Court Opinion

ID: 807058
Source: CourtListenerOpinion
Date Created: 2012-08-20 23:02:05+00
Date Added: 2024-06-11T18:00:23.229031
License: Public Domain

Case: 11-50326     Document: 00511962736         Page: 1     Date Filed: 08/20/2012

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                                            FILED
                                                                          August 20, 2012

                                       No. 11-50326                        Lyle W. Cayce
                                                                                Clerk

UNITED STATES OF AMERICA,

                                                  Plaintiff-Appellee

v.

ERNESTO ALONSO LOPEZ, also known as Ernie Lopez,

                                                  Defendant-Appellant

                   Appeal from the United States District Court
                        for the Western District of Texas
                            USDC No. 3:08-CR-1698-3

Before DAVIS, OWEN, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
        Ernesto Lopez appeals from his convictions for making a false statement
and conspiracy to make a false statement in violation of 18 U.S.C. §§ 371 and
1001. The district court found that Lopez’s conduct resulted in $86 million in
losses and sentenced Lopez to 36 months imprisonment, a downward departure

       *
         Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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from the Guidelines range. Lopez argues that the evidence was insufficient to
support the jury’s verdict. He also challenges his sentence, arguing that the
district court erred in finding that any loss resulted from his conduct and in
computing such a loss. We AFFIRM.
                    FACTUAL AND PROCEDURAL HISTORY
       Lopez was employed as Chief Operating Officer of the National Center for
the Employment of the Disabled (“NCED”) from 2002 through April 2006.
NCED participated in a program created by the Javits-Wagner-O’Day (“JWOD”)
Act.   The program is designed to provide for the employment of disabled
individuals by designating federal contracts to be performed by nonprofits that
employ people who are blind or severely disabled. NCED’s participation in this
program resulted in contracts with several federal agencies.
       The Committee for Purchase from People Who are Blind or Severely
Disabled (“the Committee”) is the government agency responsible for overseeing
the JWOD program. Products that can be manufactured by the blind or severely
disabled are placed on a procurement list by the Committee. Once a product is
on the procurement list, the government entity must purchase that product from
the nonprofit designated by the procurement list.
       For a nonprofit to qualify under JWOD, 75% of direct-labor hours must be
performed by individuals who are severely disabled. Documentation, including
a medical diagnosis that an individual is prevented from engaging in competitive
employment, is necessary to support that an individual is “severely disabled.”
       The regulations require an annual certification, Committee Form 404,
upon which the Committee relies to determine that the nonprofit is meeting the
requirements of the program. Each quarter, nonprofits submit the percentage
of direct-labor hours performed by severely disabled employees to NISH,1 an

       1
         “NISH” apparently is the formal name of the entity, having abandoned its former
name of the National Institute for the Severely Handicapped in favor of the acronym.

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intermediary between the Committee and the nonprofits. NISH compiles this
quarterly data to generate the Form 404 to be certified by the nonprofits
annually. If the nonprofit believes the numbers on the form are accurate, the
officers sign and return it. NISH then reviews the form and sends it on to the
Committee.
      As Chief Operating Officer, Lopez signed NCED’s Form 404 for the years
2003, 2004, and 2005. In compiling its quarterly numbers that were part of its
annual certification, NCED combined the labor hours worked by disabled
employees with its disadvantaged employees and reported all hours as
performed by disabled employees. Lopez was aware of the practice and signed
certifications regarding the percentage of disabled employees using this method.
      In June 2005, an employee for the Committee, Lou Bartalot, met with
Lopez, NCED Chief Executive Officer Bob Jones, and the NCED human resource
manager. At this meeting, Lopez was told that it was improper to combine
disadvantaged employees with disabled employees in the hours reported to the
government. Jones told Bartalot that NCED believed many disadvantaged
employees were also disabled. Bartalot explained that JWOD required medical
documentation of disabilities. The Committee informed Jones that NCED would
need documentation that the individuals counted were severely disabled and
requested NCED adjust its 2005 and 2004 ratios.          Bartalot expected the
documentation could take several months.
      In October 2005, the NCED’s Human Relations manager sent Lopez the
Form 404 for his signature and explained that the total still included
disadvantaged employees. Lopez signed the form as presented to him. When
Bartalot received the annual certification, he noticed the numbers were similar
to the numbers he saw in June. Because Bartalot found NCED’s numbers
“highly suspect,” he took the issue to his boss.

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        As a result, Bartalot and two other individuals traveled to NCED to review
enough files to be “statistically certain as to whether or not the ratio was above
or below 75 percent.” When Bartalot determined that NCED was significantly
below the 75% requirement, a full review of NCED’s files was conducted. The
review revealed that only 9% of direct-labor hours were performed by employees
with adequate documentation.          The Committee then took action and set
September 2006 as the deadline for NCED to come into compliance. Ultimately,
NCED reduced its workforce to come into compliance and changed its name to
ReadyOne.
        In 2008, Lopez, Jones, and an NCED board member were indicted in the
United States District Court for the Western District of Texas. Lopez was
charged with 17 counts involving his employment at NCED. The jury returned
a verdict of guilty on two counts: Count 14, which charged Lopez with conspiracy
to make false statements and defraud the United States, and Count 17, which
charged Lopez with making a false statement in Form 404 on October 31, 2005.2
                                   DISCUSSION
        On appeal, Lopez argues that the evidence was insufficient to prove two
of the elements of making a false statement: (1) the statement was material, and
(2) an intent to deceive the Committee in making the statement. Lopez also
contends there was error regarding the determination of loss.

I.      Materiality
        We review the denial of a motion for judgment of acquittal de novo. United
States v. Richardson, 676 F.3d 491, 501 (5th Cir. 2012). In a challenge to the
sufficiency of the evidence, the court views the evidence “in the light most

        2
        Beside Count 14, on the verdict form the jury wrote “making a false statement.”
Although the conspiracy charged conduct from 2002 through 2005, the parties focus their
argument on evidence related to the October 2005 certification. We will do the same.

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favorable to the government with all reasonable inferences and credibility
choices made in support of a conviction.” United States v. Najera Jimenez, 593
F.3d 391, 397 (5th Cir. 2010) (quotation marks and citation omitted). The court
will affirm the conviction if the evidence “allows a rational fact finder to find
every element of the offense beyond a reasonable doubt.” Id. (quotation marks
and citation omitted).
      To obtain a conviction under 18 U.S.C. § 1001, the government must prove
that Lopez knowingly and willfully made a statement to a federal agency that
was false and material. United States v. Taylor, 582 F.3d 558, 562 (5th Cir.
2009). A statement is material if it has “a natural tendency to influence or be
capable of influencing the decision of the decisionmaking body to which it was
addressed.” United States v. Abrahem, 678 F.3d 370, 374 (5th Cir. 2012)
(quotation marks and citation omitted). “Actual influence is not required – a
statement can be ignored or never read and still be material – and the statement
need not be believed.” Id.
      In determining whether a false statement is material, the first step is to
ask two “questions of purely historical fact: (a) what statement was made? and
(b) what decision was the agency trying to make?” United States v. Gaudin, 515
U.S. 506, 512 (1995) (quotation marks omitted). Finally, to determine whether
the statement is material we must apply the legal standard of materiality to
these facts. Id.
      A.    Questions of Historical Fact
      Both parties agree that the answer to the first question is straightforward:
the statement is the certification that NCED had a 75% or greater percentage
of direct-labor hours performed by people with severe disabilities.
      Lopez recognizes that in the ordinary course of administration, the
decision the Committee is trying to make is whether the agency is eligible to
participate in the JWOD program. Lopez argues, however, the Committee was

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not making any decision based upon the 2005 Form 404 because the Committee
already knew NCED was not in compliance. Lopez points to evidence that
Bartalot knew in June 2005 that NCED was improperly combining employee
hours and knew that the past reports on which the Form 404 was based had not
been corrected.
      Bartalot testified that prior to receiving the Form 404 certification, he
believed NCED was performing physicals and was readjusting its ratio. After
his visit in June, Bartalot thought “it was possible to work things out” with
NCED. After observing the similarity in numbers in the 2005 Form 404,
Bartalot testified that if he believed “Mr. Jones that a majority of the people that
were disadvantaged were also severely disabled, that might be possible. But for
it to be exactly the same or as close . . . was highly unlikely.” Bartalot also
testified that NISH was aware of NCED’s method of combining disabled and
disadvantaged employees and had performed compliance training as recently as
September 2005. Bartalot stated that he would have expected NISH to do a
review before they approved the annual certification.
      Bartalot’s testimony reflects his knowledge of past inaccuracies and belief
that NCED was conducting physicals and documentation to correct past reports.
The jury could reasonably infer that, despite past false statements, the
Committee was trying to decide whether NCED was in compliance with the
requirements of the JWOD program and, if not, whether probation and
ultimately expulsion was necessary.
      B.    Applying the Legal Standard
      Once the court answers the two questions of historical fact, we apply the
legal standard. See Najera Jimenez, 593 F.3d at 399-400. We now must decide
whether Lopez’s statement that more than 75% of direct labor hours were
performed by disabled employees was capable of influencing the Committee’s
decision as to whether NCED was in compliance with the JWOD program.

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Lopez concedes that generally the certification is material because it is the
representation upon which the Committee relies to determine eligibility for
JWOD contracts. In this case, however, Lopez argues that the statement was
not material because a statement known to be false is not capable of influencing
the Committee’s decision. That is not so.
         We have made “clear that the subjective knowledge of an agent or agency
that a statement is false does not factor into the materiality analysis.” Id. at
400. “Instead, we ask whether the functioning of the federal agency would have
been impaired had the agency relied on the defendant’s statement.”                  Id.
(quotation marks and citation omitted). Had the Committee relied on Lopez’s
representation, it could have decided NCED was eligible to participate in the
program without the knowledge that NCED had failed to conduct physicals and
correct its reporting errors. See id. Further, NCED could have continued
receiving contracts and operating without additional measures imposed in
March 2006.
         The evidence was sufficient to support the jury’s finding of materiality.
We now turn to whether there was evidence of the necessary intent.

II.      Intent to Mislead
         “A false representation is one made with an intent to deceive or mislead.”
United States v. Shah, 44 F.3d 285, 289 (5th Cir. 1995) (quotation marks and
citation omitted). A false statement is made knowingly and willingly “if the
defendant acts deliberately and with the knowledge that the representation is
false.” United States v. Guzman, 781 F.2d 428, 431 (5th Cir. 1986). Again, we
view all the evidence in the light most favorable to the verdict. United States v.
Harris, 666 F.3d 905, 907 (5th Cir. 2012).
         Lopez argues that there is no evidence he intended to deceive the
Committee because the evidence demonstrates he believed the Committee knew

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how NCED was reporting its hours and that he was open and honest throughout
the process.   Lopez argues that the evidence demonstrates there was no
possibility he intended to mislead anyone.
       Lopez testified that he had been told not to combine the disadvantaged
and the disabled numbers prior to signing the 2005 Form 404, that he knew that
disadvantaged employees were included in the form, that he knew the 2005
Form 404 should have reported the true number of disabled employees, and that
he signed the 2005 Form 404 confirming that the report represented the
percentage of hours performed by disabled employees. He also testified that he
knew there would probably be some questions if the form reported a number less
than the 75% of direct-labor hours.
       Although Lopez testified that he believed the Committee knew that the
2005 percentage was computed by combining disabled and disadvantaged
employees when he signed the form, there was also evidence that he had signed
the form because “that’s what Mr. Jones wanted.” A reasonable jury could
conclude that Lopez intended to deceive the Committee in signing the form.

III.   Determination of Loss
       The district court determined that a special rule for government benefits
applied in this case. This rule provides that “loss shall be considered to be not
less than the value of the benefits obtained by unintended recipients or diverted
to unintended uses.” U.S.S.G. § 2B1.1 cmt. n.3(F)(ii). The district court found
that because NCED did not meet the 75% threshold, it was an “unintended
recipient” of JWOD contracts. Further, the district court found that Lopez
should be accountable for the contracts from the time of the certification in
October 2005 through March 2006 when the false statement was discovered.
       We review the district court’s method for determining loss de novo as an
application of the Guidelines. United States v. Harris, 597 F.3d 242, 250-51 (5th

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Cir. 2010).   “Factual determinations regarding loss amount for guideline
calculation purposes are reviewed for clear error.” Taylor, 582 F.3d at 564
(quotation marks and citation omitted).
      Lopez first argues that the district court erred in determining that any loss
resulted from his conduct and, to the extent there was any loss, the district court
erred in computing its amount. Specifically, Lopez contends the government did
not present evidence that any contracts were awarded in reliance on the 2005
Form 404, that the certification only serves as the basis for continued
participation in the JWOD program, and that the contract was not cancelled
even after Lopez’s false statement was fully documented.
      The district court heard evidence that once the Committee confirmed that
NCED was not in compliance in March 2006, it required NCED to take steps to
come into compliance. Ultimately, NCED downsized and transferred a number
of contracts to a related corporation to comply with the Committee’s
requirements. Lopez’s certification enabled NCED to remain in the JWOD
program at its original levels before the Committee imposed these measures.
Thus, the district court did not clearly err in determining that the false
statement allowed NCED to obtain benefits to which it was not entitled.
      If any loss resulted from his conduct, Lopez argues that the district court
erred in determining that loss to be the face value of the contracts. Lopez
contends that loss should be computed by a price-variance method where the
court subtracts the price the government would pay a commercial provider from
the price the government paid NCED under the JWOD contract.
      The Application Note 3 to Section 2B1.1 states that, “Notwithstanding
subdivision (A)” – which is the “General Rule” for calculating loss in this case –
certain “special rules shall be used to assist in determining loss in the cases
indicated.” U.S.S.G. § 2B1.1 cmt. n.3(F); see United States v. Tupone, 442 F.3d

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145, 154 n.7 (3d Cir. 2006). One of the special rules is the government-benefits
rule at issue here.
      The Guidelines do not define “Government Benefits.” Decisions from our
sister circuits provide useful analysis. The Eighth Circuit held that a district
court properly applied the government-benefits rule where a defendant used
funds from a government program dedicated to asbestos removal to perform
renovations unrelated to asbestos removal. United States v. Peters, 59 F.3d 732,
733 (8th Cir. 1995). The Seventh Circuit described contracts received under a
municipal ordinance directing contracts to “minority- and woman-owned
businesses” as a government benefit. United States v. Leahy, 464 F.3d 773, 790
(7th Cir. 2006)
      The Eleventh Circuit described the Disadvantaged Business Enterprises
(“DBE”) program as an “affirmative action program[] aimed at giving exclusive
opportunities to certain women and minority businesses,” and as such was a
government-benefit program. United States v. Maxwell, 579 F.3d 1282, 1306
(11th Cir. 2009); see also United States v. Bros. Constr. Co. of Ohio, 219 F.3d 300,
317-18 (4th Cir. 2000) (applying the government-benefits rule in a case involving
contracting with a DBE). The court concluded that unlike standard construction
contracts, DBE “contracts focus mainly on who is doing the work.” Maxwell, 579
F.3d at 1306.
      Contracts obtained through the JWOD program can be distinguished in
the same manner: the focus in the JWOD program is on providing employment
opportunities for the severely disabled, not on the specific product or service
provided. The district court did not err in applying the government-benefits rule
in this case and declining to use the price-variance method urged by Lopez.
      Although the district court did not err in applying the government-benefits
rule, it failed to exclude the benefits that reached intended beneficiaries. The
government-benefits rule was revised in 2001 “to clarify that loss . . . only

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includes amounts that were diverted from intended recipients or uses,” not
amounts received by authorized persons. U.S.S.G. app. C vol. II, at 180 (2010).
“[I]f such benefits flowed through an unauthorized intermediary, as long as they
went to intended recipients for intended uses, the amount of those benefits
should not be included in loss.” Id. at 180. Because nine percent of NCED’s
direct labor hours were performed by the severely disabled, Lopez should not be
responsible for the funds that benefitted the severely disabled.
      Although the district court should have excluded the portion of the funds
that did in fact reach intended recipients, this exclusion would not result in a
lower offense level. The 24 level enhancement applies where loss is more than
$50 million but less than $100 million. See U.S.S.G. § 2B1.1(b)(1)(M). A
deduction for the funds attributable to the benefits obtained by intended
recipients would not result in a lower Guidelines range and therefore is
harmless. See Taylor, 582 F.3d at 564-65.
      We AFFIRM.

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