 F.2d 916, 928-29 (5th Cir. 1993) (upholding district
court's decision to attribute all losses to the defendants which
were "caused by the scheme to defraud"). The district court's
finding of loss is plausible in light of the record, and we
therefore uphold the district court's determination.20
X
We find the remainder of the defendants' claims to be without
merit. Accordingly, we AFFIRM the convictions of Jeremiah Joseph
Leahy IV, David D. Nece, and Sherry Lynn Flanagan, and we AFFIRM
The district court accepted Leahy's objection as to $40,700 which GWR
ultimately paid pursuant to obtaining surety bonds, and reduced the total amount
of the VA's loss for sentencing purposes from $564,331.38 to $523,631.38.
We note that even if we were to find fault with the district court's
calculation of loss, it would make no difference to the sentences imposed in this
case. Under grouping principles, the defendants were sentenced for the money
laundering charge under U.S.S.G. § 2S1.1. See U.S.S.G. § 3D1.3 (directing
district court to sentence under the most serious count in the group). Section
2S1.1 determines offense levels by the amount of money laundered, in this case
$202,937.54, not the amount of loss suffered by the victim of the fraud. See
U.S.S.G. § 2S1.1. Because the defendants were sentenced under § 2S1.1, and not
§ 2F1.1, the amount of loss suffered by the VA played no part in the offense
level calculation made by the district court. In addition, the district court
ordered no restitution in this case. Because we affirm the defendants'
convictions for money laundering, and the district court's calculation of the
value of the funds laundered, a finding that the district court miscalculated the
amount of loss the VA suffered under § 2F1.1 would not change the defendants'
sentences.
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Leahy's sentence.
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