JAMES S. GWIN, District Judge.
On September 26, 2019, the United States charged James Allen Clark with thirty-one-counts related to alleged schemes to defraud government agencies.
The Government claims that Clark worked on government construction contracts by misrepresenting that his codefendants would supervise and perform the construction contracts. The Government says the codefendants fronted for the contracts and that Clark's company gave major financial backing for the projects and performed most of the contract work.
On November 6, 2019, a jury convicted Clark on thirteen counts for wire fraud, false claims, major fraud, and conspiracy charges.
On November 20, 2019, Clark moved for a judgment of acquittal notwithstanding the verdict on the thirteen counts.
Upon review, the Court
The Court
From 1997 until 2015, James Allen Clark acted as the vice-president of Enola Contracting Services.
The Small Business Administration's 8(a) Business Development Program is a federal government procurement program to help small disadvantaged businesses obtain sole-source and set-aside contracts.
In 2009, Enola graduated from the 8(a) Program. After this 2009 program graduation, Enola lost eligibility to receive further 8(a) Program set-aside and sole-source contracts. At the time of the government contracts in this case, Enola was a successful and profitable construction business.
8(a) Program contracts require 8(a) Program contractors to post contract and performance bonding. Typically, construction companies and their owners co-sign and guarantee construction completion bonds.
The Government says that Defendant Clark used Enola's bonding capacity to exercise control over 8(a) companies Arrow Construction Group, LLC, and HDJ Security, Inc.
The Government argued that Clark's and Enola's bonding support led to Clark's and Enola's control of the 8(a) Program contracts.
The Government charged that Clark also used this type of scheme to control set-aside contracts under a similar procurement program—the Department of Veterans' Affairs ("VA") Service-Disabled Veteran Owned Small Businesses ("SDVOSBs") program.
For these schemes, the Government charged Clark and four codefendants in a thirty-three-count indictment
Defendant Clark's four codefendants pleaded guilty. Clark went to a jury trial. At the end of the Government's case, Clark moved for a judgment of acquittal on all counts. The Court granted Defendant's motion as to honest services wire fraud counts—1 through 20—but denied it as to the remaining counts—21 through 33. Clark then presented his case, testifying in the process.
The jury convicted Clark on all the submitted counts. Clark now renews his motion for a judgment of acquittal on counts 21 through 33.
Clark moves for judgment of acquittal under the Federal Rule of Criminal Procedure 29(c).
Rule 29 requires the court to "enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction."
The Court addresses Clark's motion as it relates to each count.
Clark argues that there was insufficient evidence for any rational juror to convict him of wire fraud.
To convict Defendant of wire fraud in violation of 18 U.S.C. § 1343, the Government needed proof "(1) that the defendant devised and willfully participated in a scheme to defraud; (2) that he used or caused to be used an interstate wire communication in furtherance of the scheme; and (3) that he intended to deprive the victim of money or property."
Clark challenges only the first element—that he devised and willfully participated in a scheme to defraud. Specifically, Clark says that his bonding support and teaming agreements did not support wire fraud convictions because Clark's arrangements were disclosed to the relevant government officials or otherwise followed controlling regulations.
Clark's arguments fail. Construing the evidence in the light most favorable to the Government, the arrangements were not in compliance with the relevant regulations. Moreover, Clark and his co-conspirators only partially disclosed his involvement. And Clark and his co-conspirators made most of these disclosures only after supervising contract officials had already raised concerns about Clark's and Enola's control.
The Court briefly describes evidence supporting each wire fraud count.
The Government presented evidence that Clark and Eric Hogan concealed Clark's involvement in Hogan's company, P&E Construction, and this concealment helped P&E Construction keep its SDVOSB certification. Relevant to counts 23 and 23, a reasonable juror could find that Clark and Hogan falsely used P&E's SDVOSB status to receive a set-aside contract at NASA Plum Brook Station.
As a SDVOSB-certified company, Eric Hogan needed to control P&E Construction.
Before 2012, P&E qualified for SDVOSB contracts.
In response and in August 2012, the VA investigated P&E's SDVOSB eligibility— focusing on claims that Hogan was unduly dependent on Clark for employment, bonding, and financial support.
These Government construction contracts require contractors to obtain third-party performance bonding.
On September 11, 2012, the VA concluded that P&E's reliance on Clark for bonding, and Hogan's employment with Enola, disqualified P&E from the SDVOSB program.
Hogan and Clark tried to regain P&E's SDVOSB certification—by misrepresenting Clark's P&E involvement. On September 12, 2012, Defendant Clark provided a draft letter and asked his bond underwriter to send the letter to the VA.
On September 14, 2012, Clark emailed the VA contract specialist and falsely represented that Clark would be transferring his 49% P&E share to Hogan.
These were false representations. Despite divesting himself "on paper" of his controlling interests in P&E, Clark continued to exert control and influence over, and expect profit from P&E's operations.
After these misrepresentations, the VA recertified P&E as a SDVOSB.
In summary, Clark participated in a scheme to conceal his significant control of a purportedly SDVOSB-eligible company to obtain potential benefits from a SDVOSB contract P&E Construction would otherwise be ineligible to receive. Clark's misrepresentations were material and intentional. The Government offered sufficient evidence for a rational juror to find Clark guilty of counts 22 and 23.
The Government presented evidence that Clark and two co-conspirators, Jennifer Snider and Kent Reynolds, defrauded the U.S. Navy by concealing Clark's control over Snider and Reynolds's 8(a) company, Arrow Construction. Relevant to count 24, the Government presented evidence that Clark and his co-conspirators concealed Clark's control level of Arrow Construction at two stages.
Clark, Snider, and Reynolds first concealed Clark's bonding and teaming agreement with Arrow.
In 2011, a Naval contracting officer solicited Snider and Arrow to offer an 8(a) Program proposal.
But near the same time the Naval contracting official contacted Arrow about negotiating a test track reconstruction, Arrow and Island Mechanical were in a bad contract dispute related to a different job.
Without Island Mechanical's support and with this earlier job default, Arrow Construction had no way to obtain bonding to accept the Navy offer for the Test-Track-Contract.
Snider then first met Clark. After their meeting, Clark offered to bond Arrow for the test track reconstruction project.
Although teaming relationships were allowed, Arrow's Test-Track-Contract required that at least 15% of the job labor be performed by Arrow employees.
Clark pressured Snider and Reynolds to not disclose the arrangement to the Small Business Administration.
Clark, Snider, and Reynolds next concealed Clark's growing control over Arrow. SBA Section 8(a) program contractors commit to tell the SBA about any control changes.
Likely, Clark agreed to supply bonding and indemnification to Arrow Construction after considering the construction work and the contract price. Clark, however, did not appreciate that Arrow had major debts and issues that exposed Clark to need to make major payments to keep Arrow operating, and more importantly to protect Clark from indemnification claims if Arrow failed. Independent of these criminal charges, Clark's Arrow Construction involvement may have been one of Clark's dumbest business involvements.
There were several reasons that Clark took greater Arrow control.
First, Snider's brother-in-law stole over $30,000 from Arrow's bank account.
Second, the Test-Track-Contract included significant asphalt and specialized paving. Clark, Snider and Arrow intended that Arrow would subcontract this work. In giving its Test-Track-Contract proposal, Arrow relied upon an Oxford subcontract paving proposal.
Third, Arrow Construction had defaulted on subcontractor payments on work it had earlier performed with Island Mechanical.
Fourth, Johnny Dunaway came out of the woodwork and claimed that he owned 49% of Arrow Construction.
After these changes to Arrow's position and ability to complete the contract, Clark took significantly more control of the Test-Track-Contract execution and financials. By the time work on the contract began, Arrow Construction "didn't have any employees at that point."
Despite knowledge that the SBA required disclosure of financial positions affecting control of 8(a) contractors, Clark failed to disclose his major Arrow Construction investments to the Navy or to the SBA.
In March 2012, a Navy contracting officer contacted Snider and asked whether Arrow was insolvent.
In response to the Navy contracting officer's questions, Clark wrote a letter and gave the letter to Snider.
Snider and Clark's letters to the contracting officer disclosed that Clark had given Arrow project assistance.
Clark had given a $2.8 million personal guarantee to the bonding company to obtain the Test-Track-Contract bond.
The Government also gave evidence that Clark enjoyed Arrow equity ownership (even though it was probably worth nothing).
In summary, Clark joined a scheme to conceal his level of control of an 8(a)-eligible company. Independent of its illegality, the Arrow Construction involvement seems to have been a terrible investment decision for Clark. Clark's misrepresentations and failure to disclose his control level were material and were made with Clark's intent to deceive.
Sufficient evidence existed for a rational juror to find Clark guilty of count 24.
The Government presented evidence that Clark and two codefendants, Eric Hogan and Harvey Daniels, defrauded the U.S. Navy by concealing Clark's bonding for and partial control over Daniels's 8(a) company, HDJ Security. Relevant to counts 25 and 26, the Government presented evidence that Clark and his codefendants concealed Clark's true HDJ Security involvement to obtain a U.S. Navy sole-source contract for the "Craneway Windows" contract at Marine Corps Logistics Base in Albany, Georgia.
Government Contracting Agent Sam Stringer first reached out to codefendant Eric Hogan to see if Hogan's company, P&E Construction, could do a window replacement job.
Hogan then contacted Clark, and Clark suggested Arrow Construction, but Government Contracting Official Sam Stringer responded that Arrow could not do the work.
The Government contended that Clark exerted excessive control over HDJ Security's Craneway Windows project.
HDJ Security had construction contracts around Florida independent of its work on the Craneway Windows Contract.
After learning about the contract from Clark and Hogan, HDJ Security received the $1.3 million contract for the replacement of Craneways Windows at Marine Corps Logistics Base Albany, Georgia.
To accept the contract, HDJ Security needed payment and performance bonding.
To help with the needed bonding, Harvey Daniels approached Defendant Clark and asked for Clark's help.
Although teaming relationships were allowed, HDJ Security's Craneway Windows contract required that at least 15% of the job labor be performed by HDJ Security employees.
The Government's evidence shows that a reasonable juror could find that Clark and his codefendants fraudulently concealed the extent of Clark's Craneway Windows Contract involvement.
Although HDJ Security had some bonding ability, Clark and Enola had more. In negotiating Clark's bonding assistance, Clark (falsely) told Daniels that Clark's bonding company required that Enola and HDJ enter a teaming agreement for the Craneway Windows project.
Daniels explained why he agreed to the 95%-5% revenue split:
With his share of the revenues, Daniels absorbed the cost of the inspector, the job superintendent, the quality control employee, and all of the office work associated with the Craneway Windows Contract.
Clark and Enola agreed to pay subcontractor expenses.
Clark and Enola did not work on the window replacement contract. Instead, and after entering the revenue split agreement, Clark then subcontracted with Hogan's company, P&E, to provide labor and materials and perform the construction work required Craneway Windows Contract.
During performance of the contract, Clark sought to inflate HDJ's project involvement because, under the government contract and the regulations, HDJ was supposed to perform 15% of the labor.
These employees generally remained employed by either Enola or P&E Construction although they received some HDJ Security compensation.
Clark also concealed the nature of his own involvement in the project. He advised codefendant Hogan to conceal from the Navy's contracting officer that "HDJ will sub[contract] 95 percent of the total contract to Enola to put up the bond, and Enola will sub that to P&E onsite to do the job."
In sum, Eric Hogan and P&E Construction led a scheme to overstate HDJ Security's Craneway Windows Replacement Contract participation. Clark joined in the scheme by providing bonding support and providing employee support for the job. Especially Hogan, but also Clark assisted HDJ Security and Daniels obtain benefits from an 8(a) contract that they were otherwise ineligible to receive. There is sufficient evidence for a rational juror to find Clark guilty of counts 25 and 26.
Defendant Clark argues that the evidence to support his conviction on the conspiracy to commit wire fraud was insufficient. The elements of this offense are that (1) two or more people conspired or agreed to commit wire fraud, and (2) Defendant knowingly and voluntarily joined the conspiracy.
Because the alleged conspiracy involves much what has covered in the preceding sections with respect to the substantive wire fraud counts, that discussion applies here as well. The evidence was sufficient to allow the jury to find Clark guilty on count 21.
Clark argues that there was insufficient evidence for any rational juror to convict him of submitting or conspiring to submit false claims.
In order to convict Defendant of submitting false claims in violation of 18 U.S.C. § 287, the Government needed to prove that (a) Defendant presented a false claim against the United States; (b) that the claim was based upon a false material fact; and (c) that the Defendant knew that the claim was false.
Clark argues that "[t]he Government failed to establish any false, fictious [sic], or fraudulent claim."
Relatedly, Clark argues that Hogan, not Clark, ran P&E Construction.
The issue is close because of the materiality requirement.
The United States does not identify any specific Clark statement to NASA regarding the Plum Brook Station work. Instead, the Government seems to argue that the invoice submission incorporates a representation that all government regulations have been complied with.
The Plum Brook Station contract invoices contain a "Contractor's Certification."
Clark, himself, never himself submitted the invoices. Instead, Hogan submitted the invoices.
From these arguments, the Government then jumps to the argument that Hogan's claim submission was improper and that Clark encouraged Hogan's submission. Finally, the Government jumps to the conclusion that Clark is guilty when Hogan and P&E Construction sent the NASA contract invoice.
According to the Government, Clark is guilty because he knew Hogan was submitting the invoices and Clark should have known that Hogan would not qualify for the SDVOSB program if Clark's bonding support and minority ownership interest had been known.
To sustain a false claim conviction, the representation or omission must be material. "The materiality standard is demanding. The False Claims Act is not `an all-purpose antifraud statute,' or a vehicle for punishing garden-variety breaches of contract or regulatory violations."
In Escobar, the Supreme Court limited the FCA "implied false certification" theory, holding that a defendant may be liable under that theory only when it "submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant's noncompliance with a statutory, regulatory, or contractual requirement."
Under Escobar, materiality is not judged in a vacuum. Rather, materiality depends on the context of the relevant decision impacted by the alleged false statement — "the effect on the likely or actual behavior of the recipient of the alleged misrepresentation."
Restating, the Government argues that Hogan needed to voluntarily disclose Clark's retained P&E Construction ownership interest and argues that Clark is criminally liable because Hogan did not make the disclosure. The Government does not contend that Hogan made any affirmative misrepresentation about Clark's interest when he bid on the NASA contract; only that he did not disclose Clark's interest. The Government does not contend that Clark made any misrepresentations regarding the NASA contract, only that Clark failed to disclose Clark's somewhat unclear continued equity interest in P&E Construction.
This evidence was insufficient to establish the materiality of Clark or Hogan's omission.
To be sure, two years before the NASA contract, Eric Hogan's SDVOSB certification was taken away after a competing contractor filed a complaint. Hogan and Clark responded and falsely represented that Clark had given up his P&E Construction equity interest. Instead, Clark kept some unspecific equity interest. And kept some control input.
But 8(a) Program companies are allowed to have some outside bonding support and minority ownership. Therefore, even if Clark and Hogan disclosed Clark's involvement, NASA may still have paid P&E on the invoices.
In sum, there is insufficient evidence for a rational juror to find Clark guilty of counts 28, 29, and 30.
Defendant argues that the evidence to support his conviction on the conspiracy to submit false claims was insufficient.
The elements of this offense are that:
Because the conspiracy alleged in the superseding indictment involved the Clark-Hogan activity described above, much of what the Court said in the preceding section with respect to the substantive false claims counts applies here as well. The evidence was insufficient to allow the jury to find Clark guilty on count 27.
Clark argues that there was insufficient evidence for any rational juror to convict him of the major fraud claims.
Considering that the Court has concluded that the wire fraud convictions related to the NASA contract can stand, the Court summarily rejects this this challenge.
In the alternative, Clark moves for a new trial under Federal Rule of Criminal Procedure 33.
Rule 33 provides that a court may "vacate any judgment and grant a new trial if the interest of justice so requires."
Acting in the interest of justice under Rule 33 also "allows the grant of a new trial where substantial legal error has occurred."
Clark asserts two arguments under Rule 33. First, he says that the jury's verdict was against the manifest weight of the evidence for the reasons he identified in his Rule 29 argument.
The Court rejects Clark's first argument as to the charges sustained above. There was enough evidence to support the jury's verdict as to those charges.
Second, Clark argues that the Court should grant a new trial due to a substantial legal error.
Clark correctly argues that the Court erred in allowing the Government to ask cooperating witnesses whether they had already pled guilty to conspiring with Clark.
This plea agreement issue arose before trial when Clark moved in limine to exclude evidence of the guilty pleas.
In opposing Clark's motion in limine, the Government argued that it could solicit co-conspirator plea agreements evidence because "the government is allowed to have a jury consider and assess the credibility of its witnesses at trial" and that any prejudice could be cured by jury instructions and a "timely admonishment by the court."
The Court sided with the Government and denied Clark's motion in limine. Upon reconsideration of this issue with the instant motion, the Court finds that it erred in allowing the Government to elicit testimony about the co-conspirator guilty pleas.
Whether a co-conspirator's guilty plea is admissible turns on the purpose for which it is offered.
Most typically, where a defendant has not given up the right to challenge the collaborator's testimony as influenced by the plea agreement, the plea agreement is relevant. In using a plea agreement with a cooperation provision, defendants logically cross examine about the plea agreement to suggest that the plea agreement biases the witness's testimony to curry favor the prosecution.
In trials where defendants do not commit to give up attacking the witness's testimony with the cooperating plea agreement, there is also logic to allow prosecutors to introduce the plea agreement in the prosecutor's direct examination.
CANDOR WITH JUDGES AND JURORS IS CRUCIAL TO ATTORNEY PRESENTATIONS. With knowledge that the defense cross examination has not forsworn attacking the witness's credibility with the plea agreement, prosecutors can logically initiate questions on the plea agreement in an effort to appear candid with the jury.
The question here is whether a co-conspirator's guilty plea is admissible on credibility grounds when the defendant commits to give up a cooperator plea agreement credibility challenge.
The parties cite no in-circuit case directly answering this question, and the Court knows of none. The Government seems to take the position that evidence of a testifying co-conspirator's guilty plea is always admissible so that a jury may assess the witness's credibility—even if a defendant promises to forego a plea-based attack.
The Court declines to adopt such an extreme position. There are, of course, instances in which evidence of a witness's guilty plea should be admitted to help the jury in assessing credibility. As described, the Government may elicit testimony regarding a witness's plea agreement during direct examination "to deflect defendant's use of a plea agreement to attack the witness' credibility,"
In opposing Clark's motion in limine, the Government offers an argument that, upon further consideration, seems illogical. In effect, the Government argues that a felony plea or conviction could make a witness more credible.
By way of explanation, the Court wrongly allowed the Government to ask about co-conspirator plea agreements because the Court incorrectly assumed that those co-conspirators would independently testify about explicit planning conversations with Clark. The Court wrongly thought co-conspirator testimony admitting a conspiracy would have little impact because those co-conspirators would otherwise testify regarding specific discussions with Clark about the conspiracy.
As this trial played out with only vague circumstantial evidence of collaboration, the conspiracy claims were much weaker than this Court wrongly expected.
When a defendant offers to forgo a guilty-plea-based attack on a witness's credibility, the Court should not allow evidence of the witness's plea. In these circumstances, allowing plea agreement evidence risks that the jury accept the co-conspirator's pleas as evidence of a conspiracy. In effect, the jury could logically conclude that a conspiracy must have existed if the co-defendants had already admitted a conspiracy existed.
The instant case charges Defendant with, inter alia, conspiring with his co-defendants to defraud the government. The conspiracy charges required the Government to prove concerted effort. Accordingly, when the Court allowed the co-conspirators to testify that they pleaded guilty to joining a conspiracy with Clark, the risk of prejudice to Clark was especially high.
To be sure, the Court issued a limiting instruction as part of the final jury instructions,
In sum, the Court erred in allowing the Government to elicit testimony about the co-co-conspirators' guilty pleas.
Nonetheless, the Court concludes that the error was not significant to the degree necessary to warrant a new trial.
Therefore, in the interest of justice, the Court
For these reasons, the Court
IT IS SO ORDERED.
