United States v. Kwame Kilpatrick

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 15a0186p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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UNITED STATES OF AMERICA, ┐

Plaintiff-Appellee, │

│

│ Nos. 13-2500;14-1120

v. │

>

│

KWAME M. KILPATRICK (13-2500); BOBBY W. │

FERGUSON (14-1120), │

Defendants-Appellants. │

┘

Appeal from the United States District Court

for the Eastern District of Michigan at Detroit.

No. 2:10-cr-20403—Nancy G. Edmunds, District Judge.

Argued: January 13, 2015

Decided and Filed: August 14, 2015

Before: SILER, GRIFFIN, and WHITE, Circuit Judges.

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COUNSEL

ARGUED: Harold Gurewitz, GUREWITZ & RABEN, PLC, Detroit, Michigan, for Appellant

in 13-2500. Susan W. Van Dusen, Coral Gables, Florida, for Appellant in 14-1120. Andrew

Goetz, UNITED STATES ATTORNEY’S OFFICE, Detroit, Michigan, for Appellee. ON

BRIEF: Harold Gurewitz, GUREWITZ & RABEN, PLC, Detroit, Michigan, for Appellant in

13-2500. Susan W. Van Dusen, Coral Gables, Florida, Gerald K. Evelyn, Detroit, Michigan, for

Appellant in 14-1120. Andrew Goetz, UNITED STATES ATTORNEY’S OFFICE, Detroit,

Michigan, for Appellee.

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OPINION

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SILER, Circuit Judge. Codefendants Kwame Kilpatrick, former mayor of Detroit, and

Bobby Ferguson, a Detroit contractor, challenge their jury convictions for bribery, extortion,

mail and wire fraud, RICO conspiracy, and tax evasion. The issues are whether: (1) Kilpatrick

was denied his constitutional right to conflict-free counsel because his two lead attorneys had

recently become “of counsel” to a firm that was suing Kilpatrick for alleged conduct related to

his criminal charges; (2) the extensive testimony by two case agents violated the Rules of

Evidence; (3) the district court erred when it allowed witnesses to report what other people had

told them about Kilpatrick and Ferguson as evidence that the witnesses feared the defendants;

and (4) the district court erred by ordering Kilpatrick to pay restitution to the Detroit Water &

Sewerage Department and to the IRS. For the reasons that follow, we AFFIRM the convictions,

but VACATE and REMAND the restitution order.

I. INTRODUCTION

The trial of Kilpatrick, Ferguson, and Bernard Kilpatrick (Kilpatrick’s father, who is not

a party in this appeal) transpired from September 2012 to March 2013. The six-month

proceeding included almost 100 government witnesses and over 700 exhibits, and encompassed

10,000 pages of transcripts. The jury found Kilpatrick guilty of 24 of the 30 counts against him.

These include one count of RICO conspiracy, 18 U.S.C. § 1962(d); four counts of extortion,

18 U.S.C. § 1951; one count of attempted extortion, 18 U.S.C. § 1951; one count of bribery,

18U.S.C. § 666(a); eleven counts of mail and wire fraud, 18 U.S.C. §§ 1341, 1343; five counts of

subscribing a false tax return, 26 U.S.C. § 7206(a); and one count of income tax evasion,

26 U.S.C. § 7201. The jury found Ferguson guilty of nine out of eleven counts: one count of

RICO conspiracy, 18 U.S.C. § 1962(d); six counts of extortion, 18 U.S.C. § 1951; one count of

attempted extortion, 18 U.S.C. § 1951; and one count of bribery, 18 U.S.C. § 666(a).

Kilpatrick and Ferguson then moved for a new trial. Among their grounds for relief were

the first three arguments they now make to this court. The district court denied the motion.

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The issues in this appeal do not require a detailed explanation of the charges and the

evidence. Suffice it to say that the government’s main theory was that Kilpatrick and Ferguson

conspired to extort money from other Detroit-area contractors by pressuring them to include

Ferguson’s companies in their city contracts—even when Ferguson’s companies were not the

most qualified candidates and even when Ferguson’s companies did no work.

II. KILPATRICK’S ATTORNEYS

We turn first to Kilpatrick’s claim that he was denied his constitutional right to conflict-

free counsel. This claim concerns Kilpatrick’s lead trial attorneys, James Thomas and Michael

Naughton. Kilpatrick initially hired Thomas in 2008 to represent him in other matters. After

Kilpatrick was indicted in this case, the district court—upon Kilpatrick’s request—appointed

Thomas and Naughton to serve as his counsel under the Criminal Justice Act.

A. FACTS

From 2005 to 2010, the year of Kilpatrick’s indictment, Thomas represented Gaspar

Fiore. Fiore eventually became a victim-witness in the government’s investigation of Kilpatrick

and Ferguson.

In July 2011, the Macomb Interceptor Drain Drainage District filed a civil complaint

against Kilpatrick as lead defendant in a case involving the Macomb Drain project—one of the

city sewer department projects that was an issue in the criminal case. The plaintiff’s counsel in

that lawsuit was the firm of O’Reilly Rancilio P.C. (“the O’Reilly Firm”). Although Kilpatrick

did not retain Thomas and Naughton to represent him in the civil case, Thomas and Naughton

filed Kilpatrick’s answer to prevent default. In April 2012, Thomas and Naughton became “of

counsel” attorneys with the O’Reilly Firm. Accordingly, they obtained an order from the court

in the civil suit allowing them to withdraw from representing Kilpatrick. Naughton certified that

he served Kilpatrick with a copy of the order and indicated Kilpatrick acknowledged receipt of

the order. In August 2012, shortly before the criminal trial, Kilpatrick told the district court that

he wanted Thomas to withdraw on account of Thomas’s previous representation of Fiore and a

breakdown in the attorney-client relationship.

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The court asked for briefing on all possible conflicts and held a hearing on August 14,

2012 (an earlier conflict hearing on August 7 did not concern the O’Reilly Firm issue). Thomas

told the court he could not ethically cross-examine his former client Fiore. He also explained

that he and Naughton maintained a separate office from the O’Reilly Firm, had separate

electronic filings systems, and had no financial ties to the Macomb Drain litigation.

To alleviate the apparent conflict, the government agreed to withdraw the charges that

concerned Fiore. Additionally, the court appointed a separate attorney to cross-examine the

witnesses related to the Macomb Drain project.1 In light of these safeguards and the uncontested

evidence that Thomas and Naughton had separate offices and separate physical and electronic

filing systems from the O’Reilly Firm and no financial relationship to the Macomb Drain

litigation, the district court declined to disqualify Kilpatrick’s attorneys.

The district court also considered Kilpatrick’s claim that he had lost trust in his attorneys

and could no longer work with them. The court denied Kilpatrick’s motion to replace his

attorneys, finding that it was merely a tactic to delay the trial. Kilpatrick does not appeal this

aspect of the decision.

The criminal trial began on September 6, 2012. On October 31, 2012, the court in the

civil case dismissed all claims against Kilpatrick. On February 11, 2013, the day closing

arguments began in the criminal trial, the court in the civil case denied the plaintiff’s motion for

reconsideration.

On appeal, Kilpatrick points out that the civil suit incorporated allegations from

Kilpatrick’s indictment, and that the civil plaintiff attempted to amend its complaint during the

criminal trial, drawing on evidence that was being developed during that trial. Thomas and

Naughton, Kilpatrick explains, “were defending Kilpatrick in the criminal case on the very same

alleged acts of corruption that the firm to which they were of counsel sought to establish in a

parallel civil suit.”

1

That attorney was Harold Gurewitz, who represents Kilpatrick in this appeal.

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B. ANALYSIS

Kilpatrick contends that (1) Thomas and Naughton had an actual conflict of interest due

to the O’Reilly Firm’s simultaneous representation of the plaintiff in the civil suit, which he

argues deprived him of the effective assistance of counsel; and (2) the district court failed to

thoroughly investigate and resolve the attorneys’ conflicts.

Whether counsel rendered ineffective assistance is a mixed question of law and fact that

we review de novo. McFarland v. Yukins, 356 F.3d 688, 699 (6th Cir. 2004). We review the

district court’s underlying factual findings for clear error. Id.

The Sixth Amendment’s right to counsel includes a “correlative right to representation

that is free from conflicts of interest.” Wood v. Georgia, 450 U.S. 261, 271 (1981). For most

ineffective-assistance-of-counsel claims, the defendant must prove both (1) deficient

performance and (2) prejudice to warrant reversal of a conviction. Strickland v. Washington,

466 U.S. 668, 687 (1984). But conflict-of-interest claims warrant a modified Strickland analysis.

Moore v. Mitchell, 708 F.3d 760, 777 (6th Cir.), cert. denied sub nom. Moore v. Robinson, 134 S.

Ct. 693 (2013). When assessing alleged conflicts of interest, courts presume prejudice exists if

the defendant demonstrates that counsel “actively represented conflicting interests” and that this

“actual conflict of interest adversely affected” the lawyer’s performance. Burger v. Kemp,

483 U.S. 776, 783 (1987) (quoting Strickland, 466 U.S. at 692).

To prove actual conflict, a defendant must “point to specific instances in the record” and

“make a factual showing of inconsistent interests.” Thomas v. Foltz, 818 F.2d 476, 481 (6th Cir.

1987) (quoting United States v. Mers, 701 F.2d 1321, 1328 (11th Cir. 1983)). The defendant

must show that the lawyer “made a choice between possible alternative courses of action, such as

eliciting (or failing to elicit) evidence helpful to one client but harmful to the other.” McFarland,

356 F.3d at 705 (quoting Thomas, 818 F.2d at 481). However, the more reasonable the lawyer’s

choice, the less likely it was the result of actual conflict. Id. at 706.

Kilpatrick’s ineffective-assistance claim fails for two independent reasons: Kilpatrick

cannot show that (1) his attorneys actively represented conflicting interests or (2) an actual

conflict adversely affected their performance. First, to establish the actual conflict, Kilpatrick

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cites the Michigan Rules of Professional Conduct and a State Bar of Michigan Opinion.

Together, the sources prohibit a lawyer (and through imputed disqualification, the firm with

which the lawyer is associated, including through an of-counsel relationship) from representing a

client if the representation is “directly adverse” to another client. Mich. R. Prof’l Conduct 1.7(a),

1.10(a); Mich. Bar Op. No. RI-102 (Oct. 1, 1991). He argues that, based on Michigan’s

professional ethics rules, Thomas’s and Naughton’s of-counsel affiliation with the O’Reilly Firm

created an actual conflict. Kilpatrick’s argument, standing alone, fails because all it suggests is a

“per se” conflict, not an “actual” conflict. Moore, 708 F.3d at 777.

The constitutional question we must answer is not whether Kilpatrick’s attorneys violated

ethical rules, but whether an actual conflict existed that adversely affected their performance.

See Nix v. Whiteside, 475 U.S. 157, 165 (1986); Hempstead Video, Inc. v. Inc. Vill. of Valley

Stream, 409 F.3d 127, 132 (2d Cir. 2005) (explaining that a violation of a disciplinary rule

should only lead to disqualification if it taints the underlying trial). Although a lawyer’s

conflicts are ordinarily imputed to his or her firm based on the presumption that associated

attorneys share client confidences, contrary to the Michigan ethics opinion, “attorneys with

limited links to a firm are not always considered to be ‘associated’ with the firm for purposes of

conflict imputation.” Hempstead Video, 409 F.3d at 133 (citing, among others, Manning v.

Waring, Cox, James, Sklar & Allen, 849 F.2d 222, 224 (6th Cir. 1988) (holding that screening

measures can rebut the presumption of shared confidences)). Here, in light of (1) the “thick

ethical wall” between Kilpatrick’s counsel and the firm; (2) the government’s decision to drop all

charges related to Fiore; and (3) the court’s decision to appoint a fourth defense attorney to

cross-examine the Macomb Drain contract witnesses, the district court plausibly determined that

no actual conflict existed. Furthermore, on account of the ethical wall separating Thomas and

Naughton from the O’Reilly Firm (and the physical distance between the two offices), the

district court properly concluded that Kilpatrick’s lawyers were not so closely associated with

the O’Reilly Firm that the firm’s conflict of interest should be imputed to them. See Hempstead

Video, 409 F.3d at 132-36 (discussing the variation in “of counsel” relationships and adopting a

functional approach that focuses on the substance of the relationship and the nature of the

screening procedures to determine whether to impute a conflict of interest). The trial record

shows that Kilpatrick’s attorneys were loyal and diligent in their representation.

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Kilpatrick asks us to apply the bright-line rule of presumed conflict from Holloway v.

Arkansas, 435 U.S. 475 (1978). But the Holloway automatic-reversal rule only applies when

“defense counsel is forced to represent codefendants over [a defendant’s] timely objection,

unless the trial court has determined that there is no conflict.” Mickens v. Taylor, 535 U.S. 162,

168 (2002). In all other cases, prejudice is only presumed when “a conflict of interest actually

affected the adequacy of [the attorney’s] representation.” Id. at 171; see also Koste v. Dormire,

345 F.3d 974, 982-83 (8th Cir. 2003).

Second, assuming there had been an actual conflict, Kilpatrick points to little evidence in

the record that suggests his counsel did anything detrimental to his defense or failed to do

something that was clearly advantageous. See Moore, 708 F.3d at 777. The most Kilpatrick’s

brief alleges is that Thomas failed to cross-examine a government witness, Derrick Miller, about

Miller’s conversations with Kilpatrick regarding certain city contracts. The allegation only

appears in a footnote, and Kilpatrick does not explain what Thomas should have asked Miller, or

why. The government argues that Miller was indeed cross-examined, but that it was done by

Ferguson’s counsel because the defendants’ attorneys had agreed before trial to take turns cross-

examining the witnesses. In any event, Thomas’s failure to cross-examine Miller was not

facially unreasonable or indicative of a pattern of divided loyalty that tainted the trial. See

Hempstead Video, 409 F.3d at 132. Because Kilpatrick has not established a conflict of interest

that adversely affected his lawyers’ performance, his constitutional claim fails.

Kilpatrick next argues the district court failed to thoroughly investigate and resolve

Thomas’s and Naughton’s conflicts after it was on notice of them because it “failed to take into

account the nature of the conflict.” When a trial court knows (or reasonably should know) that a

potential conflict exists, the court has a duty to investigate the potential conflict. Mickens,

535 U.S. at 168.

To the extent this argument is merely a repackaging of his ineffective-assistance claim,

the argument fails for the reasons stated above. The record also shows the court promptly

investigated and resolved the conflict. Kilpatrick first informed the court of a potential conflict

on August 7, 2012. At that point, Kilpatrick was concerned about Thomas’s representation of

Fiore because Fiore had alleged before a grand jury that Kilpatrick had extorted him. On

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August 9, 2012, the district court ordered the parties to brief “every possible conflict” including

“the conflict discussed in the [Detroit] Free Press this morning concerning the Macomb

Interceptor [Drain] Drainage District.” Recall that Kilpatrick knew about Thomas’s and

Naughton’s of-counsel affiliations with the O’Reilly Firm by April 2012, when he was served

with a copy of the court’s order allowing Thomas and Naughton to withdraw. Nevertheless, it

was the district court itself that first raised the potential O’Reilly Firm conflict after reading

about it in the newspaper. The court promptly ordered briefing on the matter, heard argument on

August 14, and resolved the conflict.

In his reply brief, Kilpatrick asserts that there were no facts presented to the court to

support its conclusion that Thomas’s and Naughton’s of-counsel relationships with the O’Reilly

Firm were attenuated. Although it is true that the court accepted counsel’s written submissions

as fact and did not hold an evidentiary hearing, Kilpatrick points to no contrary evidence. Nor

does he suggest the court’s findings were erroneous. In any event, this argument is best left for a

motion under 28 U.S.C. § 2255. See United States v. Ferguson, 669 F.3d 756, 762 (6th Cir.

2012) (claims of ineffective assistance of counsel are generally addressed by collateral attack

rather than on direct appeal).

III. CASE AGENT TESTIMONY

Kilpatrick and Ferguson challenge the lay-opinion testimony of two agents—

Environmental Protection Agency Special Agent Carol Paszkiewicz and FBI Special Agent

Robert Beeckman. The government never sought to qualify these agents as experts. In

aggregate, they testified 23 times throughout the trial. Because the trial portended to be

protracted, the government procured permission from the court to present its case in “chapters.”

The government used the case agents to introduce volumes of evidence at the beginning of each

“chapter.” The agents also interpreted the “shorthand” lingo the defendants used in their text

messages, discussed some of the inner workings of the Detroit government, and explained

aspects of the sewer-department contracts.

Before trial, Kilpatrick and Ferguson objected to the government’s plan to use the case

agents so extensively. The district court overruled these pre-trial objections, and later reaffirmed

its decision in its post-trial order denying the defendants’ motion for a new trial:

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As revealed pretrial and at trial, during the government’s investigation of

Defendants’ criminal conduct it had gathered about 300,000 text messages, as

well as hundreds of thousands of records from the City of Detroit, municipal

contractors, accountants, and financial institutions. It argued that many of these

text messages were highly relevant to the jury’s understanding of the facts in this

criminal case but were so cryptic they often could only be understood from the

context of other messages, records, and events that took place at the same time.

This Court agreed. Because the text messages and recorded conversations

between Defendants were communicated in an informal short-hand with little or

no explanatory detail, the Court agreed that the jury would not understand these

communications without some context and background that helps explain, or

provides a lay opinion, as to the meaning of the abbreviations, shorthand, or

nicknames used in Defendants’ communications to reference individuals,

companies, or business transactions. The foundation for those explanations or lay

opinion was the agents’ multi-year investigation and review of tens of thousands

of text messages, thousands of wiretap recordings, and hundreds of records and

pieces of information. It was not the agents’ specialized knowledge gained from

their law enforcement training, education, and experience in public corruption

cases generally. Contrary to Defendants’ arguments here, Agents Paszkiewicz

and Beeckman did not offer sweeping conclusions or generalizations that intruded

on the jury’s responsibility to determine the key facts at issue and to determine

whether the government had established, beyond a reasonable doubt, the elements

of each charged offense. They did not offer legal conclusions that directly

implicated the jury’s fact-finding and decision-making functions. Rather, the case

agents’ lay opinion testimony was properly limited after the required foundation

was established.

Kilpatrick and Ferguson challenge the admission of dozens of statements by the case

agents. Essentially, they argue their case is like United States v. Freeman, 730 F.3d 590, 595-96

(6th Cir. 2013) (vacating a conviction for evidentiary errors concerning case agent testimony).

For the reasons that follow, we find this case readily distinguishable from Freeman and that any

evidentiary errors did not prejudice the defendants.

A. STANDARD OF REVIEW

We review a district court’s evidentiary rulings for an abuse of discretion. A court abuses

its discretion when it “relies on clearly erroneous findings of fact, improperly applies the law, or

employs an erroneous legal standard,” or when we are “firmly convinced” that the trial court

“committed a clear error of judgment.” United States v. Miner, 774 F.3d 336, 348 (6th Cir.

2014) (internal citations omitted). When a defendant fails to object at trial, we review an

evidentiary ruling for plain error. United States v. Olano, 507 U.S. 725, 731-32 (1993).

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During trial, defense counsel lodged objections to much of the case agents’ testimony.

The government asks us to parse out the challenged testimony that was not subject to objection at

trial, and apply plain error review. But the defendants maintained a standing objection

throughout the trial to virtually all of the agents’ testimony. We decline to review the testimony

under the deferential plain error standard.

Even if the district court abused its discretion, this does not automatically result in a new

trial. Evidentiary errors remain subject to harmless error review. Under the “harmless error”

rule, Fed. R. Crim. P. 52(a), any “error, defect, irregularity, or variance that does not affect

substantial rights must be disregarded.”

Non-constitutional errors are subject to Rule 52(a) harmless error analysis: the

government must show by a preponderance of the evidence that the error did not materially

affect the verdict. See Kotteakos v. United States, 328 U.S. 750, 764-65 (1946) (adopting this

“substantially swayed” test for non-constitutional errors); Cummins v. BIC USA, Inc., 727 F.3d

506, 510 (6th Cir. 2013), cert. denied, 134 S. Ct. 935 (2014); see also generally 2 Handbook of

Fed. Evid. § 103:1 (7th ed.); 7 Crim. Proc. § 27.6(a)-(e) (3d ed.). In contrast, when an error of

constitutional magnitude occurs, the government must prove beyond a reasonable doubt that the

error did not affect the verdict. Miner, 774 F.3d at 342, 350 (differentiating the harmless error

standard of review for a constitutional error—an erroneous jury instruction—from a non-

constitutional evidentiary error).2 In non-constitutional evidentiary-error cases like this one,

when the record is “so evenly balanced that a conscientious judge is in grave doubt as to the

harmlessness of an error,” the judgment must be reversed. O’Neal v. McAninch, 513 U.S. 432,

437-38 (1995). The scale, if equal, tips in favor of the defendant. Ruelas v. Wolfenbarger,

580 F.3d 403, 413 (6th Cir. 2009).

2

In United States v. Baldwin, a case that involved improper character evidence (a non-constitutional error),

we mistakenly stated, “An error is harmless ‘when it appears beyond a reasonable doubt that the error complained

of did not contribute to the verdict obtained.’” 418 F.3d 575, 582 (6th Cir. 2005) (emphasis added) (quoting

Mitchell v. Esparza, 540 U.S. 12, 17-18 (2003)). But we left out the crucial word “constitutional.” The Supreme

Court in Esparza actually said, “A constitutional error is harmless when it appears beyond a reasonable doubt that

the error complained of did not contribute to the verdict obtained.” Esparza, 540 U.S. at 17-18 (quoting Chapman v.

California, 386 U.S. 18, 24 (2003)) (emphasis added, internal quotation marks omitted). Several opinions have

followed Baldwin on this point. See, e.g., Freeman, 730 F.3d at 595; United States v. Lopez-Medina, 461 F.3d 724,

741 (6th Cir. 2006).

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B. LEGAL FRAMEWORK

Kilpatrick and Ferguson argue that the case agents violated the lay opinion testimony

rule, Federal Rule of Evidence 701, by summarizing evidence and interpreting text messages,

phone calls, and other documents. Courts often qualify law enforcement officers as expert

witnesses under Rule 702 to interpret intercepted conversations that use “slang, street language,

and the jargon of the illegal drug trade.” United States v. Peoples, 250 F.3d 630, 641 (8th Cir.

2001). In contrast, when an officer is not qualified as an expert, the officer’s lay opinion is

admissible “only when the law enforcement officer is a participant in the conversation, has

personal knowledge of the facts being related in the conversation, or observed the conversations

as they occurred.” Id. This rule is derived from Rule 701, which states:

If a witness is not testifying as an expert, testimony in the form of an opinion is

limited to one that is:

(a) rationally based on the witness’s perception;

(b) helpful to clearly understanding the witness’s testimony or to

determining a fact in issue; and

(c) not based on scientific, technical, or other specialized knowledge

within the scope of Rule 702.

The party offering testimony under Rule 701 must establish that all three requirements

are satisfied. Freeman, 730 F.3d at 595-96. The function of lay opinion testimony is to

“describ[e] something that the jurors could not otherwise experience for themselves by drawing

upon the witness’s sensory and experiential observations that were made as a first-hand witness

to a particular event.” Id. at 595 (quoting United States v. Jayyousi, 657 F.3d 1085, 1120 (11th

Cir. 2011) (Barkett, J., concurring in part and dissenting in part)); see also United States v.

Garcia, 413 F.3d 201, 211 (2d Cir. 2005) (describing lay opinion testimony as an acceptable

shorthand for the rendition of facts the witness personally perceived).

Several recent cases have explored the boundaries of lay opinion testimony by law

enforcement officers who interpret intercepted communications for the jury. On one hand, “an

investigator who has accumulated months or even years of experience with the events, places,

and individuals involved in an investigation necessarily draws on that knowledge when

testifying; indeed, it is those out-of-court experiences that make the witness’s testimony helpful

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to the jury.” United States v. Gadson, 763 F.3d 1189, 1209 (9th Cir. 2014). On the other hand,

testimony of this type also poses dangers.

In Freeman, we addressed the extent to which agents may give lay opinion testimony that

interprets intercepted conversations when the agents base their interpretations on the collective

knowledge that the agency obtained through the course of the investigation. We explored the

“risk” that when an agent “provides interpretations of recorded conversations based on his

knowledge of the entire investigation,” the agent could impermissibly testify “based upon

information not before the jury, including hearsay,” and that the jury might think the agent is

privy to important knowledge about the case that the jury lacks. Freeman, 730 F.3d at 596

(quoting United States v. Hampton, 718 F.3d 978, 983 (D.C. Cir. 2013)). The risks are that the

agent (1) could “effectively smuggle in inadmissible evidence,” (2) may draw the kind of

inferences that counsel may draw in closing argument, but with “the imprimatur of testifying as a

law enforcement officer,” (3) could “usurp the jury’s function,” or (4) may be “doing nothing

more than speculating.” Id. (quoting United States v. Albertelli, 687 F.3d 439, 447 (1st Cir.

2012)). Accordingly, a trial court must ensure that the testimony hews to Rule 701’s limitations.

In Freeman, the testifying agent “repeatedly substantiated his responses and inferences

with generic information and references to the investigation as a whole.” Id. This ran afoul of

Rule 701(a) because the agent “never specified personal experiences that led him to obtain his

information but, instead, repeatedly relied on the general knowledge of the FBI and the

investigation as a whole.” These vague references to the “investigation as a whole” left the jury

“in the dark” regarding the sources of the agent’s information. Id. The agent never testified that

he was present for any surveillance, or even that he observed any activity relevant to interpreting

the wiretapped phone calls. Id. at 597. Because the agent never specified his sources or cited his

personal experiences, we were left to infer that “he was expressing an opinion informed by all

the evidence gleaned by various agents in the course of the investigation and not limiting himself

to his own personal perceptions.” Id. at 596 (quoting Garcia, 413 F.3d at 213); see also United

States v. Miller, 738 F.3d 361, 373 (D.C. Cir. 2013) (finding plain error when the agents

interpreted phone conversations without specifying the “bases (events, other calls, seizures of

contraband, etc.) upon which their opinions rested—other than broad claims about knowledge

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they had gained from the investigation”). The testimony in Freeman was so egregious that the

government conceded at oral argument that the agent “lacked the first-hand knowledge required

to lay a sufficient foundation for his testimony under Rule 701(a).” 730 F.3d at 597.

In addition to the agent’s failure to limit his testimony to his own “sensory and

experiential observations” under Rule 701(a), id. at 595, the testimony in Freeman also ran afoul

of Rule 701(b)’s helpfulness requirement. It is not “helpful” when a witness, lay or expert,

forms conclusions for a jury that the jurors are competent to reach on their own. Id. at 597. To

“merely tell the jury what result to reach” violates the rule. Id. The agent in Freeman

“effectively spoon-fed his interpretations of the phone calls and the government’s theory of the

case to the jury, interpreting even ordinary English language.” Id.; see also Peoples, 250 F.3d at

640 (reversing when the officer’s lay opinion testimony constituted several hours of “a narrative

gloss that consisted almost entirely of her personal opinions of what the [recorded] conversations

meant”). Nor is it helpful for a lay opinion witness to speculate or to repeat previously-admitted

evidence that requires no explanation. Freeman, 730 F.3d at 597 (citing United States v.

Freeman, 498 F.3d 893, 905 (9th Cir. 2007)). When it comes to interpreting language from

intercepted communications, an agent can be helpful when she uses her personal knowledge of

the case to interpret cryptic language. Id. at 598. But a case agent testifying as a lay witness

“may not explain to a jury what inferences to draw from recorded conversations involving

ordinary language” because this crosses the line from evidence to argument. Id.

Other boundaries also apply under Rule 701(b). Lay opinion witnesses should avoid

expressing a conclusion that the defendant is guilty. Garcia, 413 F.3d at 210, 213 (noting that,

while under Rule 704, a lay opinion is not inadmissible simply because “it embraces an ultimate

issue,” courts should “be wary” of opinion testimony whose “sole function” is to answer the

ultimate question of guilt). But see Gadson, 763 F.3d at 1213-14 (holding that the district court

did not plainly err in allowing an officer who testified purely as a lay witness to state his opinion

that the defendant was guilty). An agent may not, at the beginning of trial, provide a summary of

evidence that has not yet been admitted. Albertelli, 687 F.3d at 449; Garcia, 413 F.3d at 210-11,

214; Fed. R. Evid. 602. The law provides a place for such summaries and conclusions—in the

opening statement and closing argument. There is also a danger when opinion testimony “relies

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 14

on or conveys hearsay evidence, such as when an officer relies on the truth of a third party’s

statement as the basis for an interpretation of a statement in an intercepted phone call.” Gadson,

763 F.3d at 1208.

The third requirement, stated in Rule 701(c), is designed to “prevent a party from

conflating expert and lay opinion testimony thereby conferring an aura of expertise on a witness

without satisfying the reliability standard for expert testimony set forth in Rule 702 and the pre-

trial disclosure requirements set forth in Fed. R. Crim. P. 16 and Fed. R. Civ. P. 26.” Garcia,

413 F.3d at 215. If the opinion testimony draws on scientific, technical, or other specialized

knowledge, then its admissibility should be assessed under Rule 702, not Rule 701. Id.

C. ANALYSIS

Kilpatrick and Ferguson argue that this case is like Freeman, 730 F.3d at 590. It is not.

First, unlike Freeman, the agents in this case established a personal-knowledge basis for

their lay opinion testimony. They did not merely cite to the collective knowledge of their

respective agencies as the source of their information. Each agent testified on multiple occasions

concerning his or her years-long personal involvement in the case, including interviewing dozens

of witnesses, reading scores of relevant documents and thousands of text messages, and listening

to recorded phone calls. This was not a case in which the agents lacked first-hand personal

knowledge of key aspects of their testimony.

Second, few of the challenged statements could be characterized as (1) arguing the

government’s case or (2) offering interpretations of plain English language, which were issues in

Freeman. In fact, a great deal of the challenged testimony does not implicate Rule 701 or

Freeman at all. Some of the testimony is simply admissible background material. Agents are

permitted to testify regarding how they became involved in a case, what allegations they were

investigating, who the suspects were, and similar background. United States v. Goosby, 523 F.3d

632, 638 (6th Cir. 2008); United States v. Aguwa, 123 F.3d 418, 421 (6th Cir. 1997) (citing

United States v. Evans, 883 F.2d 496, 501 (6th Cir. 1989)). This sort of testimony, which is

designed to set the stage for the introduction of evidence, differs substantively from problematic

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 15

“preview testimony” that “purports to sum up (in advance of the evidence) the government’s

overall case.” Albertelli, 687 F.3d at 449.

To provide an example, the government asked Agent Paszkiewicz on October 24, 2012,

to describe her role in the investigation:

A. I was one of the principal agents investigating allegations of extortion by

members of the Kilpatrick administration in the awarding of Detroit Water and

Sewerage Department contracts.

Q. What do you mean by that, what were you exactly investigating in that regard?

A. Allegations that contractors to the Detroit Water and Sewerage Department

were either forced to have certain partnerships in contracts, were made to make

what we call no-show payments on contracts and bid rigging and contract steering

by various members of either [the] Detroit Water and Sewerage Department or the

mayoral administration.

Q. And when you say “forced,” what do you mean?

A. Well, that they were, that these contractors, whether or not they had a fear or

belief that if they didn’t do the things I mentioned, specifically the forced

partnerships or the making of the no-show payments . . . . that they would have

negative repercussions . . . .

Defense counsel objected that the agent was supplying legal definitions and arguing the

government’s case. But the court explained:

I think this is a complicated case that has a lot of different charges, that it will be

very difficult for the jury to recall from the original opening statements, which are

already like six or eight weeks ago, and if she’s explaining what her investigation

encompassed, that’s entirely proper.

Another example occurred the following day, when the same agent testified:

Q. Now, did you investigate whether African American contractors, as part of

your case, suffered financial consequences as a result of alleged efforts by the

administration to give contracts to Bobby Ferguson?

A. Yes.

Q. And that included lost city contracts?

A. Yes.

Q. Contracts that were canceled that were awarded to African American

contractors?

A. That were initially awarded, yes.

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 16

Q. And payment by African American contractors to Mr. Ferguson for work that

he didn’t do?

A. Yes.

Q. And instances in which African American contractors were forced to enter into

agreements and contracts with Mr. Ferguson in the city contracts?

A. Yes.

The agent simply explained what allegations she investigated. She did not offer conclusions or

impermissibly argue the government’s case. Explaining the allegations underlying an

investigation does not implicate Rule 701 or Freeman.

It is also permissible for an agent who has reviewed the evidence to testify concerning

what the evidence does not contain. For example, Kilpatrick and Ferguson objected when the

government asked Agent Paszkiewicz whether Kilpatrick sent text messages to any contractor

besides Ferguson, and she answered “no.” But a witness may testify that the dog didn’t bark. A

witness who has examined the records may testify that no record “of a specific tenor is there

contained.” United States v. Scales, 594 F.2d 558, 562 (6th Cir. 1979) (quoting 4 Wigmore,

Evidence § 1230 (Chadbourn rev. 1972)); see also McCormick on Evidence § 234 (2013).

Testifying to the absence of evidence also does not implicate Rule 701 or Freeman.

Another consideration is that, especially in a complicated trial, a witness may make short

“framing” references to previously-admitted evidence. Contrary to the defendants’ argument, it

was not error for the government to ask the case agents whether they recalled certain details of

prior witnesses’ testimony. These short framing questions tied the evidence together in a manner

that was helpful to the jury. See United States v. Smith, 601 F.3d 530, 540 (6th Cir. 2010)

(permitting summary-reference testimony in complex cases where the volume of evidence is

“plausibly confusing to the jury”).

The Rules also allow a witness to summarize voluminous writings or recordings. Under

Federal Rule of Evidence 1006, a party may “use a summary . . . to prove the content of

voluminous writings, recordings, or photographs that cannot be conveniently examined in court,”

provided that the other party has been given an opportunity to examine the entire record. “[T]he

point of Rule 1006 is to avoid introducing all the documents.” United States v. Faulkenberry,

614 F.3d 573, 588-89 (6th Cir. 2010) (quoting United States v. Hemphill, 514 F.3d 1350, 1359

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 17

(D.C. Cir. 2008)). Because both parties possess the entire collection of recordings or writings,

Rule 1006 witnesses can be cross-examined about the accuracy of their summaries.

In this case, when the agents explained their interpretations of ambiguous statements and

the workings of the Detroit government, they sometimes relied on groups of “surrounding text

messages” or their review of documents and interviews of witnesses as the basis for their

interpretations and identifications. Only 151 out of about 370,000 subpoenaed text messages

were shown to the jury. But, because the defendants had access to all the evidence cited by the

agents, they were free to challenge the accuracy of any summary testimony through cross-

examination.

The defendants challenge an instance in which an agent was reading a document and

made an error that was later corrected. But agents are free to read aloud from admitted

documents, even if there are minor discrepancies between the written and spoken texts. United

States v. Tragas, 727 F.3d 610, 614 (6th Cir. 2013).

Several of the challenged statements in this case concern “identifications.” The agents

supplied names for nicknames, identified people’s jobs or relationships, and explained, for

example, which city contract was being discussed in which text message. As the First Circuit

explained in Albertelli, defendants who challenge a lay witness’s identification testimony on

appeal should state some claim that the identification was faulty or debatable, and show how the

answer was prejudicial. 687 F.3d at 449.

One illustrative example of an identification derived from summary evidence occurred

when the government tried to establish a foundation for Agent Beeckman’s explanation that the

“boss” to whom city employee Vincent Anwunah referred in his text messages was Ferguson.

Agent Beeckman said the identification was based on his review of “other text messages”

between Anwunah and Ferguson.

To provide another example, on October 24, Agent Paszkiewicz was asked, over a

standing objection, to interpret a message from Ferguson to Kilpatrick. It said, “You’re

welcome, boss. Just left Victor. The date has been changed . . . to my benefit but we still have

problem on the big one. He thinks he is slick, man, with this [sic] white folks.” The agent

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 18

testified that the three lowest bidders on the project in question were “majority-owned” and that,

based on her “review of the surrounding text messages,” “the big one” was city contract number

CM-2012. This was essentially identification testimony. And we believe it was admissible

under Rule 701.

Here, based on her investigation, Agent Paszkiewicz gained first-hand knowledge of

which contractors were majority- or minority-owned. Her first-hand examination of the text

messages enabled her to opine that “the big one” was a particular contract. These interpretations

were helpful to the jury and not based on specialized knowledge. The difficulty in this example

is that (unlike many of the challenged identifications), it is not clear whether other evidence that

was submitted to the jury would have confirmed the identifications. If this were Rule 1006

summary evidence, this would not be a problem. Rule 1006 does not require that the

summarized records be submitted to the jury. But some Rule 701 cases have found error when

an agent references evidence (e.g., “surrounding text messages”) that is not before the jury. See,

e.g., Hampton, 718 F.3d at 983 (stating that when an agent based his interpretation on “all of the

calls,” but only 100 of 20,000 calls were admitted into evidence, it raised the “specter” that the

verdict could be influenced by information outside the evidence).

Nevertheless, Kilpatrick and Ferguson do not contest the accuracy of these identifications

or explain how they were otherwise prejudicial. See Albertelli, 687 F.3d at 449. If the defense

had reason to believe that the bidders were minority owned, or that “the big one” was something

other than CM-2012, they could have cross-examined the agent. See United States v. Etienne,

772 F.3d 907, 920 (1st Cir. 2014) (finding that the opportunity to cross-examine an agent

concerning his voice identifications was adequate protection for the defendant’s “substantial

rights”). Given that Kilpatrick and Ferguson do not argue that these identifications (of

someone’s name, family relationship, job title, or job function, for example) were inaccurate,

debatable, or prejudicial, we have no basis for finding harmful error.

Furthermore, Kilpatrick and Ferguson waived their challenge to many of these

identifications. The parties agreed before trial that the agents could, relying on surrounding text

messages, clarify terms such as nicknames, abbreviates, acronyms, and so on.

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 19

Finally, Kilpatrick and Ferguson allege that the case agents’ testimony occasionally

strayed into expert testimony. When an agent gives opinions that rely on the agent’s specialized

training as a law enforcement officer, that testimony is expert testimony, and the agent must be

qualified under Rule 702. See Garcia, 413 F.3d at 215-17. However, when an agent relies on

his or her personal knowledge of a particular investigation, the agent’s opinion may be lay

opinion testimony under Rule 701. See Albertelli, 687 F.3d at 446-48; United States v. Rollins,

544 F.3d 820, 830-33 (7th Cir. 2008).

For instance, Agent Beeckman testified that the standard oversight fee for Detroit sewer

department contracts was five percent. The defendants objected, and the court held a sidebar. At

the sidebar, the government pointed out that the discovery materials contained several

“boilerplate” contracts, each of which contained this five percent fee. Kilpatrick and Ferguson

do not repudiate this observation. It was not an abuse of discretion for the district court to

conclude that mentioning the five percent standard fee was not expert testimony because a

layperson could glean this information by reviewing the contracts. See Garcia, 413 F.3d at 215

(“[A] lay opinion must be the product of reasoning processes familiar to the average person in

everyday life.”). Again, Kilpatrick and Ferguson do not challenge the accuracy of the statement.

Even assuming that the reference to the oversight fee was not proper under Rule 701 or 1006 (to

which the government now cites), any error would be harmless.

Another such incident occurred when Agent Beeckman referred to a casino owner and

said that “the law is that you can’t make any political contributions if you have a casino vendor

license.” At another point, Agent Beeckman explained that the Kilpatrick Civic Fund was a

“501(c)(4), public welfare organization, tax-exempt nonprofit organization” authorized by the

IRS to solicit donations for public welfare purposes. Agent Beeckman further explained that a

§ 501(c)(4) entity could not legally contribute to a political campaign.

Although these references to laws and regulations had the ring of expert testimony or

legal argument, one could also conclude that a layperson who studied the discovery materials

(which included, for example, the Kilpatrick Civic Fund’s articles of incorporation, a Detroit

government organizational chart, dozens of contracts, thousands of text messages, and numerous

witness interviews) would have learned the basic contours of what it means to be a § 501(c)(4)

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 20

corporation and the campaign contribution limitations of certain organizations. See, e.g., Fed. R.

Evid. 701 Advisory Committee Notes to 2000 Amendments (“[T]he distinction between lay and

expert witness testimony is that lay testimony ‘results from a process of reasoning familiar in

everyday life,’ while expert testimony ‘results from a process of reasoning which can be

mastered only by specialists in the field.’” (quoting State v. Brown, 836 S.W.2d 530, 549 (Tenn.

1992))). Even if this testimony crossed the line into expert testimony, Kilpatrick and Ferguson

have not alleged the statements were inaccurate or prejudicial. The same can be said of other

challenged testimony, which included an agent’s description of the city’s process for approving a

contract, an agent’s description of Kilpatrick’s role as “special administrator” for the sewer

department, and an explanation of a city executive order giving preference to Detroit-based

businesses.

At argument, we asked Ferguson’s attorney to identify the most egregious errors in

admitting the case agents’ testimony. Ferguson’s counsel alleged several errors, but did not

argue they contained inaccuracies or explain how they harmed her client. Nor did counsel

identify any inadmissible evidence smuggled in through the agents’ opinion testimony. We

conclude that error, if any, in admitting the case agents’ testimony was harmless.

IV. “FEAR” EVIDENCE

Kilpatrick joins Ferguson’s argument that the district court erred by allowing witnesses to

recount statements made to them by others for the purpose of establishing the witnesses’ fear of

Kilpatrick and Ferguson. The defendants point to testimony by five witnesses and specify that

they objected to each statement at trial. Ferguson and Kilpatrick say these statements were

inadmissible hearsay. The government counters that the statements were not hearsay because

they were not admitted for the truth of their content. Instead, the statements were admitted as

circumstantial evidence of the extortion victims’ fear. The federal code defines extortion as “the

obtaining of property from another, with his consent, induced by wrongful use of actual or

threatened force, violence, or fear, or under color of official right.” 18 U.S.C. § 1951(b)(2).

A statement is only hearsay if it is offered to prove the truth of the matter asserted in the

statement. Fed. R. Evid. 801(c). If an out-of-court statement is offered purely to show the

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 21

statement’s effect on the hearer, then this usage is not hearsay. See United States v. Williams,

952 F.2d 1504, 1517-18 (6th Cir. 1991).

In extortion cases, statements by the victim indicating fear of the defendant are

admissible to prove the “force or fear” element of extortion. See, e.g., United States v. Kelly,

722 F.2d 873, 877-78 (1st Cir. 1983); United States v. Tuchow, 768 F.2d 855, 865-67 (7th Cir.

1985).

The victim’s fearful state of mind is a crucial element in proving extortion. The

testimony of victims as to what others said to them, and the testimony of others as

to what they said to victims is admitted not for the truth of the information in the

statements but for the fact that the victim heard them and that they would have

tended to produce fear in his mind.

United States v. Hyde, 448 F.2d 815, 845 (5th Cir. 1971); see also Williams, 952 F.2d at 1518.

Because such fear-illustrating statements also often refer to acts of the defendant, courts should,

upon request, instruct the jury that such statements may only be used as evidence of fear, not

evidence of the defendant’s acts. See United States v. Collins, 78 F.3d 1021, 1036 (6th Cir.

1996). The evidence “may not be used to show that the defendants in fact made threats or

otherwise made use of such fear.” Hyde, 448 F.2d at 845.

Such “fear” evidence in extortion cases is similar to, but distinguishable from, evidence

admissible under the hearsay exception at Federal Rule of Evidence 803(3). Rule 803(3) allows

witnesses to recount hearsay statements (that is, statements offered to prove the truth of the

statements’ factual content) when the statement’s original declarant is expressing his or her then-

existing state of mind. In this case, the district court admitted some statements under Rule

803(3) and some statements under the Williams-Collins rule for extortion cases. The difference

is this: when the out-of-court statement is an expression of fear being offered to prove the

existence of the fear expressed in the statement, this is a hearsay statement that may be

admissible under Rule 803(3). When, however, the statement is not the victim/declarant’s

expression of his or her own fear, but a statement made to (or in the presence of) the victim by

someone else that would tend to be a fear-inducing statement, such evidence is not hearsay.

Ferguson’s brief challenges ten discrete snippets of testimony. We will focus on the two

that appear to be the defendants’ strongest case. Whereas most of the challenged out-of-court

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 22

statements were made by people who themselves were also testifying witnesses at trial, these two

pieces of testimony contained statements by people who did not testify at trial. Because the

declarants themselves were not available for cross-examination regarding these two out-of-court

statements, any error in admitting the out-of-court statements would be less likely to be harmless.

The first example is from the December 19, 2012 testimony of Bernard Parker, an

employee for a subcontractor in one of the disputed sewer contracts. Parker recounted what his

colleague Tim Tousignant said to him about Ferguson’s insinuations that Kilpatrick would

prevent a contract amendment from passing if Parker’s firm did not kowtow to his demands:

Q. Okay. And what was Mr. Tousignant’s reaction?

A. That this is extortion, he felt blackmailed.

Parker’s testimony was essentially that Tousignant said, “This is extortion, I feel

blackmailed.” Clearly, this would be inadmissible to prove the truth of the matter asserted.

However, the statement also fits squarely within the Williams-Collins rule. As we explained in

Williams, “testimony of victims as to what others said to them [is admissible to show] the fact

that the victim heard them and that they would have tended to produce fear in his mind.”

Williams, 952 F.2d at 1518.

This analysis also applies to Parker’s testimony from later the same day. As Ferguson’s

brief explains it:

The court permitted, over objection, Parker to testify that [Parker’s colleagues

from another company, Walbridge,] Penrod and Hausmann told him that they

included Mr. Ferguson because “they were worried they weren’t going to get the

project.”

Here, the statement at issue from Parker’s colleagues was essentially, “we are worried

we’re going to lose the project if we don’t do what Ferguson wants.” Such statements are

admissible under the Williams-Collins rule because Parker heard them, and they would have

tended to produce fear of economic harm.

The district court did at times give limiting instructions concerning out-of-court

statements. Regarding one of the statements Ferguson now challenges, the court instructed:

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 23

And I should just tell the jury that I have ruled that the statements that [the

government] is about to elicit are admissible, but you should understand that

they’re not admitted for the truth of what those statements are. In other words,

he’s going to ask [the witness] what [another person] said, and they’re not offered

for the truth of what she said, but just to establish the witness’s state of mind for

what he did on this contract.

Before the trial resumed on December 20, 2012, the district court held a conference with

the attorneys concerning these hearsay objections. The court explained its reliance on Williams

and Collins and assured defense counsel that the court would give a limiting instruction

whenever counsel requested it. And the court gave evidentiary limiting instructions on several

occasions. The court also sustained several hearsay objections during trial. The court was

careful to distinguish between Rule 803(3) statements and non-hearsay statements. Under these

circumstances, we find no abuse of discretion in the district court’s decision to admit the

challenged statements under the Williams-Collins rule.

Ferguson argues that the court’s limiting instructions were insufficient. However, the

district court offered to give the jury Williams instructions upon request, but defense counsel

failed to request them. Counsel cannot now complain about the adequacy of the limiting

instructions when they waived their opportunity to elicit more extensive instructions at trial. See

Collins, 78 F.3d at 1036.

V. RESTITUTION

Kilpatrick alleges two sentencing errors. First, he claims the court incorrectly calculated

restitution to the Detroit Water & Sewerage Department (DWSD) based on his gain rather than

the DWSD’s loss. Second, he asserts that restitution to the IRS was not authorized by law. We

review de novo whether restitution is permitted under the law. If it is authorized, we then review

the award for an abuse of discretion. United States v. Butler, 297 F.3d 505, 516 (6th Cir. 2002);

United States v. Comer, 93 F.3d 1271, 1278 (6th Cir. 1996).

A.

Under the Mandatory Victims Restitution Act (“MVRA”), 18 U.S.C. § 3663A, when

setting a sentence for a property crime, the court “shall order . . . that the defendant make

restitution to the victim of the offense.” Congress’s intent in passing the MVRA was that “courts

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 24

order full restitution to all identifiable victims of covered offenses, while guaranteeing that the

sentencing phase[s] of criminal trials do not become fora for the determination of facts and

issues better suited to civil proceedings.” United States v. Ferdman, 779 F.3d 1129, 1133 (10th

Cir. 2015) (quoting S. Rep. No. 104-179, at 189 (1996), reprinted in 1996 U.S.C.C.A.N. 924,

931).

Restitution “is intended to compensate victims only for losses caused by the conduct

underlying the offense of conviction.” Hughey v. United States, 495 U.S. 411, 416 (1990).

Accordingly, restitution “must be based on the victim’s loss rather than the offender’s gain.”

United States v. George, 403 F.3d 470, 474 (7th Cir. 2005). “The circuit courts of appeals are in

general agreement that the defendant’s gain is not an appropriate measure of the victim’s actual

loss in MVRA calculations.” United States v. Fair, 699 F.3d 508, 513 (D.C. Cir. 2012)

(collecting cases). The government bears the burden of proving a victim’s actual loss by a

preponderance of the evidence. United States v. Zangari, 677 F.3d 86, 92 (2d Cir. 2012) (citing

18 U.S.C. § 3664(e)). Although the MVRA does not require courts to calculate restitution with

exact precision, some precision is required—“[s]peculation and rough justice are not permitted.”

Ferdman, 779 F.3d at 1133 (quoting United States v. Anderson, 741 F.3d 938, 954 (9th Cir.

2013)).

If the trial evidence and presentence report are insufficient to establish the proper amount

of restitution, the court “may require additional documentation or hear testimony.” 18 U.S.C.

§ 3664(d)(4); George, 403 F.3d at 474 (remanding with instructions for the district court to

receive written submissions from the parties to establish the victim’s loss amount). The court

may also refer the issue “to a magistrate judge or special master for proposed findings of fact and

recommendations as to disposition.” 18 U.S.C. § 3664(d)(6). Furthermore, if the court 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,” the court may forgo

restitution. Id. § 3663A(c)(3)(B); see also Ferdman, 779 F.3d at 1133.

In the present case, the district court ordered Kilpatrick to pay restitution to the DWSD in

the amount of $4,584,423—the amount the government sought. This dollar figure originated

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 25

from the Probation Department’s calculations (for Guidelines range purposes) of the defendants’

profits from the contracts that underlie the RICO and extortion counts. In the government’s first

memorandum regarding forfeiture and restitution, it characterized this figure as reflecting “the

minimum profits from the extorted and steered contracts.” In its subsequent memorandum on

restitution, the government claimed this amount was “based upon an overall 10% profit margin

for the contracts at issue” in the RICO and extortion counts. This amount, the government said,

represented “a reasoned approximation of the amount of money the City of Detroit was

unknowingly forced to spend for contracts obtained through fraud and deceit.” The government

explained it would be “impracticable to rebid the contracts, undo the work performed and

determine the amount that the City of Detroit should have been charged for these projects.”

Accordingly, the government argued, this “reasoned approximation” was, under the

circumstances, the government’s best guess as to the city’s actual losses to the defendants’

scheme.

At the subsequent hearing on restitution and forfeiture, the government argued that

although “Ferguson’s company did provide some services under the contracts, the desired goal of

the City in having a truthful bidding process was completely corrupted.” Accordingly,

Ferguson’s performance did not provide the “consideration” for which the city bargained. The

government claimed its $4.5 million figure was “a reasonable approximation” and a

“conservative approximation” of “the difference between the services rendered and what the City

anticipated getting from a contractor who did not obtain the contract by extortion.” The

government urged the court to adopt this figure because the “actual loss” to the city would be

“inherently difficult to precisely quantify.”

In response, Kilpatrick pointed out that the Probation Department generated its ten-

percent loss calculation to determine the defendants’ “excessive gain” for the purpose of

establishing the proper Guidelines sentence—not to determine the city’s loss. The court then

asked:

If the four million plus that was determined to be the operative figure for

sentencing guidelines purposes represented at least approximately the gain to

which Mr. Ferguson was not entitled and for which he was accountable under the

RICO statute, how is that not translatable into a loss for the City? If he gained $4

million to which he was not entitled, where should that $4 million have gone? I

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 26

mean, maybe it should have gone to the contractors, but I don’t have that to sort

out in front of me today anyway.

Kilpatrick’s counsel responded that it was legally “necessary to look at whether or not the City

was benefited.” Kilpatrick argued that the government failed to prove the city lost any money.

He asserted the government did nothing to prove that the city paid more to Ferguson than it

would have paid to a competitor. In fact, Ferguson’s companies did perform some of the work

and provided a benefit to the city. The figures in the presentence report, Kilpatrick argued,

reflected none of these considerations.

Nevertheless, the court adopted the government’s restitution figure, and explained:

I don’t think there is any way to parse out what the actual loss was as opposed to

the improper gain. The law does not require that these numbers be determined

with exactness and specificity because it is impossible to do that in hindsight, in

many cases more than ten years after the fact.

****

Again, I think the $4,584,000 figure is a conservative and accurate figure based

on the defendants’ own records, and that is the number I’m going to use for

restitution.

Other circuits have confronted situations like this one, and found that the district court

abused its discretion. For example, United States v. Harvey involved contracts procured through

bribery and fraud. Because the government provided “no evidence” of the victim’s “actual loss”

amounts, the district court used the eight-percent profit margin the defendant earned on the

contracts “as a proxy for actual loss.” 532 F.3d 326, 340 (4th Cir. 2008). The Fourth Circuit

Court of Appeals held it was error for the district court to use “gain to approximate the amount of

actual loss.” Id. at 341. “[A]ny order of restitution,” the court held, “must be based on sufficient

evidence of the amount of actual loss incurred as a result of the fraudulently obtained contract.

Profit gained by the defendants may not be used in its stead.” Id.

Likewise, the court in United States v. Gallant held that using the defendants’ gain “as a

measure of loss . . . cannot satisfy the district court’s responsibilities unless the court has first

attempted to determine with some degree of certainty the general amount of loss . . . attributable

to the defendants’ criminal conduct and concluded that the defendants’ gain corresponds to that

amount.” 537 F.3d 1202, 1238 (10th Cir. 2008) (quoting United States v. Haddock, 12 F.3d 950,

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 27

961 (10th Cir. 1993)) (internal quotation marks and alterations omitted). Instead, “a defendant’s

gain may only be used as a measure of loss” when it is a “reasonable estimate” of the loss. Id.

And, when the defendant’s gain “significantly overestimates loss” or “significantly

underestimates it,” the gain is not a “reasonable estimate.” Gallant, 537 F.3d at 1238-39; see

also United States v. Galloway, 509 F.3d 1246, 1253 (10th Cir. 2007) (holding that the district

court abused its discretion when it used the defendant’s gain as an “estimate” for the victim’s

loss).

“To be sure, there may be cases where there is a direct correlation between gain and loss,

such that the defendant’s gain can act as a measure of—as opposed to a substitute for—the

victim’s loss.” Zangari, 677 F.3d at 93 (citing United States v. Berardini, 112 F.3d 606, 609-10

(2d Cir. 1997)). But before a court can convert the amount of a defendant’s gain into the amount

of the victim’s loss, the government must establish a “direct correlation” between the two.

Zangari, 677 F.3d at 93; see also Fair, 699 F.3d at 513-14 (recognizing that this may require

“additional evidentiary proceedings”).

Upon considering these precedents from other circuits, we are unable to uphold the

restitution award. The government essentially conceded that its $4.5 million figure did not

represent the city’s “actual loss.” And the district court correctly observed that absent the

defendants’ extortion, a large portion of that city money would have gone to other contractors

(who ostensibly would be additional victims). The government claimed the “actual loss” would

be “inherently difficult to precisely qualify,” and the court recognized it lacked any data

regarding what the DWSD would have paid to other contractors if the bidding had not been

rigged. It appears that the court, like the district court in United States v. Navarrete, 667 F.3d

886, 891 (7th Cir. 2012), “threw up [its] hands too soon.”

We recognize the dilemma the district court faced—especially because we have not

previously provided guidance on this issue. But the consensus among our sister circuits compels

us to conclude that a district court may not use the defendant’s gain to approximate the victim’s

loss unless 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. Zangari, 677 F.3d at 93. Accordingly, we

vacate the district court’s restitution award against Kilpatrick to the DWSD and remand for

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 28

further proceedings limited to the restitution award. On remand, the district court may

(1) request the government to submit additional evidence; (2) hold an evidentiary hearing; and

(3) conduct further proceedings limited to the restitution award consistent with this opinion. See

18 U.S.C. §§ 3663A(c)(3)(B), 3664(d)(4), (d)(6); Ferdman, 779 F.3d at 1133.3

B.

Kilpatrick also argues that the district court erred in ordering him to pay $195,403.61 as

restitution to the IRS for unpaid taxes. The federal restitution statutes do not authorize restitution

for tax crimes under Title 26. See United States v. Butler, 297 F.3d 505, 518 (6th Cir. 2002).

However, the law gives courts wide discretion in ordering restitution as a condition of

supervised release. “[T]he Supervised Release Statute [18 U.S.C. §3583(d)], together with the

Probation Statute [18 U.S.C. § 3563], unambiguously authorizes federal courts to order

restitution as a condition of supervised release for any criminal offense, including one under

Title 26, for which supervised release is properly imposed.” United States v. Batson, 608 F.3d

630, 635 (9th Cir. 2010); see also United States v. Hassebrock, 663 F.3d 906, 923-24 (7th Cir.

2011).

At the sentencing hearing for restitution and forfeiture, the district court initially stated

that Kilpatrick’s restitution to the IRS was “collectable under 18 U.S.C. § 3663A.” When one of

the government’s attorneys questioned this conclusion, the court stated: “I’ll do it in the

alternative as a condition of supervised release. . . . [I]f for some reason the statute is found by

the Court of Appeals not to authorize a restitution award, I would alternatively award it as a

condition of supervised release.” Accordingly, the court included its instructions for the IRS

payments in the judgment’s “Special Conditions of Supervision.” The district court did not err

when it ordered Kilpatrick to pay his unpaid taxes as a condition of his supervised release.

3

The record as it exists contains some evidence the district court may use to establish actual loss.

Regarding contract CM-2014, the subject of Count 9, the jury heard testimony regarding the winning bid amount

both before and after the bidding process was manipulated in Ferguson’s favor. Specifically, the second winning bid

was $1,520,653.50 greater than the first.

Nos. 13-2500/14-1120 United States v. Kilpatrick, et al. Page 29

VI.

We AFFIRM Kilpatrick’s and Ferguson’s convictions and sentences. However, we

VACATE the district court’s restitution award against Kilpatrick to the Detroit Water &

Sewerage Department and REMAND for proper calculation of the award.