Court Opinion

ID: 4553666
Source: CourtListenerOpinion
Date Created: 2020-08-06 19:00:25.046617+00
Date Added: 2024-06-11T13:12:30.265205
License: Public Domain

RECOMMENDED FOR PUBLICATION
                               Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                      File Name: 20a0247p.06

                   UNITED STATES COURT OF APPEALS
                                 FOR THE SIXTH CIRCUIT

 UNITED STATES OF AMERICA,                                  ┐
                                  Plaintiff-Appellant,      │
                                                            │
                                                             >        No. 19-3949
        v.                                                  │
                                                            │
                                                            │
 WILLIAM KOZERSKI,                                          │
                                 Defendant-Appellee.        │
                                                            ┘

                         Appeal from the United States District Court
                        for the Northern District of Ohio at Cleveland.
                     No. 1:19-cr-00166-1—Dan A. Polster, District Judge.

                                    Argued: July 29, 2020

                              Decided and Filed: August 6, 2020

                  Before: SUTTON, COOK, and MURPHY, Circuit Judges.

                                     _________________

                                           COUNSEL

ARGUED: James A. Ewing, UNITED STATES ATTORNEY’S OFFICE, Cleveland, Ohio, for
Appellant. Christian J. Grostic, Cleveland, Ohio, for Appellee. ON BRIEF: James A. Ewing,
UNITED STATES ATTORNEY’S OFFICE, Cleveland, Ohio, for Appellant. Christian J.
Grostic, Cleveland, Ohio, for Appellee.
                                     _________________

                                            OPINION
                                     _________________

       SUTTON, Circuit Judge.       William Kozerski pleaded guilty to wire fraud after he
obtained six government construction contracts by impersonating a disabled veteran.        His
Sentencing Guidelines range depends on how to calculate the “loss” for this crime. The district
 No. 19-3949                          United States v. Kozerski                          Page 2

court treated the loss as the aggregate difference between Kozerski’s bids and the next-lowest
bids, about $250,000. The government argues the loss amount should be the total value of the
contracts without deducting the value of the services provided, about $12 million. We agree
with the district court and affirm.

                                                  I.

       William Kozerski owned two construction companies in Detroit. He formed the second
one, CA Services, to bid on Veterans Administration contracts set aside for small businesses
owned by service-disabled veterans.        Kozerski does not have a service-related disability,
however. He convinced J.R., a service-disabled veteran, to pretend to be the company’s owner.
In return, J.R. would receive a cut of each successful contract.

       Everything went according to plan for the first contract.           Kozerski’s bid won.
CA Services performed the work and received payment. And J.R. received $3,750.

       Over the next few years, CA Services handled five more contracts. Kozerski continued
to use J.R.’s identity by forging his signature and by sending the government emails supposedly
from him. As to these contracts, however, Kozerski did not pay J.R. anything, lying to him that
the company did not receive any contracts after the first one.

       The government eventually discovered the scheme and charged Kozerski with one count
of wire fraud, 18 U.S.C. § 1343. Kozerski pleaded guilty. The plea agreement left the parties
free to argue about the correct loss amount, provided it fell between $150,000 and $11.9 million.

       The pre-sentence report recommended a loss amount in the $9.5 million to $25 million
bracket. It reached that number by adding up the amount the government paid CA Services on
all six contracts without crediting the value of the work it performed on the contracts:
$11,891,243.45.     This loss increased Kozerski’s offense level by 20.       On that view, the
government says, his guidelines range should be 37 to 46 months.

       Kozerski objected. He thought the loss should be the amount of profit a qualifying
veteran-owned business would receive from the contract. He approximated that profit by adding
 No. 19-3949                        United States v. Kozerski                              Page 3

up the difference between his bid and the next-lowest bid to reach a total of $248,206. That
approach, Kozerski says, yields a guidelines range of 8 to 14 months.

       The district court adopted Kozerski’s formula and sentenced him to a year and a day.
The government appealed.

                                                 II.

       When a crime involves stolen money or property, the sentencing guidelines increase the
offense level depending on the “loss” from the crime. U.S.S.G. § 2B1.1(b)(1). A loss of more
than $6,500 triggers a two-level increase, a loss of more than $15,000 triggers a four-level
increase, and so on. Id. That’s the easy part.

       What amounts to “loss” can be harder. While the guidelines are not a paragon of clarity
on this point, they support the district court’s approach. Two general principles apply to loss
calculations. One is that loss generally refers to the pecuniary harm to the victim. Id. cmt.
n.3(A)(i)–(iv). In its ordinary use and in the commentary, loss refers to economic harm. Id.; see,
e.g., Oxford English Dictionary Online (3d ed. 2020) (“Diminution of one’s possessions or
advantages”). That suggests the court should look to the economic harm (the pecuniary harm)
that the government (the victim) suffered, a measurement that normally would pull the value of
the services provided into the equation. The other principle is that loss generally turns on adding
up the crime’s face value and subtracting any value returned to the victim. U.S.S.G. § 2B1.1
cmt. n.3(A), (E). That’s also consistent with what the court did when it accounted for the
services Kozerski supplied.

       The commentary, all seventeen pages, also contains an example that supports this
approach. It describes how to calculate loss in the context of a procurement contract obtained by
fraud, just like this one was. In doing so, it says that the court should account for the costs
incurred by the defendant. Id. cmt. n.3(A)(v)(II). All in all, the ordinary loss-calculation rules
apply, meaning Kozerski should receive credit for the work his company performed on the
construction contracts.
 No. 19-3949                          United States v. Kozerski                            Page 4

       Trying to fend off this conclusion, the government seeks refuge in the “government
benefit rule.” It says:

       In a case involving government benefits (e.g., grants, loans, entitlement program
       payments), loss shall be considered to be not less than the value of the benefits
       obtained by unintended recipients or diverted to unintended uses, as the case may
       be. For example, if the defendant was the intended recipient of food stamps
       having a value of $100 but fraudulently received food stamps having a value of
       $150, loss is $50.

U.S.S.G. § 2B1.1 cmt. n.3(F)(ii).

       No doubt, in the context of a set-aside program, one could think of a procurement
contract as a government benefit in a sense. But the rule does not apply here. The three
examples offered in the commentary suggest a mismatch to begin with. For the purposes of this
commentary, government benefits include “grants, loans, [and] entitlement program payments.”
Id. A set-aside construction contract does not fit naturally on that list. In particular, the other
examples do not encompass conventional government procurements, in which the government
pays money to obtain something it will use in return. The government does not typically issue
grants or make loans because it wants a concrete deliverable in return, while it typically enters
construction contracts because it wants something built.          Placing government construction
contracts, even those with the social-benefit overlay of a set-aside program, within the
government benefit rule would expand it beyond the scope of the types of benefits covered by
the examples.

       Recall that another commentary provision refers to procurement fraud specifically. Id.
cmt. n.3(A)(v)(II).       It notes “fraud affecting a defense contract award” as an example of
procurement fraud. Id. And it directs the courts to include a few specific line items (“the
reasonably foreseeable administrative costs” of “repeating or correcting the procurement action
affected,” along with “any increased costs to procure the product or service involved”) in the
general loss calculation. Id. This commentary applies more directly to Kozerski’s fraud than the
government benefit rule.

       Other parts of the commentary, moreover, convey appreciation of the general principle
(offset the face value of the crime with the amount returned to the victim) and of ways to vary
 No. 19-3949                         United States v. Kozerski                               Page 5

from the principle (create specific exceptions). When it comes to Ponzi schemes, for example,
the commentary says that “loss shall not be reduced by” the gains returned to early investors. Id.
cmt. n.3(F)(iv). Another provision says that “loss shall include the amount paid for” certain
misrepresented goods or services, “with no credit provided for the value of those items or
services.” Id. cmt. n.3(F)(v). The government benefit rule conspicuously contains no such
language, suggesting that the customary economic rules still apply there. See United States v.
Bikundi, 926 F.3d 761, 798 (D.C. Cir. 2019). Indeed, in its example for food stamp fraud, the
government benefit rule says that for a recipient who is entitled to $100 in food stamps and
defrauds the government in order to obtain $150 in food stamps, the loss calculation would be
$50. Customary economics rules thus normally cover loss calculations and do so even when the
government benefit rule applies.

       Even if we think it is particularly offensive to commit fraud in the context of a set-aside
program, as we in fact do, that does not alter this conclusion. The guidelines already convey an
appreciation of when to vary from normal economic loss rules and when not to for reasons of
this sort. Some crimes covered by this precise guideline receive an enhancement regardless of
the economic harm they cause. Crimes involving damage to property in a national cemetery or
veterans’ memorial, for example, receive a two-level bump regardless of loss.               U.S.S.G.
§ 2B1.1(b)(5). So does theft from the person of another. Id. § 2B1.1(b)(3). The Sentencing
Commission knew how to ignore economic harm when it wished. The Commission simply did
not make that choice here.

       None of this of course limits a district court in accounting for the nature of the crime
when it exercises its discretion in issuing a sentence. But that reality goes to the court’s authority
to vary up or down from the guidelines range, not to the meaning of the guidelines.

       Several circuits support our approach. The Fifth and Ninth Circuits both have concluded
that the government benefit rule does not apply to set-aside procurement-contract fraud cases.
United States v. Martin, 796 F.3d 1101, 1109–10 (9th Cir. 2015); United States v. Harris,
821 F.3d 589, 603–04 (5th Cir. 2016). The Third Circuit takes a similar, though not identical,
approach. It says that the government benefit rule would not make a difference even if it
applied. United States v. Nagle, 803 F.3d 167, 180 (3d Cir. 2015). That’s because the customary
 No. 19-3949                         United States v. Kozerski                            Page 6

offset rules nonetheless would apply to the benefit, leaving the government back where it started.
Id.; see also id. at 183–84 (Hardiman, J., concurring in part and concurring in the judgment)
(preferring to resolve the case on the ground that the government benefit rule does not apply).

       The government pushes back that some grants and loans listed in the government benefit
rule involve the return of value to the government. Loans must be repaid, and grant-funded
activities must be performed. And all three examples seek to advance a social goal through a
financial award to a specific kind of person, not unlike a set-aside contract program. Fair points
all. But not one of them bridges the gap between set-aside construction contracts, in which the
government needs a new building and tries to do some good along the way, and the other three
examples, which are all activities the government mainly, if not exclusively, undertakes to
provide benefits to certain recipients.

       The government adds that 15 U.S.C. § 632(w)(1) establishes a “presumption of loss to
the United States based on the total amount expended on the [fraudulently obtained] contract.”
But Congress enacted this provision after Kozerski committed this crime. Pub. L. No. 111-240,
124 Stat. 2504, 2543 (Sept. 27, 2010). That’s too late. The statute would not apply to Kozerski
anyway. It applies only when “a business concern other than a small business concern willfully
sought and received the award by misrepresentation.” Id. No one claims CA Services was “a
business concern other than a small business concern,” so the statute does not apply. Even on its
own terms, moreover, the statute merely creates a presumption. It does not override the offset
rule, which creates the possibility, indeed likelihood, that a defendant would receive credit
against the contract’s value if the defendant performs the contract.

       While three circuits appear to take a different view, none of them comes to grips with the
offset rule. The Eleventh Circuit says government set-aside contracts count as “government
benefits programs” because they are “affirmative action program[s] aimed at giving exclusive
opportunities to certain” kinds of businesses, “thus making them entitlement program payments.”
United States v. Maxwell, 579 F.3d 1282, 1306 (11th Cir. 2009) (quotation omitted). But at no
point does it acknowledge the effect of the offset rule on this analysis or the background
principle against which it operates. Indeed, as the Third Circuit concluded, the Maxwell case
would have ended up in the same place anyway once a court applies the offset rule. Nagle, 803
 No. 19-3949                          United States v. Kozerski                                Page 7
F.3d at 180. The other two circuits considered earlier versions of the guidelines, which did not
contain the offset rule and which did not have the enumerated (and limited) examples of the
government benefit rule. United States v. Bros. Const. Co. of Ohio, 219 F.3d 300, 317–18 (4th
Cir. 2000); United States v. Leahy, 464 F.3d 773, 789–90 (7th Cir. 2006).

       At argument, the government raised another reason not to offset the contract price by the
value of Kozerski’s performance: Veterans Administration hospitals received the benefit of
Kozerski’s work, not the Service-Disabled Veteran-Owned Small Business Program that
administers this set-aside program and not a properly qualified construction company run by
service-disabled veterans. Because the offset rule requires a deduction for services received only
for the value returned “to the victim,” U.S.S.G. § 2B1.1 cmt. n.3(E)(i), and because neither this
Small Business Program nor a properly qualified bidder for the project received any value, there
is nothing to offset. But this argument merely confirms the reality that set-aside programs
involve more than one victim, sometimes more than one federal agency. That does not mean the
district court should ignore the effect of the offset rule on the entity that received the services.

       The government places one more arrow in its bow. It invokes the following commentary:

       Certain Other Unlawful Misrepresentation Schemes.—In a case involving a
       scheme in which (I) services were fraudulently rendered to the victim by persons
       falsely posing as licensed professionals; (II) goods were falsely represented as
       approved by a governmental regulatory agency; or (III) goods for which
       regulatory approval by a government agency was required but not obtained, or
       was obtained by fraud, loss shall include the amount paid for the property,
       services or goods transferred, rendered, or misrepresented, with no credit
       provided for the value of those items or services.

U.S.S.G. § 2B1.1 cmt. n.3(F)(v). As the government sees it, Kozerski’s crime fits within the
third category because he obtained regulatory approval—status as a Service-Disabled Veteran-
Owned Small Business—through fraud.

       But that position overlooks other language. The commentary distinguishes between
“services” in the list’s first category and “goods” in its second and third categories. See Martin,
796 F.3d at 1110. In conventional language, one does not think of constructing buildings as a
category of “goods,” as opposed to “services.” And the “services” provision applies only to
individuals “falsely posing as licensed professionals.” That’s not what Kozerski did. While one
 No. 19-3949                        United States v. Kozerski                              Page 8

circuit concluded that this commentary applied to a set-aside contract fraud, United States v.
Giovenco, 773 F.3d 866, 870–71 (7th Cir. 2014), it never accounted for the goods/services
dichotomy.

       The government separately complains that, even if the offset rule governs this
calculation, the district court settled on an arbitrary loss figure. In making the calculation, the
district court used the aggregate difference between Kozerski’s bid and the next-lowest bid on
each contract to determine the loss. That figure, the court concluded, represented the best
estimate from the evidence of the profits lost by the service-disabled veterans the program was
intended to benefit.

       We see no clear error. See United States v. Sands, 948 F.3d 709, 712 (6th Cir. 2020).
Keep in mind that the parties, through the plea agreement, agreed that the loss would be a
minimum of $150,000.         In identifying a figure above that amount, the district court
acknowledged the figure was an estimate of lost profits: “[I]t could have been more; it could
have been less.” R. 23 at 8. But the guidelines require no more than this kind of “reasonable
estimate of the loss.” U.S.S.G. § 2B1.1 cmt. n.3(C). The court discussed the issue at length with
the parties before ultimately issuing a written order further explaining its reasoning. That
carefully considered estimate was not arbitrary.

       We affirm.