In the

United States Court of Appeals

For the Seventh Circuit

No. 99-1865

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

HENRY MASQUELIER, JR.,

Defendant-Appellant.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 96 CR 157--Elaine E. Bucklo, Judge.

Argued November 3, 1999--Decided April 12, 2000

 Before POSNER, Chief Judge, COFFEY and ROVNER,

Circuit Judges.

 ROVNER, Circuit Judge. The United States charged

Henry Masquelier with conspiracy to defraud the

Department of Defense in violation of 18 U.S.C.

sec. 371, and with defrauding the United States

in connection with a government contract in

violation of 18 U.S.C. sec. 1031. The district

court denied Masquelier’s motion in limine

seeking to admit evidence of the government’s

alleged wrongdoing in the execution of the

contract in question, and Masquelier then pled

guilty to the latter count, reserving his right

to appeal the district court’s ruling. The

government dismissed the first count pursuant to

the plea agreement. We affirm.

I.

 Masquelier was the owner and president of

Midstar, Inc., a company which machined and

assembled metal items. In 1989, Midstar

contracted with the Defense Logistics Agency, the

arm of the Department of Defense charged with

awarding and administering defense contracts, to

produce more than 30,000 fire hose nozzles for

Navy ships. The DLA agreed to pay $2,265,976.96

for the nozzles, and the contract provided that

Midstar could request progress payments from the

DLA to defray the costs associated with buying

materials and services necessary to the
completion of the contract. Masquelier took

advantage of this provision, submitting a request

for a progress payment in the amount of

$150,169.00 to cover the cost of over 40,000

shutoff trunnions, a part of the fire hose

nozzles, provided by a subcontractor named Mex-Am

Machining, Inc. Masquelier certified in his

request to the DLA that the cost was actually

incurred and consistent with the contract, and

the DLA paid this amount in full to Midstar. 

 The government charges that, in fact, no such

parts were ever ordered or purchased by Midstar.

Instead, Masquelier had obtained blank invoices

from the former owner of the defunct Mex-Am

Machining, and fraudulently filled them out to

reflect that Mex-Am had delivered 47,000

trunnions to Midstar at a cost of more than

$167,000. Masquelier then submitted the request

for a progress payment, and the DLA issued a

check for more than $150,000.00. Masquelier

deposited the check from the DLA, and wrote a

check to Mex-Am to make it appear that he had

paid Mex-Am for the parts shown on the false

invoices. Mex-Am’s former owner (and Masquelier’s

soon-to-be co-defendant) assisted Masquelier by

returning all of the money to Masquelier except

for $3,206.54, his share in the scheme. 

 In the district court, Masquelier brought a

motion in limine seeking to admit evidence that

he intended at all times to complete the contract

and that the government’s wrongful actions put

him in a position where the only way he could

complete the contract was to submit the falsified

request for a progress payment. In particular, he

wanted to present to the jury the fact that

shortly after signing the contract, he discovered

that the specifications for the nozzles were

faulty, and that the DLA then issued changes to

the original contract specifications. These

changes delayed production of the nozzles,

according to Masquelier, and that delay created

financial strains for Midstar. The DLA

exacerbated the problem, Masquelier complains, by

setting unrealistic delivery schedules, and then

canceling part of the contract. Apparently on the

brink of financial ruin, Masquelier asserts that

the delays forced him to submit the request for

a progress payment so that he would be able to

complete the contract. All of this evidence is

relevant, according to Masquelier, because it

demonstrates that he did not intend to defraud

the government; rather, he intended at all times

to complete the contract and provide the

government with the parts specified in the

contract.

 The district court denied Masquelier’s motion,

and instead granted the government’s counter
motion to exclude any evidence of alleged

wrongdoing by the DLA. The court noted that both

statutes under which Masquelier was charged

required the government to prove an intent to

defraud. This intent to defraud, the district

court found, was defined as "acting willfully and

with specific intent to deceive or cheat, usually

for the purpose of getting financial gain for

one’s self or causing financial loss to another."

United States v. Masquelier, 1998 WL 773997, *1

(N.D. Ill. October 27, 1998). For a sec. 371

charge, the government may show either that the

defendant intended to cause the government a

property or pecuniary loss, or intended to

interfere with a lawful government function. Id.

The court rejected Masquelier’s argument that

evidence of the DLA’s delays, changes and

cancellations was relevant to show that his

intent was to complete the contract rather than

to cause the government a loss. The court held

that Masquelier’s deceptive conduct exposed the

government to an unwanted risk of never getting

anything of value for the money that the DLA

paid. Whether he intended to cause a loss in the

long-run was irrelevant, the district court held,

and could not negate his intent to obtain money

for work that was not actually performed.

Masquelier appeals.

II.

 Masquelier invokes the venerable Oliver Wendell

Holmes early in his argument, for the proposition

that "Even a dog distinguishes between being

stumbled over and being kicked." Oliver Wendell

Holmes, Jr., The Common Law, quoted in Morissette v.

United States, 342 U.S. 246, 252 n.9 (1952). He

contends that he lacked the requisite mens rea

for the fraud offenses charged. He did not intend

to deprive the government of its property.

Rather, he intended to complete the contract as

promised. Evidence of the government’s

wrongdoing, under his theory, is relevant to show

that he was forced to request the progress

payment so he could complete the contract in the

only way possible. He therefore sought to admit

into evidence that the DLA acted improperly in

the administration of the contract, that these

actions put him in the position of being forced

to seek the progress payment in order to complete

the contract, and that the progress payment funds

went not into his own pocket but were used to

execute the contract. The government maintains

that the only intent relevant to the crimes

charged is Masquelier’s intent to obtain $150,000

to which he was not entitled. Under the

government’s formulation, DLA’s wrongdoing, if

any, is wholly irrelevant, as is Masquelier’s

ultimate purpose of completing the contract.
 We have held that sec. 371 "encompasses only

conspiracies in which the defendants intended

either to cause the government property or

pecuniary loss or interfere with or obstruct a

lawful government function." United States v.

F.J. Vollmer & Co., Inc., 1 F.3d 1511 (7th Cir.

1993), cert. denied, 510 U.S. 1043 (1994).

Masquelier himself cites cases where we

formulated the intent to defraud as acting

wilfully or knowingly, with specific intent to

deceive or cheat, in order to obtain financial

gain for one’s self or cause financial loss to

the victim. See United States v. Catalfo, 64 F.3d

1070, 1079 (7th Cir. 1995), cert. denied, 517

U.S. 1192 (1996); United States v. Moede, 48 F.3d

238, 241 (7th Cir. 1995). Presumably it is the

third part of this formulation that Masquelier

wishes to challenge, as he admittedly acted

knowingly (as opposed to inadvertently), and

certainly intended to deceive when he filled out

blank invoices from a defunct company and

submitted them to the government knowing the

content was false. He was not, he claims, trying

to obtain financial gain for himself or cause

financial loss to the government, although he

admits he submitted the request in order to

obtain in excess of $150,000 from the government,

money that he knew he was not entitled to under

the contract. In support of his contention that

he was not trying to obtain financial gain for

himself, he points out that the money did not go

into his personal account but went towards the

completion of the contract. 

 We addressed that very issue in Moede, where we

held that it is not necessary for the defendant

to receive personal benefit to support a fraud

conviction (in that case, bank fraud). Rather, it

is sufficient that the defendant intended to

cause actual or potential loss to the victim. 48

F.3d at 242. We have also held that it is

irrelevant in a fraud prosecution that the

defendant sincerely believed that he would

ultimately be able to return the victim’s money

after his scheme succeeded. See United States v.

Dunn, 961 F.2d 648, 650 (7th Cir. 1992) (an

honest belief that the defendant will ultimately

be able to perform is not itself a defense to the

fraud crime charged); United States v. Chandler,

98 F.3d 711, 716 (2nd Cir. 1996) (intent to repay

fraudulently obtained loan irrelevant in light of

exposure of victim to potential loss).

 Masquelier insists he is not propounding the

affirmative defense of good faith but rather

wishes to put on this evidence to show that the

government cannot prove an element of the crime.

However he frames his claim, the result is the

same. His ultimate intention to make good on the

contract is irrelevant to his intent to obtain
government money to which he was not entitled

through deceptive means. As our esteemed Chief

Judge commented at oral argument, to hold

otherwise would require us to overturn a thousand

years of criminal law. Indeed, Judge Posner

challenged Masquelier to find a case with a

contrary result, offering that if counsel was

able to find such a case, Judge Posner would eat

his hat "in public." Fortunately, the Chief will

not be forced to feast on his fedora./1 Fraud is

complete when the defendant obtains money by

false pretenses. United States v. Stafford, 136

F.3d 1109, 1112 (7th Cir. 1998), modified, 136

F.3d 1115 (7th Cir. 1998), cert. denied, 119 S.

Ct. 123 (1998). What Masquelier intended to do

with the fraudulently obtained funds is

irrelevant and the district court was well within

its discretion to exclude any evidence of the

government’s allegedly bad acts or Masquelier’s

plans to follow through on the contract. Id.

Masquelier did not stumble over the Department of

Defense; he kicked it.

AFFIRMED.

/1 Masquelier cites Judge Posner in his opening

brief for the proposition that intent should be

approached in cost-benefit terms, imposing

punishment only where it would serve as a

deterrent to socially undesirable behavior. See

Richard A. Posner, The Problems of Jurisprudence, ch. 5

(1990). Because he was engaging in behavior most

likely to result in the contract being fulfilled

(a socially desirable result), Masquelier urges

that he should be allowed to put on his evidence.

He boldly asserts that "any deterrent-creating

sanctions in this case should be applied to the

government, not the defendant." We are reminded

of the adage defining chutzpah, where the man who

kills both his parents throws himself on the

mercy of the court because he is an orphan. True,

certain theories of economic efficiency are easy

to misapprehend, but we are beyond certain that

Judge Posner would not advocate fraud as a selfhelp remedy for breach of contract.