Source: http://nm.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20200113_0000075.DNM.htm/qx
Timestamp: 2020-05-28 21:21:36
Document Index: 568026943

Matched Legal Cases: ['§ 9', '§ 1341', '§ 1913', '§ 8', '§ 637', '§ 8', '§ 8', '§ 8', '§ 8', '§ 8', '§ 8', '§ 8', '§ 8', '§ 8', '§ 8']

ORDER CONSTRUING THE UNITED STATES' NOTICE OF INTENT TO INTRODUCE CO-CONSPIRATOR STATEMENTS AS A MOTION TO INTRODUCE CO-CONSPIRATOR STATEMENTS AND GRANTING IN PART AND DENYING IN PART THE UNITED STATES' MOTION
On November 19, 2018, the government filed a notice of intent to introduce co-conspirator statements. On September 13, 2019, the Court held a James hearing to determine the admissibility of the alleged co-conspirator statements under Federal Rule of Evidence 801(d)(2). Following a half-day hearing, the Court granted Defendant Boutte additional time to cross-examine the government's witness. At the end of the hearing, the Court told Boutte it would accept a proffer of witness testimony in lieu of Boutte's four witnesses testifying. Defendant Boutte submitted that proffer on September 27, 2019. On November 1, 2019, the Court held a continued James hearing. At the hearing, the United States offered the testimony of Colin Feeney, an investigative auditor with the United States Department of Defense who investigated the alleged crimes at issue. After considering the government's notice, which the Court construes as a motion and the evidence presented at the hearings, Boutte's proffered witness testimony, and relevant law, the Court grants in part and denies in part the government's motion for the reasons set forth below.
As an overarching matter, Defendants were all generally affiliated with the Big Crow Program Office (“BCPO”) at Kirtland Air Force Base in Albuquerque, New Mexico, and allegedly committed their crimes in conjunction with their ties to that office. BCPO, in turn, functioned as the airborne component of the United States Army's electronic warfare assessment program beginning in 1971. The Army principally funded BCPO in its early years. In the late 1990s, however, the Army's funding for and need of BCPO started to dwindle. BCPO's ever-diminishing assets, money, and utility eventually led it to shut down for good in 2009.
Near the end of BCPO's run-“not later than 2004, ” claims the indictment-Defendant Milton Boutte, the then-Director of BCPO, allegedly began to engage in illegal activities with others “to obtain money for [BCPO].” Specifically, the indictment alleges that Boutte “conspired and schemed” with Defendant George Lowe and “other lobbyists, consultants, and contractors” to lobby Congress and other government agencies for money for the benefit of BCPO. The problem for Boutte was that the lobbyists-especially Lowe-charged hundreds of thousands of dollars for their work. How were Boutte and BCPO to pay for these services?
From a legal perspective, the government alleges that Boutte could not use funds appropriated to BCPO by Congress to pay for Lowe's lobbying activities. For one thing, Congress did not authorize or appropriate funds to BCPO to expend money for lobbying. See U.S. Const. art. I, § 9, cl. 7; 31 U.S.C. § 1341(a)(1)(B) (“An officer or employee of the United States Government . . . may not . . . involve [the] government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law.”). And in the absence of that express congressional authorization, 18 U.S.C. § 1913-a criminal statute-forbids federal officers and employees from using any appropriated money to engage in activities that could be broadly characterized as lobbying.
According to the government, Boutte and Lowe chose to take an illegal route. In so doing, the two men turned to the 1953 Small Business Act-specifically, § 8(a) of that Act, wherein Congress established the Business Development Program. 15 U.S.C. § 637(a). Put briefly, the § 8(a) Business Development Program authorizes the government to assist eligible small businesses to help them get off the ground. One way the government does that is by awarding eligible small businesses “sole-source contracts”-that is, contracts entered into without engaging in open competition or a competitive process. As a practical matter, this means that on any given project the government will select a § 8(a) small business as its contractor without first making that small business compete with other potential contractors for its services.
The indictment alleges that Boutte and Lowe realized they could misappropriate funds from § 8(a) sole-source contracts to pay for Lowe's lobbying efforts and other unauthorized expenses. But to do so, they needed-obviously enough-small businesses. Thus the two men allegedly further “conspired and schemed” with Defendants Joe Diaz and Arturo Vargas, two small business owners, to “fraudulently obtain and exploit” § 8(a) sole-source contracts for that illegal purpose.
Diaz was the first small business owner to allegedly lend illegal support by misappropriating a § 8(a) sole-source contract. He owned a controlling interest in a small business known as Miratek Corporation (“Miratek”), and in due time he enrolled Miratek in the § 8(a) Business Development Program. The United States eventually awarded a sole-source contract under § 8(a) to Miratek in 2004 to provide various “technical services” to BCPO (“Miratek Contract”). Diaz then allegedly conspired with Boutte and Lowe to fraudulently divert money from the Miratek Contract to pay Lowe's lobbying fees and other unauthorized expenses. According to the indictment, for instance, Diaz falsely represented that Lowe was an employee of Miratek, and the men would then submit invoices claiming false and fictional hours of work for supposed services that Lowe provided. The total amount unlawfully diverted added up to more than $529, 000.
The Miratek Contract, however, could not indefinitely support the confederates' supposedly fraudulent scheme. Funding under that contract slowly had been exhausted, and under the terms of § 8(a), Miratek could no longer participate in the Business Development Program after utilizing it for so many years. Thus, to keep the lobbying and allegedly fraudulent payments moving along, Boutte and Diaz sought another small business that could seamlessly fill Miratek's role in the scheme.
Enter Arturo Vargas. Vargas, a Certified Public Accountant doing business as Vargas P.C., had served as Diaz's and Miratek's accountant for nearly sixteen years. Yet in early 2005, Vargas and Diaz teamed up before the Small Business Administration to take Vargas P.C. in an entirely new direction. Among other things, the two men informed the Small Business Administration that Vargas P.C. was expanding and diversifying into the information technology field. They further informed the administration that as it did so, they hoped to have Miratek-and, by extension, Diaz-serve as Vargas P.C.'s small business mentor. Under the terms of § 8(a), protégé/mentor relationships were allowed. The Small Business Administration agreed to their request.
Leveraging their new protégé/mentor relationship, Vargas and Diaz eventually asked the Small Business Administration in late 2005 for permission to combine their services under a joint venture called Vartek, LLC (“Vartek”) so they could work together to provide “technical and analytical expertise” to BCPO. Section 8(a) expressly allows such joint ventures in certain circumstances, and Vartek seemingly satisfied the requisite conditions. The Small Business Administration thus approved the joint venture. The government eventually awarded two § 8(a) sole-source contracts to Vartek (“Vartek Contract 1” and “Vartek Contract 2, ” respectively).
Among other allegations in the indictment, Diaz and Vargas then proceeded to falsely represent that Lowe was an employee of Vartek, and the men would then submit fraudulent invoices claiming fictional hours of work for services Lowe supposedly provided. All in all, Diaz and Vargas allegedly misappropriated at least $506, 000 in funds from the two contracts to pay Lowe for his lobbying activities and more than $5, 800, 000 in funds to pay other lobbyists, consultants, and contractors.
Notably, the indictment also outlines at least one instance where Lowe's lobbying efforts on behalf of BCPO over the years actually succeeded. In early 2005, while the Miratek Contract was still in play, Lowe allegedly informed Boutte, Diaz, and their agents that the Alaska Army National Guard was set to transfer $1, 185, 000 to BCPO. That large sum eventually came through and was added to the funding under the Miratek Contract. The indictment then alleges that Lowe demanded and eventually received most of that transferred money (or equivalent sums) as payment for his services, which effectively rendered BCPO's initial receipt of the funds from the Alaska Army National Guard useless.
In addition to the four indicted Defendants, the government alleged that three unindicted individuals also conspired with Defendants: Ron Unruh, a contract specialist for Miratek; Nick Toomer, a consultant for Edgewater Technologies who allegedly funneled payments to Lowe; and Arturo Herrera, a Miratek accountant.
Federal Rule of Evidence (“Rule”) 801(d)(2)(E) provides that a statement is not hearsay if the statement is offered against an opposing party and “was made by the party's coconspirator during and in furtherance of the conspiracy.” Before admitting such co-conspirator, out-of-court statements as non-hearsay, the United States must prove by a preponderance of the evidence that: (1) “a conspiracy existed, (2) the declarant and the defendant were both members of the conspiracy, and (3) the statements were made in the course and in furtherance of the conspiracy.” United States v. Owens, 70 F.3d 1118, 1123 (10th Cir. 1995). “Statements by a conspirator are in furtherance of the conspiracy when they are ‘intended to promote the conspiratorial objectives.'” United States v. Townley, 472 F.3d 1267, 1273 (10th Cir. 2007) (quoting United States v. Reyes, 798 F.2d 380, 384 (10th Cir. 1986)). This promotion occurs through statements that “explain events of importance to the conspiracy in order to facilitate its operation, statements between coconspirators which provide reassurance, which serve to maintain trust and cohesiveness among them, or which inform each other of the current status of the conspiracy, and statements of a coconspirator identifying a fellow coconspirator.” Id. (internal quotation marks, citations, and brackets omitted).
The “strongly preferred” procedure for addressing the admissibility of co-conspirator statements in this Circuit is for the district court to hold a James hearing, see United States v. James, 590 F.2d 575 (5th Cir. 1979), outside the presence of the jury. Owens, 70 F.3d at 1123. In making the decision whether the government has satisfied its burden at a James hearing, “the district court has the discretion to consider any evidence not subject to a privilege, including both the coconspirator statements the government seeks to introduce at trial and any other hearsay evidence, whether or not that evidence would be admissible at trial.” Id. at 1124. But in addition to the statements, the government must present “some independent evidence” connecting the defendant to the conspiracy. Id. at 1124-25. “[S]uch independent evidence may be sufficient even though it is not ‘substantial.'” Id. at 1125 (quoting United States v. Rascon, 8 F.3d 1537, 1541 (10th Cir. 1993)).
Importantly, for purposes of Rule 801(d)(2)(E), the government need not prove that the conspiracy was for an unlawful purpose. United States v. Bucaro, 801 F.2d 1230, 1232 (10th Cir. 1986). Rather, the government must prove merely that a “combination” existed between the defendant and third parties. Id.; see also United States v. Nelson, 732 F.3d 504, 516 (5th Cir. 2013) (stating that a conspiracy for the purpose of the hearsay exclusion need not be unlawful; the statement may be made in furtherance of a “lawful joint undertaking”); United States v. Brockenborrugh, 575 F.3d 726, 735 (D.C. Cir. 2009) (“Rule 801(d)(2)(E) allows for admission of statements by individuals acting in furtherance of a lawful joint enterprise.”). Thus, the government may show a conspiracy by providing evidence that the alleged conspirators merely engaged in a joint plan that was non-criminal in nature. Nelson, 732 F.3d at 516. Accordingly, “a statement is not hearsay if it was made during the course and in furtherance of a common plan or endeavor with a party.” Id. Rule 801(d)(2)(E) “embodies the long-standing doctrine that when two or more individuals are acting in concert toward a common goal, the out-of-court statements of one are not hearsay and are admissible against the others, if made in furtherance of the common goal.” United States v. Weisz, 718 F.2d 413, 433 (D.C. Cir. 1983).
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the James hearing, Agent Feeney testified about the alleged relationship between the alleged indicted and unindicted co-conspirators. Agent Feeney testified that the purpose of the alleged conspiracy was to enlist Lowe to lobby on behalf of the BCPO; to actually have Lowe lobby on behalf of the BCPO; to pay Lowe for his lobbying services on behalf of the BCPO; to generate fraudulent invoices in order to pay Lowe for his lobbying services; and to recoup that money from the United States Government. Feeney stated that Boutte was so desirous to obtain funding for the BCPO that he hired Lowe to lobby. After Lowe and Boutte agreed to payment terms, Feeney said ...