United States v. Kousisis

82 F.4th 230

UNITED STATES of America v. Stamatios KOUSISIS, a/k/a Tom Kousisis, Appellant in No. 19-3679

United States of America v. Alpha Painting & Construction Co., Inc., Appellant in No. 19-3774

No. 19-3679

No. 19-3774

United States Court of Appeals, Third Circuit

Argued August 18, 2021

Filed: September 22, 2023

On Appeal from the United States District Court for the Eastern District of Pennsylvania (District Court Nos. 2:18-cr-00130-001 & 2:18-cr-00130-03), District Judge: Honorable Wendy Beetlestone

Paul G. Shapiro [ARGUED], Office of United States Attorney, 615 Chestnut Street, Suite 1250, Philadelphia, PA 19106, David E. Troyer, Office of United States

Attorney, 615 Chestnut Street, Suite 1250, Philadelphia, PA 19106, Attorneys for Appellee

Lisa A. Mathewson [ARGUED], Suite 1320, 123 South Broad Street, Philadelphia, PA 19109, Attorney for Appellants

Lawrence S. Lustberg, Gibbons, One Gateway Center, Newark, NJ 07102, Attorney for Amicus Appellants

Before: McKEE,^* GREENAWAY, Jr.,^** and RESTREPO, Circuit Judges

OPINION OF THE COURT

McKEE, Circuit Judge.

On August 30, 2018, a jury convicted Stamatios Kousisis and Alpha Painting & Construction Co., Inc. ("Alpha") of, among other things, one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, and three counts of wire fraud, in violation of 18 U.S.C. § 1343. Kousisis and Alpha appeal the District Court's (1) denial of their motion for judgment of acquittal, (2) jury instructions, and (3) loss calculations at sentencing. We will affirm the convictions. Given the complex nature of the fraud in this case, we commend the District Court for its attempt to determine the amount of loss for sentencing purposes. However, we must vacate the loss calculation and remand for further proceedings consistent with this opinion.¹

I. Background

A. Disadvantaged Business Enterprises

"The United States Department of Transportation provides funds to state transportation agencies to finance transportation projects. These funds often go towards highway construction, provided through the Federal Highway Administration ('FHWA'). In Pennsylvania, the FHWA provides such funds to the Pennsylvania Department of Transportation ('PennDOT')."²

Federal regulations require states that receive federal transportation funds to set participation goals for disadvantaged business enterprises ("DBEs")³ in transportation construction projects. This is intended to promote the participation of minority and disadvantaged businesses in these federally financed Department of Transportation ("DOT") contracts. A DBE is defined as a for-profit small business "[t]hat is at least 51 percent owned by one or more individuals who are both socially and economically disadvantaged" and "[w]hose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it."⁴

The DBE program has "an aspirational goal" of having ten percent of DOT's infrastructure project funds expended on DBEs.⁵ When state agencies solicit bids for DOT-financed contracts, they announce DBE participation goals for those contracts; responsive bids must explain how the contractors will meet those goals.⁶ If the prime contractor is not itself a DBE, this goal can be satisfied by including one or more DBEs as subcontractors.⁷ "States themselves certify businesses as DBEs. A business must be certified as a DBE before it or a prime contractor can rely on its DBE status in bidding for a contract."⁸

When a DBE participates in a contract, that DBE must perform a "commercially useful function."⁹ "A DBE performs a commercially useful function when it is responsible for execution of the work of the contract and is carrying out its responsibilities by actually performing, managing, and supervising the work involved."¹⁰ A DBE whose "role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of DBE participation" does not perform a commercially useful function.¹¹

B. Factual and Procedural History

On April 3, 2018, Kousisis, Emanouel Frangos, and their respective companies, Alpha and Liberty Maintenance, Inc. ("Liberty") were indicted for (1) conspiracy to commit wire fraud, in violation of § 1349, (2) wire fraud, in violation of § 1343, and (3) false statements, in violation of 18 U.S.C. § 1001.

The indictment charged the Defendants with conspiring to defraud DOT and PennDOT by exploiting DOT's DBE program. The charges arose out of two DOT-financed contracts for work in Philadelphia: the Girard Point Project and the 30th Street Project (together, the "Philadelphia Projects" or the "Projects"). The Girard Point Project involved a $70.3 million contract to perform painting and repairs on the Girard Point Bridge over the Schuylkill River. It was awarded to Alpha, Liberty, and another entity, Buckley, Inc., in 2009. The 30th Street Project involved a $50.8 million contract to perform repairs at the Amtrak 30th Street Train Station in Philadelphia. That contract was awarded to Buckley and another entity, Cornell and Company ("Cornell") in 2010, and it included a $15 million painting subcontract awarded to Alpha and Liberty in 2011.

Both contracts for the Philadelphia Projects included DBE requirements. The Girard Point Project required the successful bidder to commit to contracting with a DBE for at least six percent of the contract amount. The 30th Street Project had a DBE requirement equal to seven percent of the contract amount. The Defendants submitted bids in which they committed to working with Markias, Inc. on the Philadelphia Projects. Markias, Inc. was a company that had prequalified as a DBE in Pennsylvania. The Defendants' bids stated that they would obtain $4.7 million in paint supplies from Markias for the Girard Point Project and $1.7 million for the 30th Street Project. The terms of the Philadelphia Projects' contracts provided that failure to comply with DBE regulations would be a material breach.

During the performance of these contracts, the Defendants periodically submitted false documentation regarding Markias' role in the Philadelphia Projects. That documentation was a condition precedent to obtaining credit towards the DBE goals and, therefore, to complying with the contracts' terms. Each of those submissions falsely certified that Markias acted as a "regular dealer" in supplying products. In reliance on these misrepresentations, PennDOT awarded the Defendants DBE credits and paid the Defendants based on their asserted compliance with the Projects' DBE requirements. As established at trial, failure to certify compliance with the DBE requirements could have led to debarment, financial penalties, or withholding of progress payments.

Rather than supplying products or performing some other commercially useful function as required by the explicit terms of the contracts, Markias served merely as a pass-through for Alpha-Liberty. Markias did not do any work on the Projects or supply any of the materials for them, despite the Defendants' certifications to the contrary.

To hide the fact that Markias was doing no work on the Philadelphia Projects, the Defendants arranged for the true paint suppliers to send their invoices to Markias. Markias then issued its own invoices, added a 2.25% fee, and forwarded the pass-through invoices to Alpha-Liberty. Alpha-Liberty then forwarded those fraudulent invoices to PennDOT. This arrangement was detailed in a letter from Kousisis to Markias. The letter specified that Alpha-Liberty would identify the actual suppliers for the products that it needed. Alpha-Liberty would then negotiate prices and terms with those suppliers and create fraudulent purchase orders in Markias' name. In turn, the Defendants issued two sets of checks to Markias. One check paid Markias its 2.25% fee for acting as a pass-through. Markias forwarded the other check to the actual suppliers to pay for the materials that the Defendants ordered directly from them. The Defendants also routed invoices related to supplies used on projects outside Pennsylvania through Markias. This made it appear that the materials were used on the Philadelphia Projects.

The jury returned a mixed verdict based on this evidence. It acquitted Kousisis and Alpha on two of the wire fraud counts, but convicted them of false statements, in violation of § 1001, conspiracy to commit wire fraud, in violation of § 1349, and wire fraud, in violation of § 1343. This appeal followed.

II. Discussion

Kousisis and Alpha (together, "Appellants") raise three main issues on appeal. First, they claim that the government failed to prove the "property" element of wire fraud. They also challenge the District Court's jury instructions and loss calculations at sentencing. We address each argument in turn.

A. The Property Element of Wire Fraud

The federal wire fraud statute, 18 U.S.C § 1343, criminalizes "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises," that uses wires. It is now well established that the federal wire fraud provision only extends to property rights.¹² Moreover, for the government to establish wire fraud, the property involved "must play more than some bit part in a scheme: It must be an 'object of the fraud.' "¹³ This must be evaluated from the victim's perspective. Thus, the victim's loss must have been an objective of the fraudulent scheme; it is insufficient if that loss is merely an incidental byproduct of the scheme.¹⁴

Appellants claim that the District Court erred in denying judgment of acquittal because the government failed to prove beyond a reasonable doubt that they defrauded PennDOT out of property, as required by the wire fraud statute. We exercise plenary review over a District Court's denial of a motion for judgment of acquittal and use "the same standard the district court uses in deciding...