The opinion of the court was delivered by: Honorable Richard J. Arcara United States District Judge
Defendant Bhavesh Kamdar is charged in a multi-count indictment with 20 counts of mail fraud and 10 counts of money laundering. The mail fraud charges related to statements that the defendant had made in the context of negotiating a construction contract with New York State Office of General Services ("OGS") for the performance of construction and remediation work at various state-owned facilities in Western New York. During the contract negotiation process, the defendant made certain statements to OGS relating to the cost to his company, Industrial Site Services ("ISS"), to obtain a labor and performance bond. The defendant successfully persuaded OGS to pay a "guarantee fee" to reimburse ISS for the cost of the performance bond. The indictment charged that the defendant's representations concerning that guarantee fee were false and were made with the specific intent to defraud OGS into paying the fee, and that each mailing made by the defendant requesting payment of the guarantee fee was a separate act of mail fraud in violation of 18 U.S.C. § 1341. The indictment further charged that each time the defendant deposited a check issued for payment of the guarantee fee, he engaged in a monetary transaction involving the proceeds of criminally derived property in violation of 18 U.S.C. § 1957.
Trial commenced on September 23, 2009 and lasted about four weeks. At the close of the government's case, the defendant moved for judgment of acquittal under Fed. R. Crim. P. 29. The Court reserved decision and permitted the case to go to the jury. Unfortunately, the jury was unable to reach a unanimous verdict and on October 22, 2009, this Court granted a mistrial, thereby necessitating a ruling on the motion. The Court scheduled further briefing and held oral argument on January 20, 2010. For the reasons stated, the defendant's motion for judgment of acquittal is granted as to all of the counts in the indictment.
Before getting into the government's evidence at trial, it is necessary to outline the background of the alleged scheme to defraud. The defendant is a civil engineer and the principal and owner of ISS. ISS was the low bidder on a contract to perform removal and environmental remediation of underground petroleum storage tanks located on several New York State properties. ISS's bid included a $500,000 lump sum fee identified as a "guarantee fee" to cover the cost of securing a necessary performance, labor and material bond that would protect the State against loss in the event that ISS defaulted on the contract. OGS objected to the fee as excessive, and negotiations on that issue ensued. When OGS representatives asked the defendant to explain the basis of the "guarantee fee," the defendant told OGS that it was the actual cost to ISS to obtain the performance bond. OGS asked the defendant to document this expense, and the defendant responded by providing OGS with a copy of an invoice in the amount of $52,034.00, from AIG Insurance Company ("AIG"), the bond surety and an invoice from World Wide Agent Services, Inc. in the amount of $7,673.00, which together comprised the bond premium. As to the remainder of the fee, the defendant explained that AIG would not issue the performance bond unless he and his wife provide a personal guaranty and collateral to secure ISS's obligations under the bond in the event of a default. The defendant explained that he and his wife had agreed to do so, but only if ISS would compensate them for the risk to their personal assets. The defendant provided OGS with corporate minutes from an ISS Board of Directors meeting that occurred on December 10, 1997, wherein ISS resolved to pay the defendant and his wife a fee of $87.50 per $1,000 of the contract price as compensation for their agreement "to provide the required individual guarantees, and pledge their personal collateral." Thus, the "guarantee cost" comprised of the premium paid to AIG and World Wide Agent Services, plus the fee that the Kamdars were charging ISS to provide their personal guarantees and pledge their collateral.
Eventually, OGS agreed to award ISS the contract and to pay the "guarantee fee." However, rather than pay the requested flat fee of $500,000, OGS agreed to pay ISS $87.50 per every $1,000 of the contract price by adding a supplement of 9.52% to each of ISS's bills. Based on the original agreed-upon contract price, it was anticipated that the total guarantee fee would be $402,000, and that the total contract price (with the fee added) would be $4,626,630.
After ISS began work on the contract, additional removal and remediation work was performed by ISS and the total contract increased to $12.9 million. Since the guarantee fee was based upon a percentage of the total contract, ISS continued to charge OGS for the guarantee fee in excess of the $402,000 stated in the original contract. ISS ultimately received $1,114,626 in guarantee costs - well over the $402,000 originally anticipated. When the State realized that it had, in its view, overpaid ISS for the guarantee fee, it requested a refund. ISS refused and claimed entitlement to the entire amount. The New York State Attorney General then commenced a civil proceeding against ISS and the defendant alleging breach of contract, fraud and unjust enrichment. Although a state court judge ruled in favor of New York State, that decision was reversed on appeal to the New York State Supreme Court, Appellate Division, Third Department, which ruled that: (1) there was insufficient evidence to prove that the parties intended to place a $402,000 "cap" on the guarantee fee and therefore the State could not prove its breach of contract claim; (2) the State failed to prove its fraud claim because it failed to show that OGS employees reasonably relied on Kamdar's claim to have "pledged" personal collateral; and (3) because OGS failed to prove breach of contract, the State's remaining claims for unjust enrichment and misappropriation of public property could not be sustained. See State of New York v. Industrial Site Services, 52 A.D.3d 1153 (3rd Dep't 2008).
In the interim, the United States Attorney's Office for the Western District of New York commenced a criminal investigation that culminated in the pending indictment charging the defendant with 20 counts of mail fraud and 10 counts of money laundering. With regard to the mail fraud counts, the indictment charges:
As a part of its effort to justify the $500,000 for its claimed performance bond expense, the defendant, both personally and through others, made false and fraudulent representations to [OGS] and submitted letters and other writings to [OGS] that contained false and fraudulent statements. Primary among these oral and written false and fraudulent statements were statements that AIG, the company that provided the performance bond, required the defendant and his spouse, Panna Kamdar, to provide their personal guarantee and collateral, consisting of personal funds of approximately $1 million to AIG before AIG would issue the performance bond.
In truth and in fact, as the defendant well knew, AIG never asked the defendant or his spouse to provide personal guarantees or collateral before it would issue the performance bond for [ISS].
In truth and in fact, AIG agreed to provide and thereafter provided the necessary performance bond upon payment of a bond premium of $59,707.
(See Indictment, at ¶ ¶ 6-8)(emphasis added).
It was the government's theory at trial that the defendant intentionally misrepresented the nature of his obligations to AIG when he claimed that AIG required him to provide a personal guaranty and to pledge collateral. Although the defendant and his wife were required to provide a personal guaranty (sometimes referred to at trial as an "indemnity agreement"), they were never required to pledge collateral, and therefore the defendant's statements to that effect were materially false and fraudulent representations intended to induce OGS to pay the guarantee fee.*fn1 The money laundering counts assert that each time the ...