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United States v. Kilpatrick

United States District Court, E.D. Michigan, Southern Division

August 31, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
KWAME M. KILPATRICK, Defendant.

          OPINION AND ORDER CALCULATING RESTITUTION ON REMAND FROM THE COURT OF APPEALS

          Nancy G. Edmunds United States District Judge

         As part of a judgment entered on December 17, 2013, the Court ordered Defendant Kwame M. Kilpatrick to pay restitution in the amount of $4, 584, 423 to the City of Detroit's Water and Sewerage Department ("DWSD"). On appeal, the Sixth Circuit affirmed Defendant Kilpatrick's conviction and sentence, but vacated this Court's award of restitution and remanded "for proper calculation of the award." United States v. Kilpatrick, 798 F.3d 365, 388-91 (6th Cir. 2015). Following this remand, the Government now seeks a reduced award of restitution in the amount of $1, 520, 653.50, [1] while Defendant argues that the Government has failed to provide an evidentiary basis for an award in any amount. As discussed below, the Court finds that the Government has established by a preponderance of the evidence that Defendant owes restitution to the DWSD in the amount of $1, 520, 653.50.

         I. THE SIXTH CIRCUIT'S DECISION

         As noted above, in this Court's initial December 17, 2013 judgment, Defendant Kilpatrick was ordered to pay $4, 584, 423 in restitution to the DWSD. In so ruling, the Court pointed to the record establishing, for purposes of computing sentencing ranges under the U.S. Sentencing Guidelines, that Defendant Kilpatrick and his co-defendants had acquired over $4 million in unlawful gains as a result of the conduct underlying their RICO and extortion convictions, and it reasoned that this was an appropriate measure of the losses suffered by the DWSD under the contracts that gave rise to the defendants' gains. (See Dkt. 543, 12/10/2013 Hearing Tr. at 12, Page ID 16688.)

         The Sixth Circuit vacated this Court's award of restitution and remanded for further proceedings. See Kilpatrick, 798 F.3d at 390-91. The Court of Appeals emphasized that "restitution must be based on the victim's loss rather than the offender's gain, " and that the latter could be used to compute the former only if "the government establishes such a correlation that the defendant's gain can act as a measure of - not a substitute for - the victim's loss." 798 F.3d at 388, 390 (internal quotation marks and citation omitted). The Sixth Circuit found that the record did not demonstrate such a direct correlation between the defendants' unlawful gains and losses suffered by the DWSD, and therefore set aside this Court's award of restitution. 798 F.3d at 390. The court further stated that on remand, this Court could (i) invite the Government to submit additional evidence in support of its request for restitution, (ii) hold an evidentiary hearing, or (iii) conduct "further proceedings limited to the restitution award [and] consistent with" the Court of Appeals' opinion. 798 F.3d at 390.

         II. THE PARTIES' POSITIONS ON REMAND

         In its initial submission following the remand to this Court, the Government requested a reduced restitution award in the amount of $1, 637, 087. In support of this request, the Government pointed to a specific instance of bid-rigging that allegedly contributed to the racketeering conspiracy charged in Count One of the Fourth Superseding Indictment. As alleged in the indictment, Defendant Kilpatrick and co-Defendant Victor Mercado rigged the bidding on contract CM-2014 - a construction management contract for water main replacement projects throughout the City of Detroit - to steer this DWSD contract to "Company L, "[2] which in turn employed an entity owned by co-Defendant Bobby Ferguson as a subcontractor. (See Dkt. 74, Fourth Superseding Indictment at ¶¶ 63-77, Page IDs 400-03.) As a result of this alleged bid-rigging, CM-2014 was awarded to "Company L" (Lakeshore) instead of another company, Superior Engineering, that otherwise would have prevailed in the bidding process. The Government's proposed restitution award of $1, 637, 087 represented the difference between Superior's lower bid ($11, 966, 001.50) and Lakeshore's higher bid ($13, 603, 089). (See Gov't Trial Ex. LS3-18.) In the Government's view, this proposed award reflects a conservative estimate of the loss suffered by the DWSD when it awarded CM-2014 to a higher bidder, Lakeshore, as a result of the bid-rigging engaged in by Defendant Kilpatrick and his co-conspirators.[3]

         Although Defendant Kilpatrick opposes the Government's request on a number of grounds, his principal objection is that the Government's calculation of a proposed restitution award is overly speculative. In Defendant's view, the testimony of the relevant witnesses at trial revealed a complex bidding process that is not amenable to but-for comparisons of the DWSD's financial position in the presence or absence of bid-rigging. He notes, for example, that two separate adjustments altered the rankings among the bidders for CM-2014, and that there is a degree of inconsistency in the testimony at trial concerning (i) the individuals responsible for these adjustments, and (ii) the impact of these adjustments upon the bidding process for this contract. In addition, Defendant suggests that the many factors involved in the bidding process - including, for instance, the use of multiple, anonymous evaluators - make it difficult, if not impossible, to conclude that the outcome of this process was the product of bid-rigging, such that the DWSD can be said to have suffered a definite, discernible loss as a result of this alleged bid-rigging.

         III. ANALYSIS

         The pertinent legal principles governing this Court's calculation of an award of restitution are set forth in the Sixth Circuit's ruling and in the underlying statute, the Mandatory Victims Restitution Act ("MVRA"), 18 U.S.C. § 3663A, and need not be recounted at any length here. Briefly, under the MVRA, when the Court sentences a defendant for a property offense, it must order "that the defendant make restitution to the victim of the offense." 18 U.S.C. § 3663A(a)(1). The MVRA defines a "victim" as "a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered." § 3663A(a)(2). Thus, an award of restitution "is intended to compensate victims only for losses caused by the conduct underlying the offense of conviction, " and it "must be based on the victim's loss rather than the offender's gain." Kilpatrick, 798 F.3d at 388 (internal quotation marks and citations omitted). The Government "bears the burden of proving a victim's actual loss by a preponderance of the evidence, " Kilpatrick, 798 F.3d at 388, and the Court may forgo an award of restitution if it finds that "determining complex issues of fact related to the cause or amount of the victim's losses would complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentencing process, " § 3663A(c)(3)(B).

         Following the Sixth Circuit's remand, the Government's request for restitution is limited to the losses allegedly suffered by the DWSD as a result of Defendant Kilpatrick's and his co-defendants' alleged racketeering activity in connection with the bidding for the CM-2014 contract. As shown through the evidence presented at trial, after various contractors submitted their bids for the CM-2014 contract, the bid put forward by Superior Engineering initially was ranked first, while the bid submitted by Lakeshore Engineering - a proposal that included as a subcontractor a business owned by co-Defendant Bobby Ferguson - was ranked fifth. (See Dkt. 359, 11/27/2012 Trial Tr. at 98-99, Page IDs 9056-57; see also Gov't Trial Ex. LS3-36 at 1.) According to Darryl Latimer, the DWSD's contracts and grants manager, this initial ranking was based on a "standard" scoring methodology, under which the lowest-cost bidder is "given a higher score" and all other bidders are "scored against that lowest cost." (11/27/2012 Trial Tr. at 98, Page ID 9056.)

         When Mr. Latimer presented this ranking to the DWSD director, Defendant Victor Mercado, Mr. Mercado expressed his concern about the "wide range" of the bids submitted for the CM-2014 contract, and he also opined that "some of the low [bids] were too low." (Id. at 102, Page ID 9060.) Accordingly, after Mr. Latimer proposed various alternatives for addressing these concerns, such as discarding the two lowest bidders, Mr. Mercado instructed him to re-rank the bids using the "average cost" method, under which each contractor's bid is compared against the average of all of the bids and the bidders that are closest to the average receive the highest ranking. (Id. at 102-05, Page IDs 9060-63; see also Dkt. 348, 10/22/2012 Trial Tr. at 78-79, Page IDs 7558-59.) This re-scoring of the bids was carried out by DWSD grant manager Daniel Edwards at the direction of his supervisor, Mr. Latimer, and it resulted in Superior Engineering retaining its top ranking while Lakeshore moved from fifth to fourth position. (See 10/22/2012 Trial Tr. at 78-79, Page IDs 7558-59; 11/27/2012 Trial Tr. at 110, Page ID 9068; see also Gov't Trial Ex. LS3-36 at 1.) Both Mr. Latimer and Mr. Edwards testified that they had never used the "average cost" method to evaluate bids for any other construction management project, and both men expressed reservations with using this approach in the CM-2014 bidding process, particularly since the contractors lacked notice that this method would be applied. (See 10/22/2012 Trial Tr. at 79, 82, Page IDs 7559, 7562; 11/27/2012 Trial Tr. at 105-06, 108-09, Page IDs 9063-64, 9066-67.)

         Just a few days after the re-scoring of the bids with the "average cost" methodology and the resulting change in rankings, these rankings underwent a further adjustment. At a May 2006 meeting with Defendant Kilpatrick and DWSD director Victor Mercado, Mr. Latimer was asked about the weight given in the bid scoring process to a "local economic development" factor, and he responded by expressing his concern that this factor was sometimes given too much weight, thereby discouraging national and international contractors from bidding on complex projects. (See 11/27/2012 Trial Tr. at 112-14, Page IDs 9070-72.) Defendant Kilpatrick then asked about national firms that had been certified as eligible for treatment as Detroit-based companies, and he cited as a specific example a company, DLZ, that was included as a subcontractor in Superior Engineering's then-leading bid on the CM-2014 contract. (See Id. at 114, Page ID 9072.) In response, Mr. Latimer expressed his understanding that DLZ was headquartered in Columbus, Ohio, and not the City of Detroit, and he observed to Defendant Kilpatrick that the distinction between "a company having a certification [as a Detroit-based business] or not having a certification is the difference between winning and losing" a bid. (See Id. at 114-15, Page IDs 9072-73.)

         The next day, Mr. Latimer was instructed by Mr. Mercado to send a letter to Gerald Grant Phillips, the director of Detroit's human rights department, requesting that DLZ's status as a Detroit-headquartered business be verified. (See Id. at 117-18, Page IDs 9075-76.) A few days later, Mr. Edwards sent an email to a compliance officer in the human rights department, Kim Harris, inquiring about the status of the investigation into DLZ's certification as a business headquartered in Detroit. (See 10/22/2012 Trial Tr. at 73-74, Page IDs 7553-54.)[4] Mr. Harris, for his part, testified that he received phone calls in May of 2006 from Mr. Mercado and Mr. Latimer inquiring whether DLZ was certified as a Detroit-headquartered business, and that Mr. Latimer had stated more specifically that DLZ was "in line to be awarded a large contract" if it had this certification. (Dkt. 361, 11/29/2012 Trial Tr. at 121-22, Page IDs 9368-69.) Shortly thereafter, Mr. Harris met with his supervisor, Mr. Phillips, who instructed him to decertify DLZ as a Detroit-headquartered business. (Seeid. at 123-24, ...


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