False contract certifications on otherwise quality work defrauded the Dept. of Transportation of its "property"; loss calculation remand

In United States v. Kousisis, 82 F.4th 230 (3d Cir. Sept. 22, 2023), pdf of opinion, the Third Circuit upheld wire-fraud convictions under 18 U.S.C. § 1343 for a scheme to falsely certify compliance with disadvantaged business enterprise (DBE) contracting requirements in federally financed infrastructure projects in Philadelphia. Because the defendants completed the painting and repair work required by the contracts at issue, they argued that the government failed to prove that they defrauded the Pennsylvania Department of Transportation of property, relying in part on Kelly v. United States, 140 S.Ct. 1565 (2020). The Third Circuit disagreed, holding that the defendants’ failure to abide by the DBE terms of the contracts meant that they were not legally entitled to payment, even if they performed the underlying infrastructure work. Consequently, the funds paid by Pennsylvania in accordance with the contracts were, under Kelly, the “object” or the “true purpose” of the fraud.

However, the Court vacated the sentence and remanded. The District Court had used Alpha’s profits to set the government’s loss amount. That was error where Alpha always stood to lawfully profit and so all of its gains were not ill-gotten. The Court remanded for the District Court to use a different measure for loss calculation: the value of the contracts less the value of performance. The Court emphasized that an upward variance might be necessary if this calculation understated the loss and failed to capture the real harm of depriving the DBE and broader industry of developing working relationships.