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United States v. Taylor

United States District Court, W.D. Pennsylvania

February 2, 2017

UNITED STATES OF AMERICA
v.
DONALD R. TAYLOR, Defendant.

          MEMORANDUM OPINION

          Nora Barry Fischer U.S. District Judge.

         I. INTRODUCTION

         This is a white collar criminal case arising from an alleged fraud on the United States Department of Transportation's Disadvantaged Business Enterprise Program (“DBE Program”) by Century Steel Erectors (“CSE”) and WMCC, Inc., and their respective principals. (Docket No. 1). In this case, the Government has charged one of the owners of CSE, Defendant Donald Taylor, with fourteen separate criminal offenses. (Docket No. 1). The Government generally maintains that Defendant and CSE used WMCC, Inc., a certified disadvantaged business entity, (“DBE”), as a “front” to obtain 13 federally funded highway construction contracts requiring DBE status, and that CSE performed the work on the jobs while it was represented to agencies and contractors that WMCC would be performing the work. (Id.). The Government contends that WMCC did not perform a “commercially useful function” on the jobs as the DBE regulations require and that CSE personnel did the actual work, taking great efforts to conceal from general contractors and government entities that CSE and its personnel were doing the work. (Id.). According to the Government, WMCC's principal, Watson Maloy, [1] was paid a relatively nominal “fixed-fee” for permitting use of WMCC's name on each of these subcontracts. (Id.).

         At issue in this Memorandum Opinion are Defendant's Motion to Dismiss the Indictment and his Motion to Suppress Evidence, both of which are opposed by the Government.[2] (Docket No. 33). The Motions have been fully briefed. (See Docket Nos. 33, 35, 40, 44, 46, 51, 52). The Court held a motion hearing on December 12, 2016, at which time the parties presented a joint stipulation of facts, (Docket No. 48), and a stipulated exhibit, (Docket No. 49-2), and the attorneys presented oral argument as to the pending motions, (Docket No. 53). After careful consideration of the parties' arguments and for the following reasons, Defendant's Motions to Dismiss and to Suppress Evidence [33] are DENIED.

         II. RELEVANT PROCEDURAL HISTORY

         The grand jury returned its Indictment in this case on November 19, 2015. (Docket No. 1). Defendant is charged with fourteen separate offenses: (Count 1) one count of conspiracy to defraud the United States in violation of 18 U.S.C. § 371; (Counts 2-3) two counts of wire fraud in violation of 18 U.S.C. § 1343; (Counts 4-11) eight counts of mail fraud in violation of 18 U.S.C. § 1341; (Count 12) one count of money laundering conspiracy in violation of 18 U.S.C. § 1956(h); and (Counts 13-14) two counts of engaging in monetary transactions derived from unlawful activity in violation of 18 U.S.C. §§ 1957(a) and 2. (Id.). Given the complexity of the matter, the Court granted Defendant several extensions of time to file pretrial motions. (Docket Nos. 13, 16, 18, 28).

         Defendant filed his Omnibus Pretrial Motion and supporting Brief on July 27, 2016. (Docket Nos. 33, 35). After receiving extensions of time from the Court, the Government filed its response on October 17, 2016. (Docket No. 40). The Court granted Defendant leave of court to submit a reply brief and he did so on November 7, 2016. (Docket No. 44). The Government then filed its sur-reply on November 15, 2016. (Docket No. 46). The Court held a motion hearing on December 12, 2016. (Docket Nos. 49, 53). At the hearing, the parties requested the opportunity to file supplemental briefs on matters raised at the hearing, and such request was granted by the Court. (Docket No. 49). Thereafter, the Government filed its supplemental brief on December 13, 2016, (Docket No. 51), with Defendant filing his response to same on December 19, 2016, (Docket No. 52). The official transcript of the motion hearing was produced and filed with the Court on January 6, 2017. (Docket No. 53). In light of these submissions, the pending motions are now fully briefed and ripe for disposition.

         III. MOTION TO DISMISS

         The Court first turns to Defendant's Motion to Dismiss the Indictment wherein he seeks to dismiss the charges for a host of different reasons, all of which are opposed by the Government. (Docket Nos. 33, 35, 44, 52). Briefly, Defendant argues that Count One must be dismissed because he has been purportedly mischarged under the “defraud clause” of 18 U.S.C. § 371, in that the allegations do not support a charge that he defrauded the United States. (Id.). He contends that the DBE program is administered through state and county entities, such that he could not have defrauded the United States, which he believes merely provides funding to the states to administer the DBE program. (Id.). Defendant also argues that the Indictment must be dismissed because the underlying federal regulations, 49 C.F.R. § 26.55(c), that support the counts against him are allegedly void for vagueness as applied to the facts at issue. (Id.). More specifically, he challenges the definition of “commercially useful function” set forth in the regulations and also contends that Congress improperly delegated its duties to the Executive branch in promulgating the regulations at issue. (Id.). The Government counters that the charge at Count One is supported by the allegations in the Indictment which make clear that the charge is for defrauding the United States' DBE program rather than the state and county entities. (Docket Nos. 40, 46, 51). The Government adds that the challenged regulations are neither unconstitutionally vague nor were they promulgated in violation of the principles of separation of powers. (Id.).

         A. Allegations in the Indictment [3]

         The Indictment alleges the following. Defendant was the president and owner of CSE. (Docket No. 1 at ¶ 1). He had authority and oversight over all projects being performed by CSE. (Id.). CSE was a non-DBE steel erection and precast concrete erection subcontractor based in Dravosburg, Pa. (Id.). CSE was owned by Defendant and operated by him and Darlaine Taylor, vice president. (Id.). T.L. was the controller for the company, managing the finances of CSE and reporting directly to Defendant, starting in July of 2011 . (Id. at ¶ 2). Watson Maloy was the president and sole owner of WMCC, a certified DBE. (Id. at ¶ 3).

         The Indictment details the federal government's establishment of the DBE Program through the DOT and its sub-agency, the Federal Highway Administration, (“FHWA”), and outlines the associated statutes and regulations governing same. (Id. at ¶ 4). The FHWA provides billions of dollars annually in federal funding to state departments of transportation for the construction and maintenance of the federal highway system. (Id.). The DBE Program is structured to increase the participation of DBEs in these federally funded highway construction projects, setting a goal of ten-percent participation. (Id. at ¶¶ 4-5). Pertinent here, the Pennsylvania Department of Transportation (“PennDOT”) and the Pennsylvania Turnpike Commission (“PTC”) receive federal funds from FHWA for federally funded highway projects and, as a result of same, are required to establish goals and objectives in administering the DBE Program. (Id.). State and local authorities are also delegated the responsibility to administer the program by, among other things, certifying entities as DBEs; tracking the usage of DBEs on federally funded highway projects through the award of credits to general contractors on specific projects; and reporting compliance with the participation goals to the federal authorities. (Id. at ¶¶ 4-15).

         Between January 2012 and February 2014, “WMCC received 13 federally-funded subcontracts totaling approximately $2.34 million under PennDOT's and PTC's DBE program and WMCC was paid a total of $1.89 million.” (Id. at ¶ 12). These subcontracts were between WMCC and a general contractor, and required WMCC to furnish and erect steel and/or precast concrete on federally funded Pennsylvania highway projects. (Id.). Under PennDOT's program, the entire amount of WMCC's subcontract with the general contractor, including the cost of materials and labor, was counted toward the general contractor's DBE goal because WMCC was certified as a DBE and “ostensibly performed a commercially useful function in connection with the subcontract.” (Id.).

         The grand jury charges that Defendant and other persons known to it, agreed to “defraud the United States by impeding, impairing, obstructing, and defeating the lawful governmental function of the USDOT in the implementation, execution and administration of the DBE program.” (Id. at ¶ 13). The stated purpose of the conspiracy was for Defendant and his co-conspirators to enrich themselves by using WMCC as a “front” company to fraudulently obtain the profits on DBE subcontracts slotted for legitimate DBE's and to increase CSE profits by marketing CSE to general contractors as a “one-stop shop” which could not only provide the concrete or steel beams, but also erect the beams and provide the general contractor with valuable DBE credits. (Id. at ¶ 14).

         The manner and means of the conspiracy is extensively detailed in ¶ 15 of the Indictment. Among other things:

• the conspirators used WMCC as a front company, where funds were passed to CSE in order to obtain the appearance of DBE participation on subcontracts WMCC was awarded under the programs which in reality were performed by CSE personnel;
• under Defendant's direction and authority, CSE personnel found, negotiated, coordinated, performed, managed, and supervised the subcontracts awarded to WMCC and paid WMCC a fixed-fee for use of its name so that CSE could obtain the profits;
• CSE estimators/project managers, found the jobs, prepared bids, mailed, faxed and negotiated the actual contracts;
• CSE engineers, project managers and superintendents drafted erection drawings, negotiated crane rentals, arranged for transportation of materials to the job site, and recruited union workers to perform WMCC's subcontract work;
• the conspirators fraudulently induced the award of DBE subcontracts to WMCC and the payments to WMCC by “creating the illusion” that WMCC was doing the work;
• the conspirators concealed the fact that CSE personnel were doing all of this work through false representations by Maloy to the Port Authority of Allegheny County that he was doing the work, and by CSE personnel to the general contractors as they would use WMCC letterhead on faxes and mailings on documents pertaining to the subcontracts;
• CSE personnel also submitted “phony” time sheets and payroll reports to PennDOT, PTC and the general contractors stating that WMCC employees were doing erection work;
• CSE personnel “pretended” to be WMCC personnel when attending construction progress meetings at PennDOT or PTC field offices and when contacting general contractors and government officials; • CSE personnel used WMCC's email account to communicate with PennDOT, PTC officials, general contractors and suppliers. They also possessed WMCC business cards, t-shirts and hard hats. They disguised vehicles used to transport tools and materials to job sites by placing magnetic signs over CSE logos on the vehicles.
• CSE personnel were directed to use Maloy's signature stamp on various documents, such as endorsing checks; signing union benefit documents and certifying payrolls; and,
• CSE personnel established fax and phone lines at CSE offices to receive WMCC faxes and phone calls.

(Id.). As a result of these maneuvers, the conspirators caused general contractors to pay WMCC for DBE subcontracts and were deceived into crediting expenditures toward DBE participation goals although they were not eligible for such credits because WMCC was not performing a commercially useful function on the jobs. (Id. at ¶ 15.v). CSE also obtained profits from lucrative DBE subcontracts that it was not entitled to receive as it was not a DBE and thereby precluded legitimate DBE's from obtaining such contracts. (Id. at ¶ 15.vi).

         Defendant and Maloy allegedly conspired to engage in this scheme in exchange for the payment of a “fixed fee” to Maloy directly. (Id. at ¶ 16). CSE then caused a series of checks to be issued to Maloy, as outlined in the Indictment. (Id.). WMCC obtained at least 13 separate subcontracts for which it did not perform a commercially useful function, including:

         (Image Omitted)

         (Id. at ¶ 15.xii.).

         Defendant is charged at Counts Two and Three with two counts of wire fraud in violation of 18 U.S.C. § 1343 related to subcontracts with J.F. Shea Construction, Inc. (Id. at ¶ 18). He is alleged to have committed eight counts of mail fraud in violation of 18 U.S.C. §1341 for causing fraudulent documents to be sent in the mail on projects for Golden Triangle Construction; Plum Contracting, Inc.; Lane Construction; Guilsek Construction Co.; and Swank Construction Co., at Counts Four through Eleven. (Id. at ¶ 20). The remaining counts relate to the financial aspects of the scheme, with Count Twelve charging conspiracy to commit money laundering in violation of 18 U.S.C. § 1956(h) and Counts Thirteen and Fourteen alleging that Defendant engaged in monetary transactions derived from unlawful activity in violation of 18 U.S.C. §§ 1957(a) and 2. (Id. at ¶¶ 21-25).

         B. Legal Standard

         Motions to dismiss are governed by Rule 12 of the Federal Rules of Criminal Procedure. Fed. R. Crim. P. 12. Specifically, Rule 12(b)(3)(B) provides that “at any time while the case is pending, the court may hear a claim that the indictment or information fails to . . . state an offense.” Fed. R. Crim. P. 12(b)(3)(B). The requirements of the contents of an indictment are set forth in Rule 7 of the Federal Rules of Criminal Procedure. Fed. R. Crim. P. 7. Pursuant to Rule 7(c)(1), an indictment must “be a plain, concise, and definite written statement of the essential facts constituting the offense charged” and “must give the official or customary citation of the statute, rule, regulation, or other provision of law that the defendant is alleged to have violated.” Fed. R. Crim. P. 7(c)(1). The purpose of the promulgation of Rule 7 was to abolish detailed pleading requirements and the technicalities previously required in criminal pleading. See United States v. Huet, 665 F.3d 588, 594 (3d Cir. 2012) (citing United States v. Resendiz-Ponce, 549 U.S. 102, 110 (2007)); see also United States v. Bergrin, 650 F.3d 257, 264 (3d Cir. 2011) (same citation). “Although detailed allegations may have been required under a common law pleading regime, they ‘surely are not contemplated by [the Federal Rules].'” Huet, 665 F.3d at 594 (quoting Resendiz-Ponce, 549 U.S. at 110).

         As to the sufficiency of an indictment, the United States Court of Appeals for the Third Circuit has held that:

[A]n indictment [is] sufficient so long as it ‘(1) contains the elements of the offense intended to be charged, (2) sufficiently apprises the defendant of what he must be prepared to meet, and (3) allows the defendant to show with accuracy to what extent he may plead a former acquittal or conviction in the event of a subsequent prosecution.' United States v. Vitillo, 490 F.3d 314 (3d Cir. 2007) (internal quotation marks omitted). Moreover, ‘no greater specificity than the statutory language is required so long as there is sufficient factual orientation to permit the defendant to prepare his defense and to invoke double jeopardy in the event of a subsequent prosecution.' United States v. Rankin, 870 F.2d 109, 112 (3d Cir. 1989).

Bergrin, 650 F.3d at 264 (quoting United States v. Kemp, 500 F.3d 257, 280 (3d Cir. 2007)). “Generally, an indictment will satisfy these requirements where it informs the defendant of the statute he is charged with violating, lists the elements of a violation under the statute, and specifies the time period during which the violations occurred.” Huet, 665 F.3d at 595 (citing United States v. Urban, 404 F.3d 754, 771 (3d Cir. 2005)).

In determining whether an indictment validly states the elements of the offense, we need not blindly accept a recitation in general terms of the elements of the offense. United States v. Panarella,277 F.3d 678, 685 (3d Cir. 2002). “Federal Rule of Criminal Procedure 12(b)(3)(B) allows a district court to review the sufficiency of the government's pleadings to ... ensur[e] that legally deficient charges do not go to a jury.” United States v. Bergrin,650 F.3d 257, 268 (3d Cir. 2011). Although the Government is not required to set forth its entire case in the indictment, “if the specific facts” that are alleged “fall beyond the scope of the relevant criminal statute, as a matter of statutory interpretation, ” the indictment fails to state an offense. Panarella, 277 F.3d at 685; seeUnited States v. Schiff,602 F.3d 152, 162-66 (3d Cir. 2010) (finding that indictment alleging “failure to rectify misstatements of others” did not, as a matter of statutory interpretation, state an offense under 18 U.S.C. § 78j(b) and SEC Rule 10b-5). However, the scope of a district court's review at the Rule 12 stage is limited. “[A] pretrial motion to dismiss an indictment is not a permissible vehicle for addressing the sufficiency of the government's evidence.” United States v. DeLaurentis,230 F.3d 659, 660 (3d Cir. 2000) (citations omitted). “The government is entitled to marshal and present its evidence at trial, and have its sufficiency tested by a motion for acquittal pursuant to Federal Rule of Criminal Procedure 29.” Id. at 661. There is no criminal corollary to the civil summary judgment mechanism. Id. In evaluating a Rule 12 motion to dismiss, a district court must accept as true the factual allegations set forth in the indictment. United States v. Sampson,371 U.S. 75, 78-79, 83 S.Ct. 173, 9 L.Ed.2d 136 (1962); United States v. Besmajian,910 F.2d 1153, 1154 (3d Cir. 1990). ...

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