United States v. Thomas Harris
2016 U.S. App. LEXIS 7734
5th Cir.2016Background
- Colonel Thomas G. Harris (ex-Army, Luster National VP) formed a joint venture (Tropical Luster JV) with Tropical Contracting (an SBA 8(a) firm) to pursue 8(a) set-aside government contracts; Harris negotiated and signed the Galveston and Fort Bliss contracts.
- SBA 8(a) joint-venture rules require the 8(a) firm to serve as managing venturer and perform at least 40% of the work on each contract (rule adopted in 2011); Tropical lacked relevant experience and ultimately performed no work on the two contested contracts.
- The Joint Venture received payments: Galveston (initial assessment and follow-up totaling roughly $1M) and Fort Bliss (~$492K); Tropical received a share of profits but did not perform the work.
- Harris was indicted on 17 counts of wire fraud for allegedly obtaining 8(a) contracts by misrepresenting compliance with 8(a) regulations; a jury convicted him on 16 counts (acquitted on one).
- At sentencing the district court applied the §2B1.1 government-benefits special rule and treated the full contract values as loss (~$1.317M), producing a 16-level enhancement; court imposed 24 months’ imprisonment after a downward departure.
- On appeal the Fifth Circuit affirmed the convictions (sufficiency of evidence) but vacated the sentence and remanded, holding procurement contracts under 8(a) are not "government benefits" for §2B1.1(F) and loss must be reduced by the fair market value of services rendered.
Issues
| Issue | Plaintiff's Argument (Government) | Defendant's Argument (Harris) | Held |
|---|---|---|---|
| Sufficiency of evidence for wire fraud (scheme & material misrepresentation) | Contracts and related communications implicitly represented 8(a) regulatory compliance; Harris negotiated/signed contracts, so those representations are attributable to him | Representations were non-actionable silence or reasonable ambiguities about compliance; no material misrepresentation | Affirmed: implied representations in the contracts were material and supported a reasonable jury finding of a scheme to defraud |
| Specific intent to defraud | Evidence that Harris knew Tropical lacked capacity, excluded Tropical from work phases, and made statements showing efforts to "make this look" compliant | Offered evidence of good-faith belief (emails about hiring, confusion about applicability of new 40% rule, contingencies for hires) | Affirmed: viewing evidence in light most favorable to prosecution, a reasonable jury could find intent to defraud |
| Proper Guideline method: whether 8(a) procurement contracts are "government benefits" under §2B1.1 cmt. n.3(F) (so entire contract value = loss) | Contracts further public policy for disadvantaged firms; argued as government benefits | Contracts are fee-for-service procurement awards and not like grants/loans/entitlements; thus should be treated as procurement fraud under general rule | Vacated sentence: 8(a) procurement awards are not "government benefits" for that special rule; apply general loss rule instead |
| Proper loss amount under general rule (§2B1.1 cmt. n.3(A)) | Entire face value of contracts equals loss because contracts were fraudulently obtained | Loss should be zero or reduced: agencies received contracted-for services; at minimum credit fair market value of services rendered; defendant had no net gain | Vacated sentence and remanded: loss must equal contract price minus fair market value of services actually rendered (government bears burden to prove that difference) |
Key Cases Cited
- Jackson v. Virginia, 443 U.S. 307 (standard for sufficiency of the evidence)
- Neder v. United States, 527 U.S. 1 (materiality requirement for fraud)
- United States v. Sublett, 124 F.3d 693 (5th Cir.) (contract fraud loss reduced by value of services actually provided)
- United States v. Kuhrt, 788 F.3d 403 (5th Cir.) (elements of wire fraud)
- United States v. Nelson, 732 F.3d 504 (5th Cir.) (standards for loss calculation and government’s burden)
- United States v. Martin, 796 F.3d 1101 (9th Cir.) (procurement contracts are not government benefits; reduce loss by value of services)
- United States v. Nagle, 803 F.3d 167 (3d Cir.) (discussing application of government-benefits rule to affirmative-action procurement fraud)