In Re: Local 46 Metallic Lathers Union

• Court: Court of Appeals for the Second Circuit
• Decided: June 9, 2009
• Docket: 09-2113-op
• Status: Published

Opinion

09-2113-op In re: Local # 46 Metallic Lathers Union

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

_____________________

August Term, 2008 (Submitted: May 20, 2009 Decided: June 9, 2009) Docket No. 09-2113-op _____________________

In re: Local #46 Metallic Lathers Union and Reinforcing Iron Workers and Its Associated Benefit and Other Funds,

Petitioner, _______________________

United States of America,

Appellee,

Charles Doherty,

Defendant-Appellee,

v.

Metal Lathers Local 46 Pension Fund,

Movant-Appellant. _______________________

Before JACOBS, Chief Judge, STRAUB and HALL, Circuit Judges. _______________________

The petitioner seeks relief by way of a petition for mandamus brought under the provisions of the Crime Victims’ Rights Act of 2004, 18 U.S.C. § 3771, and the Mandatory Victims Restitution Act of 1996, 18 U.S.C. §§ 3663A-64, seeking recognition as a crime victim and restitution for payments required under certain collective bargaining agreements. Because the offense of conspiring to engage in money laundering to which the defendant pleaded guilty did not include activity in the course of that scheme or conspiracy that caused the petitioner’s loss, the offense conduct was not shown to have been a direct harm to the petitioner; thus, we hold that the petitioner is not a crime victim under the Act and is not entitled to restitution. The district court did not err in so finding nor abuse its discretion in denying petitioner’s motion. The petition for mandamus is, therefore, DENIED. _______________________

Andrew J. Weinstein, Weinstein & Mazurek PLLC, New York, NY, for Petitioner.

Peter A. Norling, Chief, Appeals Division, and Burton T. Ryan, Assistant United States Attorney on the brief, for Benton J. Campbell, United States Attorney for the Eastern District of New York, Brooklyn, NY, for Appellee.

James O. Druker, Kase & Druker, Garden City, NY, for Defendant-Appellee Charles Doherty. _______________________

PER CURIAM:

Before us is a petition for a writ of mandamus brought by Local #46 Metallic Lathers

Union and Reinforcing Iron Workers and its associated benefit and other funds (“Local 46”)

pursuant to 18 U.S.C. § 3771(d)(3) to have this Court reassess entitlement to certain rights

afforded by the Crime Victims’ Rights Act of 2004 (“CVRA”), 18 U.S.C. § 3771, and the

Mandatory Victims Restitution Act of 1996 (“MVRA”), 18 U.S.C. §§ 3663A-64, and to order

the district court to award restitution pursuant to § 3771(a)(6). The petition was filed on May 19,

2009. The Court took the case on submission on May 20, 2009, and on May 22, 2009, within

three days of the filing, we issued an order denying the petition, noting that this opinion would

follow. In essence, Local 46 appeals from the May 7, 2009, ruling of the United States District

Court for the Eastern District of New York (Seybert, J.) that denied Local 46 status as a crime

victim in the case United States v. Doherty, No. 05-cr-494. Because the district court did not

abuse its discretion in finding that Local 46 was not a “crime victim” as defined by the CVRA

and the MVRA, we deny the petition.

2 Background

In 2005, Charles Doherty pleaded guilty to an information charging him with one count of

conspiracy to launder money in violation of 18 U.S.C. §§ 1956(h) and 3551, et seq., based on his

actions as president of U.S. Rebar. The information charged that the conspiracy entailed three

unlawful activities—uttering forged checks, theft concerning programs receiving federal funds,

and mail fraud. As to uttering forged checks, Doherty admitted during his plea colloquy that he

forged checks from U.S. Rebar payable to fictitious vendors, and provided those checks to

Joseph Castello, a check casher who cashed the checks and transferred the cash, minus a fee, to

Doherty, who then used the cash to pay union employees off the books. At the plea proceedings,

the Government clarified further that Doherty orchestrated the cashing of checks that constituted

payments owed to U.S. Rebar, some of which were payments for government contracts. The

endorsements of the checks that were cashed were either forged or falsely completed, which

resulted in creation of false banking records and thus were a basis for mail fraud.1 Doherty

admitted that the monies he received were “for purposes of paying certain employees in cash,

thereby allowing them to avoid reporting a portion of their income to the IRS,” and the

employees were paid “the full amount that they would have gotten in cash.”

Based on Doherty’s plea, Local 46 moved for restitution pursuant to the MVRA and the

CVRA, contending that the collective bargaining agreements between itself and U.S. Rebar

required U.S. Rebar to make payments to union funds and that by paying employees in cash, U.S.

Rebar had evaded that requirement.

1 The theft concerning programs receiving federal funds, although not addressed in any detail in the plea colloquy, arose from Doherty’s use of minority-owned contracting companies as fronts to obtain public contracts, and his diversion of the payments on those contracts.

3 At sentencing a debate ensued between the Government and Doherty regarding the dollar

amount cognizable as laundered proceeds. Significantly, in view of Local 46's claim, the

Government argued: “[t]he fact that [Doherty] used [the proceeds] as expenses for running his

construction company is not a part and parcel of the crimes . . . committed, and were not

expenses related to those crimes,” and that Doherty’s use of most of the laundered money to pay

business expenses was a separate scheme, and therefore, irrelevant. Doherty’s counsel, seeking

to limit Doherty’s exposure under the Sentencing Guidelines, see U.S.S.G. § 2S1.1, countered

that the gains attributable to Doherty’s crime should exclude the amount paid as business

expenses. Counsel argued that Doherty should not be held responsible for the total amount of the

laundered checks because the money from the check cashing went to pay employees, and paying

employees in cash was the “whole raison d’etre” of the scheme.

The parties and the court later agreed that all of the proceeds of the fraudulent check

cashing scheme constituted proceeds under the money laundering statute, 18 U.S.C. § 1956(a),

but, apparently by way of compromise, they agreed that the payments to employees under the

federal contract scheme would not be counted as proceeds under § 1956. Local 46 was given an

opportunity to allocute extensively concerning the impact of Doherty’s behavior on the union.

When the district court asked about restitution, the Government cited the difficulty of calculating

restitution generally, but did not argue against restitution of Local 46 on the ground that it was

not a victim. Doherty’s counsel explained to the district court that both the Government and

Doherty had tried to ascertain the amount of restitution, but could not do so with reasonable

certainty. Given the complexities of determining any loss to Local 46, the district court

4 sentenced Doherty to a term of imprisonment and a fine, but referred the issue of restitution to a

magistrate judge.

Before the magistrate judge, Doherty argued for the first time in response to the

restitution request that Local 46 was not a victim under the MVRA because restitution was

required only for conduct of which a defendant had been convicted. In support of his argument,

Doherty pointed out that in his cooperation agreement with the Government, he agreed to plead

guilty to one count of money laundering conspiracy, and in exchange, the Government agreed not

to bring any additional criminal charges for Doherty’s “activity involving his fraud in connection

with . . . defrauding union benefit funds.” Thus, adding a new argument to those he advanced at

his sentencing proceeding, Doherty contended that the conspiracy of which he was convicted did

not include his ultimate plan to use the laundered cash to pay employees, nor did it include as an

element any conduct that had a direct impact on Local 46.

Local 46 replied that Doherty had conceded its victim status by failing previously to

object or challenge restitution on that ground. Local 46 also argued that although the specified

unlawful acts of the conspiracy were the forged checks, the federal contract fraud, and the mail

fraud, the acts of money laundering were completed by the financial transactions using the

proceeds of those activities, i.e., cash payments to employees.

The magistrate judge recommended that Local 46's motion be denied, agreeing with

Doherty that his receipt of the cash from Castello constituted the relevant financial transactions

and completed the acts of money laundering. The magistrate judge went on to state that the

common goal of the conspirators was to turn the forged checks into cash and that the use of the

cash to pay the workers was not part of the scheme. Quoting United States v. Donaghy, 570 F.

5 Supp. 2d 411, 426 (E.D.N.Y. 2008), the report and recommendation concluded that the MVRA

allows for recovery only for conduct that is “‘part of the applicable scheme, conspiracy, or

pattern of conduct that is the offense of conviction,’” and that Local 46 has not suffered direct

and proximate harm from the offense of conviction as required for an award under the MVRA.

Local 46 objected to the magistrate judge’s findings, arguing that the analysis conflated

the unlawful activity element, forging a check, with the financial transaction and contending that

the magistrate judge had ignored evidence in the record establishing that cash payments to

employees was the goal of the conspiracy between Doherty and Castello. Doherty testified (at

Castello’s trial) that he gave Castello checks to get cash to pay Doherty’s employees, and said at

his plea hearing that he had cashed fraudulent checks “for purposes of paying certain employees

in cash.”

The district court adopted the magistrate judge’s report and recommendation in its

entirety, finding that Local 46 had not been directly and proximately harmed by Doherty’s money

laundering because the offense was complete at the moment Castello handed the cash to Doherty.

The court agreed that restitution was not available under the MVRA for harm caused by the

actions of a single conspirator acting outside the conspiracy as part of a broader uncharged

scheme. Local 46 filed a petition for mandamus in this Court to challenge that adverse

determination under the provisions of the CVRA. See 18 U.S.C. § 3771(d)(3).

In its petition for mandamus Local 46 concedes that the definitions of “victim” under

both the CVRA and MVRA are coterminous, and it agrees “with the District Court’s

determination that ‘a person may be entitled to restitution only if he or she was directly and

proximately harmed as a result of [defendant] Doherty’s conspiracy to launder money.’” Local

6 46 argues that it is a victim of Doherty’s specific offense of conviction, i.e., the money

laundering conspiracy to which Doherty pleaded guilty. It “faults the District

Court’s application of the facts of [the] case to the legal standard defining a victim according to

the elements of the crime or offense of conviction,” and reiterates arguments made below that

Doherty’s cash payments to his employees were the financial transactions that completed the

money laundering conspiracy. For support of this argument Local 46 points to the district court’s

agreement, at sentencing, with respect to the federal contract theft activity that only the cash

payments that exceeded the amount of cash paid to employees would be counted for sentencing

purposes; thus the cash payments to employees were a part of the federal contract laundering

activity even if not a part of the check forging activity. In addition, Local 46 argues that

Doherty’s testimony at Castello’s trial regarding the purpose for which the laundered funds were

used contradicts the court’s conclusion that there was no basis for finding that the cash payments

were part of the conspiracy.

Discussion

Local 46 argues that the money laundering conspiracy to which Doherty pleaded guilty

included Doherty’s cash payments to union workers. The dispositive issue is therefore whether

the conspiracy to launder money for which Doherty was convicted was complete when Castello

transferred the cash to Doherty or whether it included making cash payments to employees with

the monies received in the laundering process. It is those cash payments, Local 46 alleges, that

deprived it of benefits due under collective bargaining agreements. For the reasons that follow,

we hold that the district court did not abuse its discretion in determining that the conspiracy

7 charge to which Doherty pleaded guilty did not encompass the activity of which Local 46 was a

victim.

“The CVRA guarantees to the victims of federal crimes an array of substantive and

participatory rights, including the right[] . . . to receive ‘full and timely restitution as provided in

law.’” In re Rendon Galvis, 564 F.3d 170, 174 (2d Cir. 2009) (per curiam) (quoting 18 U.S.C.

§ 3771(a)(6)). “In any court proceeding involving an offense against a crime victim, the court

shall ensure that the crime victim is afforded th[ose] rights.” 18 U.S.C. § 3771(b)(1). “The

district court must decide a putative victim’s motion asserting rights under the CVRA, and,

following denial of the motion, ‘the movant may petition the court of appeals for a writ of

mandamus.’” Rendon Galvis, 564 F.3d at 174 (quoting 18 U.S.C. § 3771(d)(3)).

We review a district court’s determination under the CVRA for abuse of discretion. See

In re W.R. Huff Asset Mgmt. Co., 409 F.3d 555, 563 (2d Cir. 2005). The MVRA defines a victim

as “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.

§ 3663A(a)(2).2

2 This Court has not yet determined whether the CVRA’s definition of crime victim as “a person directly and proximately harmed as a result of the commission of a Federal offense” is the same as the MVRA definition. We need not decide that issue in this case, however, because petitioner has argued this case under the provision of the MVRA concerning offenses that involve a conspiracy, such as the one here, and does not press us to look beyond that provision for purposes of defining the statutory term “victim.”

8 As Local 46 has conceded, the district court’s statutory authority to award restitution

under the MVRA is limited to awards to victims of the offense of conviction. See Hughey v.

United States, 495 U.S. 411, 416-19 (1990) (addressing prior version of the Victim and Witness

Protection Act (“VWPA”), 18 U.S.C. § 3579, which provided that at sentencing, a district court

was authorized to award restitution to “any victim of such offense”). Although Hughey involved

the pre-amendment version of the VWPA, courts have extended its analysis to the amended

version of that statute. See, e.g., United States v. Hughey, 147 F.3d 423, 437 (5th Cir. 1998)

(“That part of Hughey which restricted the award of restitution to the limits of the offense,

however, still stands.”). We have approved of this analysis and, because the amended version of

the VWPA contains identical language to the MVRA, we have further extended Hughey to the

MVRA. United States v. Oladimeji, 463 F.3d 152, 158-59 (2d Cir. 2006) (holding that the

relevant question in imposing restitution under the MVRA is whether the “loss [is] caused by the

specific conduct that is the basis of the offense of conviction”); see also United States v. Akande,

200 F.3d 136, 141 (3d Cir. 1999) (holding that “[t]he conduct underlying the offense of

conviction thus stakes out the boundaries of the restitutionary authority” under the MVRA).

Local 46 asserts that the district court abused its discretion in finding that Local 46 is not

a victim of the money laundering offense to which Doherty pleaded guilty and, therefore, not

entitled to restitution under the MVRA. Local 46's argument is essentially fact-based, urging that

the circumstances support a determination that Local 46 was a victim of Doherty’s scheme to get

cash to pay union workers thus avoiding an obligation to pay monies owed to Local 46 under

certain collective bargaining agreements. Upon examination those arguments fail. There has

been no abuse of discretion because the magistrate judge and district court’s determinations that

9 Local 46 was not a crime victim are supported both by the district court’s rulings at sentencing

and by the terms of the cooperation agreement. See e.g., Forest City Daly Housing, Inc. v. Town

of North Hempstead, 175 F.3d 144, 149 (2d Cir. 1999). While Doherty admittedly had a plan to

obtain laundered money and then use that money to pay U.S. Rebar’s employees in cash and

simultaneously avoid paying taxes and union obligations, the only criminal charge that the

Government brought and of which Doherty stands convicted is conspiracy to engage in money

laundering in violation of 18 U.S.C. § 1956(h). Doherty pleaded guilty to one count of

conspiracy to launder money which, as applicable to Doherty’s case requires the Government to

prove that a defendant conspired to commit the following offense, to wit:

. . . knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conduct[ing] or attempt[ing] to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity--

(A)(i) with the intent to promote the carrying on of specified unlawful activity; or ...

(B) knowing that the transaction is designed in whole or in part--

(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity. . . ;

18 U.S.C. § 1956(a)(1). We agree with the well reasoned ruling of the magistrate judge that:

the crime of which [Doherty] was convicted-conspiracy to launder money-was “completed” when he received the cash from Castello. In some money laundering cases, a defendant already has cash that needs to be laundered through some financial transaction. Here, however, it was the receipt of the cash from the fraudulent checks that completed the crime. Doherty might have done anything or nothing with the cash after he received it, but the crime of conspiracy to launder money, which here included the crime of laundering money, had already been committed by the time the cash was given to the union workers. It was the common goal of the co-conspirators to turn false checks into cash and there is no

10 basis for finding that the use of that cash to pay union workers was part of the conspiracy.

United States v. Doherty, No. 05-CR-0494(JS)(WDW), 2009 WL 1310877, at *7 (E.D.N.Y. May

7, 2009) (Wall, Mag. J.).

Given the elements of the crime to which Doherty pleaded guilty, if we were to adopt the

position that Local 46 advocates, we would have to engage in an expansive redefining of the term

“victim.” The definition applicable to Local 46's circumstances reads: “[I]n the case of an

offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, [a

victim is] any person directly harmed by the defendant’s criminal conduct in the course of the

scheme, conspiracy, or pattern.” 18 U.S.C. § 3663A(a)(2). While the language expands what it

is that will give rise to a compensable loss when a scheme, conspiracy or pattern is involved, the

reference point to which such conspiracy is tied remains the “offense” of which the defendant has

been convicted. See 18 U.S.C. § 3663A(a)(1) (“[W]hen sentencing a defendant convicted of an

offense described in subsection (c), the court shall order, in addition to . . . any other penalty

authorized by law, that the defendant make restitution to the victim of the offense. . . .” (emphasis

added)). That is, the “scheme, conspiracy, or pattern of criminal activity” must be an “element”

of that “offense” in order for the conduct in the course of the scheme or conspiracy to be

considered as a basis for determining compensable harm.

Notwithstanding what Doherty planned to do with the laundered funds once he had them

in his possession, the “offense” to which he pleaded guilty was solely and exclusively the

conspiracy to engage in money laundering. The cooperation agreement (a) required Doherty to

plead guilty to a money laundering conspiracy and (b) barred the Government from prosecuting

11 Doherty for activities related to “defrauding union benefit funds.” It is therefore clear that the

offense of conviction was not conspiracy to defraud the union. Local 46's expanded definition of

“victim” ignores the term “offense” in § 3663A and would force the sentencing court to ascertain

some overarching uncharged scheme or conspiracy, one element of which is the specific offense

to which the defendant pleaded guilty.3

With reference only to United States v. Santos, 128 S.Ct. 2020, 2025 (2008), holding that

the term “proceeds” in the money laundering statute is defined as profits, not gross receipts, of an

illegal activity, Local 46 argues that because the district court allowed the funds paid to the

workers to be deducted from the laundered monies derived from the federal contract scheme for

which Doherty would be held accountable, that accommodation proved the laundering scheme

included the cash payments to those workers. This, in turn, was proof that Local 46 was a victim

of the contract fraud laundering. Although, unlike its consideration of the fraudulent check

3 A decision of the Ninth Circuit could be interpreted to contradict our position, as it states that the amendment to the VWPA overrules the holding in Hughey and allows restitution to be granted to those “‘harmed in the course of the defendant’s scheme even beyond the counts of conviction.’” United States v. Brock-Davis, 504 F.3d 991, 999-1000 (9th Cir. 2007) (emphasis in original) (quoting United States v. Rutgard, 116 F.3d 1270, 1294 (9th Cir. 1997)). In reaching that conclusion, the Ninth Circuit determined that conduct not specifically mentioned in an indictment charging a conspiracy to manufacture methamphetamine on a specific date and at a specific location, was, in fact, “related conduct” for which restitution could be granted. Id. at 999. The Ninth Circuit ordered restitution for damages to a motel caused by the conspirators’ manufacturing of methamphetamine that occurred on a different date and in a different city than that alleged in the indictment. Id. The case, however, can be read to correspond with the instant decision because the Ninth Circuit, in effect, found that the conduct for which restitution was granted, which was identical to the charged conduct, was a part of the “pattern of criminal activity” that formed the basis of the conspiracy to manufacture methamphetamine. A comparable situation in the case before us would arise if the indictment had identified specific forged checks and a victim suffering a loss as a result of a non-identified forged check that had also been laundered had moved for restitution. That is not this case, however, as Local 46 is asserting victim status based on Doherty’s acts of payment to his employees, acts that are different from, and outside of, the charged activities.

12 uttering activity, the district court did allow Doherty to exclude the amounts from the federal

contract fraud that were paid to the workers in calculating his sentence, that fact does not justify a

finding that the district court abused its discretion by denying Local 46's request for restitution.

To the extent that the district court made any finding regarding the federal contract fraud, the

court merely acceded, for sentencing purposes, to the agreement between the Government and

the defendant as to the calculation of the proceeds attributable to that fraud. This is further

supported by the parties’ discussion at sentencing that the total proceeds of that contract fraud

overstated its seriousness.

To the extent that Local 46 argues that the Government failed to meet its obligations

under the CVRA because it did not support Local 46's restitution claim and, in fact, failed to

submit promised support papers, that argument is also unavailing. The CVRA requires the

Government to aid crime victims in obtaining restitution. See 18 U.S.C. § 3771(c)(1). Because

we conclude that the district court did not abuse its discretion in determining that Local 46 is not

a “victim” under either the CVRA or the MVRA, the Government did not have any obligation to

support its restitution motion.

Conclusion

For the foregoing reasons, we hold the district court did not abuse its discretion in

denying Local 46's motion to enforce its rights as a victim, and we DENY the petition for

mandamus.