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USCA1 Opinion

February 19, 1993


UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
____________________
No. 92-1536
UNITED STATES,
Appellant,
v.
BARKER STEEL CO., INC., AND
ROBERT B. BRACK,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
___________________
____________________
Before
Cyr, Circuit Judge,
_____________
Bownes, Senior Circuit Judge,
____________________
and Fuste,* District Judge.
______________
____________________

A.

Peter A. Mullin, Assistant United States Attorney, with whom


_______________
John Pappalardo, United States Attorney, and Andrew E.

____________________
__________
Lauterback, Special Assistant United States Attorney were on
__________
brief, for appellant.
Paul F. Ware, Jr., with whom John C. Englander, Jeremy
___________________
__________________
______
Sternberg, and Goodwin, Procter & Hoar, Earle C. Cooley, and
_________
________________________
________________
Cooley, Manion, Moore & Jones were on brief, for defendants,
________________________________
appellees.
____________________
February 19, 1993
____________________
____________________
*of the District Court of Puerto Rico, sitting by designation.

BOWNES, Senior Circuit Judge.


____________________

The government appeals

the dismissal of an Information which charged the defendants,


Barker
a

Steel Co., Inc. and Robert B. Brack, with engaging in

conspiracy to defraud the United States in violation of 18

U.S.C.

371.

fraudulently
Disadvantaged

The Information alleged that


obtained
Business

Minority

Business

Enterprise

(MBE)

the defendants
Enterprise
"set

and
aside"

contracts.

The district court found that the Information was

insufficient to sustain the

charges and dismissed it.1

For

the reasons that follow, we reverse and remand for trial.


I.
I.
Standard of Review
Standard of Review
__________________
On appeal
take

from the

dismissal of an

information, we

the factual allegations in the information as true, and

we must reverse the dismissal if we find that, as a matter of


law, the information sufficiently
the offense charged.
1347, 1354

United States v.
_____________

(11th Cir. 1987).

whole

and we construe the

with

all

necessary

sets forth the elements of


Torkington, 812 F.2d
__________

We read an

information as a

allegations in a practical sense,

implications.2

United
States
_______________

v.

____________________
1 United States v. Barker Steel Co., Inc., 774 F. Supp. 65
_____________
______________________
(D. Mass. 1991).
2 Prior to 1971, 18 U.S.C.
3731 limited government appeals
from dismissed informations or indictments to issues of law.
On appeal, the court was bound to accept the lower court's
-2-

nom., Zero v.
____
____
Cincotta, 689
________

United States, 459


_____________
F.2d 238, 242 (1st

U.S. 991

(1982); United
______
Cir.), cert. denied sub
_____ ______ ___

law, including the lower court's interpretation of a statute,


(5th Cir.), cert. denied, 427 U.S. 903 (1978). Questions of
_____ ______
States v. Cadillac Overall Supply Co., 568 F.2d 1078, 1082
______
____________________________

are reviewed de
__

novo.
____

United States
_____________

v. M.I.M., 932
______

F.2d

construction by lower court).


-3States v. Besmajian, 910 F.2d 1153, 1154
______
_________
and removed the restrictions on appeal.

(3d Cir.
But
___

1990)

see United
___ ______

(following former rule and limiting review of allegations to


An information should be "a plain, concise and

An information is sufficient if it "first, contains the


constituting the offense charged." Fed. R. Crim. P. 7(c)(1).

elements
definite

of the offense
charged
written
statement
of

and
the

fairly informs a
essential
facts

second, enables him to plead an acquittal or conviction in


defendant of the charge against which he must defend, and,
1016, 1019 (1st Cir. 1991).

bar of future prosecutions for the same offense."

United States, 369 U.S. 749, 763-64 (1962);


_____________

Hamling v.
_______

United States v.
_____________

language of the statute as long as the core facts


information is sufficient when allegations are made

criminality charged are

also included.

Penagaricano-Soler, 911
__________________

F.2d 833, 839

of the
in the

Russell 369 U.S. at


_______
(1st Cir. 1990).
An

____________________
764; Penagaricano-Soler, 911 F.2d at 839-40; United States v.
__________________
________________
United States, 418 U.S. 87, 117 (1974); accord Russell v.
_____________
______ _______

construction of allegations. Congress amended


3731 in 1971
Allard, 864 F.2d 248, 250 (1st Cir. 1989) ("The test for
______
sufficiency, therefore

is

not whether,

indictment or information could have


.

in

hindsight,

the

been more complete, . .

but rather whether it fairly identifies and describes the

offense." (citations
Information as

omitted)).

Therefore, we

a whole to determine

examine the

whether it sufficiently

charges the offense proscribed by the conspiracy statute.


II.
II.
The Information
The Information
_______________
To

begin, we

Information.

summarize the

The government's

defendants' conspiracy to defraud


the

MBE

Department

programs
of

of

key allegations

allegations

concerning the

the United States focus on

several federal

Transportation

of the

(DOT),

agencies,
the

the

U.S.

Environmental

Protection

Agency

(EPA),

Administration (GSA).
MBE

programs

and

the

These federal

to

"support[]

General

Services

agencies intended the

the

fullest

possible

participation of firms owned and controlled by certain racial


minorities and women in

the construction programs funded and

assisted by these departments


6.

and agencies."

Information at

To that end, the MBE programs required that recipients

of funds from federal agencies establish goals or set aside a


percentage

of

federal

funds

certified MBE businesses.

received

for

Information at

7.

contracts

to

-4-

Federal agencies with


and local

governments

minority businesses.

MBE programs

to certify
Information at

rely upon

applicants
9.

as

state

qualified

To qualify for MBE

certification, at least fifty-one percent of the ownership of


the enterprise

must be by

certain minority groups,

and the

minority owners must also control the daily operations of the


business.

Information at

6. To implement the MBE program,

the

entity

receiving federal

contractors

to

perform

subcontracts to

For

set aside

perform a

work,

subcontract work to

produce the

the

(Barker)

10.

MBE certified

the goods before reselling them."


Information alleges

until

at

and

least
its

stockholder, Robert B.

Barker

was

July,

MBE

firm must

the execution of

For

materials and

firm must

1986,

"either

or substantially alter

Information at
that

president,

from
Barker

director

10.

about

October,

Steel

Company

and

majority

Brack (Brack), conspired with

contracts for
a

percentage goal
qualify for

to use Rusco Steel Company (Rusco) as a front


MBE set aside

award

performing, managing and supervising

goods from raw materials

The

turn

MBE certified

Information at

to qualify,

hires general

in

"commercially useful function in

the work involved."

1982,

who

to meet the

contracts, the

the project by actually

supplies

the

certified MBEs

for the project.


goals or

agency funding

Barker.

Massachusetts

-5-

company to win

Information

corporation

others

which

at

13.

furnished

fabricated

steel

reinforcing

bars

(re-bars)

and

other

products to the construction industry throughout New England.


Barker was never
Rusco,
in

Information at

1, 11.

located in Rhode Island, had been certified as an MBE

several

began.

a certified MBE.

states before

Information at
The

steel

functions:

the

scheme

re-bar

"cut

defendants

3, 15.
industry

includes

fabricators and erectors.

fabricators

with the

and

bend

two

distinct

Firms which operate as

the

re-bars

to

meet

the

specifications of a particular construction project and


deliver the
at

5.

re-bars to the construction

The industry term for the

is "furnish" work.

Id.
___

the

pouring

of the

Barker

October,

concrete."

1982,

would finance

a new

Rusco

would

job site, prior

Information

agreed

with

division of Rusco

allow

"place the

at

5.

Id.
___

Barker

steel re-bar, "erection" work.


exchange,

work done by fabricators

the forms, at the

Erector firms do "erection" work.


In

Information

Firms known as erectors

fabricated re-bars within


to

site."

then

Rusco that
for erecting

Information at
Barker to

market

5, 16.
its

In

steel

products through Rusco for re-bar "furnish" contracts to take


advantage of
13,

16.

Rusco's MBE

Prior

certification.

to 1982, Rusco

Information

had operated as

at

a broker of

steel re-bar but had not fabricated re-bar or erected re-bar.


Information at

15.

Beginning

in 1982, Barker

employees

-6-

managed all aspects of the fabrication, sales and shipping of


steel

re-bar and

Rusco's

name

other

when

Information at
exercised
period.

products in

contracts
16, 19,

substantial

merged a subsidiary
certifying

MBE

Barker

control

over

22, 25.

own name

various

obtaining

about

Rusco

local

maintaining

Information at

Brack

Rusco

throughout this

In 1985,

the defendants

Rusco's

Information at

state and
or

in

certification.

employees and

eligibility

for

MBE

25, 43.

As part of the scheme, Rusco submitted


to

and

company into Rusco, to deceive state MBE

agencies

certification.

required

20.

Information at

its

agencies

for

certification

32, 26, 41, 47.

documentation
the purpose
as

an

of
MBE.

The documents submitted by

contained false, misleading

and fraudulent statements

as well as material omissions. Id.


___

The Information concludes

that as a result of the


federally

funded

and

conspiracy, more than $5 million


federally

contracts were improperly credited


contracts actually

assisted

in

construction

toward MBE goals when the

benefitted Barker,

which was not

an MBE

firm.

Information at

15.

Information, impeded,
implementation,

The conspiracy, according to the

impaired, obstructed and

execution

and

the

MBE

dismissed the Information on

the

programs of DOT, EPA and GSA.

administration

defeated the

Information at

of
12.

III.
III.
Discussion
Discussion
__________
-7-

The district court


grounds

that:

defendants

(1) it failed

of any

MBE

to allege a

program statute;

violation by the
(2) it

did

not

clearly state a violation by the defendants of a duty owed to


the federal

government, and (3)

contact with

federal agencies.

it failed to
The

allege direct

defendants contend that

because the MBE program does not impose criminal penalties or


any obligations upon them, they
the

conduct alleged

criminal charges.

in the

were not fairly warned

Information could give

that

rise to

In further support of the dismissal of the

Information,
was

not

the defendants

fraud

because

it

add that their


did

not

government of any money or property.


that the

alleged conduct

deprive

the

federal

The government counters

Information properly and sufficiently

alleged that

the defendants conspired to defraud the federal government in


violation of 18 U.S.C.
A.
A.

371.

Legal Sufficiency of the Information


Legal Sufficiency of the Information
____________________________________

The Information charges that the defendants conspired


with others to defraud
U.S.C.

371.

the United States in violation

The pertinent

language of

371

of 18

provides as

follows:
If two or more persons conspire either
to commit any offense against the United
States, or to defraud the United States,
or any agency thereof in any manner or
for any purpose, and one or more of such
persons do any act to effect the object
of the conspiracy each shall be fined not
-8-

more than $10,000 or imprisoned not more


than five years, or both.
18

U.S.C.

371.

To sufficiently

charge a

conspiracy to

defraud,

the Information

elements

of

section

must

371:

objective of the agreement,


of the

agreement."

allege
"an

the three

agreement,

and an overt act

essential

the

unlawful

in furtherance

United States v. Hurley, 957


______________
______

F.2d 1, 4

(1st Cir. 1992), cert. denied, 61 U.S.L.W. 3256 (U.S. Oct. 5,


_____ ______
1992).

The

objective of the agreement is unlawful

"'for the purpose of

impairing, obstructing or defeating the

lawful function of any department of Government.'"


United States,
_____________

if it is

384 U.S.

855, 861

Dennis v.
_________

(1966); (quoting Haas


____

v.

Henkel, 216 U.S. 462, 479 (1910)).


______
In this case, the government alleged the
conspiracy

to

defraud in

the

language of

defendants'

the

follows:
the defendants herein, BARKER STEEL CO.,
INC. and ROBERT B. BRACK, did knowingly,
willfully
and
unlawfully
combine,
conspire, confederate
and agree with
others, known and unknown, to defraud the
United States by impeding, impairing,
obstructing and
defeating the lawful
governmental
function
of
various
departments and agencies of the United
States, including particularly USDOT, EPA
and GSA, in the implementation, execution
and administration of their respective
MBE programs.
. . .
(All in violation of Title
States Code, Section 371.)

-9-

18

United

statute as

Information at

12, and

final statement at

page 13.

The

Information also

includes

detailed factual

allegations

to

substantiate

the

cursory

statutory

allegations.

The

defendants conspired with Rusco and others to establish Rusco


as

a front company which

set

aside

contracts

construction
The

the defendants used


for

furnishing

steel

in part

by federal

projects funded

defendant corporation, Barker,

was not an

therefore, not entitled to MBE contracts.


have

been a properly certified

relevant period of the


controlled Rusco,
Rusco

false

and misleading

We

continue

documentation to

analysis

defendants that

agencies.

MBE and was,

time, during the

its eligibility as

MBE certification

of

Information to determine whether


to the

the

an

by supplying

certifying agencies.
sufficiency

of

the

371 provided fair warning

their conduct, as

alleged, violated

the statute.
B.
B.

on

defendants' scheme, they financed and

maintained its

our

re-bar

Although Rusco may

MBE at one

thereby destroying

MBE.

to obtain MBE

Sufficiency of the Allegations of Conspiracy


Sufficiency of the Allegations of Conspiracy

____________________________________________
The defendants
failed

do not contend

that the

Information

to allege a conspiracy, nor did the district court so

find, and we find no deficiency.


an agreement to

disobey or

States v. Drougas,
______
_______
United States v.
_____________

748 F.2d

"The gist of conspiracy is

to disregard the
8, 15 (1st

law."

Cir. 1984);

Batista-Polanco, 927 F.2d 14,


_______________

United
______
accord
______

19 (1st Cir.

-10-

1991);

Penagaricano-Soler, 911 F.2d at 840.


__________________

alleges that the defendants


unknown,

to defraud

The Information

conspired with others, known and

the government

and goes

on to

allege

conduct by the defendants, their employees, Rusco, and others


in furtherance of the conspiracy.

Information at

12

and

passim.
______
The defendants argue, however, that because Rusco was
not named or charged as a co-conspirator
actions

by Rusco

cannot be

in the Information,

alleged to support

the charges

against the defendants.


conspirators
requirement
offense

There

is no

requirement that

be identified in an information, nor is there a


that co-conspirators

to sustain

Penagaricano-Soler,
__________________

the

be charged

conviction

911 F.2d

of one

at 840

charged or

named as

with

the same

co-conspirator.

n.5; United States v.


______________

Sachs, 801 F.2d 839, 845 (6th Cir. 1986).


_____
not

co-

Although

a co-conspirator,

Rusco is

the Information

alleges action which includes Rusco as a participant with the


defendants
Information
those

in

the scheme

at

13,

allegations

conspirator.

16.

is that

to defraud

The reasonable
Rusco

Further, the Bill of

identifies Rusco as

the

was

MBE programs.
inference from

operating

as a

co-

Particulars specifically

a co-conspirator.3

It is well

settled

____________________
3 While a bill of particulars cannot cure a defective
indictment, it can provide notice of detail missing from an
information.
See Fed. R. Crim. P. 7(e); 1 Charles A.
___
Wright, Federal Practice and Procedure Criminal 2d
129
(1982);
United States v. Prince, 868 F.2d 1379, 1384 (5th
_____________
______
-11-

that members of a conspiracy are


actions

of

scheme.

a co-conspirator

Pinkerton v.
_________

(1945);

taken

in

United States,
_____________

United States v. Baines,


_____________
______

1987); United States


_____________
1983).

legally responsible for the

v. Fusaro,
______

furtherance of
328 U.S.

812 F.2d 41,

the

640, 646-47
42 (1st Cir.

708 F.2d 17,

21 (1st

Cir.

Therefore, actions by Rusco to obtain or maintain MBE

certification

are

properly

alleged

as

elements

of

the

conspiracy.

C.
C.

Sufficiency of the Allegations of Fraud


Sufficiency of the Allegations of Fraud
_______________________________________

The

conspiracy

conspiracies:

statute

two

different

one to commit a specific offense, the "offense

clause," and the other

to defraud the United States

manner or

for any purpose,"

957

at

F.2d

proscribes

3.

The

"defraud clause" of

the "defraud clause."

defendants

were

"in any
Hurley,
______

charged under

the

371.

At the start of our analysis, we acknowledge that the


defraud clause of
language

and

371 has been criticized for

potentially broad

sweep.

States, 384 U.S. 855, 860 (1966).


______
no

common law

determine
"'plainly

crimes

whether

the

against the

Dennis v.
______

United
______

Further, because there are


United

defendants'

and unmistakably' within

its general

States, we

alleged

conduct

must
is

the province of [ 371]."

____________________
Cir. 1989)
(observing that an information,
unlike
indictment, may be easily amended absent prejudice
defendants).

an
to

-12-

United States v.
_____________

Gradwell, 243
________

U.S. 476, 485

(1917).

therefore, scrutinize the Information carefully

We,

to determine

whether it sufficiently and properly alleges criminal conduct


in violation of

371.

The defendants

contend that they lacked fair warning

that the conduct alleged in the Information would violate the


defraud clause of

371.

due

under the

process rights

that the
to

notify

persons

612,

617

of reasonable
criminal.

(1953) ("The

doctrine invokes

Fifth Amendment

criminal statute at issue

planned conduct is
U.S.

The fair warning

and requires

be sufficiently definite
intelligence that

United States v.
_____________
constitutional

their

Harriss, 347
_______
requirement of

definiteness is violated by a criminal statute that fails


give a person

of ordinary intelligence fair

to

notice that his

contemplated conduct is
States
______

v.

forbidden by the statute.");

National Dairy Corp.,


_____________________

372 U.S.

29,

United
______

31 (1963);

United States v. Anzalone, 766 F.2d 676, 678 (1st Cir. 1985).
_____________
________
We

examine the statute,

facts of this case.


550 (1975);

as we must,

in the context

of the

United States v. Mazurie, 419 U.S. 544,


_____________
_______

United States
_____________

v. Angiulo, 897
_______

F.2d 1169,

1179

(1st Cir. 1990).


The defendants assert that

371 did not provide fair

warning that their alleged actions defrauded the MBE programs


of federal

government agencies because the

not impose any duties on them.

MBE programs did

The district court found that

-13-

the

MBE

programs

did

not

impose

penalties, or any obligations


defendants,

and held

that

criminal

sanctions

or

on subcontractors, such as the


because the

defendants had

not

violated any duty imposed upon them by the MBE programs, they
could not have violated

371.

The defendants primarily rely

on

United States v. Murphy,


_____________
______

809 F.2d 1427

(9th Cir. 1987);

United States v. Anzalone, 766 F.2d 676 (1st Cir. 1985), and
______________
________
United States v. Porter, 591 F.2d 1048
______________
______

(5th Cir. 1979).

We

find them inapposite to this case.


In United States v. Anzalone, 766
_____________
________

F.2d 676 (1st Cir.

1985), we addressed the problem of criminal prosecution of an


individual for alleged violations
requirements before

the applicable statutes were

include such transactions.


The government
the bank that

of the currency

claimed that

Anzalone
________

amended to

did not involve

the defendant failed

his deposits were part

reporting

of the same

371.4

to notify
event and

should have been reported as a "structured" transaction.

The

essence of the government's charges was "that the appellant's


failure

to inform the Bank of the 'structured' nature of his

transfers constituted an illegal scheme to avoid detection of


these payments by causing
report them."

Id. at 679.
___

the Bank to fail in its duty to


We held that

the defendant could

____________________
4 The defendant was not charged under
371 and
371 was not
discussed in the case.
The defendant was charged and
convicted of violating 18 U.S.C.
2, 1001 and 31 U.S.C.
5313, 5322.
-14-

not be held
failing

criminally liable under

the crimes charged

for

to report the transaction when the Reporting Act did

not impose a duty on him to do so.


Our

analysis

in

distinguishable from this case.


Anzalone does
________

not address

with a crime

for failure to
_______

omission can only


duty

to

act.

is

act.

case,

charged with defrauding the

easily

In addition to the fact that

371, the defendant

constitute a
In this

Anzalone
________

As

was charged

we held in

Anzalone,
________

crime if the

accused had

however, the

defendants are

government by their actions, not

by failure to act, and therefore, the analysis in Anzalone is


________
inapplicable.
Similarly, in
1427 (9th
from

Cir. 1987),

United States
______________

v. Murphy,
______

the defendants' alleged

their failure to act.

809 F.2d

crimes arose

The defendants were charged with

violating

371 because they failed to disclose the source of

the

they

funds

constituted

deposited
conspiracy

Internal Revenue Service

which
to

in the

the

government

impair the

function

collection of

alleged
of

taxes.

the
The

court found
completed

that the defendants had


the

required, had no

currency

transactions

reports

duty to inform anyone of the

deposited money, and therefore


activity.

honestly and accurately


which

were

source of the

had not committed any illegal

The court, in dicta, suggested that violations of

371 require violation

of other criminal statutes.

Id. at
___

-15-

1432.

Moreover, the Ninth Circuit

has explained and limited

its decision in Murphy:


______
Dicta

in

Murphy can be construed to


______
require that a conspiracy charge under
section 371 be based upon conduct that
has
"been
proscribed
by
criminal
statute."
Id. Any such construction is
__
incorrect in light of Dennis.
We read
______
Murphy and Varbel [United
States v.
______
______
_______________
Varbel, 780 F.2d 758 (9th Cir. 1986)]
______
only
to
mean that
a
section 371
conviction may not
be based upon a
failure to volunteer information that is
not
required to be provided to the

government, or upon the furnishing of


correct information; such acts do not
sufficiently impair the functioning of
the government to support a criminal
conviction.
United States v. Tuohey,
_____________
______
In Tuohey, the
______

867 F.2d 534, 538 (9th

court held that

charged the defendants under


failed to report currency

Cir. 1989).

the government had

properly

371 because the defendants had

transactions as they were required

to do by statute.
In

United States
_____________

Cir. 1979), the government


laboratory

operator with

defraud the government


reversed

the

finding

that

v. Porter,
______

591 F.2d

1048 (5th

charged a group of doctors


Medicare fraud

under

convictions
the government

371.
and
had

and

On

not

conspiracy to

appeal, the

dismissed

the

had

sent lab

government alleged that


work

to the

properly charged

the doctor

laboratory operator

-16-

court

indictments

proved a conspiracy to defraud the government under


summary, the

and a

371.

or
In

defendants
defendant's

manual laboratories because they received a payment for doing


so, rather

than to

automated laboratories which

processed the work


the

more quickly and more

facts relating

to the

back to the doctors are


doctors

sent

their

might have

cheaply.

practice which

provided payment

complex, the effect was obvious--the

lab

work

provided the payments and

to

practice and were within

the

laboratories

were not increased by

the guidelines for lab work

area, and the quality of the work was not an issue.


defendants

regulations

did

or

laboratories.
nevertheless,

not

and

violated

fairly."

any

requirements

government

government's "right to
honestly

violate

other
The

which

not to the automated laboratories.

The charges to Medicare, however,

the

Although

371
have the
Id.
___

at

using

manual

it

The

practice,

defrauded

Medicare program
1056.

Further,
rules,

that the

because

in the

Medicare
by

charged

the

the

conducted

government's

allegations established that the defendants failed to use the


most cost effective laboratories, the automated laboratories,
but did not show

that the defendants were required to do so,

and the allegations also


with the applicable
court

found that

defendants

had

Medicare program
371.

showed that the defendants complied

rules and regulations of


the

government

interfered

with

did

Medicare.

not prove

lawful

as required for criminal

functions

The

that

the

of

the

liability under

-17-

None
involve

the

of the
situation

misrepresentation
purpose of a

cases relied
before

and deceit

us:
to

the defendants

affirmative

thwart the

government program.

operation and purpose of

upon by

acts

of

operation

and

Conspiracy to thwart

the

a government program through deceit

and trickery is prohibited by

371.

Hammerschmidt v. United
_____________
______

States, 265 U.S. 182, 188 (1924); United States v. Bucey, 876
______
_____________
_____
F.2d

1297, 1312-13 (7th

Cir.), cert. denied,


_____ ______

493 U.S. 1004

(1989).
As noted earlier,
of

conspiracies:

(1)

371 proscribes two distinct types


conspiracies

offense against the United


criminal
States.

code, and

other federal law


then the

government.5

371

specific

to defraud

the United

defendants' theory is that if no

or regulation proscribes alleged

defendants

pursuant to

commit a

States, included elsewhere in the

(2) conspiracies

The essence of the

to

cannot be

because they
The

held criminally
owe no duty

defendants'

theory

conduct,

responsible

to the

federal

reflects

____________________
5

This

theory

is

distinguishable from

United States v.
______________
where the defendants

Minarik, 875 F.2d 1186 (6th Cir. 1989),


_______
were charged and convicted under the defraud clause of
371
although a specific provision of the Tax Code proscribed
their conduct.
In Minarik the
court overturned the
_______
convictions on the grounds that the case should have been
brought under the offense clause of
371 to avoid confusion
to the defendants concerning what conduct was considered
illegal.
-18-

misunderstanding

of

371.6

second clause

If the

commission

of a

the function

of the

two clauses

were interpreted

specific offense,

it would

to require

have the

meaning as the first clause thus rendering the second


redundant.

Whenever

statute in such

a way

possible,
as to

we will

of

not

same
clause

interpret

Breest
______

v.

371

in

cause redundancy.

Cunningham, 752 F.2d 8, 10 (1st Cir. 1985).


__________
Recently we examined the defraud

clause of

the context

of an appeal

impair the function of

from conviction for

conspiracy to

the IRS in United States


_____________

957 F.2d 1 (1st Cir. 1992),

helped a

million of his illegal


function of the
defendants in

drug

smuggler hide

IRS to levy

argued

tax code

that because

particular money

$5

offense clause of

371

The defendants

also

violations.

there

were no

The

indictment was invalid

laws prohibiting

laundering activities, they had

the government under


We found

and invest

and collect income taxes.

Hurley argued that the


______

specific

In Hurley,
______

earnings thereby thwarting the lawful

for failing to charge them under the


with

Hurley,
______

and held that the defraud clause

does not depend on allegations of other offenses.


the defendants

v.

their

no duty to

371 not to engage in money laundering.

that the defendants had engaged

in a long-standing

____________________
6 The defendants' theory
does not raise the due process
problems presented in United States v. Haga, 821 F.2d 1036
_____________
____
(5th Cir. 1987), where the defendants were charged under the
offense clause of
371 but were convicted, apparently, under
the defraud clause.
-19-

and

complex

limited
code.

conspiracy to

deceive

scheme proscribed
We held

by a

the IRS

single

rather

than a

section of

that the defraud clause was

the tax

properly charged

because it can best address a conspiracy which encompasses


broad range of conduct for
the function of the
384 U.S. at 860

the unlawful purpose of impairing

IRS.

See also Dennis v.


___ ____ ______

(holding that the

United States,
_____________

true nature of the

crime

was the entire conspiracy to falsely obtain benefits from the


N.L.R.B., in violation
statements

made in

are

conspiracy

legal

may

violation of

to

of the

F.2d at 1312-13

themselves

conspiracy in

371, and not

furtherance

States v. Bucey, 876


______
_____
which

of

obstruct by

merely the

conspiracy); United
______

(holding
constitute

371 if
deceit,

false

they
craft

that actions
a

criminal

are part

of

or trickery

a
the

lawful function of a government agency).


In the present case,
defendants concocted
Rusco as a front

an elaborate

by the defendants.

18

U.S.C.

broader goal,

work

to use

aside contracts

which would actually

be done

The scheme, as alleged, began in 1982 and

1986.

specific offense

scheme with Rusco

company to procure MBE set

for steel re-bar furnish

continued into

the government alleges that the

Although Rusco

was indicted

of filing false statements

1001,

the defendants'

impeding the purpose

for the

in violation of

conspiracy

aimed at

and function of

the MBE

programs.

The

defendants' scheme

is the

kind

of complex

-20-

conspiracy which the defraud clause is intended to proscribe,


and which

might not

be prosecuted adequately

by addressing

separate occurrences of illegal conduct.7


The defendants
second

argument.

in Hurley fared no
______
They argued

laundering

activities

statutes,

they

prosecuted

under the defraud clause

their

lacked

argument and

convictions
Id.
___

its ability
under

144, 147 (1st

does not require that

by
they

371.

specific
could

be

We rejected

proceeds,

defraud

inevitably
. .

. taxes,

clause

United States v.
_____________

Cir. 1990) ("The

are

Cambara,
_______

conspiracy statute

unlawful means be used to

unlawful goal of the conspiracy.").

money

"defendants knowingly

to collect

371's

at 4; accord
______

that
of

drug

IRS in

902 F.2d

fair warning

laundering

hindering the

because their

prohibited

if the

in

unassailable."

not

held that

participated

their

were

that

better with their

achieve the

____________________
7 In

Dennis, 384 U.S. 855, the defendants argued that they


______
should have been charged, if at all, under the offense clause
of
371 for the substantive offense of making false
statements but
for the time
bar of the
statute of
limitations.
The Court held, however, that the charge of
conspiracy to defraud the government properly stated the
nature of the defendants' offense and was not "an attempt by
prosecutorial sleight of hand to overcome a time bar."
Id.
___
at 863. In this case, we also reject the defendants' claim
that the government resorted to
371 to circumvent the
statute of limitations barring a charge pursuant to 18 U.S.C.
1001. As in Dennis, while it is true that the defendants
______
may have violated
1001 in perpetration of the conspiracy,
the gravamen of the charge is the scheme to defraud the MBE
program and not merely the making of false statements.
-21-

Taken as

a whole,

the Information charges

MBE re-bar "furnish" contracts


merely passing through
defendants used
bar

because the

contracts
benefit

a front, to

Rusco to win MBE contracts

directly.
of

obtained in Rusco's name were

Rusco, as

defendants

could not

The result

contracts which

that the

the

The

to "furnish" re-

have obtained

was that a
MBE

Barker.

those

non-MBE got the

program intended

for

minority businesses.

Both

court below rely on the


during

the

contracts

existence

the defendants and

the district

fact that Rusco was a certified


of

the

conspiracy,

implying

MBE
that

which went to Rusco were proper under the affected

MBE programs.
A

scheme to

use

minority

business as

front

company was addressed in United States v. Anderson, 879 F.2d


______________
________
369

(8th

business

Cir. 1989).

The

certification

Administration were

court

found that

requirements of

intended to insure

the

the minority
Small Business

that front companies

did not usurp program benefits:


To become certified
for the
[SBA
minority business] program, a business
must establish that it is socially or
economically disadvantaged, is owned by a
minority person and not a mere front for
a non-[minority certified] business, is
actually controlled by a minority person,
and will be
performing at least 15
percent of the government contract.
Id.
___

at

minority

372.

The

business

Anderson
________
as

defendants

front

-22-

to

obtain

used a
SBA

certified
set

aside

contracts when the

contract work was actually

to other, non-minority, businesses.

subcontracted

Compare United States v.


_______ _____________

Porter, 591 F.2d 1948 (5th Cir. 1979) (affirming dismissal of


______
an indictment
with

which charged doctors and

a laboratory worker

a kickback scheme to defraud Medicare in violation of

371 because there was no Medicare policy or


prohibited

doctors from

taking such

regulation which

payments and

Medicare

costs were not increased).


It is reasonable to
requirements

for

the

infer that the MBE certification

agencies

alleged in

this

case

are

intended to prevent non-MBEs from taking advantage of MBE set


aside contracts.8
duties upon

The MBE certification requirements impose

the defendants

system established
Rusco did not do

and

others not

to subvert

the

to benefit minority businesses.

Because

the re-bar "furnish" work specified

in the

contracts, Rusco was

operating as a

front for Barker

which

____________________
8 The Information summarized,
rather than citing, the
regulations which control the MBE programs of the DOT, EPA
and GSA which provides sufficient understanding of the
function of the programs.
Nevertheless, the pertinent
language of the regulation for MBE certification for the DOT
is instructive:
To ensure that this part benefits only
MBEs which are owned and controlled in
both form and substance by one or more
minorities or women, DOT recipients shall
use Schedules A and B . . . to certify
firms who wish to participate as MBEs in
DOT under this part.

49 C.F.R.

23.51.

-23-

did the

"furnish" work

and received the

contract payments.

As

the government alleges, MBE contracts can only be awarded

to

MBEs

who

actually

defendants' use of
Just because the

do

the

Rusco was

work,

and

a fraud on

therefore,

the MBE

defendants used Rusco, a

the

programs.

certified MBE, to

subvert the MBE requirements does not make their actions less
reprehensible.
The Information also alleges that
maintained its MBE certification

Rusco fraudulently

after 1982.

The defendants

counter that the Information cannot properly charge them with


defrauding

the

government

based

upon

false documentation

submitted by Rusco to various MBE certifying agencies because


there is

no allegation

that

false documentation to certify

the agencies
Rusco.

In

relied upon
Dennis,
______

the

384 U.S.

855, the Supreme Court found that an indictment which charged


members

of

mine

affidavits, stating

workers'

union

that they were not

who

submitted

false

Communists, in order

to

procure

Board,

the services
properly

stated

government pursuant to
the affidavits did not
rely

on the

the
a

371.

National Labor

conspiracy

to

The defendants

Relations

defraud

the non-Communist

only on the fact

the

objected that

defraud the Board because it

veracity of

instead relied

of

did not

affidavits, but

that they were filed.

In

response, the Court held as follows:


The
facts
are, according
to the
indictment, that petitioners and their
-24-

co-conspirators could not have obtained


the
Board's services
and facilities
without filing non-Communist affidavits;
that the affidavits were submitted as
part of a scheme to induce the Board to
act; that the Board acted in reliance
upon the fact that affidavits were filed;
and that these affidavits were false.
Within the meaning of
371, this was a
conspiracy to defraud the United States
or an agency thereof.
Dennis at 862.
______
affidavits was
benefit of

The effect of
that the

the Board's

the conspiracy and the

defendants' trade union


services and facilities

false

gained the
despite the

fact that the

union was

not qualified because

some of

its

officers were Communists.

The Court held that the conspiracy

defrauded

the government

by

Board

implement

to

its

Communist officers.
not

have

filing

impeding the

policy

to

function of

exclude

unions

the
with

Similarly, in this case, Rusco could

maintained its

certification

the required documentation.

as

an MBE

without

Because

the defendants

had taken control of Rusco, the documentation

filed by Rusco

contained

false

and

misleading

omissions which directly affected


MBE.

Unless

Rusco

defendants' scheme
have failed.
granted

information

material

Rusco's eligibility as

maintained its
to obtain

and

MBE certification,

MBE set aside

to Rusco

the

contracts would

The state and local MBE certification

MBE certification

an

in response

agencies
to Rusco's

fraudulent documentation.

Therefore, Rusco's filings for MBE

certification were at the

core of the defendants' conspiracy

-25-

and may be considered as a part of the fraudulent activity in


furtherance

of the

conspiracy.

Even if

Rusco had

been a

properly certified MBE, however,


of innocent

individuals or

the United States


371."

"[a] method that makes use

businesses to reach

is not for that reason beyond the scope of

Tanner v. United States, 483 U.S. 107, 129 (1986).


______
_____________

This court has considered


clause in
and

and defraud

371 and its

found

the meaning of the defraud

substantially similar predecessors,

actions which

variety of circumstances.

defrauded the

United States

Curley v. United States, 130 F. 1,


______
_____________

11-12 (1st Cir. 1904), cert. denied, 195 U.S. 628


_____ ______
the

sufficiency

defraud

the

of

an indictment

government by

in a

charging

defendant

(affirming

conspiracy

who took

to

civil

service exam for another man to help him gain a position as a


letter carrier

and

defining defrauding

the government

as:

"'any act committed with a view of evading the legislation of


Congress passed in the execution of any of its powers, or
fraudulently securing
properly be

made an

the benefit

of such legislation,

offense against the

of
may

United States.'");

Harney v. United States, 306 F.2d. 523 (1st Cir. 1962), cert.
______
_____________
_____
denied sub
______ ___

nom. O'Connell
____ _________

(affirming

indictment for hampering

the Bureau of Public


the administration

v.

United States,
_____________

371 U.S.

the lawful operation of

Roads of the Department of


of

the

Federal

-26-

911

Aid

Highway

Commerce in
program);

United States
______________

v.

Pappas,
______

(affirming conviction
based

on

a scheme

of

611

F.2d 399

conspiracy to

to misuse

funds

(1st

Cir.

defraud

1979)

government

intended for

the CETA

program).
Finally,
crime

of

defined

dishonest conduct

defrauding
"defraud" in

statute to

the
a

is at

government.
substantially

the heart
The

Supreme

similar

of the
Court

predecessor

371 as follows:
To conspire to defraud
the United
States means primarily to
cheat the
government out of property or money, but
it also means
to interfere with or
obstruct one of its lawful governmental
functions by deceit, craft or trickery,
or at least by means that are dishonest.
It is not necessary that the government
shall
be
subjected to
property or
pecuniary loss by the fraud, but only
that its legitimate official action and
purpose
shall
be
defeated
by
misrepresentation,
chicane,
or
the
overreaching
of
those charged
with
carrying out the governmental intention.

Hammerschmidt
_____________
The

v. United States, 265


______________

defendants

in

Hammerschmidt
_____________

U.S. 182,
were

188 (1924).

indicted

for

distributing leaflets and


to the

draft

other materials urging

during World

War

I.

The

Court

although the

defendants' conduct was aimed

function

the

of

function, it
deceit

or

Selective

was open

Service,

defiance and

trickery, and

held

that

at impairing the
lawful

not a

therefore,

resistance

government

scheme involving

could

not be

charged

within the meaning of defrauding the government.

-27-

The
situation

allegations

in

thwarting

engaging

in

programs.

the MBE
open

The

defiance

do

not

present

to do something which,

which had the unintended effect

programs.

defendants'

deceit and trickery


lawful

case

where defendants conspired

in itself, was innocent, but


of

this

or

Nor

were

protest

actions,

the defendants

against

as alleged,

the

MBE

involved

to benefit the defendants by hampering a

government function.

A conspiracy of

this kind has

long been recognized to defraud the government.


The
unlawful

Information alleges

conspiracy in excess

that

"[p]ursuant

of $5 million

to

this

in federal and

federally

assisted

construction

contracts were

improperly

credited towards the MBE goals of the various departments and


agencies

of

the United

States."9

Information at

14.

While this allegation could be more forcefully stated, taking


the

Information

as

whole

and

implications, the meaning is clear:

with

all

necessary

the defendants conspired

with others to defraud the DOT, EPA and GSA, agencies of

the

United States, in the implementation of their MBE programs by


using

Rusco

to

win

MBE

set

aside

contracts

which

the

defendants would not otherwise have been eligible to receive.

____________________
9 The defendants do not challenge the validity of the MBE
program. It is uncontroverted, in this case, that the MBE
program is a lawful function of government.
And see
___ ___
Fullilove v. Klutznick, 448 U.S. 448 (1980) (upholding
_________
_________
constitutionality of an MBE program).
-28-

As a result, the scheme diverted $5 million in contracts from


MBEs to Barker.
In thirteen pages containing

forty-eight paragraphs,

the

Information

Rusco and

details actions

by

which the

others accomplished their objective

contracts for the benefit of the defendants.


show

that the defendants were

the MBE programs,


aside
in

the defendants'

whole,

the

conduct

by

the purpose of

have known

consequences.

sufficiently

defendants

and

impair, defeat, or obstruct the


case.

set

any reasonably intelligent person

criminal

Information

involved in this

The allegations

well aware of

situation should

could have

the

to obtain MBE

certification requirements, goals and

contracts, and that

conspiracy

defendants,

We

that their
Taken as

alleges

their

fraudulent

co-conspirators

to

function of the MBE programs

move on to consider

whether the

fraud was perpetrated against the United States.


D.
D.

Sufficiency of Allegations of Contact with United States


Sufficiency of Allegations of Contact with United States
________________________________________________________
The defendants assert,

that

the Information

conspired
United
(1987),

fails

to allege

to defraud the United

States.

In Tanner
______

the Supreme

Court

conspiracy to procure and


project

and the district court

which

was

funded

constituted defrauding the

that the

States or an

held,

defendants

agency of the

v. United States, 483


______________

U.S. 107

considered

kickback

whether

keep a construction contract


by

federally

guaranteed

United States within the


-29-

on a
loans

meaning

of

371.

In Tanner, 483 U.S. 107, the Rural Electrification


______

Administration (REA) guaranteed loans for the construction of


a

power

plant for

Florida.

an

electric

cooperative (Seminole)

in

The procurement manager for Seminole conspired with

his friend

to get

contracts for

the project

with kickback

payments to the manager.


The defendants argued on
trial showed that the target
and

not the

that,
federal

of the conspiracy was

federal government.

because

Seminole's

The

Seminole

government responded

construction

project

received

financial assistance and some federal supervision, a

conspiracy to defraud
to

appeal that the evidence at

defraud

the

Seminole was the same

government.

The

Court

as a conspiracy
rejected

the

government's explanation and held:


The conspiracies criminalized by
371
are defined not only by the nature of the
injury intended by the conspiracy, and
the
method
used to
effectuate the
conspiracy,
but
also and
most
importantly by
the
target
of
the
______
conspiracy.
Tanner
______

at

conspiracies

130.

The

to

defraud

Court
the

also
federal

held,

however,

government

may

that
be

accomplished through intermediaries, innocent


and the

Court remanded

defendants

conspired

the

case to

to

cause

misrepresentations to the REA.

third parties,

determine whether
Seminole

to

the
make

Tanner at 132.
______

-30-

In
programs

this case,

the government

alleged that

of the involved federal agencies were the target of

the defendants' conspiracy to defraud.


The

the MBE

Information at

12.

Information supports the general allegation in statutory

language

with detail of the workings of the MBE programs and

the actions by the defendants which harmed the

MBE programs.

The Information

scheme caused

"in

excess of $5

construction
the

alleges that

the defendants'

million in federal

contracts [to

and federally assisted

be] improperly

credited towards

MBE goals of the various departments and agencies of the

United
alleged,

States."

Because the purpose of the MBE programs, as

is to insure that

at least ten

percent of federal

and

federally assisted

awarded to

construction

MBE companies,

taken

as

function of
a whole

which

be

to divert

benefit themselves obstructed

the MBE

programs.

clearly alleges

defendants' conspiracy was


contracts

contracts

the defendants' scheme

MBE contracts through Rusco to


the proper

project

that

The

Information

the target

of the

$5 million worth of MBE set aside

should

have

Information

does

been

awarded

to

minority

businesses.
The

general contractors or
certification were
their

not allege

the state

operating

that

either

the

agencies implementing

MBE

as federal

receipt of federal and federally

misrepresentations and fraud

agencies based
assisted funds.

to general contractors

on
The

and MBE

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certifying
were

agencies

by the

the means to the

effect their scheme.

defendants

and co-conspirators

end, using innocent

third parties to

The Information sufficiently alleges a

conspiracy

which

targeted

programs of

the DOT,

EPA and

federal
GSA, and

function,

the

MBE

therefore, properly

charges a conspiracy to defraud the United States.

E.
E.

Sufficiency of Allegations of Harm to the United States


Sufficiency of Allegations of Harm to the United States
_______________________________________________________
The

allege

defendants argue that

a crime under

the defendants
property.

the Information

371 because it

does not allege that

defrauded the federal government

There is no

basis for the

agency thereof
U.S.C.

of money or

defendants' argument.

The language of the statute itself is broad:


persons conspire .

fails to

"If two or more

. . to defraud the United

States, or any

in any manner or for any purpose. . ."


_______________________________

371 (emphasis

added).

At

least

since Haas
____

18
v.

Henkel, 216 U.S. 462 (1910), the Supreme Court has recognized
______
that

371 (and

not limited
money
to

its substantially similar predecessors) were

to conspiracies which defraud

the government of

or property: "The statute is broad enough in its terms

include

obstructing

any conspiracy

for

the

or

the

lawful

defeating

department of Government."
Although the
mail fraud, 18 U.S.C.

purpose of

impairing,

function

of

any

Id. at 479.
___

Supreme Court has limited


1341, to the protection

-32-

the scope of
of property

rights,

that

statute.
and id.
___ ___

limitation is

restricted

to

the mail

fraud

McNally v. United States, 483 U.S. 350, 360 (1987);


_______
_____________
at 368 (Stevens,

Smith, 891 F.2d 703,


_____
grounds,
_______

906

J., dissenting); United States v.


______________

713 (9th Cir. 1989), modified


________

F.2d 385,

cert.
_____

denied
______

(McNally's narrow definition of


_________
371.).

We

111 S.Ct

on other
__ _____
47

(1990)

"defraud" does not extend to

decline to extend

the McNally limitation to


_______

371.

IV.
IV.
Conclusion
Conclusion
__________
We hold that the
conspiracy

to defraud

the language
detail
against

to adequately
them.

demonstrates
as

of the

The

Information sufficiently alleges


the government pursuant

statute and with


notify the
history

that the statute

of

to

371 in

sufficient supporting

defendants of
interpretation

the charges
of

371

proscribes conspiracies, such

the defendants' conspiracy, which target federal programs

and which intend to


programs.
pursuant

deceitfully secure the benefit

In other words, the defendants had a duty imposed


to

371

not to

their

divert

programs

from

certified

minority businesses, to

itself

provides fair

conspiracy

of those

may

be

intended

warning
charged

the benefit

recipients,

as

the MBE

qualified

themselves.

that the

of

and

The statute

defendants' alleged

criminal

under

371.

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Therefore, we reverse
remand for trial.

the decision

of the

lower court

and

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