United States v. DoddUnited States v. Dodd
OPINION
In this criminal case arising out of the misappropriation and laundering of federally funded loans, Defendant pleaded guilty to two substantive counts of an eleven count indictment. Presently before the court is the Government’s request for the court to order restitution pursuant to the provisions of the Mandatory Victims Restitution Act, codified at
I. Background
This case involves a complex scheme orchestrated by Defendant, David R. Dodd II, over a four year period. In short, Defendant structured transactions to self-deal in relation to a construction project that received federal funds, whereby he profited in excess of $1.1 million. By doing so, Defendant misappropriated funds from the Department of Housing and Urban Development that were intended for the Capital View Commerce Center (“CVCC”) project located in the Middle District of Pennsylvania. The CVCC was planned to be a 215,000-square-foot printing, office, and retail facility, located in an economically disadvantaged area of Harrisburg, Pennsylvania, that was also subject to a Brownsfield Economic Development Initiative Grant. (Tr. 90.)
The Government identified twelve entities that claim they qualify as victims and are owed restitution under the Mandatory Victim Restitution Act,
A. Procedural History
On June 9, 2010, Defendant was charged in an eleven-count indictment, which included three counts of theft of government funds, in violation of
On January 25, 2012, the United States Probation Officer prepared a draft presentence report (“PSR”). It is the Probation Office’s practice to submit to the parties “draft” PSRs before sentencing hearings so that parties have notice and opportunity to object. See LCrR 32.1. Relevant to the issue sub judice, the draft PSR identified thirteen entities that maintain they are owed restitution.
On October 31, 2012, the court commenced a hearing restricted to the issue of whether restitution is owed. (Docs. 48 & 49.) Assistant United States Attorney William A. Behe represented the Government, and Attorney Jordan D. Cunningham represented Defendant, who was personally present. At the hearing, the court afforded the parties the opportunity to present evidence on the issue of restitution. The hearing lasted five days.
[The parties] stipulate that if the appropriate witnesses were called to testify by the United States, the witnesses for each contractor, political subdivision, and bank would testify to the authenticity of the Payment Application Date; Payment Application Number; Payment Application Amount; Total of Payment Applications; Amount Claimed Outstanding; Legal Fees; Payments Received; and Total Outstanding as set forth on the attached Exhibit “1”.
(Id.) The Exhibit attached thereto included nine contractors that claimed they were entitled to restitution due to Defendant’s failure to pay for work performed on the
B. Facts
The facts relevant to the court’s determination of whether Defendant should be ordered to pay restitution are as follows. Defendant owned and operated several companies, namely: (1) Advanced Communications Agency (“Advanced Communications”), a commercial printing business; (2) Cameron Real Estate, LP (“CRE”), the “Owner” of the CVCC project; (3) Cameron Management (“CM”), the project manager of the CVCC project; and (4) Industrial Design and Construction (“IDC”), a company that supplied the pre-cast concrete beams to be used in the project. In addition to funding provided by Advanced Communications, Defendant obtained funds for the CVCC project through various sources, including Pennsylvania state grants and loans, private bank loans, assistance from Harrisburg City, grants issued by the Community Action Commission that were funded by the United States Department of Health and Human Services, and Harrisburg City and Dauphin County grants and loans funded by the Department of Housing and Urban Development. (Tr. 88-90.) In total, the project was scheduled to receive over $24 million in funding. Because much of that funding was through state and federal loan and grant programs,
Specifically, CRE, as the Owner of the project, contracted with multiple entities to perform work on the CVCC project. Douglas Aldinger, who was employed by Erdman Anthony, an engineering firm that Defendant engaged to assist with the CVCC project, testified that the firm participated in drafting the Contract Documents that were given to each contractor.
The Architect/Engineer will, within seven days after receipt of the Contractor’s Application for Payment, either issue to the Owner a Certificate for Payment, with a copy to the Contractor, for such amount as the Architect/Engineer determines is properly due, or notify the Contractor and Owner in writing of the Architect/Engineer’s reasons for withholding certification in whole or in part as provided in Section 9.5.1.
(Id. at § 9.4.1 (emphasis supplied).) The Contract Documents explained the significance of a Certificate for Payment as follows:
The issuance of a Certificate for Payment will constitute a representation by the Architect/Engineer to the Owner, based on the Architect/Engineer’s evaluation of the Work and the data comprising the Application for Payment, that the Work has progressed to the point indicated and that, to the best of the Architect/Engineer’s knowledge, information and belief, the quality of the Work is in accordance with the Contract Documents .... The issuance of a Certificate for Payment will further constitute a representation that the Contractor is entitled to payment in the amount certified. However, the issuance of a Certificate for Payment will not be a representation that the Architect/Engineer has (1) made exhaustive or continuous on-site inspections to check the quality or quantity of the Work, (2) reviewed construction means, methods, techniques, sequences or procedures, (3) reviewed copies of requisitions received from Subcontractors and material suppliers and other data requested by the Owner to substantiate the Contractor’s right to payment, or (4) made examination to ascertain how or for what purpose the Contractor has used moneypreviously paid on account of the Contract Sum.
(Id. at § 9.4.2 (emphasis supplied).) The Contract Documents set forth the bases upon which the Architect/Engineer could withhold a Certificate for Payment as follows:
The Architect/Engineer may withhold a Certificate for Payment in whole or in part, to the extent reasonably necessary to protect the Owner, if in the Architect/Engineer’s opinion the representations to the owner required by Section 9.4.2 cannot be made. If the Architect/Engineer is unable to certify payment in the amount of the Application, the Architect/Engineer will notify the Contractor and Owner as provided in Section 9.4.1. If the Contractor and Architect/Engineer cannot agree on a revised amount, the Architect/Engineer will promptly issue a Certificate for Payment for the amount for which the Architect/Engineer is able to make such representations to the Owner. The Architect/Engineer may also withhold a Certificate for Payment or, because of subsequently discovered evidence, may nullify the whole or a part of a Certificate for Payment previously issued, to such extent as may be necessary in the Architect/Engineer’s opinion to protect the Owner from loss for which the Contractor is responsible, including ...:
(.8) Failure to comply with government statutes, regulations and laws.
(.8) Failure to submit required Wage documentation.
(Id. at § 9.5.1 (emphasis supplied).) However, withholding a Certificate for Payment was not unrestrained, as Section 9.5.2 provided that Certificates for Payment must be issued for amounts previously withheld once the reasons for initially withholding certification were removed. (See id. at § 9.5.2.) Upon the Architect/Engineer’s issuance of a Certificate for Payment, the Owner was required to remit payment to the Contractor. (Id. at § 9.6.1.)
Defendant bases his argument in opposition to restitution upon the obligations set forth in the Contract Documents related to the Contractors’ compliance with the Federal Buy America Act, codified at
All Federal-aid construction projects must either require no permanently incorporated steel and/or iron materials, or require that all steel and iron materials used in the project be manufactured in the United States. “Manufactured in the United States” means that all manufacturing processes starting with the initial mixing and melting through the final shaping and coating processes must be undertaken in the United States.
(J. Ex., § 3.9(A).) In addition to the Buy America Act reference, the Contract Documents incorporated provisions of the Steel Act, which required that:
Every public agency shall require that every contract document for the construction, reconstruction, alteration, repair, improvement or maintenance of public works contain a provision that, if any steel products are to be used or supplied in the performance of the contract, only steel products as herein defined shall be used or supplied in the performance of the contract or any subcontracts thereunder.
The Contractor/Supplier shall certify that all steel and cast iron products to be supplied in this contract comply with this Act. No payment will be made to the Contractor/Supplier for steel and cast iron products until such certification has been received.
(J. Ex., § 3.9(C) (emphasis supplied).)
The public funding portion of the project was largely by way of reimbursement programs. George Conner, the deputy director of the Dauphin County Economic Development Department, explained that the funds were distributed by way of reimbursements, inasmuch as the Owner would submit to the Funding Agencies an invoice for the actual construction costs, which would identify the name of the vendor that performed the work and the work that was completed. (See Tr. 94-104.) The Funding Agency paid the Owner the exact amount listed on the invoice. The Owner, in turn, was required to pay the vendor for the amount submitted to and paid by the Funding Source. (See Tr. 93, 134.) Conner unequivocally testified that the Owner was not to use the funds for any purpose other than paying the specific vendor identified on the invoices
The record demonstrates that, based on Defendant’s representations, the Funding Agencies paid him the amounts he represented were owed to the Contractors for eligible expenses. In fact, payments to Defendant were in the exact dollar amount for which he requested payment. (See, e.g., Gov. Exs. 8-16.) Such a process was clearly contemplated by the application and certificate for payment, which provided as follows:
This Certificate is not negotiable. The AMOUNT CERTIFIED is payable only to the Contractor named herein. Issuance, payment and acceptance of payment are without prejudice to any rights of the Owner or Contractor under this Contract.
(See, e.g., Gov. Ex. 16.) Despite these representations, which resulted in the Funding Agency’s disbursement of funds directly to Defendant for the payment of the entities represented on the applications, Defendant withheld the payments earmarked for the Contractors, and instead used the money to pay other “eligible expenses,” including payments to companies in which he had a personal stake, such as IDC and CM. (Tr. 305, 388-90; Def. Ex. 79.)
The gravamen of Defendant’s position that the Contractors were not owed payment rests on the premise that the Contractors had not perfected their contractual obligations due to their failure to comply with the steel certifications.
It is uncontested that the contractors submitted standard-form payment applications to CRE and that Defendant, in his role as Architect/Engineer, issued Certificates for Payment.
Please accept the attached payment application for towards [sic] the Section 108 loan.
The payment request of [the funds set forth on the attached application and certificate for payment] is being submitted for costs related to construction. The invoice attached is for [the entity listed on the attached application and certificate for payment] for the ... contract.
Supporting documents have been provided under a prior payment application to the [Funding Agencies].
Please advise if any further documentation is needed.
(E.g., Gov. 37, p. 2.) Although the Funding Agency would then remit payment directly to CRE in the exact amount requested, the record clearly demonstrates that the payments were intended to be paid to the Contractors represented on the applications. (See, e.g., Tr. 92-93.) Defendant, however, did not pay the identified contractors the amounts he received from the Funding Agencies.
Defendant explained that each of the unpaid Contractors failed to submit the proper steel certifications, and therefore, failed to comply with the federal and state regulations imposed by the Contract Documents. (Tr. 302.) According to Defendant, he refused to pay the non-complying Contraetors any amount for the submitted — and approved — payment applications in an attempt to ensure compliance with the statutory requirements. (Id.) Defendant argued that he was not required under the Contract Documents to hold the funds disbursed to him through the Funding Agencies, but could rather use those funds on any eligible expenses, including to pay the companies in which he had an interest, so long as the payments were for “costs related to new construction.”
In support of his position, Defendant testified that he repeatedly requested that the Contractors submit proper documentation certifying the steel they used in the CVCC project was entirely American-manufactured. Scott Davis, the former project manager of CM, testified that his job involved his collecting the paperwork from the vendors to submit to the different Funding Sources for payment. (See Tr. 50-52.) Davis collected the appropriate supporting documentation from the Contractors and vendors and forwarded those documents to Defendant for submission to the Funding Sources. (Tr. 54.) Davis testified that Defendant would continually request steel certifications that had been previously submitted. (Tr. 55.) Defendant frequently told Davis that the submitted steel certificates were rejected by the Funding Agencies. (Tr. 57.) This, of course, was belied by the fact that the Funding Agencies were satisfying Defendant’s payment applications as requested.
Defendant concealed from both Davis and the Contractors the fact that he was receiving payments from the Funding Sources. (See Tr. 58-59.) Instead, Defendant shifted the blame for the Contractors’ nonpayment away from the actual cause
Other than Defendant’s own testimony, which the court found disingenuous, there was no evidence supporting the claim that Defendant was directed by the Funding Agencies to withhold payment from the Contractors. For example, Defendant testified as follows regarding his ability to satisfy the Contractors’ payment applications despite their failure to submit complying steel certifications:
Q: Had you paid invoices, for example, to some of these contractors where steel certifications had not been filed?
A: We did for a period of time make some payments to contractors expecting that they would in turn catch up on their paperwork. And we released several payments. And we were later chastised for doing so, in fact, by Kaye Goodman in these reports in which she told us that we should make sure we got these steel certificates and took care of all these details beforehand, before issuing payment.
(Tr. 297.) Defendant explained his reason for withholding payment as follows:
We had a lack of steel certificates and instruction from Kaye Goodman not to pay if there was no — if there were issues with the steel certificates and also under the contract.
(Tr. 302.) Kaye Goodman, who is employed by an engineering firm that provided consultant services to the Pennsylvania Office of the Budget in connection to the RACP’s funding of the CVCC project, directly contradicted Defendant’s testimony related to her advising Defendant not to pay the Contractors. Specifically, Goodman testified that steel certificates, or lack thereof, were never included as a “report finding,” and testified that, as of May 2008, it was her position that the steel certificates were in compliance. (See Tr. 618.) Moreover, Goodman unequivocally denied that she ever advised Defendant to withhold payment or chastised him for issuing payment to a contractor despite its noncompliance (Tr. 619-21), and further explained that she did not even possess the authority to do so (Tr. 647-48).
Defendant presented evidence tending to establish that foreign steel was used in the CVCC project (see Def. Exs. 86 & 87); however, he was unable to identify which specific contractor was using the foreign steel (Tr. 363). Nevertheless, despite his uncertainty as to the identity of the allegedly offending contractor, Defendant withheld payment in its entirety from each Contractor.
Defendant continued to withhold entire payments despite the Contractors’ repeated requests to be paid. According to the parties’ stipulation,
Once the Funding Agencies learned Defendant was withholding payment from the contractors, they refused to honor additional payment applications. Moreover, certain Contractors did not have the opportunity to submit payment applications for portions of the work they had already completed. As guarantor of the loans fraudulently obtained through this scheme, both Harrisburg City and Dauphin County became required, as guarantors of the loan, to satisfy Defendant’s defaulted obligations to repay the Section 108 money. (Tr. 105,117.)
II. Discussion
Preliminarily, the court must highlight and define the contours of the issue presented herein, ie., whether the entities claiming restitution are “victims” under the MVRA. Stated differently, the court must determine whether Defendant’s conduct was the direct and proximate cause of the losses suffered by the entities claiming restitution. This is not a case, as Defendant suggests, revolving around whether Defendant paid anything other than “eligible expenses” with the money given to him by the funding agencies. Indeed, the court is cognizant that the loan proceeds were distributed to pay other expenses, such as those submitted by IDC, and although IDC may be an “eligible expense,” it was also a company in which Defendant had a significant interest. Rather, the question is whether Defendant’s actions caused the ultimate failure of the CVCC
A. Legal Standard
The MVRA applies only to certain types of crimes, including an offense “in which an identifiable victim ... has suffered a physical injury or pecuniary loss.”
Nevertheless, the definition of victim under the statute is not so broad that it permits the court to order restitution to anyone harmed by any activity of the defendant related to the scheme, conspiracy, or pattern. See United States v. Kones,
After defining the victims entitled to restitution, the court must “order restitution to each victim in the full amount of each victim’s losses ... without consideration of the economic circumstances of the defendant.”
B. Analysis
1. Status as “victims” for purposes of the MVRA
Based on a review of the record, the court finds that the claiming entities were directly and proximately harmed by Defendant’s conduct, and concludes that these entities are victims and therefore entitled to restitution.
It is uncontested that Defendant submitted payment applications for the aforementioned Contractors for specific work they had performed on the CVCC project, received money from the Funding Agencies in the amounts requested in the payment applications, and withheld the money from the Contractors. However, Defendant contends that the Government failed to prove the Contractors met the “mandatory contractual regulatory conditions precedent to perfect their contractual right to receive payments” for the construction work performed pursuant to the Contract Documents. (Doc. 81, p. 13 of 31.) Defendant reasons that, because the Contractors used foreign steel in the CVCC project or otherwise failed to submit appropriate steel certifications, they were not entitled to receive payment and therefore, did not have a property interest harmed by Defendant’s refusal to remit payment. (See id.)
The Government presented evidence to prove the complaining Contractors performed the work on the contract. Specifically, the stipulation states that the witnesses for each contractor would testify to the authenticity of the payment applications and total amounts outstanding. (Doc. 64.) The payment applications each contain the following certification:
The undersigned Contractor certifies that to the best of the Contractor’s knowledge, information and belief the Work covered by this Application for Payment has been completed in accordance with the Contract Documents, that all amounts have been paid by the Contractor for Work for which previous Certificates for Payment were issued and payments received from the Owner, and that current payment shown herein is now due.
(See, e.g., Gov. Ex. 37, p. 3.) Thus, the stipulation alone provides a sufficient basis to find that the Contractors performed work according to the Contract Documents and that they were rightfully owed the amounts claimed. However, Defendant maintains that, because the Contractors failed to comply with the steel and wage regulations, the amount outstanding was, in fact, never owed. The court does not find this argument convincing.
Certainly, Defendant presented evidence that could support a finding that foreign steel was present on the CVCC project (see Gov. Exs. 86 & 87) and testified that certain contractors failed to submit proper steel certifications (see, e.g., Tr. 293-94). Nevertheless, Defendant did not — indeed, he could not — identify which Contractor had used foreign steel. (Tr. 363.) Moreover, the record is devoid of any credible evidence demanding a finding that any one of the Contractors used foreign steel. Rather, the record establishes that, before the CVCC project lost funding, both an
Even assuming, arguendo, that the Contractors did incorporate some foreign steel into their work on the project, the Contract Documents did not entitle Defendant to withhold entire payments from Contractors. The provision cited by Defendant in support of his actions provides that the Owner may withhold payments for the steel or cast iron product that has an outstanding certification. (J. Ex. 1, § 3.9.) Contrary to Defendant’s assertion, this provision does not entitle the Owner to withhold entire payments that he otherwise accepted and certified to the Funding Agencies as being owed to the Contractors. Based on the record, the court finds that the Contractors had an interest in the amounts applied for, and certified as due by, Defendant. Therefore, the court concludes that Defendant’s decision to pay other “eligible expenses,” namely those expenses allegedly incurred by companies in which Defendant had an interest, was the reason the money was diverted from the Contractors that the money was intended to pay.
The record further established that, after numerous unsuccessful attempts by the Contractors to collect the outstanding payments, they terminated their work on the project and, at least some, filed mechanic’s liens. (See Tr. 677-78.) The filing of the mechanic’s liens alerted the Funding Agencies that Defendant was not remitting payment to the Contractors, which was a violation of certain agreements. (Gov. Ex. 29.) This caused the Funding Agencies to issue default notices to Defendant, and ultimately, withhold further payment on certified payment applications. (See id.) The stoppage of funding caused the project to come to a halt and resulted in the Funding Agencies, namely Harrisburg City and Dauphin County, to be directly obligated to repay the Section 108 funds they disbursed to Defendant, meaning that HUD will reduce future funding by the amount that the department is not being repaid.
Additionally, Defendant concealed his actions by continuing to misrepresent to the Funding Agencies that the Contractors were being paid, and misrepresent to the Contractors that funding to him was being withheld by the Funding Agencies. Without these misrepresentations, the Funding Agencies would have learned of Defendant’s actions earlier. Thus, because the parties stipulated that, if called, witnesses would support the total amount claimed as set forth in the exhibit, and because the court finds that the failure of the CVCC project was caused by Defendant’s illegitimate withholding of funds from the Contractors, the court concludes that Harrisburg City and Dauphin County have suffered the losses as reflected on the stipulation as they are now obligated to assume the repayment of the publicly funded loans.
The court would be remiss not to address Defendant’s position that the cause of the project’s failure, the Contractors remaining unpaid, and the funding
The court has little trouble determining that Defendant’s inappropriate misappropriation of funding from Harrisburg City and Dauphin County caused the Contractors to remain unpaid for amounts to which they were entitled. The court further finds that it was reasonably foreseeable for several Contractors to stop work and file mechanic’s liens against the subject property due to Defendant’s continued failure to pay. The court does not find convincing Defendant’s disingenuous, posthoc excuse that he withheld payment from the Contractors due to their noncompliance with the federal regulations and instead paid other eligible expenses. Thus, the court concludes that Defendant’s misappropriation of funds caused the CVCC project to fail, caused the Contractors to suffer losses for amounts expended on the project, and caused the Funding Agencies to be responsible for the repayment of amounts loaned to Defendant for the project. Thus, each of the entities identified on the stipulation is a victim under the MVRA.
2. Amount of loss
Despite the parties’ stipulation as to the amounts the entities claim they lost as a direct and proximate result of Defendant’s conduct, the court will enter an order of restitution for $20,943,635.13 rather than the $21,487,057.58 as claimed on the stipulation. The ordered amount excludes losses that are unsupported by the record to be directly and proximately caused by Defendant’s conduct.
a. Claims for unpaid work and loan disbursements
Initially, the court notes that Defendant does not challenge the accuracy or veracity of any amount claimed by the victims. Rather, Defendant simply argues that his actions were not the direct and proximate cause of the harms. Thus, in light of the stipulation, Defendant apparently concedes that, if the Contractors and lenders are determined to be victims under the MVRA, they are entitled at least to the disbursed payments or amounts claimed for work done on the CVCC project. Based on the foregoing discussion, the court finds that the non-repayment of prin
b. Contractors’ claims for attorneys’ fees
Defendant does, however, challenge several of the contractors’ claims for attorneys’ fees. {See, e.g., Doc. 84, ¶¶ 41-45.) Specifically, Weaver Glass claims it is owed $47,561.29 for attorneys’ fees, Stong Fire Protection claims it is owed $84,332.50 for attorneys’ fees, and Herre Brothers, Inc., claims it is owed $194,198.79 for attorneys’ fees. (Doc. 64-1.) Defendant argues that their claims for attorneys’ fees are incidental and consequential damages, and are otherwise not collectible under the MVRA. (Doc. 84, ¶ 45.)
The Third Circuit has interpreted the MVRA as not authorizing consequential damages. Quillen,
Initially, the court highlights that the proper question is not whether attorneys’ fees can be the subject of an award, but whether the attorneys’ fees incurred were a loss directly resulting from the offense, or a consequential loss.
In United States v. Amato,
In the instant case, while the stipulation provides that, if called, a witness of Herre Brothers, Weaver Glass, and Stong Fire Protection would testify that the company expended the amounts on attorneys’ fees, the record lacks any evidence tending to establish whether these figures represent necessary expenses incurred while participating in the investigation, prosecution, or attendance at proceedings regarding'Defendant’s conduct. In short, while the amount of attorneys’ fees is not at issue, the nature of the fees remains unclear. Based on the record established as a result of multiple days of hearing, the court cannot determine the basis for- these attorneys’ fees, let alone whether these fees were necessarily incurred as a result of Defendant’s conduct.
c. Interest claimed on the MOED and Metro Bank loans
In challenging certain claims, Defendant merely argues that he was not the direct and proximate cause of the claimed harm, and stresses that consequential and incidental expenses are not recoverable. For example, Defendant simply argues that the $68,328.54 claimed as MOED loan interest by the City of Harrisburg and the $2,100,071.08 claimed as interest by Metro Bank represent amortized interest and are incidental and consequential damages, and thus not collectible under the MVRA. {See Doc. 84, ¶¶ 46 & 47.) The court disagrees.
The MVRA aims to provide victims with full and fair compensation for their losses. Limiting restitution to the return of the principal loan amount would be inadequate, because “[foregone interest is one aspect of the victim’s loss.”
d.Late charges claimed by Metro Bank
The same cannot be said for the $217,329.87 claimed by Metro Bank for late charges. The record is entirely undeveloped with regard to the basis of Metro Bank’s claim for late charges. Moreover, unlike receiving interest payments, late charges are not the reason a lender makes a loan. The court cannot conclude, based on the facts presented herein, that the late charges resulted from Defendant’s conduct with relation to the improper usage of the loaned funds, and the court will not include that claim in the restitution award.
e.Maintenance and security costs and recording fees claimed by Metro Bank
Defendant also challenges Metro Bank’s claims of $818,850.00 for maintenance and security costs, and $547.00 for recording fees, arguing that these amounts represent incidental and consequential damages. The court disagrees.
The MVRA requires that the district court “shall order ... that the defendant make restitution to the victim of the offense.”
f.Offset value for mortgaged property
Defendant argues that, because “[t]here is no evidence as to the value of the land and structure” (Doc. 84, ¶ 54), it “would be
As stated, in the case of a crime “resulting in damage to or loss or destruction of property of a victim,” the MVRA provides that the order of restitution shall require the defendant to:
(A) return the property to the owner of the property or someone designated by the owner; or
(B) if return of the property under sub-paragraph (A) is impossible, impractical, or inadequate, pay an amount equal to—
(i) the greater of—
(I) the value of the property on the date of the damage, loss, or destruction; or
(II) the value of the property on the date of sentencing, less
(ii) the value (as of the date the property is returned) of any part of the property that is returned.
III. Conclusion
Based on the foregoing, the court finds that Defendant’s conduct was the direct and proximate cause of the failure of the CVCC project, and therefore, of the losses suffered by the Contractors, Metro Bank, and municipal Funding Sources. Because the court concludes that the Contractors were entitled to payments for the work they performed on the project, the court will order Defendant to pay restitution in the amounts reflected on the stipulation. However, the court concludes that the record does not support a finding that Defendant’s conduct caused the claimed attorneys’ fees. For these reasons, the court will award restitution to: (1) H & R Mechanical in the amount of $1,255,468.62;
With regard to restitution claimed by Metro Bank, the court concludes that Defendant’s conduct underlying the offenses was the direct and proximate cause of his default on the mortgage, and that Metro Bank suffered losses in the form of disbursed principal, lost interest, expenses, and fees. However, the court does not find that Defendant’s conduct was the direct and proximate cause of the late charges claimed by Metro Bank. Accordingly, the court will award restitution to Metro Bank in the amount of $9,489,864.88,
Lastly, because the court finds Defendant’s conduct was the cause of the CVCC’s failure and Defendant’s inability to repay the Section 108-backed loans, it will award restitution to Dauphin County in the amount of $2,752,450.64
Notes
. Defendant also pleaded guilty to a civil forfeiture allegation, brought pursuant to
. The draft PSR identified the following entities as victims claiming restitution: (1) H & R Mechanical, that claimed $1,225,468.62; (2) HW Nauman & Son, Inc., that claimed $31,672.47; (3) Herre Brothers, Inc., that claimed $1,265,237.50; (4) Joseph Stong, Inc., that claimed $308,755.40; (5) Stewart-Amos Steel, Inc., that claimed $661,858.00; (6) Ciesco, that claimed $118,218.11; (7) Macri Concrete, that claimed $323,058.00; (8) Shaedler Yesco Distribution, that claimed $390,767.05; (9) Weaver’s Glass, that claimed $489,890.00; (10) Dauphin County, that claimed $2,832,450.64; (11) City of Harrisburg, that claimed $6,793,489.16; (12) Nicholas Evanoff Co., that claimed $129,276.80; and (13) Metro Bank, that claimed $6,573,346.80.
. The initial hearing lasted four days and concluded on November 6, 2012. On January 8, 2013, the Government filed a motion requesting the court permit it to present additional testimony on the issue of restitution. (Doc. 57.) The court granted the Government’s motion over Defendant’s objection, and held a fifth day of hearing on February 21, 2013. (Doc. 63.)
. At the hearing, George Conner, the deputy director of Dauphin County Economic Development Department, explained that the agency administers grant and loan programs for Dauphin County, which includes, inter alia, the administration of the Community Development Block Grant Program ("CBGP”) from the Department of Housing and Urban Development ("HUD”). (Tr. 87.) Conner explained that the CBGP is for economic development projects in the community, which may include a for-profit business, and that the agency is able to make loans to qualifying projects that are guaranteed by the CBGP itself, which is subject to repaying the borrowed HUD funds. (Tr. 88-90.) Conner testified that, for the CVCC project, both Harrisburg City and Dauphin County committed to Section 108-backed loans of $3.79 million and $3 million, respectively, through their HUD-funded programs. (Tr. 90.) Biyan Davis, the executive director of the Harrisburg Redevelopment Authority, testified that Section 108 money through the Harrisburg City program is governed by the same regulations as the CBGP. (Tr. 131.) Both Harrisburg City and Dauphin County are liable for repayment of the borrowed Section 108 funds, which are secured by the CBGP funds.
. The court notes that the Government argued in its brief that, despite the Contract Documents containing express language to the contrary, the project was, in fact, not technically subject to the Buy America provisions. Whether the project was subject to these requirements is not material due to the court’s ultimate disposition of the restitution issue.
. The Contract Documents were submitted to the court in their entirety following the court’s request. These Contract Documents represent the pertinent documents forming the agreement between the Owner and the Contractors, and will be cited as Joint Exhibit 1 (“J. Ex. 1”).
. At the hearing, Conner testified as follows regarding the process Defendant, as Owner, had to follow to get the loan proceeds:
Q: [H]ow would [Defendant] get from the County the money from the Section 108 Loan? What is the process that he would go through?
A: The process would be for him to submit the actual invoice for the detailed actual construction, whether company or what have you, that he submitted. And we were to pay that exact invoice for that particular company.
Q: [I]f [Defendant] submits a request for payment, an invoice, to you for 108 Loan money, it’s accompanied by an invoice for a specific purpose, specific vendor to be paid?
A: Correct.
Q: If he receives that money from the County, is he permitted to spend it on anything other than the person who’s identified in the invoice as being owed that money?
A: Absolutely not.
(Tr. 92-93 (emphasis supplied).) The court notes that the payment provision contained at Paragraph II.D of the Loan Agreement between Dauphin County's Office of Community and Economic Development and CRE can be read to permit payment of all eligible expenses from Section 108 funds. (See Def. Ex. 56, ¶ II.D.) However, the issue is not whether Defendant used the Section 108 Funds to pay ineligible expenses, but rather whether Defendant's failure to pay the Contractors was the direct and proximate cause of the Contractors’ losses. Thus, whether Defendant acted pursuant to the agreement between CRE and Dauphin County by using the Section 108 Funds to pay expenses other than the Contractors is not a dispositive issue.
. On redirect, Conner testified as follows regarding the significance of submitting a payment application:
Q: [D]oes [Defendant] have to account who he pays [Section 108] money to?
A: Absolutely.
Q: When he submits requests for payment to you along with the AIA and invoice for the specific vendor?
A: Yes, sir.
Q: What does that tell you in terms of that contractor or vendor’s compliance with their contract obligations?
A: That it’s eligible, it’s in compliance, and we know that when we get monitored, we will have all the documentation in order to be in compliance and have approved monitoring.
Q: So your payment of these checks to [Defendant] was based on his representation toyou that everything had been in compliance?
A: Correct.
(Tr. 120.)
. The court also notes that Defendant argued that at least one subcontractor had a Davis-Bacon Wage Act certification compliance issue. Because the significance of this alleged compliance issue is identical to the steel certificate compliance issue, neither of which the court finds dispositive to the issue of restitution, the court will address this alleged noncompliance collectively with noncompliance implicating the steel certifications.
. It must be noted that the Contract Documents contemplate different entities filling the roles of architect/engineer and owner. Namely, under the Contract Documents, the architect/engineer would initially receive the application for payment from the Contractors, would review the application, and submit a Certificate for Payment for the portion of the application which the architect/engineer could certify was due. The CVCC project initially utilized this procedure, whereby Erdman Anthony reviewed and signed the Contractors’ payment applications, thereby certifying them to Defendant. However, Erdman Anthony’s involvement in the project ceased,
. The stipulation states that the witnesses for each Contractor would testify to the authenticity of the payment applications and total amounts outstanding. (Doc. 64.) Each payment application contained the following certification:
The undersigned Contractor certifies that to the best of the Contractor’s knowledge, information and belief the Work covered by this Application for Payment has been completed in accordance with the Contract Documents, that all amounts have been paid by the Contractor for Work for whichprevious Certificates for Payment were issued and payments received from the Owner, and that current payment shown herein is now due.
(See, e.g., Gov. Ex. 37, p. 3.) Accordingly, the court accepts the stipulation as standing for the proposition that the Contractors claimed they performed the work in accordance with the Contract Documents and were entitled to payment thereon.
. It was clear that the filing of mechanic's liens notified Dauphin County that CRE was failing to pay the contractors. The notice of default on the $3,000,000.00 section 108 loan from Dauphin County provided as follows:
Cameron Real Estate LP’s apparent failure to pay its contractors for this project from funds disbursed to its construction manager violates numerous provisions of the Loan Agreement.
Specifically as to the County's section 108 loan, three separate payments to your company to pay specific contractor invoices were apparently not directed to the contractors.
You are hereby directed to immediately cure the referenced defaults and verify disposition of the referenced draws. Your failure to do so will result in the County pursuing its remedies under the various loan documents, including your personal guarantee.
(Gov. Ex. 29.)
. While Kones, like Gov’t of VI. v. Davis,
. During these proceedings, defense counsel argued that Defendant was entitled, under the applicable regulations, to pay any eligible expenses with the money he received from the funding agencies. This argument misses the mark. The question is not whether the regulations prevented Defendant from doing what he did, but rather whether Defendant’s actions caused the Contractors' losses. Based on its review of the record, the court answers the latter question in the affirmative.
. Some courts have framed the issue in terms of foreseeability. For example, the First Circuit, in an unpublished opinion, noted that "DQrequently attorney’s fees will not be recoverable,” but added that determination as to recoverability "entails a fact-intensive inquiry that is best conceptualized in terms of foreseeability.” United States v. Corey,
. Indeed, Richard McBride testified that Herre Brothers is out of business because the company was not paid for its involvement in the CVCC project. (Tr. 664-65.) Certainly, the court will not consider attorneys' fees incurred in connection with Herre Brothers’ declaration of bankruptcy to be necessary and incurred while participating in the investigation, prosecution, or attendance at proceedings regarding the offense.
. The court notes that the sole issue addressed in this memorandum is the amount of restitution and not the amount of loss. Cf. U.S.S.G. § 2B1.1, cmtn. 3(D)(i).
. The court does not agree with Metro Bank that the property has no value.
. The total amount awarded is comprised of $218,513.03 for payment application four, $478,023.52 for payment application five, $255,511.35 for payment application six, $194,223.43 for payment application seven, and $79,197.29 held by Defendant as retain-age.
.The total amount awarded is comprised of $207,540.00 for payment application one, $106,610.00 for payment application two, and $280,740.00 for payment application three.
. The total amount awarded is comprised of $19,681.56 for payment application one, $58,749.30 for payment application two, $72,970.20 for payment application three, $90,000.00 for payment application four, and $67,354.34 for work performed for which the contractor did not have the opportunity to submit a payment application.
. The total amount awarded is comprised of $319,203.00 for payment application one and $71,564.05 for work performed for which the contractor did not have the opportunity to submit a payment application.
. The total amount awarded is comprised of $466,622.00 for payment application one, $129,050.00 for payment application two, and $66,186.00. The stipulation, however, only claims $622,146.52 for the contractor. That is the number awarded.
. The total amount awarded is comprised of $204,852.25 for an amount invoiced, less $86,634.14 for an amount the contractor received.
. The total amount awarded is comprised of $139,699.80 for payment applications one and two, $103,864.50 for payment application three, $168,547.50 for payment application five, $75,357.00 for payment application six, $22,491.00 for payment application seven, and $56,662.20 for work performed for which the contractor did not have the opportunity to submit a payment application, less $243,564.30 for payments received.
. The total amount awarded is comprised of $31,672.47 for work performed for which the contractor did not have the opportunity to submit a payment application.
. The total amount awarded is comprised of $1,733,409.99 for work performed less a payment in the amount of $468,172.49.
. The total amount awarded is comprised of $6,570,396.80 for principle disbursed on the private loan, $2,100,071.08 for interest accrued on the loan, $818,850.00 for maintenance and security incurred for the mortgaged property, and $547.00 for recording fees claimed in connection with the foreclosure.
. The total amount awarded reflects the amount Dauphin County disbursed to Defendant under the Section 108-backed loan program.
. The total amount awarded reflects the $6,162,255.62 the City of Harrisburg will have to repay under the CDBG loan, less $2,212,350.00 for amounts allocated and undisbursed under the loan, less $3,97,569.15 for the interest that the undisbursed funds will accumulate over the repayment term, less $39,558.77 for amounts repaid by CRE.
. The total amount awarded reflects the $240,000.00 disbursed as principle under the Mayor's Office of Economic Development loan, and $68,328.54 for interest accrued on the loan.