United States v. Leahy

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.

-2-
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

-3-
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.

-4-
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

-5-
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).

-7-
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).

-8-
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.

-9-
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.

-10-
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.

-11-
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

-12-
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

-13-
 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

-14-
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.

-15-
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.

-16-
(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

-17-
 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

-18-
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

-19-
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.

-20-
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").

-21-
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.

-22-
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.

-24-
 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

-25-
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

-26-
 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)).

-27-
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.

-28-
Leahy's sentence.

-29-