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United States v. Azteca Supply Co.

October 6, 2010


The opinion of the court was delivered by: Judge Robert M. Dow, Jr.


Before the Court is Defendants' joint motion to dismiss Counts One through Five of the indictment [30]. For the reasons set forth below, the Court respectfully denies the joint motion to dismiss [30].

I. Background

On February 4, 2010, a grand jury returned a six count indictment, charging Defendants Azteca Supply Co., Inc. ("Azteca"), Aurora Venegas, and Thomas Masen with mail fraud in violation of 18 U.S.C. § 1341.*fn1 As charged in the indictment, the government alleges that Defendants devised and participated in a scheme to defraud the City of Chicago ("the City") and the Village of Orland Park ("the Village") of money and property -- specifically, contracts for minority business enterprises ("MBEs"), women's business enterprises ("WBEs"), and/or disadvantaged business enterprises ("DBEs"), as well as funds paid pursuant to those contracts. Id. at ¶ 2. The indictment sets forth the requirements for the pertinent MBE, WBE, and DBE programs, and alleges that Aurora Venegas and Azteca Supply Company falsely represented that they met certain program requirements when in fact they did not. Id. at ¶¶ 1 -6. The indictment further alleges that Thomas Masen used Azteca Supply Company as a "pass-through," meaning that Masen's own company performed work that was supposed to be performed by Azteca Supply Company, and that Azteca Supply Company was not performing the functions required under the MBE, WBE, or DBE programs. Id. at ¶ 7-8.

The indictment describes three separate contracts or subcontracts that were part of the fraudulent scheme. Id. at ¶ 9-21. With respect to the first contract, known as the "O'Hare Contract," the City of Chicago engaged Azteca to provide feminine hygiene disposal systems in the women's bathrooms at O'Hare Airport. According to the indictment, Venegas represented that Azteca "would itself provide 95% of the value of the O'Hare Contract," but in reality "did no significant work" and subcontracted "all significant portions of the work." Aurora Venegas and Azteca Supply Company received approximately $638,000 in payments from the City of Chicago for the "O'Hare Contract." Id. at ¶ 11.

With respect to the second contract, known as the "Main Street Triangle Project," the Village of Orland Park contracted with Company F to construct a new Metra train station. According to the indictment, "Company F agreed to use good faith in hiring MBEs and WBEs that were certified by Metra" and further "agreed that the MBE goal for the Main Street Triangle Project was 10% of the cost of the work, and that the WBE goal for the project was 5% of the cost of the work." Id. at ¶ 1(o). Company F in turn subcontracted with Company C to provide landscaping services for the project. Id. at ¶ 1(p). Company C's subcontract with Company F required it "to provide a minimum of 10% MBE and 5% WBE participation." Id. The indictment further charges that Company C arranged to purchase certain plants from Company D, then representatives from Companies C and D approached Defendant Venegas and asked her "to act as a pass-through for the landscaping subcontract." Id. at ¶ 12. The indictment alleges that Azteca had no role in providing the plants to Company C yet generated documents to make it appear that Azteca had purchased the plants from Company D and supplied them to Company C. Id. at¶ 14. Aurora Venegas and Azteca Supply allegedly received a total of approximately $57,168 in payments from the Main Street Triangle Project. Id. at ¶ 15.

With respect to the third contract, the "O'Hare Runway Subcontract," Azteca supplied reinforced concrete pipe to Company E, which contracted with the City of Chicago to rebuild a runway as part of the O'Hare Modernization Program. Id. at ¶¶ 1(q), 16. The City's contract with Company E allegedly required "at least 24% MBE and 4% WBE participation" and "credit would only be given to MBEs and WBEs that performed a commercially useful function." Id. at ¶¶ 1(q), 1(r). Azteca allegedly "provided no useful services to Company E." Id. at¶ 17. Instead, the indictment charges that Company E dealt directly with Company A, the concrete pipe manufacturer that employed Defendant Masen, and Masen allegedly directed Azteca as to how much it should charge Company E for pipe, how much profit Azteca should make, and how much Azteca should pay the trucking company to deliver the pipe to O'Hare. Id. at ¶¶ 17-19. Azteca Supply Company received more than $9,000,000 in payments from the O'Hare Runway Subcontract. Id. at ¶ 21.

II. Legal Standard

Federal Rule of Criminal Procedure 12(b)(3)(B) permits a party to make a pretrial motion that challenges the sufficiency of an indictment or an information. The contents of an indictment or information, in turn, are spelled out in Federal Rule of Civil Procedure 7(c)(1). The Seventh Circuit teaches that an indictment is constitutionally adequate and complies with Rule 7(c)(1) where it (i) states the elements of the offense charged, (ii) fairly informs the defendant of the nature of the charge so that he or she may prepare a defense, and (iii) enables the defendant to plead an acquittal or conviction as a bar against future prosecutions for the same offense. United States v. Agostino, 132 F.3d 1183, 1189 (7th Cir. 1997); see also Hamling v. United States, 418 U.S. 87, 118 (1974) (discussing precedent and describing when the language of an indictment will be deemed sufficient); Russell v. United States, 369 U.S. 749, 763 (1962) (among the criteria for gauging sufficiency of an indictment are whether it includes "the elements of the offense intended to be charged" and whether is "sufficiently apprises the defendant of what he must be prepared to meet").

The Supreme Court has long held that "[a]n indictment returned by a legally constituted and unbiased grand jury, * * * if valid on its face, is enough to call for trial of the charge on the merits." Costello v. U.S., 350 U.S. 359, 362 (1956). Indictments are to be reviewed "on a practical basis and in their entirety, rather than in a hypertechnical manner." United States v. Cox, 536 F.3d 723 (7th Cir. 2008). A motion to dismiss an indictment is not "a means of testing the strength or weakness of the government's case.'" United States v. Moore, 563 F.3d 583, 586 (7th Cir. 2009). Thus, while an indictment may be dismissed if subject to a defense that raises a purely legal question (United States v. Labs of Virginia, Inc., 272 F. Supp. 2d 764, 768 (N.D. Ill. 2003)), a defense that relates to the strength of the Government's evidence ordinarily must wait for the trial. Moore, 563 F.3d at 586 (inquiry at the motion to dismiss phase is to determine "if it's possible to view the conduct alleged" as constituting the crime alleged); United States v. Risk, 843 F.2d 1059, 1061 (7th Cir. 1988) (noting the ordinary rule while affirming a district court that dismissed an indictment as to which, under the undisputed facts, "there was no case to prove").

III. Analysis

Pursuant to 18 U.S.C. § 1341 (the "mail fraud statute"), [w]hoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises * * * for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, * * * shall be fined under this title or imprisoned not more than 20 years, or both.

18 U.S.C. § 1341 (emphasis added). Both the Supreme Court and the Seventh Circuit interpret the mail fraud statute as requiring that the object of the fraud be a property right. See Cleveland v. United States, 531 U.S. 12, 26 (2000) ("[w]e conclude that § 1341 requires the object of the fraud to be 'property' in the victim's hands"); McNally v. United States, 483 U.S. 350, 360 (1987) ("we read § 1341 as limited in scope to the protection of property rights"); see also United States v. Leahy, 464 F.3d 773, 787 (7th Cir. 2006) ("The mail and wire fraud statutes require that the object of the fraud is money or property, rather than an intangible right."). Defendants contend that the indictment fails to allege that any entity suffered a monetary loss as a result of the allegedly fraudulent conduct because the lowest bidder received each of the contracts at issue, and there is no allegation that the City of Chicago, the Village of Orland Park, or any other entity would (or could) have paid less for what they received absent the allegedly fraudulent conduct. In other words, Defendants contend that the City and the Village received the goods and services that they contracted to receive and that Azteca provided everything that it was obligated to provide. Therefore, Defendants maintain that the indictment does not state a cognizable claim that Defendants schemed to defraud the victims of "money or property" under the federal mail fraud statute and that whatever "regulatory interests" the City of Chicago and the Village of Orland Park had in promoting minority participation in city contracts are not "property" interests within the scope of the federal fraud statutes.

In Leahy, the defendants were charged with violations of mail and wire fraud statutes in connection with alleged fraudulent activity related to the City's MBE and WBE programs. 464 F.3d at 778-81. Like Defendants here, the defendants in Leahy claimed that the counts of the indictment related to fraud in connection with the MBE and WBE programs "charged an intangible rights scheme." Id. at 787. Specifically, the defendants argued that because the City "would ostensibly have paid the same for the provided [cleaning and janitorial] services," it had "lost no money" and thus no property right was involved. Id. The Leahy defendants claimed that "Chicago only lost a regulatory interest in controlling where its money went." Id. The Seventh Circuit rejected this argument, stating that "[d]espite the defendants' contortions to squeeze this case into the intangible rights category, we cannot agree that it is such a case." Id. Instead, the Leahy court determined that the object of the fraud related to the MBE and WBE programs was money "taken under false pretenses from the [C]ity in its role as a purchaser of services." Id. at 788. Although the City received one of the services that it contracted for, the cleaning and janitorial services, the court held that it "completely lost the other type of services for which it was paying [the defendants] -- services performed by an MBE or WBE * * *." Id.; see also ...

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