United States v. Cannon

United States Court of Appeals,

Eleventh Circuit.

No. 93-8498.

UNITED STATES of America, Plaintiff-Appellee,

v.

Jody CANNON, Defendant-Appellant.

Jan. 6, 1995.

Appeal from the United States District Court for the Middle
District of Georgia. (No. CR92-41-MAC-DF), Duross Fitzpatrick,
Judge.

Before COX, Circuit Judge, and FAY, Senior Circuit Judge, and
NELSON*, District Judge.

FAY, Senior Circuit Judge:

This appeal arises from Cannon's two-count conviction for

conspiring to defraud the United States government and for

defrauding the government by using false documents. The jury

acquitted Cannon on three other counts. The indicted activity

involves improperly performed defense contracts for the United

States Air Force ("USAF").

Cannon alleges many errors in the trial and at sentencing.

First, Cannon alleges the trial judge abused his discretion by

excluding evidence of metallurgical and ballistics testing by the

government, in conjunction with this prosecution, long after the

contracts had been performed. Cannon also alleges the trial judge

abused his discretion in excluding evidence that the government

accepted nonballistically tested titanium as conforming in later

contracts with other parties that called for ballistically tested

*
Honorable Edwin L. Nelson, U.S. District Judge for the
Northern District of Alabama, sitting by designation.
titanium. As to each of Cannon's allegations, we disagree.

Cannon alleges the evidence cannot support the conspiracy

conviction on Count I under 18 U.S.C. § 371. We disagree, and

AFFIRM the conviction.

Cannon alleges the evidence cannot support the conviction on

Count V for using false documents to defraud the government under

18 U.S.C. § 1001. We agree, REVERSE the judgment, and REMAND with

instructions to enter a not guilty judgment as a matter of law on

Count V.

Cannon alleges the trial judge reversibly erred in admitting

video-tape of a C-130 airplane and its connecting link presented at

trial with live narration. We disagree.

Cannon alleges prosecutorial misconduct, spanning the grand

jury proceeding through closing argument, requires a new trial. We

disagree.

Cannon alleges the indictment failed to charge and the

evidence cannot support a conviction on the theory of aiding and

abetting. In light of our finding that the evidence does not prove

the DD 250 forms submitted to the government were false, we do not

reach the issue of whether Cannon would be guilty of aiding and

abetting had they been false.

Cannon alleges the trial judge wrongly computed his offense

level at sentencing, wrongly used the full contract price as the

amount of government loss, and wrongly found more than minimal

planning, conscious or reckless risk of serious bodily injury, and

an aggravating role as an organizer, leader, manager or supervisor

by Cannon. We disagree.
 I. BACKGROUND

Jody Cannon was General Manager at Space Age Manufacturing,

Inc. ("Space Age"), in Warner Robins, Georgia, for approximately

twenty years. He was General Manager when the indicted activity

occurred.

Space Age contracted with the United States Air Force to

supply parts for military aircraft. Count I of the superseding

indictment charges Mr. Cannon with conspiring to defraud the

government and to use false documents to elicit payment on

government contracts that Cannon knew Space Age had not performed

to military specifications. The jury convicted Mr. Cannon of this

count (Count I). The superseding indictment also charged, among

other violations, a substantive count (Count V) of using false

documents to elicit payment on contracts Cannon knew were not

performed to military specifications. The jury convicted Mr.

Cannon on this substantive count and acquitted him on all other

counts.

Both Counts I and V involved defense contracts between Space

Age and the USAF. Count I, the conspiracy count, involved two

types of parts the prosecution alleged did not conform: First, a

throttle link assembly, which is used to feather a propeller on a

C-130 aircraft.1 Second, titanium armor plating for H-53

helicopters which the contract required to be ballistically

tested—that is, to have defied penetration when shot with bullets.

Space Age knowingly supplied nonballistically tested titanium.

1
Feathering a propeller turns the propeller blades directly
into the wind. Feathering alleviates wind drag because the wind
blows through the blades instead of spinning them.
 The indictment charges that Cannon, as General Manager,

submitted bids for government contracts and placed orders for goods

to fill those contracts. Cannon admits ordering the nonconforming

titanium charged in Counts I and V in March of 1990. (R3-59;

Appellant's Br. at 5). After using materials that did not conform

to contract specifications, Space Age submitted DD 250 forms to the

government Quality Assurance Representative ("QAR") for payment.

The QAR reviews other documents when receiving the DD 250 and signs

the DD 250, certifying that the contractor has met contract

specifications and deserves payment. The government argues that by

presenting the DD 250 to the QAR, Cannon "took affirmative actions

to cause the QAR to accept the items, and to certify that they met

the contract specifications, thereby causing the false documents to

be made." (Appellee's Br. at 26). The substantive count depends

on whether this government argument is correct as a matter of law.

II. STANDARD OF REVIEW

This appeal requires review of findings of fact, conclusions

of law, and discretionary rulings on whether to admit or exclude

evidence.

We will not disturb the trial judge's decision to admit or

exclude evidence absent a clear showing of abuse of discretion.

United States v. Russell, 703 F.2d 1243, 1249 (11th Cir.1983).

We subject sufficiency of the evidence, a question of law, to

de novo review. United States v. Kelly, 888 F.2d 732, 739 (11th

Cir.1989). We view the evidence in the light most favorable to the

government, including all reasonable inferences and credibility

judgments. See Glasser v. United States, 315 U.S. 60, 62 S.Ct.
457, 86 L.Ed. 680 (1942). We ask whether a reasonable trier of

fact, when choosing among reasonable constructions of the evidence,

could have found the defendant guilty beyond a reasonable doubt.

Kelly, 883 F.2d at 740.

Prosecutorial conduct requires a new trial only if we find

the remarks (1) were improper and (2) prejudiced Cannon's

substantive rights. United States v. Cole, 755 F.2d 748, 767 (11th

Cir.1985). We review them in context and assess the probable jury

impact. United States v. Stefan, 784 F.2d 1093, 1100 (11th

Cir.1986).

We review the indictment's sufficiency for whether it

contains every element of the offense charged and adequately

informs the accused of the charge being lodged. Stefan, 784 F.2d

1093, 1101-02 (11th Cir.1986).

We do not disturb the sentencing court's fact findings absent

clear error. United States v. Davis, 902 F.2d 860, 861 (11th

Cir.1990). Nonetheless, we review de novo the sentencing court's

Federal Sentencing Guidelines application to those facts. United

States v. Rodriquez, 959 F.2d 193 (11th Cir.1992), cert. denied, --

- U.S. ----, 113 S.Ct. 649, 121 L.Ed.2d 563 (1992).

The sentencing court may consider defendant's conduct not

covered by counts of conviction if the government proves their

existence by the greater weight of the evidence. See United States

v. Alston, 895 F.2d 1362, 1372-73 (11th Cir.1990).

III. ANALYSIS

A. Procedure

This Court at oral argument questioned whether Cannon had
waived appeal on Counts I and V by failing to move for a judgment

of acquittal on each of these counts. He did not. Cannon moved

for judgment of acquittal on August 27, 1993, the seventh day after

jury discharge. This motion is proper under Fed.R.Crim.P. 29(c)

and preserved the issues for appeal.

B. Evidentiary Rulings

We find the trial judge did not abuse his discretion by

excluding evidence of metallurgical2 and ballistics testing by the

government. The record indicates the government, in connection

with Cannon's prosecution, seized titanium from Space Age in

January of 1991. This titanium passed government ballistics tests.

Cannon argues that because the titanium passed the ballistics test,

it negates a finding of his intent to defraud the government. We

disagree.

First, Cannon did not show the titanium seized in the search

came from the batch used to perform the contract implicated in

Count V. Indeed, the government witness, a Space Age supplier,

testified that she had no way of knowing whence the titanium came,

who bought it, who sold it, when or in connection with what

contract it was sold. (R3-129-30). Second, even if Cannon had

traced this titanium to the contract in Count V, it would not

matter. That the nonballistically tested titanium supplied by

Space Age later passed ballistics tests does not pardon the deceit

of having supplied nonconforming, nonballistically tested titanium

in a contract requiring ballistically tested titanium. In short,

2
Metallurgical tests analyze metals and their properties in
bulk and at the atomic level. See The American Heritage
Dictionary of the English Language 824 (New College Ed.1976).
titanium that could pass the ballistics test is not equal to

titanium that has passed the ballistics test. The government

contracted and paid for the latter; Space Age's substitution of

the former, without government consent, does not negate the

government's showing of intent to defraud. The trial judge did not

abuse his discretion in excluding evidence of these after-the-fact,

government-conducted tests. Likewise, evidence of government

condoned substitutions in later contracts with other, unrelated

parties does not affect the government's showing of intent to

defraud.

Further, we find the trial judge did not abuse his discretion

in admitting the C-130 aircraft videotape with live narration.

C. Findings of Fact

Upon review of the sentencing court's fact findings, we find

no clear error. The sentencing court found the government's

monetary loss to be the contract value. The United States

Sentencing Commission Guidelines Manual, § 2F1.1 Application Note

7, states that "[f]requently, loss in a fraud case will be the same

as in a theft case." Further, § 2F1.1 refers "valuation of loss"

to the discussion in § 2B1.1, which provides that "[w]here the

market value is difficult to ascertain or inadequate to measure

harm to the victim, the court may measure loss in some other way,

such as reasonable replacement cost to the victim." Following

these instructions, we find the sentencing court did not clearly

err in finding the contract value was the amount of loss. Having

found the loss to be between $120,000 and $200,000, the sentencing

court properly increased Cannon's offense level by seven points.
See § 2F1.1(b)(1)(H).

The sentencing court did not clearly err in increasing

Cannon's offense level by two points for more than minimal

planning. Under §§ 2F1.1(b)(2)(A) and 1B1.1 Application Note 1(f),

we find no clear error in increasing Cannon's offense level for

"affirmative steps ... taken to conceal the offense." Agent

Phillips testified that Cannon told her he altered certification

forms from other contracts to conceal the substitution of

nonconforming titanium. Further, Note 1(f) states that more than

minimal planning "is deemed present in any case involving repeated

acts over a period of time, unless it is clear that each instance

was purely opportune." The acts charged in Count I involve

numerous contracts spanning a four-and-a-half year period. The law

in this Circuit permits a sentencing court to

consider evidence of the defendant's conduct relating to
counts on which the defendant was indicted but acquitted at
trial[.]

. . . . .

Acquitted conduct may be considered by a sentencing court
because a verdict of acquittal demonstrates a lack of proof
sufficient to meet a beyond-a-reasonable-doubt standard—a
standard of proof higher than that required for consideration
of relevant conduct at sentencing.

United States v. Averi, 922 F.2d 765, 765-66 (11th Cir.1991).

Accordingly, the sentencing court could properly consider the

conduct charged in Counts II-IV as well, so long as the government

proved them by the greater weight of the evidence. See United

States v. Alston, 895 F.2d 1362, 1372-73 (11th Cir.1990).

Following the guidelines, we find the sentencing court did not

clearly err by increasing the offense level for "more than minimal
planning."

Cannon argues the sentencing court erred in increasing his

offense level for "conscious or reckless risk of serious bodily

injury." We disagree. Cannon ordered nonballistically tested

titanium to make armor plating on H-53 helicopters. The USAF paid

for titanium that had passed the ballistics test, not titanium that

might pass the test. Further, Agent Phillips testified that Cannon

told her "inferior bearings had been substituted on the [connecting

link assemblies used to feather propellers on a C-130 aircraft]

versus installing the bearings that were called out for in the

government specifications ... [and that] based on his 20 years

experience in the aircraft industry, that the inferior bearings

would crack under pressure." (R2-71). We find that the sentencing

court did not clearly err when it found the government had proved

"conscious or reckless risk of serious bodily injury" by the

greater weight of the evidence.3

Finally, Cannon argues that the sentencing court erroneously

applied § 3B1.1(c)—"aggravating role as an organizer, leader,

manager, or supervisor." We disagree. The Introductory Commentary

to § 3B1.1

provides adjustments to the offense level based upon the role
the defendant played in committing the offense ... [which is
determined] on the basis of all conduct within the scope of §
1B1.3 (Relevant Conduct), i.e., all conduct included under §
1B1.3(a)(1)-(4), and not solely on the basis of elements and
acts cited in the count of conviction.

3
It is most reasonable to consider the loss of life or
serious bodily injury that can occur when essential parts of an
aircraft fail. To argue that there is no evidence of a failure
yet is to completely ignore the reason for the standards
established in the contracts, to wit: the safety of all
personnel using the aircraft.
Based on this instruction and the laundry list of considerable

factors listed in § 3B1.1 Application Note 4, we find the

sentencing court did not clearly err by increasing the offense

level under this section.

D. Conclusions of Law

i. Count One: The Conspiracy Count

The jury convicted Cannon under 18 U.S.C. § 371 for

"Conspiracy to commit offense or to defraud United States." The

statute commands

[i]f two or more persons conspire either to commit any
offense against the United States, or to defraud the United
States, or any agency thereof in any manner or for any
purpose, and one or more of such persons do any act to effect
the object of the conspiracy, each shall be fined not more
than $10,000 or imprisoned not more than five years, or both.

The government identified Cannon's unindicted coconspirators as

Space Age Manufacturing, Inc., and Space Age's President, Jack C.

Kerstetter. Cannon placed bids, signed the contracts at issue, and

knowingly purchased nonconforming titanium. Cannon and Kerstetter

discussed that ordering conforming titanium would cause Space Age

to lose money. While Cannon argues that he purchased the titanium

because Kerstetter "ordered" him to do it, this does not absolve

his actions. Cannon, Space Age & Kerstetter gave the USAF titanium

with less pecuniary value than the titanium it contracted for, and

with less performance value than the titanium it contracted for.

Viewing the evidence in the light most favorable to the

government, Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86

L.Ed. 680 (1942), including all reasonable inferences and

credibility judgments, we find that a reasonable trier of fact,

when choosing among reasonable constructions of the evidence, could
have found the defendant guilty beyond a reasonable doubt. United

States v. Kelly, 888 F.2d 732, 740 (11th Cir.1989). We affirm

Cannon's conviction on Count I.

ii. Count Five: The Substantive Count

Cannon argues the evidence cannot support a conviction on

Count V pursuant to 18 U.S.C. § 1001. We agree.

The government had to prove Cannon knowingly and willfully

falsified, concealed or covered up by trick, scheme, or device a

material fact, or made false, fictitious or fraudulent statements

or representations, or made or used any false writing or document

knowing the same to contain any false, fictitious or fraudulent

statement or entry. See 18 U.S.C. § 1001.

The government charged in the indictment that Cannon violated

§ 1001 because he "used and caused to be used a Form DD 250[.]"

Despite the jury verdict, as a matter of law, the government failed

to prove the DD 250 forms were false. The government argues that

"when [the contractor] submits the document [DD 250, he] is telling

the government that he has manufactured the items according to the

government specifications, and that he is ready to deliver them so

that he can be paid." Appellee's Br. at 25. Nowhere on the DD 250

does Cannon or anyone at Space Age certify that the parts supplied

conform to the contract. Rather, the government QAR signs the form

signifying acceptance and conformance of the goods.

The government argues Cannon caused the QAR to make a false

statement by presenting the DD 250 forms, representing to him that

the contracts had been performed to specifications, and having the

QAR sign the DD 250, accepting the items and certifying that they
met the contract specifications. See id. at 25-26. We disagree.

The government's only shred of evidence to show the QAR signed

the DD 250 forms because of false representations was the QAR's

testimony that he would not have signed the DD 250 unless he'd been

presented with a document certifying the titanium as ballistically

tested. Agent Phillips, however, testified that when the

government seized the file for the contract charged in Count V, the

only certification form it contained showed no signs of tampering

and was for nonballistically tested titanium. (R3-61-62).

Although the titanium did not conform, the documents did not lie.

It was through the failure of the QAR to perform an adequate review

that the nonconforming material was certified.

Viewing the evidence in the light most favorable to the

government, see Glasser, 315 U.S. 60, 62 S.Ct. 457, including all

reasonable inferences and credibility judgments, we hold that no

reasonable trier of fact, when choosing among reasonable

constructions of this evidence, could have found the defendant

guilty beyond a reasonable doubt of using false documents or

representations to defraud the government. See Kelly, 888 F.2d at

740. The district court reversibly erred when it denied Cannon's

motion for judgment of acquittal on Count V.

E. Miscellaneous

i. Prosecutorial Misconduct

The transcript of the government's closing argument shows no

prosecutorial remarks that either (1) were improper or (2)

prejudiced Cannon's substantive rights. (R6-157-65); see United

States v. Cole, 755 F.2d 748, 676 (11th Cir.1985). The Assistant
United States Attorney, Ms. Duke, contrary to Cannon's argument on

appeal, did not argue that the titanium supplied by Space Age

"would not work or perform under fire." Appellant's Br. at 13.

Rather, she argued that the titanium "may indeed pass a ballistic

tests [sic], but the only way you're going to know that is if you

get shot at." (R6-156). Ms. Duke's statement is correct.

After-the-fact testing cannot cure the initial failure to supply

tested titanium. Indeed, we stress that the record shows the only

ballistics testing on this titanium was done by the government in

connection with this prosecution. Moreover, as discussed in

III.B., the titanium that passed the tests has not been proved to

be related to the batch used in performing the contracts. At this

point, the Air Force can only hope such is the case.4

Accordingly, we find the remarks were proper, and when

reviewed in context, assessing the probable jury impact, we find no

prejudice to Mr. Cannon's substantive rights. See Stefan, 784 F.2d

1093, 1100 (11th Cir.1986). The district court properly denied

Cannon's motion for a mistrial. Finding no merit to any of

Cannon's prosecutorial misconduct allegations, we deny his request

for a new trial.

ii. Indictment Sufficiency

Based on our finding in III.D.ii. that the DD 250 forms cannot

support a conviction under 18 U.S.C. § 1001, and resulting reversal

of Count V, we need not discuss whether the indictment sufficiently

charged aiding and abetting in that count.

4
By now, most of the ball bearings in the link assemblies
may have been tested.
 IV. CONCLUSION

We hold that the district court (1) did not abuse its

discretion in ruling on evidence; (2) did not clearly err in its

fact findings; (3) properly denied Cannon's motion for a mistrial;

(4) properly denied Cannon's motion for a judgment of acquittal on

Count I; and (5) reversibly erred, as a matter of law, when it

denied Cannon's motion for a judgment of acquittal on Count V. We

REVERSE and REMAND with instructions to enter a not guilty judgment

as a matter of law on Count V. The judgment of the district court

as to Count I is Affirmed.

AFFIRMED in part; REVERSED in part, and REMANDED.