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In re Local #46 Metallic Lathers Union and Reinforcing Iron Workers

June 9, 2009

IN RE: LOCAL #46 METALLIC LATHERS UNION AND REINFORCING IRON WORKERS AND ITS ASSOCIATED BENEFIT AND OTHER FUNDS, PETITIONER,
UNITED STATES OF AMERICA, APPELLEE, CHARLES DOHERTY, DEFENDANT-APPELLEE,
v.
METAL LATHERS LOCAL 46 PENSION FUND, MOVANT-APPELLANT.



SYLLABUS BY THE COURT

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

Per curiam.

Submitted: May 20, 2009

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

Before us is a petition for a writ of mandamus brought by Local #46 Metallic Lathers Union and Reinforcing Iron Workers and its associated benefit and other funds ("Local 46") pursuant to 18 U.S.C. § 3771(d)(3) to have this Court reassess entitlement to certain rights afforded by the Crime Victims' Rights Act of 2004 ("CVRA"), 18 U.S.C. § 3771, and the Mandatory Victims Restitution Act of 1996 ("MVRA"), 18 U.S.C. §§ 3663A-64, and to order the district court to award restitution pursuant to § 3771(a)(6). The petition was filed on May 19, 2009. The Court took the case on submission on May 20, 2009, and on May 22, 2009, within three days of the filing, we issued an order denying the petition, noting that this opinion would follow. In essence, Local 46 appeals from the May 7, 2009, ruling of the United States District Court for the Eastern District of New York (Seybert, J.) that denied Local 46 status as a crime victim in the case United States v. Doherty, No. 05-cr-494. Because the district court did not abuse its discretion in finding that Local 46 was not a "crime victim" as defined by the CVRA and the MVRA, we deny the petition.

Background

In 2005, Charles Doherty pleaded guilty to an information charging him with one count of conspiracy to launder money in violation of 18 U.S.C. §§ 1956(h) and 3551, et seq., based on his actions as president of U.S. Rebar. The information charged that the conspiracy entailed three unlawful activities-uttering forged checks, theft concerning programs receiving federal funds, and mail fraud. As to uttering forged checks, Doherty admitted during his plea colloquy that he forged checks from U.S. Rebar payable to fictitious vendors, and provided those checks to Joseph Castello, a check casher who cashed the checks and transferred the cash, minus a fee, to Doherty, who then used the cash to pay union employees off the books. At the plea proceedings, the Government clarified further that Doherty orchestrated the cashing of checks that constituted payments owed to U.S. Rebar, some of which were payments for government contracts. The endorsements of the checks that were cashed were either forged or falsely completed, which resulted in creation of false banking records and thus were a basis for mail fraud.*fn1 Doherty admitted that the monies he received were "for purposes of paying certain employees in cash, thereby allowing them to avoid reporting a portion of their income to the IRS," and the employees were paid "the full amount that they would have gotten in cash."

Based on Doherty's plea, Local 46 moved for restitution pursuant to the MVRA and the CVRA, contending that the collective bargaining agreements between itself and U.S. Rebar required U.S. Rebar to make payments to union funds and that by paying employees in cash, U.S. Rebar had evaded that requirement.

At sentencing a debate ensued between the Government and Doherty regarding the dollar amount cognizable as laundered proceeds. Significantly, in view of Local 46's claim, the Government argued: "[t]he fact that [Doherty] used [the proceeds] as expenses for running his construction company is not a part and parcel of the crimes . . . committed, and were not expenses related to those crimes," and that Doherty's use of most of the laundered money to pay business expenses was a separate scheme, and therefore, irrelevant. Doherty's counsel, seeking to limit Doherty's exposure under the Sentencing Guidelines, see U.S.S.G. § 2S1.1, countered that the gains attributable to Doherty's crime should exclude the amount paid as business expenses. Counsel argued that Doherty should not be held responsible for the total amount of the laundered checks because the money from the check cashing went to pay employees, and paying employees in cash was the "whole raison d'etre" of the scheme.

The parties and the court later agreed that all of the proceeds of the fraudulent check cashing scheme constituted proceeds under the money laundering statute, 18 U.S.C. § 1956(a), but, apparently by way of compromise, they agreed that the payments to employees under the federal contract scheme would not be counted as proceeds under § 1956. Local 46 was given an opportunity to allocute extensively concerning the impact of Doherty's behavior on the union. When the district court asked about restitution, the Government cited the difficulty of calculating restitution generally, but did not argue against restitution of Local 46 on the ground that it was not a victim. Doherty's counsel explained to the district court that both the Government and Doherty had tried to ascertain the amount of restitution, but could not do so with reasonable certainty. Given the complexities of determining any loss to Local 46, the district court sentenced Doherty to a term of imprisonment and a fine, but referred the issue of restitution to a magistrate judge.

Before the magistrate judge, Doherty argued for the first time in response to the restitution request that Local 46 was not a victim under the MVRA because restitution was required only for conduct of which a defendant had been convicted. In support of his argument, Doherty pointed out that in his cooperation agreement with the Government, he agreed to plead guilty to one count of money laundering conspiracy, and in exchange, the Government agreed not to bring any additional criminal charges for Doherty's "activity involving his fraud in connection with . . . defrauding union benefit funds." Thus, adding a new argument to those he advanced at his sentencing proceeding, Doherty contended that the conspiracy of which he was convicted did not include his ultimate plan to use the laundered cash to pay employees, nor did it include as an element any conduct that had a direct impact on Local 46.

Local 46 replied that Doherty had conceded its victim status by failing previously to object or challenge restitution on that ground. Local 46 also argued that although the specified unlawful acts of the conspiracy were the forged checks, the federal contract fraud, and the mail fraud, the acts of money laundering were completed by the financial transactions using the proceeds of those activities, i.e., cash payments to employees.

The magistrate judge recommended that Local 46's motion be denied, agreeing with Doherty that his receipt of the cash from Castello constituted the relevant financial transactions and completed the acts of money laundering. The magistrate judge went on to state that the common goal of the conspirators was to turn the forged checks into cash and that the use of the cash to pay the workers was not part of the scheme. Quoting United States v. Donaghy, 570 F. Supp. 2d 411, 426 (E.D.N.Y. 2008), the report and recommendation concluded that the MVRA allows for recovery only for conduct that is "'part of the applicable scheme, conspiracy, or pattern of conduct that is the offense of conviction,'" and that Local 46 has not suffered direct and proximate harm from the offense of conviction as required for an award under the MVRA.

Local 46 objected to the magistrate judge's findings, arguing that the analysis conflated the unlawful activity element, forging a check, with the financial transaction and contending that the magistrate judge had ignored evidence in the record establishing that cash payments to employees was the goal of the conspiracy between Doherty and Castello. Doherty testified (at Castello's trial) that he gave Castello checks to get cash to pay Doherty's employees, ...


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