United States v. Stamatios Kousisis

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

Nos. 19-3679 & 19-3774

___________

UNITED STATES OF AMERICA

v.

STAMATIOS KOUSISIS,

a/k/a Tom Kousisis,

Appellant in No. 19-3679

UNITED STATES OF AMERICA

v.

ALPHA PAINTING & CONSTRUCTION CO., INC.,

Appellant in No. 19-3774

______________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(District Court Nos. 2:18-cr-00130-001 & 2:18-cr-00130-03)

District Judge: Honorable Wendy Beetlestone

______________

Argued August 18, 2021

______________

(Filed: September 22, 2023)

Before: McKEE, ∗ GREENAWAY, Jr., ** and RESTREPO,

Circuit Judges

∗

Judge McKee assumed senior status on October 21, 2022.

**

Judge Greenaway, Jr. retired from the Court on June 15,

2023. This opinion is filed by a quorum of the panel pursuant

to 28 U.S.C. § 46(d) and Third Circuit I.O.P. 12.1.

Paul G. Shapiro [ARGUED]

Office of United States Attorney

615 Chestnut Street

Suite 1250

Philadelphia, PA 19106

David E. Troyer

Office of United States Attorney

615 Chestnut Street

Suite 1250

Philadelphia, PA 19106

Attorneys for Appellee

Lisa A. Mathewson [ARGUED]

Suite 1320

123 South Broad Street

Philadelphia, PA 19109

Attorney for Appellants

Lawrence S. Lustberg

Gibbons

One Gateway Center

Newark, NJ 07102

Attorney for Amicus Appellants

____________

OPINION OF THE COURT

____________

McKEE, Circuit Judge.

On August 30, 2018, a jury convicted Stamatios

Kousisis and Alpha Painting & Construction Co., Inc.

(“Alpha”) of, among other things, one count of conspiracy to

commit wire fraud, in violation of 18 U.S.C. § 1349, and three

counts of wire fraud, in violation of 18 U.S.C. § 1343. Kousisis

and Alpha appeal the District Court’s (1) denial of their motion

2

for judgment of acquittal, (2) jury instructions, and (3) loss

calculations at sentencing. We will affirm the convictions.

Given the complex nature of the fraud in this case, we

commend the District Court for its attempt to determine the

amount of loss for sentencing purposes. However, we must

vacate the loss calculation and remand for further proceedings

consistent with this opinion. 1

I. Background

A. Disadvantaged Business Enterprises

“The United States Department of Transportation

provides funds to state transportation agencies to finance

transportation projects. These funds often go towards highway

construction, provided through the Federal Highway

Administration (‘FHWA’). In Pennsylvania, the FHWA

provides such funds to the Pennsylvania Department of

Transportation (‘PennDOT’).” 2

Federal regulations require states that receive federal

transportation funds to set participation goals for

disadvantaged business enterprises (“DBEs”) 3 in

transportation construction projects. This is intended to

promote the participation of minority and disadvantaged

businesses in these federally financed Department of

Transportation (“DOT”) contracts. A DBE is defined as a for-

profit small business “[t]hat is at least 51 percent owned by one

or more individuals who are both socially and economically

disadvantaged” and “[w]hose management and daily business

operations are controlled by one or more of the socially and

economically disadvantaged individuals who own it.” 4

The DBE program has “an aspirational goal” of having

ten percent of DOT’s infrastructure project funds expended on

1

The District Court had subject matter jurisdiction over this

case pursuant to 18 U.S.C. § 3231. We exercise appellate

jurisdiction under 28 U.S.C. § 1291 and 18 U.S.C. § 3742(a).

2

United States v. Nagle, 803 F.3d 167, 171 (3d Cir. 2015).

3

49 C.F.R. § 26.21.

4

49 C.F.R. § 26.5.

3

DBEs. 5 When state agencies solicit bids for DOT-financed

contracts, they announce DBE participation goals for those

contracts; responsive bids must explain how the contractors

will meet those goals. 6 If the prime contractor is not itself a

DBE, this goal can be satisfied by including one or more DBEs

as subcontractors. 7 “States themselves certify businesses as

DBEs. A business must be certified as a DBE before it or a

prime contractor can rely on its DBE status in bidding for a

contract.” 8

When a DBE participates in a contract, that DBE must

perform a “commercially useful function.” 9 “A DBE performs

a commercially useful function when it is responsible for

execution of the work of the contract and is carrying out its

responsibilities by actually performing, managing, and

supervising the work involved.” 10 A DBE whose “role is

limited to that of an extra participant in a transaction, contract,

or project through which funds are passed in order to obtain the

appearance of DBE participation” does not perform a

commercially useful function. 11

B. Factual and Procedural History

On April 3, 2018, Kousisis, Emanouel Frangos, and

their respective companies, Alpha and Liberty Maintenance,

Inc. (“Liberty”) were indicted for (1) conspiracy to commit

wire fraud, in violation of § 1349, (2) wire fraud, in violation

of § 1343, and (3) false statements, in violation of 18 U.S.C. §

1001.

The indictment charged the Defendants with conspiring

to defraud DOT and PennDOT by exploiting DOT’s DBE

program. The charges arose out of two DOT-financed contracts

for work in Philadelphia: the Girard Point Project and the 30th

Street Project (together, the “Philadelphia Projects” or the

5

49 C.F.R. § 26.41.

6

See Nagle, 803 F.3d at 171.

7

Id.

8

Id. (citations omitted).

9

49 C.F.R. § 26.55(c).

10

49 C.F.R. § 26.55(c)(1).

11

49 C.F.R. § 26.55(c)(2).

4

“Projects”). The Girard Point Project involved a $70.3 million

contract to perform painting and repairs on the Girard Point

Bridge over the Schuylkill River. It was awarded to Alpha,

Liberty, and another entity, Buckley, Inc., in 2009. The 30th

Street Project involved a $50.8 million contract to perform

repairs at the Amtrak 30th Street Train Station in Philadelphia.

That contract was awarded to Buckley and another entity,

Cornell and Company (“Cornell”) in 2010, and it included a

$15 million painting subcontract awarded to Alpha and Liberty

in 2011.

Both contracts for the Philadelphia Projects included

DBE requirements. The Girard Point Project required the

successful bidder to commit to contracting with a DBE for at

least six percent of the contract amount. The 30th Street Project

had a DBE requirement equal to seven percent of the contract

amount. The Defendants submitted bids in which they

committed to working with Markias, Inc. on the Philadelphia

Projects. Markias, Inc. was a company that had prequalified as

a DBE in Pennsylvania. The Defendants’ bids stated that they

would obtain $4.7 million in paint supplies from Markias for

the Girard Point Project and $1.7 million for the 30th Street

Project. The terms of the Philadelphia Projects’ contracts

provided that failure to comply with DBE regulations would

be a material breach.

During the performance of these contracts, the

Defendants periodically submitted false documentation

regarding Markias’ role in the Philadelphia Projects. That

documentation was a condition precedent to obtaining credit

towards the DBE goals and, therefore, to complying with the

contracts’ terms. Each of those submissions falsely certified

that Markias acted as a “regular dealer” in supplying products.

In reliance on these misrepresentations, PennDOT awarded the

Defendants DBE credits and paid the Defendants based on

their asserted compliance with the Projects’ DBE

requirements. As established at trial, failure to certify

compliance with the DBE requirements could have led to

debarment, financial penalties, or withholding of progress

payments.

Rather than supplying products or performing some

other commercially useful function as required by the explicit

5

terms of the contracts, Markias served merely as a pass-

through for Alpha-Liberty. Markias did not do any work on the

Projects or supply any of the materials for them, despite the

Defendants’ certifications to the contrary.

To hide the fact that Markias was doing no work on the

Philadelphia Projects, the Defendants arranged for the true

paint suppliers to send their invoices to Markias. Markias then

issued its own invoices, added a 2.25% fee, and forwarded the

pass-through invoices to Alpha-Liberty. Alpha-Liberty then

forwarded those fraudulent invoices to PennDOT. This

arrangement was detailed in a letter from Kousisis to Markias.

The letter specified that Alpha-Liberty would identify the

actual suppliers for the products that it needed. Alpha-Liberty

would then negotiate prices and terms with those suppliers and

create fraudulent purchase orders in Markias’ name. In turn,

the Defendants issued two sets of checks to Markias. One

check paid Markias its 2.25% fee for acting as a pass-through.

Markias forwarded the other check to the actual suppliers to

pay for the materials that the Defendants ordered directly from

them. The Defendants also routed invoices related to supplies

used on projects outside Pennsylvania through Markias. This

made it appear that the materials were used on the Philadelphia

Projects.

The jury returned a mixed verdict based on this

evidence. It acquitted Kousisis and Alpha on two of the wire

fraud counts, but convicted them of false statements, in

violation of § 1001, conspiracy to commit wire fraud, in

violation of § 1349, and wire fraud, in violation of § 1343. This

appeal followed.

II. Discussion

Kousisis and Alpha (together, “Appellants”) raise three

main issues on appeal. First, they claim that the government

failed to prove the “property” element of wire fraud. They also

challenge the District Court’s jury instructions and loss

calculations at sentencing. We address each argument in turn.

A. The Property Element of Wire Fraud

6

The federal wire fraud statute, 18 U.S.C § 1343,

criminalizes “any scheme or artifice to defraud, or for

obtaining money or property by means of false or fraudulent

pretenses, representations, or promises,” that uses wires. It is

now well established that the federal wire fraud provision only

extends to property rights. 12 Moreover, for the government to

establish wire fraud, the property involved “must play more

than some bit part in a scheme: It must be an ‘object of the

fraud.’” 13 This must be evaluated from the victim’s

perspective. Thus, the victim’s loss must have been an

objective of the fraudulent scheme; it is insufficient if that loss

is merely an incidental byproduct of the scheme. 14

Appellants claim that the District Court erred in denying

judgment of acquittal because the government failed to prove

beyond a reasonable doubt that they defrauded PennDOT out

of property, as required by the wire fraud statute. We exercise

plenary review over a District Court’s denial of a motion for

judgment of acquittal and use “the same standard the district

court uses in deciding the motion.” 15 We review the record “in

the light most favorable to the prosecution to determine

whether any rational trier of fact could have found proof of

guilt beyond a reasonable doubt based on the available

evidence.” 16

Appellants argue that the fraudulent misrepresentation

that Markias was the required DBE does not implicate the

property interest needed to establish a § 1343 violation. They

rely on the fact that they fully discharged their painting and

repair obligations in the Philadelphia Projects. More

specifically, they contend that their “offense conduct[]

involve[d] high quality, timely and fully performed work by

12

Carpenter v. United States, 484 U.S. 19, 25 (1987).

13

Kelly v. United States, 140 S. Ct. 1565, 1573 (2020)

(quoting Pasquantino v. United States, 544 U.S. 349, 355

(2005)).

14

Id. at 1573 n.2.

15

United States v. Caraballo-Rodriguez, 726 F.3d 418, 424

(3d Cir. 2013) (en banc).

16

United States v. Smith, 294 F.3d 473, 476 (3d Cir. 2002)

(quoting United States v. Wolfe, 245 F.3d 257, 262 (3d Cir.

2001)).

7

[Appellants] that saved PennDOT millions of dollars.” 17

Though they concede that Markias did not perform as

promised, they characterize the presence of a true DBE as an

“intangible interest” that cannot equate with the property or

pecuniary loss required by the statutes of conviction. 18 They

therefore maintain that the government was not deprived of any

property.

At first, this argument has superficial appeal; however,

it does not survive closer scrutiny. It requires that we ignore

the text of the statutes that Appellants were convicted of

violating, as well as Supreme Court decisions interpreting

those statutes. The contextual background of the wire fraud

statute illustrates the weaknesses in Appellants’ arguments.

i. Evolution of Federal Wire Fraud

“Some decades ago, courts of appeals often construed

the federal fraud laws to ‘proscribe[ ] schemes to defraud

citizens of their intangible rights to honest and impartial

government.’” 19 The Supreme Court limited those decisions in

McNally v. United States 20 by holding that the federal mail

fraud statute is limited to the protection of money or property

rights. 21

17

Alpha Opening Br. at 55.

18

Kousisis Opening Br. at 19.

19

Kelly, 140 S. Ct. at 1571 (quoting McNally v. United States,

483 U.S. 350, 355 (1987)).

20

483 U.S. 350 (1987).

21

The federal wire fraud statute, 18 U.S.C. § 1343, is nearly

identical to the federal mail fraud statute, 18 U.S.C. § 1341.

As we have explained, “the cases construing the mail fraud

statute are applicable to the wire fraud statute as well.” United

States v. Tarnopol, 561 F.2d 466, 475 (3d Cir. 1977),

abrogated on other grounds by Griffin v. United States, 502

U.S. 46 (1991); United States v. Yusuf, 536 F.3d 178, 188

n.14 (3d Cir. 2008) (same). Thus, as the “statutes differ only

in form, not in substance,” mail and wire fraud are treated the

same in our analysis. United States v. Morelli, 169 F.3d 798,

806 n.9 (3d Cir. 1999); see also United States v. Frey, 42 F.3d

795, 797 (3d Cir. 1994) (“The wire fraud statute, 18 U.S.C. §

8

In McNally, a Kentucky official and an insurance

company made the following arrangement—the state would

continue its agency relationship with the company in exchange

for the company sharing some of its commissions with other

insurance agencies specified by the official, including an entity

that he controlled. 22 In the ensuing prosecution, the

government did not attempt to prove that the Commonwealth

would have “paid a lower premium or secured better

insurance” absent the fraud. 23 Rather, the prosecution’s theory

was that the scheme “defraud[ed] the citizens and government

of Kentucky of their right to have the Commonwealth’s affairs

conducted honestly.” 24

The Supreme Court rejected this theory and held that

“honest services” fraud was not mail fraud under 18 U.S.C. §

1341. The Court relied on both the statute’s legislative history

and its prior decision in Durland v. United States, 25 a case it

had decided a century earlier. Durland was the first case in

which the Supreme Court interpreted the phrase “any scheme

or artifice to defraud.” 26 The Court there held that the mail

fraud statute covered fraudulent schemes involving not only

“representations as to the past or present,” but also included

“suggestions and promises as to the future.” 27 However, a few

years later, in 1909, Congress codified Durland’s holding by

adding the phrase “‘or for obtaining money or property by

means of false or fraudulent pretenses, representations, or

promises’ after the original phrase ‘any scheme or artifice to

defraud.’” 28

1343, is identical to the mail fraud statute except it speaks of

communications transmitted by wire.”).

22

McNally, 483 U.S. at 352.

23

Id. at 360.

24

Id. at 353.

25

Id. at 356–60 (citing Durland v. United States, 161 U.S.

306 (1896)).

26

Id. at 356.

27

Id. at 357.

28

Id. (emphasis added) (quoting Act of Mar. 4, 1909, ch. 321,

§ 215, 35 Stat. 1130).

9

The McNally Court reasoned that the 1909 amendment

was enacted to make it “unmistakable that the [mail fraud]

statute reached false promises and misrepresentations as to the

future as well as other frauds involving money or property.” 29

It determined that reading the concept of “honest services”

fraud into a federal fraud statute would result in the federal

government establishing codes of conduct for public

officials. 30 Accordingly, the Court rejected a statutory

construction that “involves the Federal Government in setting

standards of disclosure and good government for local and

state officials,” and instead held that § 1341 is “limited in scope

to the protection of property rights.” 31

Soon after McNally was decided, Congress responded

by enacting 18 U.S.C. § 1346, the “honest-services” fraud

provision. That statute provides: “For the purposes of th[e]

chapter [of the U.S. Code that prohibits, inter alia, mail fraud,

§ 1341, and wire fraud, § 1343], the term ‘scheme or artifice to

defraud’ includes a scheme or artifice to deprive another of the

intangible right of honest services.” 32 As the Supreme Court

later explained, McNally “presented a paradigmatic kickback

fact pattern” and Congress undoubtedly sought to reverse the

case on its facts by enacting § 1346. 33

It seemed apparent that, in enacting § 1346, Congress

intended to criminalize fraudulent schemes aimed at

“depriv[ing] another of the intangible right of honest services,”

regardless of whether the scheme sought to divest the victim of

any property. 34 Nevertheless, in Skilling v. United States, the

Court concluded that § 1346 was so vague that it had to be

limited to classic bribes or kickbacks. 35 That case involved the

former C.E.O. of Enron Corporation, Jeffrey Skilling. He was

convicted of, among other things, conspiracy to commit

honest-services wire fraud for participating in a scheme to

deceive investors about Enron’s true financial performance by

29

Id. at 359.

30

Id. at 360.

31

Id.

32

Skilling v. United States, 561 U.S. 358, 402 (2010).

33

Id. at 407–08, 410.

34

Id. at 402.

35

Id. at 408–10.

10

manipulating its publicly reported financial results and making

false and misleading statements. 36 On appeal, Skilling argued

that § 1346’s prohibition of honest-services fraud was

unconstitutionally vague. 37 The Supreme Court agreed and

limited the reach of the statute to conduct amounting to bribes

and kickbacks, 38 thus providing an unambiguous limitation on

the fraudulent deprivation of “honest services.” In doing so, the

Court relied heavily on the holdings of several Courts of

Appeals in cases decided before its decision in McNally. 39 The

Court explained that it was necessary to limit § 1346’s reach

because “[r]eading the statute to proscribe a wider range of

offensive conduct . . . would raise the due process concerns

underlying the vagueness doctrine.” 40 Thus, the Court again

clarified that federal fraud statutes do not reach strictly

intangible interests. 41

The Court reinforced this point in Cleveland v. United

States. There, the government charged a defendant with

42

various counts of money laundering, racketeering, and

conspiracy in connection with a “scheme to bribe [Louisiana]

state legislators to vote in a manner favorable to the video

poker industry.” 43 One of the predicate acts supporting these

charges was § 1341 mail fraud, because the defendant

fraudulently concealed key information in his application for a

state video poker license. 44 The government argued that the

defendant thereby deprived it of property because he had

“frustrated the State’s right to control the issuance, renewal,

36

Id. at 369, 375.

37

Id. at 399.

38

Id. at 408–09.

39

Id. at 408 (“Both before McNally and after § 1346’s

enactment, Courts of Appeals described schemes involving

bribes or kickbacks as ‘core . . . honest services fraud

precedents [.]’ . . . In view of this history, there is no doubt

that Congress intended § 1346 to reach at least bribes and

kickbacks.” (collecting cases)).

40

Id.

41

Id. at 404, 408–09.

42

531 U.S. 12 (2000).

43

Id. at 16.

44

Id. at 16–17.

11

and revocation of video poker licenses.” 45 The Supreme Court

disagreed. It held that the federal mail fraud statute does not

encompass fraudulent schemes to obtain a state license,

because a license is not property in the government’s hand. 46

As the Court explained, the State’s “core concern” in issuing

the licenses was regulatory. 47 Licensing is a “paradigmatic

exercise[] of the States’ traditional police powers” concerning

who should get a benefit and who should not. 48 That power did

not relate to the government’s interests as a property holder.

Since the object of the fraud was not property in the victim’s

hands, the defendant’s dishonest conduct was not property

fraud. 49 “[S]aid another way: The defendant’s fraud

‘implicate[d] the Government’s role as sovereign’ . . . . And so

his conduct, however deceitful, was not property fraud.” 50

More recently, in Kelly, the Court similarly vacated a

federal wire fraud conviction based on the distinction between

governmental property interests and its regulatory power.

There, public officials ordered an unannounced realignment of

toll lanes on the George Washington Bridge connecting New

Jersey and Manhattan. 51 The Court described the bridge as “the

busiest motor-vehicle bridge in the world.” 52 The closure

caused four days of gridlock in Fort Lee, New Jersey. 53 The

defendants sought to justify the closure by claiming that it was

part of a traffic study. 54 “In fact, they did so for a political

reason—to punish the mayor of Fort Lee for refusing to

support the New Jersey Governor’s reelection bid.” 55 The

Supreme Court reversed the public officials’ federal wire fraud

convictions. It explained that their scheme fell outside the

45

Id. at 23.

46

Id. at 23–24.

47

Id. at 20.

48

Id. at 23.

49

Id. at 26–27.

50

Kelly, 140 S. Ct. at 1572 (quoting Cleveland, 531 U.S. at

23–24).

51

Id. at 1568.

52

Id. at 1569.

53

Id. at 1568.

54

Id.

55

Id.

12

scope of the federal statutes prohibiting wire fraud:

Under settled precedent, the officials could

violate those laws only if an object of their

dishonesty was to obtain the Port Authority’s

money or property. The Government contends it

was, because the officials sought both to

“commandeer” the Bridge’s access lanes and to

divert the wage labor of the Port Authority

employees used in that effort. We disagree. The

realignment of the toll lanes was an exercise of

regulatory power—something this Court has

already held fails to meet the statutes’ property

requirement. And the employees’ labor was just

the incidental cost of that regulation, rather than

itself an object of the officials’ scheme. 56

In reversing the convictions, the Court emphasized that

“the loss to the victim [cannot be] only an incidental byproduct

of the scheme.” 57 The Court reasoned that such a rule is

necessary to ensure that the property fraud statutes do not make

a federal crime of every deceit. 58

ii. Appellants’ Scheme

Kelly and Cleveland instruct that when the victim’s

damages are incidental to the object of the fraudulent scheme

(i.e., toll worker labor costs in Kelly and fees associated with

issuing licenses in Cleveland), there is an insufficient property

interest to sustain a wire fraud conviction. Appellants rely on

this line of cases to argue that any loss by PennDOT here

cannot be classified as pecuniary because, as we have

explained, PennDOT received the repairs it paid for. This

argument ignores the Supreme Court’s explicit declaration to

the contrary. The Court has unambiguously held that there

could have been no fraud in those cases unless “an object of

the[] dishonesty was to obtain the [government]’s money or

56

Id. at 1568–69 (citation omitted).

57

Id. at 1573.

58

Id. at 1573 n.2 (“Without that rule, . . . even a practical joke

could be a federal felony.”).

13

property.” 59 Here, obtaining the government’s money or

property was precisely the object of Appellants’ fraudulent

scheme.

Put simply, Appellants set out to obtain millions of

dollars that they would not have received but for their

fraudulent misrepresentations. Depriving PennDOT of DBE

performance was incidental to that scheme. A hypothetical

employed by the Supreme Court in Kelly illustrates this point.

There, the Court explained that “a city parks commissioner

induc[ing] his employees into doing gardening work for

political contributors” would meet the federal fraud statute’s

property requirement since “[t]he entire point of the fraudsters’

plans was to obtain the employees’ services” and “[a]

government’s right to its employees’ time and labor . . . can

undergird a property fraud prosecution.” 60 Likewise, the

“entire point” of Appellants’ scheme was to obtain PennDOT’s

money.

In contrast, consider another example set forth by the

Seventh Circuit Court of Appeals in United States v. Walters. 61

Suppose “A [e-mails] B an invitation to a surprise party for

their mutual friend C. B drives his car to the place named in the

invitation [thus expending the cost of gasoline]. But there is no

party; the address is a vacant lot; B is the butt of a joke.” 62 Wire

fraud? No. The victim’s loss in this scenario was merely

incidental to the scheme which, on its own, cannot sustain a

wire fraud conviction. But that is not the case here.

Although Appellants’ scheme could not have been

consummated without falsely certifying the DBE participation,

those false certifications were merely incidental to the true

purpose of the fraudulent agreement—obtaining millions of

dollars from PennDOT. Appellants’ attempts to have us

exclusively fixate on the absence of a DBE would require us to

ignore that the Court reversed the convictions in Skilling and

Cleveland exactly because the object of the fraudulent schemes

in those cases was something other than the government’s

59

Id. at 1568.

60

Id. at 1573.

61

997 F.2d 1219 (7th Cir. 1993).

62

Id. at 1224.

14

money. That the misrepresentations about DBE participation

were not the objective of the scheme distinguishes this case

from the “intangible interest” scenarios that were at the heart

of the fraudulent schemes in Skilling and Kelly. 63 PennDOT’s

dollars establish the requisite property interest here, not the

socially laudable objective of ensuring participation by a

DBE. 64

63

We are likewise unpersuaded that anything in our holding

today contravenes the Supreme Court’s recent decision in

Ciminelli v. United States, 598 U.S. 306 (2023). There, the

Court explained that “[t]he right to valuable economic

information needed to make discretionary economic

decisions” (i.e., the “right-to-control theory”) cannot sustain a

wire fraud conviction, as such rights are not rooted in

traditional property interests. Id. at 316. But again, the basis

of the wire fraud conviction here is not PennDOT’s

frustrated interest in DBE participation. Rather, it is the actual

money paid as a result of Appellants’ fraudulent scheme.

64

Though Appellants’ misrepresentations about DBE

participation were collateral to their scheme, the importance

of DBE programs more generally cannot be understated.

DOT’s DBE program strives, in part, to prevent

discrimination against DBEs in the award and administration

of “DOT-assisted contracts” and to provide DBEs an equal

opportunity to compete for such contracts. 49 C.F.R. § 26.1.

The agency explicitly states that the initiative aims to

“remedy ongoing discrimination and the continuing effects of

past discrimination in federally-assisted highway, transit,

airport, and highway safety financial assistance transportation

contracting markets nationwide.” Disadvantaged Business

Enterprise (DBE) Program, U.S. DEPARTMENT OF

TRANSPORTATION, https://perma.cc/SGW8-HMET (last

visited Apr. 4, 2023). To that end, state and local recipients of

DOT funding frequently ensure DBE participation in their

contracts. For instance, 879 of the 1,402 contracts awarded by

PennDOT in the second half of Fiscal Year 2020 required

DBE participation. See Uniform Report of DBE

Commitments/Awards and Payments, PENNSYLVANIA

DEPARTMENT OF TRANSPORTATION, https://perma.cc/YD3N-

DUWZ (last visited Apr. 4, 2023).

15

Moreover, Markias’ 2.25% fee constitutes economic

harm sufficient to sustain wire fraud convictions. This is true

even though the government does not allege economic net loss.

The jury convicted the Defendants for paying Markias a 2.25%

fee for acting as a pass-through. Unlike in McNally, here, the

fee Markias received was the government’s money. 65 The

money was not an amount PennDOT would have paid

regardless of which contractor performed the work.

In United States v. Wheeler, 66 the Eleventh Circuit

Court of Appeals found that a defendant’s “misrepresentations

or fail[ure] to disclose information that a reasonable jury could

find affected the nature of the bargain” may provide a basis for

a wire fraud conviction. 67 There, the defendants misled

investors by misrepresenting their company’s “profits, its

association with a famous executive and a globally recognized

technology company, . . . a potential listing on a major stock

exchange,” and their commissions. 68 The Court held that these

misrepresentations involved “essential characteristics of the

stock that would alter the nature of the bargain.” 69 Therefore,

“the evidence provided a basis for a reasonable jury to

conclude that [the defendants] schemed to defraud

investors.” 70 Here, DBE participation was an essential

component of the contract. Without it, the nature of the Parties’

bargain would have been different. This is sufficient evidence

to support a federal fraud conviction given all of the

circumstances surrounding that misrepresentation and the

65

McNally, 483 U.S. at 360–61 (“[The state officers] received

part of the commissions but those commissions were not the

Commonwealth’s money. Nor was the jury charged that to

convict it must find that the Commonwealth was deprived of

control over how its money was spent. Indeed, the premium

for insurance would have been paid to some agency, and what

[the state officers] did was to assert control that the

Commonwealth might not otherwise have made over the

commissions paid by the insurance company to its agent.”).

66

16 F.4th 805 (11th Cir. 2021).

67

Id. at 820.

68

Id.

69

Id.

70

Id. at 821.

16

millions of dollars it fraudulently caused PennDOT to pay to

Appellants.

Amici caution that our holding today “would turn

essentially every purposeful breach of contract into a potential

violation of the federal criminal property fraud statutes.” 71

That argument inappropriately minimizes the nature of

Appellants’ scheme. Again, Appellants did not merely scheme

to deprive PennDOT of the contractual requirement of DBE

participation. Rather, they schemed to have PennDOT pay

them millions of dollars that they were clearly not entitled to

given their material breach of the contracts. Thus, to the extent

that Amici raise a valid concern, the concern is with the text of

the statute and the Supreme Court’s interpretation of it, not its

application to Appellants’ actions. As noted above, Congress

intended for § 1343 to criminalize “any scheme or artifice to

defraud, or for obtaining money or property by means of false

or fraudulent pretenses, representations, or promises.” 72 If

“any” is to be read out of the statute, as is required by Amici’s

argument, that must be by congressional initiative, not by this

Court.

Finally, we note that, contrary to Appellants’ assertions,

the disputed contracts themselves do indeed constitute

“property.” We have previously concluded that “to determine

whether a particular interest is property for purposes of the

fraud statutes, we look to whether the law traditionally has

recognized and enforced it as a property right.” 73 It is well

settled that “the privilege of contracting is a property right,

without which there cannot be full and free use and enjoyment

of property.” 74 Our holding today falls squarely within the

historic understanding of traditional forms of “property.” We

merely acknowledge that tens of millions of dollars constitutes

property.

71

Amici Br. at 4.

72

18 U.S.C. § 1343 (emphasis added).

73

United States v. Henry, 29 F.3d 112, 115 (3d Cir. 1994).

74

Adinolfi v. Hazlett, 88 A. 869, 870 (Pa. 1913); see also U.S.

Tr. Co. of N.Y. v. New Jersey, 431 U.S. 1, 19 n.16 (1977)

(explaining that “[c]ontract rights are a form of property”).

17

Appellants secured PennDOT’s money using false

pretenses and the value PennDOT received from the partial

performance of those painting and repair services is no defense

to criminal prosecution for fraud. 75

B. Jury Instructions

Appellants next argue that the District Court erred in its

jury instructions when it “permitted conviction on multiple

invalid theories of ‘property fraud,’ none of which required

proof of economic harm.” 76 Where, as here, a party has

properly objected to a jury instruction, “we exercise plenary

review to determine whether the instruction misstated the

applicable law.” 77 Appellants specifically take issue with the

following instructions:

Property for purposes of wire fraud is defined to

include money, property rights, or both.

Deprivation of a property right may include

depriving an agency of a fundamental basis of its

bargain. An agency has a property right to

purchase goods and services in the open market.

Furthermore, contract rights can be considered

property rights for purposes of wire fraud. An

agency may be deprived of its contract rights if a

defendant misuses money given to it under a

contract. If an agency intends to enable a DBE

to provide services, a defendant promises that a

DBE will provide those services, but no such

services are rendered under the contract, you

may find the loss of property. Deprivation of

property may also include loss of money based

on services paid for that an agency did not

receive. 78

75

Based on the foregoing, we need not address Appellants’

argument regarding the false statement convictions.

76

Kousisis Opening Br. at 13.

77

Franklin Prescriptions, Inc. v. New York Times Co., 424

F.3d 336, 338 (3d Cir. 2005).

78

A3473–74.

18

Appellants contend that the instructions were faulty

because they did not “require[] the ‘economic harm’ that

characterizes a property deprivation; [or the] proof that the

scheme contemplated obtaining property of which the victim

was deprived.” 79 The crux of their argument rests on Kelly’s

reasoning “that interfering with a government’s allocation of

resources—‘its prerogatives over who should get a benefit and

who should not’—is not property fraud.” 80 While this is true,

as explained above, interfering with a victim’s property (i.e.,

obtaining a contract and thereby money) by means of false and

fraudulent representations constitutes property fraud. 81

Appellants’ insinuation that the District Court’s

instructions equated credits towards DBE participation with

property is therefore incorrect. The Court instructed the jury

that “[d]eprivation of a property right may include depriving

an agency of a fundamental basis of its bargain.” 82 It also

correctly stated the applicable law when it noted that contract

rights are traditionally understood to be property rights, and

there is no question that breach of a material term in a

contract—a fundamental basis of a bargain 83—by fraudulent

means results in economic harm to the victim and deprives that

79

Kousisis Opening Br. at 62.

80

Id. at 65 (quoting Kelly, 140 S. Ct. at 1572).

81

Kousisis claims that the District Court erred by not

providing the jury with an instruction that the victim must

have suffered a net economic loss. He argues that

dispensing with this instruction “permitted conviction on

the very ‘unauthorized use’ theory Kelly rejected.” Kousisis

Opening Br. at 65. While economic harm is required for wire

fraud, economic loss is not. See supra, Section II(A)(ii). Also,

Kousisis waived this argument at trial by only objecting to the

property definition of wire fraud. In any event, the District

Court’s decision not to provide the jury with a loss instruction

was not plain error.

82

A3473.

83

See Nagle, 803 F.3d at 182 (“They did not receive the

entire benefit of their bargain, in that their interest in having a

DBE perform the work was not fulfilled, but they did receive

the benefit of having the building materials provided and

assembled.”).

19

victim of her property rights. 84 Here, PennDOT was partially

deprived of the benefit of its bargain when it paid the full

contract price because of a false pretense. As we have

explained, PennDOT’s receipt of material components of the

contract does not negate the fact that the contract was based on

fraudulent misrepresentations that triggered payment of

millions of dollars that would not have been paid absent the

fraud.

Appellants’ challenge to the jury instruction is further

undermined by the fact that the District Court refused the

government’s proposed instruction that would have allowed

the jury to find “that DBE credits constitute property.” 85

Indeed, the instruction the District Court ultimately gave did

not turn on DBE “credits.” Rather, the Court instructed: if “a

defendant promises that a DBE will provide those services, but

no such services are rendered under the contract, you may find

the loss of property.” 86 Assuming arguendo that we agree with

Kousisis’ contention that “services performed by a non-DBE

have no less pecuniary value than otherwise-identical services

performed by a DBE,” 87 the misrepresentation here still

resulted in the loss of millions of dollars. That is most certainly

“property” as required by § 1343. Moreover, even if we also

agreed that the entire contract was not property loss due to the

satisfactory completion of the Philadelphia Projects, PennDOT

still suffered some property loss because some of the money

paid to Appellants was used to pay Markias’ extra fee for

serving as the pass-through. 88

84

See Gillard v. Martin, 13 A.3d 482, 487 (Pa. Super. Ct.

2010) (“When one party commits a material breach of

contract, the other party [may] . . . elect to keep the contract

in force, declare the default only a partial breach, and recover

those damages caused by that partial breach . . . .”) (quoting

13 Williston on Contracts § 39:32, 4th ed.).

85

A3237, 3473–74.

86

A3473–74.

87

Kousisis Opening Br. at 66.

88

In McNally, the money was going to be used to purchase

insurance regardless of the public official’s choices and the

agency did not have control over that. See supra, note 63.

Here, the breach of the DBE clause involved a fundamental

basis of the bargain, and PennDOT did have control during

20

The jury was instructed that contract rights are property

rights. That is clearly correct. 89 “When one party commits a

material breach of contract, the other party” may “declare the

default only a partial breach and recover damages caused by

that partial breach.” 90 The DBE provision was a material

component of these contracts. 91 Accordingly, the jury

instruction accurately explained that breach of that provision

resulted in loss of property. And again, at the very least, the

property here was the loss of the 2.25% fee paid to Markias.

C. Loss Calculation

Pursuant to Section 2B1.1(b) of the Sentencing

Guidelines, the District Court considered the extent to which

Appellants’ base offense level should be adjusted to account

for the government’s losses. It determined that their “ill-gotten

profits” 92 were the appropriate measure of loss. Appellants

claim that this was error. “When the calculation of the correct

Guidelines range turns on an interpretation of ‘what constitutes

loss’ under the Guidelines, we exercise plenary review.” 93

As a threshold matter, we emphasize that the District

Court had a very difficult and unenviable task in arriving at a

loss determination because Appellants delivered the requested

work, and the quality of the workmanship and materials is

uncontested. Still, we conclude that the Court’s loss calculation

was erroneous. The approach used by the District Court is

inappropriate where, as here, the defrauded party contracted

for work to be done by both DBE and non-DBE entities. That

distinguishes this case from United States v. Nagle. 94 Before

we discuss the correct method of calculating the loss, it will be

helpful to provide an overview of the applicable Sentencing

the negotiations over whether it paid money for DBE

services.

89

See Adinolfi, 88 A. at 870 (noting that the common law of

Pennsylvania recognizes contract rights as property rights).

90

Gillard, 13 A.3d at 487.

91

See supra, Section I(B).

92

A3721.

93

Nagle, 803 F.3d at 179 (quoting United States v. Fumo, 655

F.3d 288, 309 (3d Cir. 2011)).

94

Id. at 170.

21

Guidelines provisions and our decisions in Nagle.

i. Loss Calculation Under the Sentencing

Guidelines

U.S.S.G. § 2B1.1 governs loss calculations for crimes

involving fraud and deceit. Section 2B1.1(a) provides that the

base offense level for crimes, “is either seven, if the offense

has a maximum term of imprisonment of twenty years or more,

or six” if it is less. 95 Section 2B1.1(b)(1) allows for several

adjustments to the base offense level, based on the amount of

the victim’s loss. “As the loss increases, the offense level

increases: for example, if the loss is more than $70,000, the

court adds eight to the offense level; if the loss is more than

$100 million, the court adds twenty-six to the offense level.”96

In United States v. Banks, 97 we recently concluded that

in calculating the loss under the Sentencing Guidelines, our

focus is limited to the “actual loss” suffered by the victim. 98

“Actual loss” is defined as “the reasonably foreseeable

pecuniary harm that resulted from the offense.” 99 Additionally,

Note 3(F)(ii) provides an alternative framework for measuring

loss under the “government benefits rule”:

In a case involving government benefits (e.g.,

grants, loans, entitlement program payments),

loss shall be considered to be not less than the

value of the benefits obtained by unintended

95

Id. at 179.

96

Id.

97

55 F.4th 246 (3d Cir. 2022).

98

In Banks, we specifically considered the commentary in

Application Note 3(A) of Section 2B1.1, which provides that

loss is generally determined to be the greater of the actual

loss or the intended loss. We noted that the Guidelines

themselves make no reference to “intended” loss; rather, it is

only mentioned in the commentary. Id. at 257. We explained

that standard dictionary definitions of “loss” only pertain to

“actual loss.” Id. at 257–58. As a result, we concluded that

Note 3(A) “impermissibly expands the word ‘loss’ to include

both intended loss and actual loss.” Id. at 250.

99

§ 2B1.1 cmt. n.3(A)(i).

22

recipients or diverted to unintended uses, as the

case may be. For example, if the defendant was

the intended recipient of food stamps having a

value of $100 but fraudulently received food

stamps having a value of $150, loss is $50. 100

Controlling precedent and the Sentencing Guidelines

make clear that “[e]ven where value flows in both directions,

if it is not feasible to estimate with reasonable accuracy the

victim’s loss…, [then] a sentencing court may look to the

perpetrator’s gain as a surrogate for the victim’s loss.” 101 In

such situations where it is not feasible to estimate the victim’s

loss, there must exist “some logical relationship between the

victim’s loss and the defendant’s gain so that the latter can

reasonably serve as a surrogate for the former.” 102

Moreover, Note 3(E)(i) allows for credits against the

initial loss. It requires that the loss be reduced by “the fair

market value of the property returned and the services

rendered, by the defendant or other persons acting jointly with

the defendant, to the victim before the offense was

detected.” 103

ii. United States v. Nagle

In Nagle, Schuylkill Products Inc. (“SPI”) and CDS

Engineers, Inc. (“CDS”) conspired with Marikina Engineers

and Construction Corp. (“Marikina”) to be awarded

government contracts. Neither SPI nor CDS was a DBE.104

However, the owner of Marikina was of Filipino descent and

Marikina was a DBE-certified firm. 105 Pursuant to their

arrangement, Marikina bid for subcontracts on government

projects requiring DBE participation. 106 However, SPI and

100

§ 2B1.1 cmt. n.3(F)(ii).

101

United States v. Dickler, 64 F.3d 818, 825–26 (3d Cir.

1995); U.S.S.G. § 2B1.1 cmt. n.3(B).

102

Id. at 826.

103

§ 2B1.1 cmt. n.3(E)(i).

104

Nagle, 803 F.3d at 172.

105

Id.

106

Id.

23

CDS “would perform all of the work on those contracts.” 107 In

turn, SPI and CDS paid Marikina a fixed fee for its assistance

in getting the subcontracts for them. 108 Absent the fraudulent

agreement with Marikina, SPI and CDS would not have been

qualified to perform the subcontracts at issue. However,

pursuant to their illicit agreement:

SPI identified subcontracts that SPI and CDS

could fulfill, prepared the bid paperwork, and

submitted the information to prime contractors in

Marikina's name. SPI used stationery and email

addresses bearing Marikina’s name to create this

correspondence. It also used Marikina’s log-in

information to access PennDOT’s electronic

contract management system. CDS employees

who performed construction work on site used

vehicles with magnetic placards of Marikina’s

logo covering SPI’s and CDS’s logos. SPI and

CDS employees used Marikina business cards

and separate cell phones to disguise whom they

worked for. They also used a stamp of [the

Marikina owner’s] signature to endorse checks

from the prime contractors for deposit into SPI's

bank accounts. Although Marikina's payroll

account paid CDS’s employees, CDS

reimbursed Marikina for the labor costs. 109

Eventually, a jury in the Middle District of

Pennsylvania found two owners of SPI and CDS guilty of,

among other things, 11 counts of wire fraud in violation of §

1343. 110 At sentencing, the District Court concluded that

“under Note 3(F)(ii) the amount of loss was the face value of

the contracts Marikina received; and that the defendants were

not entitled to a credit against the loss for the work

performed.” 111 The defendants appealed this loss calculation.

On appeal (“Nagle I”), we declined to explicitly decide

107

Id.

108

Id.

109

Id.

110

Id. at 173.

111

Id. at 174.

24

whether the government benefits rule under Note 3(F)(ii)

applies in DBE procurement fraud cases. Instead, we held that

in such cases, regardless of whether Note 3(A) or 3(F)(ii) is

used to determine the initial loss, the actual loss is calculated

by subtracting the fair market value of the services rendered

from the face value of the contracts (i.e., the credits against the

loss). 112 In doing so, we stated that “[i]f possible and when

relevant, the District Court should keep in mind the goals of

the DBE program that have been frustrated by the fraud.”113

We then remanded the matter to the District Court for

resentencing consistent with that guidance.

On remand, the District Court was mindful of the crucial

goals of the DBE program. It found that SPI and CDS

erroneously “earned a profit and formed or strengthened

valuable industry connections” in place of a true DBE. 114

Therefore, the District Court concluded that “the amount of

profits diverted from legitimate DBEs” was the correct

measure of the loss. 115 There, that was the entire amount of the

contract because there was no DBE involvement and SPI and

CDS performed all work under the contract. 116 The defendants

again appealed, asserting that the final loss amount should have

been zero because ‘“the fair market value of the services

rendered is by definition the stated contract price,’ and that

such measure necessarily includes any profits accruing to [the

112

Id. at 180 (“We need not decide whether the DBE program

is a ‘government benefit’ and, therefore, whether Note 3(A)

or Note 3(F)(ii) applies; we conclude that under either

application note, the amount of loss [the defendants] are

responsible for is the face value of the contracts Marikina

received minus the fair market value of the services they

provided under the contracts.”).

113

Id. at 183.

114

United States v. Nagle, No. 1:09-CR-384, 2015 WL

7710467, at *4 (M.D. Pa. Nov. 30, 2015), aff'd, United States

v. Nagle, 664 F. App'x 212 (3d Cir. 2016).

115

Id. at *5.

116

The District Court concluded that “the amount of loss for

each defendant in this case equals the amount of profits

diverted from legitimate DBEs as a result of the fraudulent

contracts at issue .…” Id.

25

defendants], as the service provider.” 117

In the second appeal (“Nagle II”), we affirmed the

District Court’s decision, albeit in a non-precedential opinion.

We held that it was appropriate for the District Court to use the

defendants’ wrongly obtained profits as the measure of loss,

particularly because “other measures for loss in this case

[were] unduly complex to calculate.” 118 In making this

determination, we partly relied on Section 2B1.1 Note 3(B). 119

iii. The Instant Appeal

Here, the District Court similarly explained that the

actual loss to the government from breach of the DBE

provision in the Philadelphia Projects’ contracts was not

measurable at the time of sentencing. In accordance with Note

3(B), it also concluded that Alpha’s “ill-gotten profits”

represent an appropriate measure of loss. After applying the

applicable taxes to Alpha’s profits, the District Court imposed

a 20-point sentencing enhancement under Section 2B1.1(b)(1),

which corresponds to a loss between $9.5 million and $25

million.

At the outset, we again stress that the District Court had

an unenviable task in calculating the loss here and we

commend the Court on its effort to apply Nagle’s teachings to

this situation without minimizing the economic and communal

harm that resulted from the lack of DBE participation.

Although the Nagle defendants and the Defendants here

both committed DBE fraud, the nature of the fraud differs in a

material way. In Nagle, PennDOT and the Southeastern

Pennsylvania Transportation Authority (“SEPTA”) contracted

for a DBE to perform the entire [sub]contract that was actually

performed by SPI and CDS. PennDOT and SEPTA neither

intended nor anticipated that SPI or CDS would receive any

benefit or compensation pursuant to the contracts in Nagle.

117

Nagle, 664 F. App'x at 215 (citation omitted).

118

Id. at 216.

119

Note 3(B) states: “The court shall use the gain that resulted

from the offense as an alternative measure of loss only if

there is a loss but it reasonably cannot be determined.”

26

Thus, the Nagle defendants usurped all the profit intended for

a DBE, as well as the business contacts and experience that

could have better positioned a DBE to be a successful bidder

on future contracts. Accordingly, on remand in Nagle, the

District Court correctly concluded that the government’s loss

consisted of all the profits purportedly due under the contracts

at issue.

However, in this case, PennDOT never intended to have

the DBE perform the entire contract. Rather, it understood that

a DBE would provide paint supplies. The rest of the work was

to be performed by Alpha. 120 Specifically, the government

understood that Alpha would play a major role in rehabilitating

the Girard Point Bridge and the 30th Street Train Station and

that contractual undertaking was part of the bargain.

In attempting to determine the amount of loss at

sentencing, the District Court rightly reasoned that “[a]s a

result of Alpha’s deception, the DBE program provided profit

opportunities to entities not entitled to them.” 121 We do not

trivialize this. Nevertheless, Alpha always stood to lawfully

profit from the work that it was contractually obligated to

perform. All its gains were not “ill-gotten,” nor did its

involvement frustrate the objectives of the contract to the

extent that the involvement of SPI and CDS frustrated the

objectives of the contracts in Nagle. Thus, it cannot fairly be

said that the government’s loss here equals Alpha’s profits.

Nagle I established that loss is calculated by taking the

full face value of the contract and deducting the fair market

value of the services rendered. 122 There, we determined that,

irrespective of whether Notes 3(A) and 3(F)(ii) apply, the

resulting initial loss is the same. However, we now expressly

hold that the government benefits rule under Note 3(F)(ii) does

not apply to DBE procurement fraud cases such as the one

120

We recognize that the Projects also required performance

from Liberty, Buckley, and Cornell. However, we focus our

discussion on Alpha (and Kousisis), as it is the entity directly

involved in this appeal.

121

A3720–21.

122

Nagle, 803 F.3d at 183.

27

here. 123

The government benefits rule contemplates situations

where the benefit of the bargain was, essentially, unilateral.

Note 3(F)(ii) uses food stamps as an example, explaining that

“if the defendant was the intended recipient of food stamps

having a value of $100 but fraudulently received food stamps

having a value of $150, [the] loss is $50.” Procurement

contracts are different. Here, the government is not just

bestowing a benefit. Rather, it expects something in return for

its payment. It expects, and is entitled to, a repaired bridge,

highway, etc. “The mere fact that a government contract

furthers some public policy objective apart from the

government’s procurement needs is not enough to transform

the contract into a ‘government benefit’ akin to a grant or an

entitlement program payment.” 124

With the application of Note 3(F)(ii) excluded, the

remaining loss calculation analysis in Nagle I becomes our

guide. There, we observed:

123

There is a circuit split regarding whether the government

benefits rule extends to fraud in DBE (or similar special

procurement) programs. On one hand, the Fourth, Seventh,

and Eleventh Circuits have found that the rule does apply

here. See United States v. Brothers Constr. Co. of Ohio, 219

F.3d 300, 317–18 (4th Cir. 2000); United States v. Leahy, 464

F.3d 773, 789–90 (7th Cir. 2006); United States v. Maxwell,

579 F.3d 1282, 1306 (11th Cir. 2009). Notably, the Eleventh

Circuit concluded that the rule applies because the “primary

purpose” of such “affirmative action programs” is “to help

small minority-owned businesses develop and grow.”

Maxwell, 579 F.3d at 1306; accord United States v. Leahy,

464 F.3d 773, 789–90 (7th Cir. 2006). On the other hand, the

Fifth, Sixth, and Ninth Circuits reached the opposite

conclusion, finding that the contracts at issue in procurement

fraud cases are unlike the benefits named in Note 3(F)(ii)—

“grants, loans, [and] entitlement program payments.” See

United States v. Harris, 821 F.3d 589, 604 (5th Cir. 2016);

United States v. Kozerski, 969 F.3d 310, 313–14 (6th Cir.

2020); United States v. Martin, 796 F.3d 1101, 1109–10 (9th

Cir. 2015). We agree with the latter group of our sister courts.

124

Harris, 821 F.3d at 604.

28

the amount of loss [the defendants] are

responsible for is the value of the contracts

Marikina received less the value of performance

on the contracts—the fair market value of the

raw materials SPI provided and the labor CDS

provided to transport and assemble those

materials. 125

Here, Alpha represented that Markias would receive up

to $1,700,000 for the 30th Street Train Station Project and

$4,689,000 for the Girard Point Project, totaling roughly $6.4

million. This $6.4 million payment thus becomes the

appropriate “starting point” for a loss determination here.126

The record before us does not indicate whether the $6.4 million

that Alpha agreed to pay Markias is inclusive of the 2.25% fees

paid to the firm. On remand, the District Court may conduct

additional fact-finding to gauge whether the fees should be

added to the $6.4 million for the purposes of measuring the

loss.

Furthermore, pursuant to Nagle I, the $6.4 million must

be offset by the fair market value of the services rendered.

Here, that is the fair market value of the non-DBE-provisioned

paint supplies. 127 The actual cost of the paint supplies needed

to complete the projects pursuant to these contracts is also best

125

Nagle, 803 F.3d at 180–81.

126

Indeed, Alpha expressly indicated that Markias would

receive $6.4 million. Therefore, this figure is the actual

“price” that PennDOT “gave up” for the DBE component of

the contract. See id. at 180 (explaining that “the defrauded

parties—the transportation agencies—gave up the price of the

contracts and received the performance on those contracts.”).

127

It is theoretically possible to measure the loss by the

difference between Alpha-Liberty’s bids and the next lowest

bid on the Philadelphia Projects. Presumably, the difference

between these figures may better reflect the cost of genuine

DBE program compliance (and thus the government’s

pecuniary loss). However, that approach invites speculation

because there is no way of knowing the extent (if any) that

other bids may have been inflated by sham DBE participation

or other factors.

29

determined by the District Court in the first instance. We

therefore vacate Kousisis’ sentence and remand this matter to

the District Court to recalculate the loss consistent with this

opinion. Though likely imperfect, the amount reached after the

offset is a “reasonable estimate of the loss.” 128 This satisfies

the Sentencing Guidelines’ requirements. 129

We hasten to add, however, that the District Court need

not cast a “blind eye” on the full extent of the loss occasioned

by this fraud if the aforementioned metric is deemed

inadequate to capture the real harm. As the District Court noted

at sentencing, and as we stated in Nagle I: “[t]he DBE program

allows true DBEs to form lasting relationships with suppliers,

labor, and the broader industry; those relationships are things

received and retained as a result of the program.” 130 This not

only benefits the individual DBE. It also benefits the

contracting governmental entity by positioning DBEs to

compete for future contracts, thereby enlarging and enriching

the universe of potential bidders. This communal benefit also

has positive implications for future contracts and the market

forces underlying the bidding process. The District Court

should therefore feel free to exercise its discretion to impose a

reasoned and appropriate upward variance if the loss

calculation understates the loss resulting from Appellants’

crimes. Indeed, as the Ninth Circuit Court of Appeals

highlighted in Martin, “district courts have the ability to base

an upward variance on a broader concept of harm than the

Guidelines contemplate.” 131 Certainly, “[n]othing in our ruling

today is meant to limit district courts' discretion to depart or

vary from the Guidelines in appropriate cases, but a sentence

must begin with a proper calculation of the Guidelines

128

§ 2B1.1 cmt. n.3(C).

129

To be sure, we foresee a potential scenario where

Appellants contend on remand that the fair market value of

the paint supplies services rendered is equal to the face value

of the DBE-designated portion of the contracts (such that the

final loss amount is zero). We doubt that this holds true,

particularly because the face value of the subcontracts likely

factored in Markias’ fees, in addition to the actual cost of the

paint supplies and the true vendors’ profits.

130

Nagle, 803 F.3d at 181.

131

Martin, 796 F.3d at 1111–12.

30

sentencing range.” 132

III. Conclusion

For the foregoing reasons, we will affirm Kousisis and

Alpha’s convictions under 18 U.S.C. §§ 1343 and 1349. We

also will not disturb the District Court’s jury instructions.

However, we will reverse the District Court’s loss calculation

and remand for resentencing.

132

Id. at 1112.

31