Opinion ID: 2804254
Heading Depth: 2
Heading Rank: 1

Heading: Materiality of the MODOT Affidavit

Text: 18 U.S.C. § 1001(a)(3) provides that “whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully … makes or uses any false writing No. 14‐1251 11 or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry,” faces crim‐ inal liability. In other words, the statute makes it a criminal offense to render a statement that: (1) is false, (2) is material, (3) is knowingly and willfully made, and (4) concerns a mat‐ ter within the jurisdiction of a federal department or agency. United States v. Turner, 551 F.3d 657, 662 (7th Cir. 2008). For a statement to be materially false, it “must have ‘a natural ten‐ dency to influence, or [be] capable of influencing, the deci‐ sion of the decisionmaking body to which it was ad‐ dressed.’” United States v. Gaudin, 515 U.S. 506, 509 (1995) (quoting Kungys v. United States, 485 U.S. 759, 770 (1988)). “We do not require the statement to actually influence the agency to which it was directed, or even that the agency rely on the statement in any way.” United States v. Lupton, 620 F.3d 790, 806 (7th Cir. 2010). Rather, “[t]he ‘central object’ of the materiality inquiry is ‘whether the misrepresentation or concealment was predictably capable of affecting, i.e., had a natural tendency to affect, the official decision.’” Turner, 551 F.3d at 663 (quoting Kungys, 485 U.S. at 771). The govern‐ ment’s brief, at least implicitly, agrees with Clark’s position that—to be material—Clark’s false statements had to be ca‐ pable of influencing the U.S. Department of Labor. In terms of the jurisdiction element, “[a] false statement may fall within section 1001 even when it is not submitted to a federal agency directly and the federal agencyʹs role is lim‐ ited to financial support of a program it does not itself di‐ rectly administer.” United States v. Petullo, 709 F.2d 1178, 1180 (7th Cir. 1983). “In such cases, the necessary link be‐ tween deception of the non‐federal agency and effect on the federal agency is provided by the federal agencyʹs retention of the ultimate authority to see that the federal funds are 12 No. 14‐1251 properly spent.” Id. (internal citation and quotation marks omitted). Clark concedes that his statements in the MODOT affi‐ davit were false. He argues, though, that the government failed to introduce evidence at trial proving that his mis‐ statements, which he submitted to a state agency and which concerned compliance with Missouri state law, were materi‐ ally false. The government—again, accepting Clark’s premise that for Clark’s statements to be material, they had to be ca‐ pable of influencing the federal Department of Labor— counters that Clark’s statements concerning the wages he paid his employees satisfy materiality simply because the federal government had an interest in ensuring that the pro‐ ject’s subcontractors paid their employees the federal pre‐ vailing wage. Whether a statement is “material” is a fact question for the jury. United States v. Beaver, 515 F.3d 730, 740 (7th Cir. 2008). Normally, “[a] defendant who challenges the suffi‐ ciency of the evidence faces a daunting standard of review. In considering such a challenge, we view ‘the evidence in the light most favorable to the Government, defer[] to the credi‐ bility determination of the jury, and overturn[] a verdict only when the record contains no evidence, regardless of how it is weighed, from which the jury could find guilt beyond a rea‐ sonable doubt.’” United States v. Carter, 695 F.3d 690, 698 (7th Cir. 2012) (quoting United States v. Perez, 612 F.3d 879, 885 (7th Cir. 2010)). But as the government points out, Clark did not renew his motion for judgment of acquittal at the end of his trial. Therefore, “we will only reverse his conviction if we find a ‘manifest miscarriage of justice’ under the plain error standard of review.” United States v. Rea, 621 F.3d 595, 601– No. 14‐1251 13 02 (7th Cir. 2010). Under either standard, though, if (as Clark claims) the government failed to put on any evidence from which a rational jury could find Clark’s statements material, his conviction must be set aside. See Rea, 621 F.3d at 602 (not‐ ing that reversal is warranted under the demanding miscar‐ riage of justice standard if the record is “devoid of evidence pointing to guilt”) (citation omitted). Turning to Clark’s argument, we are unconvinced that statements made to a state agency (even ones concerning on‐ ly state law) are incapable of influencing the federal gov‐ ernment as a per se rule. Cf. Petullo, 709 F.2d at 1179 (affirm‐ ing a false statements conviction where a contractor submit‐ ted false claims to the City of Chicago, which had received federal funds for snow removal). See also United States v. White, 270 F.3d 356 (6th Cir. 2001) (affirming a Section 1001 conviction where the defendants made false statements to the Kentucky Division of Water). Nevertheless, we agree with Clark that the government failed to prove how his statements to a state agency in this case had an ability to in‐ fluence the federal government. The government emphasizes that a false statement under section 1001 is material if it merely has the mere “possibility of influencing” a federal government agency, Turner, 551 F.3d at 659, and points out that the Sixth Circuit has de‐ scribed this as a “fairly low bar for the government to meet.” White, 270 F.3d at 365. The government argues that it cleared this low bar by way of Government Exhibit 52, which it pre‐ sented at trial and which the jury reviewed during its delib‐ eration. Government Exhibit 52 is Form FHWA‐1273, titled “Required Contract Provisions Federal‐Aid Construction Contracts,” which (as discussed earlier) was attached to 14 No. 14‐1251 Clark’s Hauling Agreement with Gateway Constructors. Again, one of the provisions contained in this document is a requirement that Clark had to pay his employees consistent with “the wage determination of the Secretary of Labor, … which is attached hereto, and made a part thereof, regardless of any contractual relationship … between the contractor or its subcontractors and such laborers and mechanics.” Ac‐ cording to the government, “common sense dictates that a false statement regarding the wages paid on [sic] contract ostensibly covered by the Davis‐Bacon Act has the potential to influence the Department of Labor,” because “[i]t is the Department’s regulatory responsibility to ensure that the Davis‐Bacon Act’s prevailing wage requirements are con‐ sistently enforced on all federally‐funded construction pro‐ jects. And the right to cut off payments to a contractor is a very real, potentially very costly enforcement mechanism.” In fact, the U.S. Department of Labor had the authority— upon learning that employees of a subcontractor are being paid less than the U.S. Secretary of Labor’s prevailing wage—to make a written request to MODOT, asking that it withhold “any accrued payments or advances as may be considered necessary” to pay the employees their owed pre‐ vailing wages. This was specified in addendum federal form FHWA‐1273, titled “Required Contract Provisions—Federal‐ Aid Construction Contracts”: “[t]he [state highway agency] shall upon its own action or upon written request of an au‐ thorized representative of the DOL withhold, or cause to be withheld, from the … subcontractor under this contract or … any other Federally‐assisted contract subject to the Davis‐ Bacon prevailing wage requirements which is held by the same prime contractor, as much of the accrued payments or No. 14‐1251 15 advances as may be considered necessary to pay laborers or mechanics … .” But the government appears to miss Clark’s point. The affidavit Clark submitted to MODOT on September 27, 2011 swears only that he complied with “all provisions and re‐ quirements set out in Chapter 290, Sections 290.210 through and including 290.340, Missouri Revised Statutes, pertaining to the payment of wages to workmen” and with “Annual Wage Order No. 50” issued by the Missouri Highway and Transportation Commission. On its face, therefore, the form gives us no indication of its ability to affect the federal gov‐ ernment. And the government submitted no evidence at trial that a federal agency or department ever received the affida‐ vit, that the federal government viewed or considered the affidavit when disbursing federal funds or conducting pro‐ ject audits, or—more fundamentally—that it even knew that Missouri required such affidavits. Nor can any such infer‐ ence be reasonably drawn; recall that Missouri collected this affidavit thirteen months after the project ended and twenty‐ one months after Clark completed his work on the project— long after he had been paid. Moreover, the only witness from the federal government to testify at trial (John Borders) made no reference to this affidavit in his testimony. And tes‐ timony from MODOT employee Ronald Morris made clear that the federal and Missouri wage orders are separate and distinct, despite both imposing an obligation to pay the same hourly rate.2 For these reasons, we agree with Clark that the 2 Note that thirty states, including Missouri, have their own prevailing wage requirement, which need not mimic the federal prevailing wage. “[N]othing in … the legislative history of the Davis‐Bacon Act … sup‐ 16 No. 14‐1251 government introduced no evidence from which a rational trier of fact could conclude that the contents of the affidavit were capable of influencing the decisions of the federal gov‐ ernment beyond a reasonable doubt. Its failure to do so is fatal to its materiality argument.3 Accordingly, we reverse Clark’s conviction on Count 10. ports [the] contention that Congress intended to preempt broader pre‐ vailing minimum wage requirements implemented by the states. As the Supreme Court acknowledged for the first time over fifty years ago: ‘The language of the [Davis‐Bacon] Act and its legislative history plainly show that it was not enacted to benefit contractors, but rather to protect their employees from substandard earnings by fixing a floor under wages on Government projects.’” Frank Bros. Inc. v. Wisc. Dept. of Transp., 409 F.3d 880, 889 (7th Cir. 2005) (quoting United States v. Binghamton Const. Co., 347 U.S. 171, 177 (1954)). Because the federal prevailing wage law is a floor, state laws can also add categories of workers to whom it applies. Id. (“[M]ost [state prevailing wage laws] contain categories of covered employees or prevailing wage rates which differ from the Davis‐Bacon Act, i.e., some states require that a prevailing wage be paid to one or more classifications of employees that are not covered under the Davis‐ Bacon Act.”). 3 The government spends much of its brief arguing that Clark conflates the elements of jurisdiction and materiality. In the government’s view, Clark does not make a materiality argument at all, but rather—by noting that the MODOT affidavit does not concern matters within the U.S. De‐ partment of Labor’s purview—wages an attack on the government’s proof of section 1001’s jurisdiction element. As an initial matter, we are skeptical that the jurisdiction element is satisfied here. Although federal funds were at issue during the project itself, Clark submitted his affidavit to MODOT (certifying only compliance with state law) long after the project’s completion, and so, presumably long after federal funds were spent. The government makes no attempt to demonstrate how the MODOT affidavit could have affected those federal funds or implicated some authority delegated to MODOT by the federal government, which No. 14‐1251 17 B. Materiality of Clark’s Payroll Certifications Clark also insists that the government failed to prove ma‐ teriality concerning Counts 1–9. But he hinges his materiality argument not on whether his certifications had the ability to influence the federal government, but on whether he was contractually required to pay Davis‐Bacon wages at all. The Davis‐Bacon Act provides that “every contract in excess of $2,000” that involves the federal government “shall contain a provision stating the minimum wages to be paid various classes of laborers and mechanics.” 40 U.S.C. § 3142. In Clark’s view, a party to a contract that fails to specify the numeric federal prevailing wage cannot be bound to pay it. Moreover, Clark contends that the “only wage order men‐ tioned during trial was Annual Wage Order 50, issued by the ‘Missouri Highway and Transportation Commission.’” Therefore, Clark says, “even though the contract between Clark and Gateway Constructors does reference payment of a ‘prevailing wage,’ that rate (for purposes of Davis‐Bacon) was not in the contract and there’s no evidence it ever exist‐ ed.” As best we can tell, Clark’s position seems to be that he we have suggested is necessary to satisfy jurisdiction in this context. See Petullo, 709 F.2d at 1181 (“We think … at least in the emergency relief context it should be the authorization of federal assistance that triggers federal jurisdiction under the false statements statute. … [J]urisdiction … incorporates Congress’ intent that the statute apply whenever false statements would result in the perversion of the authorized functions of a federal department or agency.”) (internal citation omitted). Neverthe‐ less, we agree with Clark that his argument speaks primarily to material‐ ity—that is, that the government failed to put on evidence from which a rational factfinder could conclude that the statements in Clark’s MODOT affidavit had the ability to influence the federal government. 18 No. 14‐1251 was not contractually obligated to pay Davis‐Bacon wages, and thus any misstatement concerning the wages he paid cannot possibly be material to the federal government. As an initial matter, Clark cites no case law for the prop‐ osition that the federal numerical prevailing wage must be printed in a subcontractor’s contract for Davis‐Bacon to ap‐ ply. And, as the government points out, Clark’s contract did expressly state that he must pay his drivers the federal pre‐ vailing wage, as set forth by the U.S. Secretary of Labor. As it did with respect to Count 10, the government argues that Clark conflates the elements of materiality and jurisdiction. Here, though, we agree with the government. Clark does not argue that his false statements did not have a natural ten‐ dency to influence the Department of Labor (the standard for materiality), but instead—in effect—argues that the De‐ partment of Labor had no interest in Clark’s statements about wages since (as Clark sees it) he was not contractually obligated to pay a federally‐mandated wage. We find Clark’s reasoning wholly unpersuasive. Regardless of the Section 1001 element that Clark’s ar‐ gument purports to target, it is undisputed that in each pay‐ roll certification Clark expressly attested to paying his driv‐ ers $35.45/hour and that each form warned Clark that “a willful falsification of any of the above statements may sub‐ ject the contractor or subcontractor to civil or criminal prose‐ cution. See section 1001 of Title 18 and section 231 of Title 31 of the United States Code.” Moreover, Clark’s contract speci‐ fied that he was subject to Davis‐Bacon’s requirements “re‐ gardless of any contractual relationship … between the con‐ tractor or its subcontractors and such laborers and mechan‐ ics.” It is clear then that the government not only had an in‐ No. 14‐1251 19 terest in the information contained in these payroll certifica‐ tions, but that a false statement on these forms had a natural tendency to influence the federal government in some way. And Clark knew that.4 In essence, Clark’s argument is that the Davis‐Bacon Act did not apply to him, because the contract failed to state the numeric prevailing wage. But he was not prosecuted for vio‐ lating the Davis‐Bacon Act; he was prosecuted under section 1001 for lying about the wages that he paid. And there’s no dispute that he did. Therefore, Clark’s so‐called materiality argument speaks mainly to his mens rea—that is, his intent to violate the Davis‐Bacon Act itself. That was his unsuccessful defense at trial, and Clark does not appeal the jury’s finding. Accordingly, we affirm Clark’s convictions on Counts 1–9. C. Loss Caused by Clark’s Misstatements Clark argues that the district court misapplied 18 U.S.C. § 3663 and, thus, that his restitution order must be vacated. We review the district court’s statutory authority to issue a restitution order de novo. United States v. Hoskin, 567 F.3d 329, 331 (7th Cir. 2009).5 18 U.S.C. § 3663 permits a district 4 In addition to listing $35.45 on the payroll certifications as the hourly wage Clark paid his employees, evidence at trial demonstrated that Clark had conversations with his truck drivers, wherein he acknowl‐ edged that he was supposed to be paying them the prevailing wage, but that he felt that he was “paying them enough.” As one of the employee witnesses testified, it is commonly known by truck drivers that they are entitled to be paid the federal prevailing wage on all government jobs. 5 The government argues that, because Clark did not object to the restitu‐ tion award at sentencing, the plain error standard of review applies. Clark, however, points out that he challenged the characterization of his 20 No. 14‐1251 court to order restitution to any victim of Clark’s false statements. 18 U.S.C. § 3663(a)(1)(A). The statute defines “victim,” as “a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered.”6 18 U.S.C. § 3663(a)(2). Clark argues that his employees do not fit that description, because his mis‐ employees as victims in his objections to the PSR, in his sentencing memorandum, and at the sentencing hearing. In any event, the govern‐ ment concedes that if plain error review applies, we may still vacate the restitution order if it “seriously affects the fairness, integrity or public reputation of judicial proceedings,” United States v. Randle, 324 F.3d 550, 555 (7th Cir. 2003). Therefore, if we determine that the employees are not “victims,” vacating the award would be appropriate under either stand‐ ard. 6 Clark repeatedly argues that the statute defines victims in two ways: (1) “a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered,” or (2) “in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the defendant’s criminal conduct in the course of the scheme, conspiracy, or pattern.” But the statute clearly says that “the term ‘victim’ means a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the defendant’s criminal conduct in the course of the scheme, conspiracy, or pattern.” 18 U.S.C. § 3663(a)(2) (emphasis added). This is relevant because Clark argues that the government improperly advanced arguments to the district court that Clark engaged in a “scheme,” and thus that the government was attempting to rely on the second definition of victim (which Clark says should not apply here). The statute makes clear, though, that—scheme or no scheme—only per‐ sons who are directly and proximately harmed by the charged offense may be considered victims. No. 14‐1251 21 statements did not directly or proximately deprive them of wages. Direct and proximate harm means that the loss would not have occurred “but for” the offense and that it was “foreseeable.” See United States v. Donaby, 349 F.3d 1046, 1053–54 (7th Cir. 2003). Yet, as Clark says, he was convicted of lying to the government, not underpaying his employees. And, in his view, his lies did not cause his employees to be underpaid—they merely covered up the underpayments af‐ ter the fact. As Clark puts it, “[r]egardless of [his] reports to agencies, his payments to his workers were what they were.” With respect to Count 10 concerning the MODOT affida‐ vit (which, as outlined above, we vacate on materiality grounds in any event), Clark’s argument has legs. He sub‐ mitted the affidavit long after the project’s completion and long after he and his drivers had been paid. However, that conclusion does not affect his restitution obligation, because Clark oversimplifies the issue with respect to Counts 1–9. As discussed earlier, the Addendum to Clark’s Hauling Agree‐ ment acknowledges the authority of both the federal gov‐ ernment and MODOT, upon learning of a subcontractor’s failure to pay its employees the federal prevailing wage, to intervene and divert project funds earmarked for Clark to his undercompensated employees. We therefore agree with the government that Clark’s false payroll certifications de‐ prived the government of an opportunity to invoke this di‐ version mechanism and make Clark’s undercompensated employees whole. Had Clark been truthful on the certifica‐ tion forms (listing the real hourly wage he was paying his drivers), his employees could have been fully compensated with funds that instead were paid to him. Accordingly, Clark’s false statements proximately caused losses to his 22 No. 14‐1251 employees in an amount equal to the difference between the wages he should have paid them ($35.45/hour) and the wag‐ es he in fact did pay them (roughly $15/hour). We therefore affirm the district court’s restitution order. D. The 12-level Loss Enhancement We review the district court’s interpretation and applica‐ tion of U.S.S.G. § 2B1.1 de novo. United States v. Johnson, 612 F.3d 889, 892 (7th Cir. 2010). Loss, for purposes of the section 2B1.1 enhancement, can be based on either actual or intend‐ ed losses, but the government relies exclusively on actual loss in defending the district court’s $273,118.43 loss amount calculation. Actual loss is defined as “the reasonably fore‐ seeable pecuniary harm that resulted from the offense.” § 2B1.1, App. n.3(A). The parties’ loss arguments mostly resemble their argu‐ ments on the topic of restitution. Clark argues that the dis‐ trict court improperly imposed a 12‐level sentencing en‐ hancement (which increased his guidelines range from 0–6 months to 33–41 months) based on a notion of loss that his reply brief deems “irrational.” The government’s position is that if we “concur[] in the district court’s determination that the drivers were victims of Clark’s crimes, then, logically, the difference between what the drivers were paid and what Clark said they were paid would be their loss.” In the gov‐ ernment’s view, the district court’s determination that Clark’s false statements caused his employees actual loss of $273,118.43 is “[c]onsistent with basic reasoning and with Application Note 3(F)(iii) to U.S.S.G. § 2B1.1.” Application Note 3(F)(iii) reads: “In a case involving a Davis‐Bacon violation (i.e., a violation of 40 U.S.C. § 3142, criminally prosecuted under 18 U.S.C. § 1001), the value of No. 14‐1251 23 the benefits shall be considered to be not less than the differ‐ ence between the legally required wages and actual wages paid.” As the government sees it, this note makes the loss question a straightforward one. But the government seems to overlook that the Note expressly states that the “special rules” listed therein “shall be used to assist in determining loss.” Id. (emphasis added). Application Note 3(F)(iii), there‐ fore, speaks to calculating the loss amount, not in determin‐ ing—without regard to basic cause and effect principles— whether the pecuniary harm resulted from the offense in the first place. Moreover, the application note refers to “bene‐ fits,” not “losses,” rendering its guidance even less certain. For that reason, we disagree with the government’s sugges‐ tion (seemingly endorsed by the sentencing judge in this case) that any time a Davis‐Bacon‐related false statement is at issue, regardless of whether that statement actually caused loss, a sentencing judge must proceed as though it did.7 7 For an order of restitution to be appropriate in the Section 1001 context, the false statements, not the conduct about which those statements con‐ cern, must have caused the loss. Comments made by the trial judge at sentencing, though, suggest some misunderstanding on this point. See Sentencing Tr. p. 27–28 (“The Court: Now, Davis Bacon doesn’t contain any provisions for criminal remedies, so there has to be a vehicle – if there’s going to be a criminal prosecution associated with Davis Bacon, there has to be some other vehicle to bring that prosecution, false state‐ ments … and in fact we have a Davis Bacon issue in this criminal case … so – there’s no question that in terms of the legal concept of proximate cause, the workers received a difference in pay between the prevailing wage and what they actually got … so this is just – to me, this is just a common sense, ready‐made situation that Davis Bacon sought to pre‐ vent.”). We attribute this confusion to the government’s choice to prose‐ 24 No. 14‐1251 In this case, though—on account of the government’s au‐ thority to halt payments to subcontractors upon learning that one’s employees were being undercompensated— Clark’s false payroll certifications did cause loss to his em‐ ployees. The government never learned of Clark’s under‐ payments because he lied throughout the project’s duration, depriving the government of the opportunity to divert funds to his underpaid personnel and cheating Clark’s employees out of their federally‐mandated wages in the process. There‐ fore, Application Note 3(F)(iii) concerning loss calculation is both relevant and instructive. Although the Note discusses “benefits,” not “loss,” we read those terms to be the converse of each other in this instance; if Clark benefited in an amount equal to the difference between the prevailing wages he should have paid to his employees and those that he actually did pay them, then, of course, his employees suffered losses to that same tune. Accordingly, we conclude that Clark’s false statements did, in fact, cause loss to his employees and that the district court properly applied Application Note 3(F)(iii) in calculating that loss amount. cute Clark for making false statements, rather than for committing wire or mail fraud. That decision seems to have complicated not only matters at sentencing, but virtually every issue in this case—right down to the elements of the charged offense. Nevertheless, as we discuss, the sen‐ tencing judge’s understandable confusion about the interplay of the Da‐ vis‐Bacon Act and Section 1001 did not render Clark’s sentence improp‐ er. No. 14‐1251 25