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United States v. Gonzales

United States District Court, W.D. Missouri, Southwestern Division

October 19, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
RAUL R. GONZALES, Defendant.

          REPORT & RECOMMENDATION OF U.S. MAGISTRATE JUDGE

          DAVID P. RUSH UNITED STATES MAGISTRATE JUDGE

         Before the Court is Defendant's Motion to Dismiss Indictment (Doc. 37). By Order (Doc. 2) entered on June 7, 2016, pursuant to 28 U.S.C. § 636(b) and Local Rule 72.1, the above-styled criminal action was referred to the undersigned for the purpose of submitting a report on all pretrial motions to dismiss or quash the indictment. For the following reasons, it is RECOMMENDED that the Motion to Dismiss Indictment be DENIED.

         I. Background

         Defendant has been charged by Indictment (Doc. 1) with one count of conspiracy to defraud the United States with respect to claims in violation of 18 U.S.C. § 286, three counts of making a false claim to the United States in violation of 18 U.S.C. § 287, three counts of disaster fraud in violation of 18 U.S.C. § 1040, and three counts of making and using a false writing and document under 18 U.S.C. § 1001. On August 11, 2017, Defendant filed the Motion to Dismiss Indictment, asserting the Indictment “is fatally defective and should be dismissed[.]” (Doc. 37 at 1.) Specifically, Defendant states that the Indictment charges criminal violations for the submission of false claims based on noncompliance with the terms of the contract at issue, but the terms relied on by the Government were: (1) not material and therefore not actionable; (2) not contained in the contract; and, (3) waived by the contracting officer. Defendant also claims that the Indictment is “a vindictive prosecution without substance[.]” (Doc. 37 at 2.)

         This action stems from the tornado that destroyed a large part of the city of Joplin, Missouri, in Jasper and Newton Counties (the “impacted counties”) on May 22, 2011. According to the Indictment, a Presidential Declaration of an Emergency was issued the next day, providing funding for assistance for individuals in the impacted counties. (Doc. 1 ¶ 2.) An Expedited Debris Removal operation was also approved for the hardest-hit areas, to be managed by the United States Army Corps of Engineers (“USACE”), with 90% of the costs paid using Federal Emergency Management Agency (“FEMA”) funds. Id.

         A contract was solicited by the USACE to provide debris removal services for the City of Joplin, with an award amount of up to 80 million dollars. (Doc. 1 ¶ 3.) The solicitation specified that the prime contractor was required to be a Service Disabled Veteran Owned Small Business (“SDVOSB”) concern, and that at least 50 percent of the cost of personnel for contract performance would be spent for employees of the concern or other SDVOSB concerns (the “SDVOSB requirement”). (Doc. 1 ¶ 4.) The solicitation also specified that local businesses residing in or primarily doing business in the impacted counties would receive a preference in the award phase of the contract. (Doc. 1 ¶ 5.) The solicitation was amended on June 14, 2011 to specify that the contract required that at least 50 percent of the cost of performance for personnel must be expended for employees of the contractor or employees of other businesses residing or primarily doing business in the impacted counties (the “local set-aside and labor requirement”), and that at least 50 percent of the cost of contract performance for personnel shall be expended for employees of the SDVOSB concern. (Doc. 1 ¶ 6.)

         Defendant was a resident of Neosho, Newton County, Missouri, and the sole owner and president of Intelligent Investments, Inc., a Missouri corporation located in the City of Joplin and registered as a SDVOSB. (Doc. 1 ¶¶ 7-8.) On June 15, 2011, Intelligent Investments, Inc. submitted a bid in response to the solicitation, and on June 24, 2011, the USACE awarded the contract to Intelligent Investments, Inc. (Doc. 1 ¶ 9.)

         On July 7, 2011, Defendant submitted to the USACE a signed request to waive the self-performance requirement of the contract and to allow Intelligent Investments, Inc. to perform less than 50 percent of the cost of personnel for contract performance. (Doc. 1 ¶ 10.) On July 8, 2011, the USACE sent an email to Defendant informing him that the waiver request was denied and requesting confirmation of receipt. Id. On the same date, Defendant replied to the email, stating “confirmed Receipt.” Id. Intelligent Investments, Inc. began work on the contract on July 9, 2011. Id.

         Count 1 of the Indictment alleges that Defendant entered into a conspiracy with another company to defraud the United States by obtaining payments on claims related to the service contract for debris removal, knowing that Defendant's company would perform little, if any, work on the contract and that the other company, which was neither local to the impacted counties nor an SDVOSB concern, would perform virtually all the work on the contract. The Government further alleges that Defendant submitted false claims that his business performed the work in compliance with the SDVOSB requirement in the contract, when in fact, he knew that his business had not complied with said term. Specifically, the Government accuses Defendant of submitting Prompt Payment Certifications containing these false certifications on August 3, 2011, September 15, 2011, and October 1, 2011, forming the basis for Counts 2 through 10.

         II. Discussion

         Federal Rule of Criminal Procedure 7(c) provides that an indictment “must be a plain, concise, and definite written statement of the essential facts constituting the offense charged[.]” In considering a motion to dismiss an indictment under Federal Rule of Criminal Procedure 12(b), the court looks at whether the indictment “contains all of the essential elements of the offense charged, fairly informs the defendant of the charges against which he must defend, and alleges sufficient information to allow a defendant to plead a conviction or acquittal as a bar to a subsequent prosecution.” United States v. Hayes, 574 F.3d 460, 472 (8th Cir. 2001) (citation omitted). Furthermore, “the court does not entertain an evidentiary inquiry, but rather accepts the allegations of the indictment as true.” United States v. Augustine Medical, Inc., 2004 WL 256772 at *2 (D. Minn. Feb. 10, 2004).

         a. Terms were not material

         Defendant first argues that the Indictment should be dismissed because the alleged misrepresentations about compliance with contractual requirements were not material to the Government's decision to pay the claims, and are therefore not actionable.

         However, when materiality is an element of a criminal fraud offense, the question of materiality must be submitted to the jury. United States v. Gaudin, 515 U.S. 506, 522-23 (1995); see also United States v. Ferro, 252 F.3d 964, 968 (8th Cir. 2001) (“so long as the indictment contains a facially sufficient allegation of materiality, federal ...


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