United States v. Judith Paixao

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA, No. 16-50121

Plaintiff-Appellee,

D.C. No.

v. 3:13-cr-03788-JM-1

JUDITH ANN PAIXAO,

Defendant-Appellant. OPINION

UNITED STATES OF AMERICA, No. 16-50122

Plaintiff-Appellee,

D.C. No.

v. 3:13-cr-03788-JM-2

KEVIN A. LOMBARD,

Defendant-Appellant.

Appeals from the United States District Court

for the Southern District of California

Jeffrey T. Miller, Senior District Judge, Presiding

Argued and Submitted February 7, 2018

Pasadena, California

Filed March 22, 2018

2 UNITED STATES V. PAIXAO

Before: Susan P. Graber and Andrew D. Hurwitz, Circuit

Judges, and Edward R. Korman,* District Judge.

Opinion by Judge Graber

SUMMARY**

Criminal Law

The panel affirmed two defendants’ convictions for

violating 18 U.S.C. § 666, which prohibits the wrongful

taking of property from an organization that receives more

than $10,000 in federal “benefits” during a one-year period.

The charges arose from the defendants’ misuse of funds

belonging to the Wounded Marine Careers Foundation

(WMCF), a non-profit foundation they founded that was

dedicated to teaching interested veterans the technical skills

required to succeed in the film industry. The defendants

obtained funding from a Department of Veterans Affairs

program, the Vocational Rehabilitation and Employment

(VRE) Program, which provides, on behalf of specific

veterans, payments to the educational institutions that those

veterans attend; and the VA certified WMCF as a vendor

authorized to provide training.

*

The Honorable Edward R. Korman, United States District Judge for

the Eastern District of New York, sitting by designation.

**

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

UNITED STATES V. PAIXAO 3

The panel held that there was sufficient evidence from

which the jury could reasonably conclude that the Foundation

received “benefits” within the meaning of § 666(b). The

panel explained that an entity need not be the primary

beneficiary of a federal program to qualify as having received

“benefits,” and that the VRE Program aims to aid veterans

and to ensure the viability and quality of the organizations

that serve those veterans. The panel wrote that the

requirements imposed upon institutions participating in the

VRE Program further suggest that those institutions receive

“benefits.”

COUNSEL

Devin Burstein (argued), Warren & Burstein, San Diego,

California; James A. Alexander, Radiant, Virginia; for

Defendants-Appellants.

Helen H. Hong (argued), Assistant United States Attorney,

United States Attorney’s Office, San Diego, California, for

Plaintiff-Appellee.

4 UNITED STATES V. PAIXAO

OPINION

GRABER, Circuit Judge:

Defendants Judith Paixao and Kevin Lombard were

charged with crimes relating to their misuse of funds

belonging to the Wounded Marine Careers Foundation

(“WMCF”). The jury convicted them of, among other things,

violating 18 U.S.C. § 666, a statute prohibiting the wrongful

taking of property from an organization that receives more

than $10,000 in federal “benefits” during a one-year period.

In this opinion, we address only one issue: whether

WMCF received “benefits” within the meaning of 18 U.S.C.

§ 666(b).1 For the reasons that follow, we hold that there was

sufficient evidence from which the jury could reasonably

conclude that WMCF did, indeed, receive “benefits” within

the meaning of the statute and therefore affirm.

FACTUAL AND PROCEDURAL HISTORY

The following facts were established at trial. In 2007,

Defendants founded WMCF, a non-profit foundation

dedicated to teaching interested veterans the technical skills

required to succeed in the film industry. After encountering

fund-raising trouble, Defendants sought funding from a

Department of Veteran Affairs (“VA”) program, the

Vocational Rehabilitation and Employment Program (“VRE

Program”). The VRE Program provides, on behalf of specific

1

In a separate memorandum disposition, filed this date, we address

all other issues relevant to this appeal and affirm with respect to those

issues.

UNITED STATES V. PAIXAO 5

veterans, payments to the educational institutions that those

veterans attend.

For WMCF to receive payments, the VA had to approve

its training program. Further, WMCF had to comply with a

number of federal regulations. See 38 C.F.R.

§§ 21.120–21.162. As part of the approval process, WMCF

submitted to the VA a curriculum, education contract, and

budget. In December 2007, the VA approved the application

and certified WMCF as a vendor authorized to provide

training to wounded veterans.

Defendants recruited veterans eligible for the VRE

Program. To authorize funding, the VA required each

veteran to submit an “individualized written rehabilitation

plan.” Defendants ultimately submitted rehabilitation plans

on behalf of eight of the veterans in WMCF’s inaugural class.

Defendants submitted invoices to the VA for those veterans’

costs, and the VA, in turn, approved the invoices. The VA

also provided Defendants with accelerated payments “to help

the foundation.” Without VA funding, WMCF was not

financially viable.

Defendants repeatedly asked WMCF’s board to pay them

salaries and to reimburse their personal expenses. The board,

however, refused to approve salaries for Defendants and

declined to pay their living expenses, medical expenses, or

pensions—at least until WMCF was financially solvent.

Nevertheless, Defendants transferred significant sums from

WMCF’s account to their personal accounts. Defendants also

spent large sums of WMCF’s money on personal expenses

such as groceries, meals, medical bills, and coffee.

6 UNITED STATES V. PAIXAO

The government charged Defendants with, among other

crimes not relevant here, wrongfully taking WMCF funds in

violation of 18 U.S.C. § 666 (Counts 2–9). The jury found

Defendants guilty on all § 666 counts. The district court

sentenced Paixao to six months in custody and Lombard to

three months in custody, and ordered both to pay restitution.

Defendants timely appealed.

DISCUSSION

Title 18 U.S.C. § 666 prohibits the wrongful taking of

property from certain federally funded organizations.

Liability under § 666 is conditioned upon a showing that the

defrauded organization “receive[d] in any one year period,

benefits in excess of $10,000 under a Federal program

involving a grant, contract, subsidy, loan, guarantee,

insurance, or other form of Federal assistance.” 18 U.S.C.

§ 666(b). Defendants argue that the government failed to

present sufficient evidence that WMCF received “benefits”

within the meaning of the statute. We disagree.

A. Legal and Statutory Background

The key case concerning § 666(b) is Fischer v. United

States, 529 U.S. 667 (2000). Fischer held that healthcare

organizations participating in the Medicare program received

“benefits” within the meaning of § 666(b). Id. at 678.

The Court began by noting that § 666(b) contemplates a

variety of kinds of “benefits”—such as grants, contracts,

subsidies, loans, guarantees, and even insurance. Id. at

676–77. The Court also observed that Congress enacted the

statute with an “expansive, unambiguous intent to ensure the

integrity of organizations participating in federal assistance

UNITED STATES V. PAIXAO 7

programs.” Id. at 678; see also S. Rep. No. 98-225, at 370

(1984), as reprinted in 1984 U.S.C.C.A.N. 3182, 3511

(noting that the “Committee intends that the term ‘Federal

program involving a grant, a contract, a subsidy, a loan, a

guarantee, insurance, or another form of federal assistance’ be

construed broadly”). The Court reasoned, then, that

“Congress viewed many federal assistance programs as

providing benefits [under § 666(b)].” Fischer, 529 U.S. at

678 (emphasis added).

But, the Court explained, not all federal funds qualify as

“benefits.” Id. at 671. For example, the statute expressly

excepts any “bona fide salary, wages, fees, or other

compensation paid, or expenses paid or reimbursed, in the

usual course of business.” 18 U.S.C. § 666(c). Accordingly,

funds obtained through “ordinary commercial contracts”—for

instance, when a government agency buys equipment from a

supplier—fall beyond the statute’s reach. Fischer, 529 U.S.

at 671.

Because not all payments under federal programs qualify

as “benefits,” the Court adopted a context-specific test that

requires an examination of the federal program’s “structure,

operation, and purpose.” Id. at 681. The Court further

instructed us to “examine the conditions under which the

organization receives the federal payments.” Id. Notably, the

inquiry turns on the attributes of the federal program, not on

the characteristics of the recipient organization.

Fischer teaches that § 666 embodies a distinction between

transactions that occur “in the usual course of business” and

those that do not. There is, we think, a fundamental

difference between the role that the government plays when

it routinely makes the purchases required to maintain things

8 UNITED STATES V. PAIXAO

like federal lands or buildings and the role that the

government plays when it embarks on an enterprise meant to

aid a particular segment of the public. The inquiry is a tricky

one, though, because what may be a “beneficial” act in one

context—granting every soup kitchen in the nation funds to

purchase new ovens—may be mere maintenance in

another—granting federal courthouses’ cafeterias funds to

replace their ovens.

But even when the government acts as a benefactor, it

necessarily must make the everyday purchases required to

keep that enterprise afloat. And in those situations, it is not

always clear whether the government has disbursed

“benefits.” To return to the given examples, it is not

immediately clear whether the ovens’ manufacturer (rather

than the soup kitchen or the federal courthouses) would have

received “benefits” under the statute. The answer to that

question would depend, among other things, on the program’s

purpose, organization, and structure—that is, whether the

government meant to aid the manufacturer by establishing the

program; whether the manufacturer had to comply with

certain rules and regulations to participate in the program;

and the degree to which the program required the

manufacturer to work hand-in-hand with the government.

Those principles, applied here, demonstrate that WMCF

received “benefits” within the meaning of § 666(b).

B. The VRE Program’s Purpose

In establishing the VRE Program, Congress aimed “to

provide for all services and assistance necessary to enable

veterans with service-connected disabilities to achieve

maximum independence in daily living and, to the maximum

extent feasible, to become employable and to obtain and

UNITED STATES V. PAIXAO 9

maintain suitable employment.” 38 U.S.C. § 3100. The

statutory text reveals that the VRE Program exists primarily

to benefit veterans—just as Medicare exists primarily to

benefit patients, Fischer, 529 U.S. at 677–78. But an entity

need not be the primary beneficiary of a federal program to

qualify as having received “benefits.” Id. at 677; see also

United States v. Zyskind, 118 F.3d 113, 116 (2d Cir. 1997)

(“Nothing in the language of § 666 suggests that its reach is

limited to organizations that were the direct beneficiaries of

federal funds.”). Indeed, a federal program may have, as a

secondary purpose, the goal of establishing a “sound and

effective . . . system” for distributing benefits to their ultimate

recipients. Fischer, 529 U.S. at 680. That is, federal

payments may promote the dual purposes of reimbursing an

institution for its services while, at the same time, ensuring

that those services remain “available . . . [at] a certain level

and quality.” Id. at 679–80.

The government acted with such dual purposes here. The

VRE program exists not just to assist veterans but also “to

provide for all services and assistance necessary to [assist]

veterans.” 38 U.S.C. § 3100 (emphasis added). With that

end in mind, Congress instructed the Secretary to “actively

promote the development and establishment of employment,

training, and other related opportunities for. . . veterans.” Id.

§ 3116(a) (emphasis added). That broad programmatic

interest suggests that, in this instance, the government acted

as more than a buyer in the normal course of business.

Rather, the government established a program meant to

encourage the creation and development of institutions aimed

at providing services to veterans.

Of course, we do not think that Congress created the VRE

Program to benefit WMCF specifically. Indeed, it is likely

10 UNITED STATES V. PAIXAO

that Congress enacted the program without any particular

educational institution in mind. But the program, as Congress

described it, aims to aid veterans and to ensure the viability

and quality of the organizations that serve those veterans.

And that programmatic interest suggests that WMCF received

“benefits” under Fischer.

C. The VRE Program’s Requirements

The requirements imposed upon institutions participating

in the VRE Program further suggest that those institutions

receive “benefits.” Much like providers receiving Medicare

funds, institutions receiving VRE funding are “the object of

substantial Government regulation.” Fischer, 529 U.S. at

680. For an institution to receive VRE payments, its facilities

must have “space, equipment, instructional material and

instructor personnel adequate in kind, quality, and amount to

provide the desired service for the veteran.” 38 C.F.R.

§ 21.294(a)(1). The institution’s courses must “[m]eet the

customary requirements in the locality for employment in the

occupation in which training is given” and “[m]eet the

requirements for licensure or permit to practice the

occupation, if such is required.” Id. § 21.294(a)(3).

Moreover, the institution must agree to “cooperate” with the

VA and to “provide timely and accurate information covering

the veteran’s attendance, performance, and progress in

training in the manner prescribed by VA.” Id.

§ 21.294(a)(4)(i)–(ii). After certification, the institution must

regularly report “information on enrollment, entrance,

reentrance, change in the hours of credit or attendance,

pursuit, interruption and termination of attendance of each

veteran.” Id. § 21.4203(a)(1). Further, as the facts of this

case demonstrate, the VA requires that participating

institutions submit catalogs describing their programs and

UNITED STATES V. PAIXAO 11

costs and that VA officials visit participating institutions to

monitor their suitability for the program.

That level of government involvement distinguishes

institutions like WMCF from the contractors that the

government engages in its usual course of business. The

regulations require institutions receiving VRE Program funds

to maintain a certain level of quality. Although that fact

alone does little to set those institutions apart from other

government contractors, the VRE Program requires more than

a special level of quality from its participants. To participate

in the program, institutions must engage in an ongoing back-

and-forth with the federal government. That arm-in-arm

approach shows that the government’s interest in those

institutions differs in kind from its interest in standard

contractors.

Defendants insist that the aforementioned standards and

regulations are “not particularly rigorous.” But the facts of

this case suggest otherwise. Not even a year after WMCF

began receiving payments, the VA reviewed WMCF’s

eligibility for funds, found issues with approval standards,

and suspended WMCF’s approval. The VA re-approved

WMCF’s funding only after WMCF acknowledged and

corrected a litany of problems that the VA identified. That

degree of oversight further suggests that the funds at issue

were “benefits” and not ordinary payments.

D. The VRE Program’s Structure and Operation

Finally, Defendants argue that the VRE Program differs

significantly from Medicare in its payment structure and that

this case is thus distinguishable from Fischer. Specifically,

Defendants emphasize that the VA reimburses WMCF for

12 UNITED STATES V. PAIXAO

only the veteran’s direct costs (tuition, fees, and equipment),

whereas Medicare reimburses providers for a wider range of

costs, including some overhead and training-related costs.

Fischer, however, does not suggest that an institution

must receive reimbursement for institutional costs to qualify

as receiving “benefits.” First, the payments at issue in

Fischer reflected the reasonable cost of services rendered.

529 U.S. at 673. And second, as explained above, the Court

looked beyond Medicare’s reimbursement program to

consider the government’s purpose in making payments and

the conditions under which healthcare providers received

those payments. Thus, even accepting that the VRE Program

is structured so differently from Medicare as to render

Fischer distinguishable on this point, Fischer’s other factors

compel us to conclude that WMCF received “benefits” within

the meaning of § 666(b).

Defendants’ reliance on United States v. Wyncoop,

11 F.3d 119 (9th Cir. 1993), is unavailing. In Wyncoop, we

held that Trend College had not received § 666(b) “benefits”

simply by participating in federal student loan programs. Id.

at 123. Our decision in Wyncoop turned almost entirely on

the fact that Trend College itself never received or

administered federal funds. Id. But the VRE Program

works differently. As this case demonstrates, institutions

participating in the VRE Program receive government funds

directly (and subsequently use them to aid veterans).2

2

In Wyncoop, we observed that “there is no . . . reason to conclude

that Congress in enacting section 666 intended to bring employees at

every college and university in the country within the scope of potential

federal criminal jurisdiction.” 11 F.3d at 123. But we made that

observation before the Supreme Court decided Fischer. Fischer makes

UNITED STATES V. PAIXAO 13

Because WMCF received “benefits” within the meaning

of § 666(b), Defendants’ convictions are AFFIRMED.

clear that the “benefits” question turns on the purposes and the operation

of the specific federal program at issue. Under Fischer, we conclude that

the funds at issue here were “benefits.” To the extent that Wyncoop can

be understood to contradict the Supreme Court’s later holding, it no longer

is binding. See Miller v. Gammie, 335 F.3d 889, 893 (9th Cir. 2003) (en

banc) (noting that, when one of our prior decisions is “clearly

irreconcilable with the reasoning or theory of intervening higher

authority,” we should consider ourselves “bound by the later and

controlling authority, and should reject the prior . . . opinion as having

been effectively overruled”).