Opinion ID: 2671506
Heading Depth: 3
Heading Rank: 1

Heading: The Cochran decision

Text: Griggs bases his sufficiency-of-evidence challenge on our decision in Cochran. The defendant in that case, Robert Cochran, was the head of the Oklahoma City Municipal Bond Underwriting Department of Stifel, Nicolaus & Company (Stifel), a company that participated in underwriting municipal bond issues. Stifel was a co-managing underwriter for almost $77 million in taxable 20-year revenue bonds issued by the Oklahoma City Airport Trust (OCAT). Stifel also, in connection with the deal, brokered a collateralized guaranteed 36 investment contract between OCAT and the Postipankki Bank, a Finnish bank. This contract allowed OCAT to invest the bond proceeds at a fixed rate until needed and earn a return in excess of most short-term investments. Stifel located Postipankki, the highest bidder in terms of the guaranteed interest rate offered, with the help of Pacific Matrix Financial Corporation, a California money broker. At the direction of Stifel, Postipankki reduced slightly the amount of the guaranteed interest percentage it offered in its original bid (Postipankki would have been the highest bidder even based on its net bid) to account for broker fees charged by Stifel and Pacific Matrix. Those fees totaled $529,241.09, of which Stifel received $489,241.09. OCAT was unaware of the fees or that Postipankki’s original bid was for a slightly higher guaranteed rate of interest. The return from the guaranteed investment contract earned OCAT more than $1.5 million, and the net rates it earned were over twice what it was making on short-term Treasury securities. As a result of the OCAT transaction, Cochran was indicted on two counts of wire fraud (specifically a telephone call directing the Postipankki bid reduction and a fax transmission from Pacific Matrix to Oklahoma bond counsel reflecting the reduced bid amount) and one count of money laundering. Cochran was subsequently convicted by a jury of these counts and was sentenced to a term of imprisonment and ordered to pay restitution in an amount equal to the broker fee received in the OCAT transaction. 37 On appeal, Cochran “argue[d] that he had no duty to disclose (to OCAT) the Stifel commission on the guaranteed investment contract placed with Postipankki bank.” 109 F.3d at 665. We agreed. In reaching this conclusion, we noted “[t]he evidence in this case does not support [the existence of a fiduciary] duty [between Stifel/Cochran and OCAT], nor does it support the government’s alternate theory that Stifel’s affirmative misstatements of fact (the net bids) induced false beliefs regarding the amount of the Postipankki bid to OCAT.” Id. We emphasized that we “analyze[d] the government’s alternate theory virtually the same way as its nondisclosure theory because the alternate theory presupposes a duty to disclose with any statements unaccompanied by such disclosure deemed fraudulent.” Id. “The record,” we noted, “ma[de] it clear that even among the government’s industry witnesses no consensus existed concerning proper reinvestment fee disclosure.” Id. at 666. Consequently, we held that “[t]he wire fraud counts pertaining to the OCAT transaction must be reversed.” Id. at 667. b. The district court’s rejection of Griggs’ Cochran-based challenge Griggs, citing Cochran, moved for a judgment of acquittal on all counts at the conclusion of the government’s case, at the conclusion of all the evidence, and after the jury had returned its verdict. The district court dismissed one of the mail fraud counts at issue (Count 51), 8 but rejected Griggs’ motions 8 In the project at issue in Count 51, the government’s evidence established (continued...) 38 with respect to the remaining counts at issue. c. Griggs’ challenge to the district court’s decision Griggs argues that “[t]he district court’s attempt to distinguish this case from Cochran fails.” Griggs Br. at 19. In support, Griggs asserts that “[i]n Cochran, the broker [defendant] provided an affirmative representation concerning the interest rate offered to OCAT.” Id. “The ‘quoted’ rate,” Griggs asserts, “was less than the ‘original’ rate the bank was willing to pay,” and “[t]hat ‘original’ rate had been reduced to cover the broker fee to the defendant[].” Id. at 19-20. “In this case,” Griggs argues, “the quoted rate for the cost of the subcontractors was higher than the amount actually paid to the subcontractor because the quoted amount included profit and overhead for DRI.” Id. at 20. “In other words,” he argues, “the ‘retail rate’ charged to the insurance company included the ‘wholesale rate’ paid to the subcontractors plus a markup for profit and overhead.” Id. He argues that “DRI’s estimates for the insurance companies accurately represented what DRI was charging for the work of the subcontractors but omitted disclosing the amount of the markup DRI was charging for that work.” Id. “In Cochran,” he argues, “the quoted rate to OCAT was what the bank was paying, but omitted disclosing that the bank had reduced the rate it was 8 (...continued) that DRI dealt exclusively with the property owner, Steve Rosen, who was acting as his own general contractor overseeing the repair of his property. In other words, DRI did not make any representations to Rosen’s insurance company. 39 willing to pay in order to cover the cost of the broker fee.” Id. Ultimately, Griggs argues that, “[s]ince it is not contested that DRI had no duty to disclose to the insurance companies, this case is controlled by the holding in Cochran.” Id. “Indeed,” Griggs argues, “the relationship between DRI and the insurance companies was much more arms-length than that between the broker and OCAT in Cochran.” Id. According to Griggs, “[u]nder these facts, DRI charging the insurance companies a retail price for the work of subcontractors without disclosing that the subcontractors were paid a wholesale amount, when there was no duty of disclosure, cannot be deemed a nondisclosure coupled with an affirmative misrepresentation which induced a false belief among the insurers.” Id. at 21. We reject Griggs’ arguments and conclude that the district court correctly distinguished this case from Cochran. The basis for the fraud charges in Cochran was the defendant’s nondisclosure of information to OCAT. Although the defendant in Cochran truthfully informed OCAT of the guaranteed interest rate it would receive from the bank, he failed to disclose to OCAT (a) the fact that the bank had originally offered a slightly higher guaranteed interest rate, (b) the fact that he and Stifel would be receiving a commission from the bank, and (c) the fact that the bank effectively paid for the commission by lowering slightly the amount of the guaranteed interest rate. The case at issue involving DRI, in contrast, involves more than the 40 nondisclosure of information. In each of the counts at issue, DRI submitted to an insurance company a written estimate that included one or more line items listing work to be performed by a subcontractor, along with a dollar amount and a phrase such as “per detailed breakdown,” “per invoice,” “actual cost . . . per invoice,” “per estimate,” or “per proposal.” This information was truthful only in the sense that the amount listed on the subcontractor line item matched one of the two invoices submitted by the subcontractor to DRI. What DRI’s estimate failed to inform the insurer, however, was that the matching invoice was generated by the subcontractor only at DRI’s request and solely for the purpose of hiding the fact that DRI was paying the subcontractor a lesser amount, and DRI was receiving the difference. By structuring its estimates and supporting documentation in this manner, DRI falsely suggested to the insurer that the amount listed on the subcontractor line item was the precise amount that DRI would be paying the subcontractor for its work. Thus, in sum, the case at hand did not involve a mere nondisclosure, but rather involved an affirmative representation combined with a related nondisclosure. Together, these affirmative acts coupled with material omissions resulted in the deceitful concealment of material facts from the insurers. Griggs also argues that, “[b]ecause one cannot be guilty of conspiring to do something that is not a crime, the failure of the government to present sufficient evidence of mail fraud means there is insufficient evidence to 41 sustain [his] conspiracy conviction.” Griggs Br. at 21. This argument, however, fails for the reasons outlined above, i.e., there was sufficient evidence to support his convictions for mail fraud. Finally, Griggs argues that criminalizing the conduct at issue in this case violates due process. Id. at 22. This argument, like his other Cochran-based argument, rests largely, if not exclusively, on the notion that the conduct at issue involved the mere nondisclosure of information. In particular, Griggs argues that criminalizing the conduct at issue in this case retroactively imposed a duty on him and his codefendants, as private individuals, to disclose information in private business transactions. Id. Griggs also argues that “typical commercial actors, such as the defendants in this case, could not have contemplated or appreciated the fine lines drawn by the district court.” Id. at 23. Consequently, he argues, “constitutional notice of what constituted criminal conduct was not provided,” and his convictions must therefore be reversed. Id. “[D]ue process requires citizens be given fair notice of what conduct is criminal.” United States v. Apollo Energies, Inc., 611 F.3d 679, 687 (10th Cir. 2010). “A criminal statute cannot be so vague that ‘ordinary people’ are uncertain of its meaning.” Id. (quoting Kolender v. Lawson, 461 U.S. 352, 357 (1983)). “As generally stated, the void-for-vagueness doctrine requires that a penal statute define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not 42 encourage arbitrary and discriminatory enforcement.” Kolender, 461 U.S. at 357. The mail fraud statute Griggs was convicted of violating, 18 U.S.C. § 1341, makes it a crime to engage in a scheme or artifice to defraud or obtain money or property “by means of false or fraudulent pretenses, representations, or promises.” As the district court’s instructions in this case correctly informed the jury, a representation is “false” if it is known to be untrue or is made with reckless indifference as to its truth or falsity, and a representation is “false” when it constitutes a half truth, or effectively omits or conceals a material fact, provided it is made with intent to defraud. Tenth Circuit Pattern Jury Instructions, Criminal, § 2.56 (2011). Notably, Griggs does not appear to dispute that the mail fraud statute adequately placed him on notice that it was illegal to engage in a scheme or artifice to obtain money by means of false statements. Rather, his due process arguments appear to be confined to the mere nondisclosure of information. As we have explained, however, the government’s case against Griggs, Sharp and their codefendants did not rest on the mere nondisclosure of information. Rather, the government’s case focused on half-truths or representations that effectively omitted or concealed material facts. Moreover, it is worth noting that the manner in which Griggs and Sharp structured their system of subcontractor invoicing (requiring subcontractors to submit two invoices), combined with the manner in which DRI provided estimates to insurers (falsely implying that the amounts 43 listed for subcontractor work were the actual amounts to be paid by DRI to the subcontractors), clearly suggested that Griggs and Sharp knew that insurers would not, if they knew all of the facts, pay DRI the inflated subcontractor amounts listed on its estimates. Indeed, the government’s evidence established that Sharp told DRI employees during a meeting concerning this system of subcontractor invoicing “that if the insurance companies found out what we were doing, our life would end as we know it.” ROA at 130 (testimony of Greg Rye, former project manager at DRI). Consequently, we conclude there is no merit to Griggs’ due process arguments. 2-5. Incorporation of issues raised by Sharp In his second, third, fourth, and fifth issues on appeal, Griggs incorporates by reference four of the arguments asserted by Sharp: that the evidence presented at trial was insufficient to establish that he obtained money by false pretenses or representations; that the evidence presented at trial was insufficient to establish that the alleged omissions or misstatements were material; that the district court erred by refusing to instruct the jury that Griggs could be convicted on the basis of a material omission only if he had a duty to disclose the withheld fact; and that the district court erred by giving the jurors an Allen instruction after they indicated that they could not reach a unanimous verdict. Griggs Br. at 25-27. For the reasons we outlined in addressing Sharp’s appeal, we conclude that these issues lack merit. 44 6. Was the $500,000 fine imposed by the district court unreasonable? In his sixth and final issue on appeal, Griggs challenges the procedural and substantive reasonableness of the $500,000 fine that was imposed by the district court as part of his sentence. In particular, Griggs argues that the fine imposed in his case “is procedurally unreasonable because . . . the district court (1) failed to calculate the Guideline range fine, (2) failed to explain why it was necessary to deviate from the Guideline-range fine urged by the government or reject the $15,000 fine recommended in the PSI to accomplish its sentencing goal; [sic] (3) neither considered nor accounted for restitution of more than $477,000 that . . . Griggs was ordered to pay; and (4) did not consider the burden the fine placed on . . . Griggs’ wife and daughter who are dependent on him at a time the court also was imposing a 50-month term of imprisonment.” Griggs Br. at 32. Griggs also argues that the fine is substantively unreasonable for these same reasons. Id. at 36 (“The failings that render this fine procedurally unreasonable also make this fine substantively unreasonable and an abuse of discretion.”). a. Procedural background The presentence investigation report (PSR) recommended that a fine in the amount of $15,000 be imposed against Griggs. Griggs agreed with this recommendation. The government, however, objected to this recommendation and argued that a fine of $125,000, an amount at the top of the Guidelines range, 45 was warranted. At Griggs’ sentencing hearing, the government argued that Griggs had hidden assets during the course of the probation office’s presentence investigation. In particular, the government argued that Griggs “actively misled” the probation officer “about his current control and ownership of Restoration Logics,” a company that had taken over DRI’s business, “through his ownership and control of [a third entity called] JENMAR.” Griggs App. at 448. The district court agreed with the government on this point. In the course of pronouncing Griggs’ sentence, the district court found that the presentence investigation “[wa]s sort of a cat and mouse game” in which “Griggs did not come forward and disclose voluntarily all of his financial information.” Id. at 467. In particular, the district court noted that Griggs failed to provide information to the probation officer regarding a number of “assets and transfers that [were] made during the course of this case.” Id. at 468. This included, the district court noted, information regarding “the actual worth of Restoration Logistics, which bought out DRI,” “whether this was an asset sale or a stock sale,” “what purchase price was paid,” and how much Griggs received from the sale of DRI. Id. at 467. The district court also “f[ound] some of the representations that . . . Griggs made to the probation officer to be somewhat insincere and incredible.” Id. at 469. Ultimately, the district court found that there was an “attempt [by Griggs] to shelter assets from collection in anticipation 46 of imposition of a restitution amount and a forfeiture award and a fine.” Id. And Griggs’ actions in that regard, the district court stated, factored into its sentencing decisions. Id. The district court adopted most of the information contained in the PSR and found that Griggs’ “Total Offense Level [wa]s 27,” and his “Criminal History Category [was] I,” resulting in a guideline sentencing range “of 70 to 87 months, 1 to 3 years of supervised release on each count, a fine of $12,500 to $3,500,000, and a special assessment of $100 per count.” Id. at 463. The district court then imposed a below-Guidelines term of imprisonment of fifty months, “followed by 3 years of supervised release, a fine of $500,000, a restitution obligation of [$]477,643.49, . . . and a special assessment of $1,400.” Id. After imposing this sentence, the district court asked if “there [was] any need for clarification, further explanation, objection, or request for continuance?” Id. The prosecutor asked if the district court “could . . . make a record as to why that particular $500,000 [fine] number was chosen” since it was “above the guideline range.” Id. at 471. The district court responded: “The guideline range is $12,500 to 3,500,000.” Id. The prosecutor then stated, “The top end of that range that you cited is the statutory maximum allowed by the counts of conviction,” but “the guideline range . . . for an offense category of 27 47 is $12,500 to $125,000.” 9 Id. The district court responded, “This is a variant sentence.” Id. at 472. Pursuant to the prosecutor’s request, the district court then specified its reasons for imposing a fine that varied from the Guidelines range: I carefully studied the financial information that was contained in the presentence report, that which was supplied, including the income that was reported by Mr. Griggs over years 2006 through 2011. 2006, it was $696,000; 2007, $292,000; 2008, $385,000; 2009, $174,000; 2010, $358,000; and 2011, $273,000. Given that amount of income and the relatively small number of assets that are reflected in the presentence report, I believe both that Mr. Griggs has a capacity to earn money, and I suspect that the disclosure of the assets that were acquired during that time is not accurate or complete. Id. Immediately following its explanation, the district court asked Griggs’ counsel if he had any response. Id. at 473. Griggs’ counsel responded: Of course, Your Honor, we continue and persist in the position that the fine should be imposed within the fine range, especially given that the counts were grouped in this case. We understand the Court’s ruling. I think our position is already made known and clear in the record. But we think the fine at the level announced by the Court is inappropriate and that the fine should be 9 A review of the record suggests that the district court’s misunderstanding of the guideline fine range derived from the original and revised PSRs, both of which stated erroneously that “[t]he fine range is from $12,500 to $3,500,000, pursuant to §5E1.2(c)(3).” Dist. Ct. Docket Nos. 1530 and 1558 at ¶ 110. Notably, neither Griggs nor the government objected to this portion of either PSR. Thus, it was not until the time of sentencing that the prosecutor brought this error to the district court’s attention. 48 imposed within the guideline range. Id. The district court then asked, “Even though this is a variant sentence?” Id. Griggs’ counsel responded, “I understand that it’s a variant sentence, but it’s not on the Government’s motion. And I think I’ve made my record.” Id.