In the
United States Court of Appeals
For the Seventh Circuit

No. 99-1865

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

HENRY MASQUELIER, JR.,

Defendant-Appellant.



Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 96 CR 157--Elaine E. Bucklo, Judge.


Argued November 3, 1999--Decided April 12, 2000



  Before POSNER, Chief Judge, COFFEY and ROVNER,
Circuit Judges.

  ROVNER, Circuit Judge. The United States charged
Henry Masquelier with conspiracy to defraud the
Department of Defense in violation of 18 U.S.C.
sec. 371, and with defrauding the United States
in connection with a government contract in
violation of 18 U.S.C. sec. 1031. The district
court denied Masquelier’s motion in limine
seeking to admit evidence of the government’s
alleged wrongdoing in the execution of the
contract in question, and Masquelier then pled
guilty to the latter count, reserving his right
to appeal the district court’s ruling. The
government dismissed the first count pursuant to
the plea agreement. We affirm.

I.

  Masquelier was the owner and president of
Midstar, Inc., a company which machined and
assembled metal items. In 1989, Midstar
contracted with the Defense Logistics Agency, the
arm of the Department of Defense charged with
awarding and administering defense contracts, to
produce more than 30,000 fire hose nozzles for
Navy ships. The DLA agreed to pay $2,265,976.96
for the nozzles, and the contract provided that
Midstar could request progress payments from the
DLA to defray the costs associated with buying
materials and services necessary to the
completion of the contract. Masquelier took
advantage of this provision, submitting a request
for a progress payment in the amount of
$150,169.00 to cover the cost of over 40,000
shutoff trunnions, a part of the fire hose
nozzles, provided by a subcontractor named Mex-Am
Machining, Inc. Masquelier certified in his
request to the DLA that the cost was actually
incurred and consistent with the contract, and
the DLA paid this amount in full to Midstar.

  The government charges that, in fact, no such
parts were ever ordered or purchased by Midstar.
Instead, Masquelier had obtained blank invoices
from the former owner of the defunct Mex-Am
Machining, and fraudulently filled them out to
reflect that Mex-Am had delivered 47,000
trunnions to Midstar at a cost of more than
$167,000. Masquelier then submitted the request
for a progress payment, and the DLA issued a
check for more than $150,000.00. Masquelier
deposited the check from the DLA, and wrote a
check to Mex-Am to make it appear that he had
paid Mex-Am for the parts shown on the false
invoices. Mex-Am’s former owner (and Masquelier’s
soon-to-be co-defendant) assisted Masquelier by
returning all of the money to Masquelier except
for $3,206.54, his share in the scheme.

  In the district court, Masquelier brought a
motion in limine seeking to admit evidence that
he intended at all times to complete the contract
and that the government’s wrongful actions put
him in a position where the only way he could
complete the contract was to submit the falsified
request for a progress payment. In particular, he
wanted to present to the jury the fact that
shortly after signing the contract, he discovered
that the specifications for the nozzles were
faulty, and that the DLA then issued changes to
the original contract specifications. These
changes delayed production of the nozzles,
according to Masquelier, and that delay created
financial strains for Midstar. The DLA
exacerbated the problem, Masquelier complains, by
setting unrealistic delivery schedules, and then
canceling part of the contract. Apparently on the
brink of financial ruin, Masquelier asserts that
the delays forced him to submit the request for
a progress payment so that he would be able to
complete the contract. All of this evidence is
relevant, according to Masquelier, because it
demonstrates that he did not intend to defraud
the government; rather, he intended at all times
to complete the contract and provide the
government with the parts specified in the
contract.

  The district court denied Masquelier’s motion,
and instead granted the government’s counter
motion to exclude any evidence of alleged
wrongdoing by the DLA. The court noted that both
statutes under which Masquelier was charged
required the government to prove an intent to
defraud. This intent to defraud, the district
court found, was defined as "acting willfully and
with specific intent to deceive or cheat, usually
for the purpose of getting financial gain for
one’s self or causing financial loss to another."
United States v. Masquelier, 1998 WL 773997, *1
(N.D. Ill. October 27, 1998). For a sec. 371
charge, the government may show either that the
defendant intended to cause the government a
property or pecuniary loss, or intended to
interfere with a lawful government function. Id.
The court rejected Masquelier’s argument that
evidence of the DLA’s delays, changes and
cancellations was relevant to show that his
intent was to complete the contract rather than
to cause the government a loss. The court held
that Masquelier’s deceptive conduct exposed the
government to an unwanted risk of never getting
anything of value for the money that the DLA
paid. Whether he intended to cause a loss in the
long-run was irrelevant, the district court held,
and could not negate his intent to obtain money
for work that was not actually performed.
Masquelier appeals.

II.

  Masquelier invokes the venerable Oliver Wendell
Holmes early in his argument, for the proposition
that "Even a dog distinguishes between being
stumbled over and being kicked." Oliver Wendell
Holmes, Jr., The Common Law, quoted in Morissette v.
United States, 342 U.S. 246, 252 n.9 (1952). He
contends that he lacked the requisite mens rea
for the fraud offenses charged. He did not intend
to deprive the government of its property.
Rather, he intended to complete the contract as
promised. Evidence of the government’s
wrongdoing, under his theory, is relevant to show
that he was forced to request the progress
payment so he could complete the contract in the
only way possible. He therefore sought to admit
into evidence that the DLA acted improperly in
the administration of the contract, that these
actions put him in the position of being forced
to seek the progress payment in order to complete
the contract, and that the progress payment funds
went not into his own pocket but were used to
execute the contract. The government maintains
that the only intent relevant to the crimes
charged is Masquelier’s intent to obtain $150,000
to which he was not entitled. Under the
government’s formulation, DLA’s wrongdoing, if
any, is wholly irrelevant, as is Masquelier’s
ultimate purpose of completing the contract.
  We have held that sec. 371 "encompasses only
conspiracies in which the defendants intended
either to cause the government property or
pecuniary loss or interfere with or obstruct a
lawful government function." United States v.
F.J. Vollmer & Co., Inc., 1 F.3d 1511 (7th Cir.
1993), cert. denied, 510 U.S. 1043 (1994).
Masquelier himself cites cases where we
formulated the intent to defraud as acting
wilfully or knowingly, with specific intent to
deceive or cheat, in order to obtain financial
gain for one’s self or cause financial loss to
the victim. See United States v. Catalfo, 64 F.3d
1070, 1079 (7th Cir. 1995), cert. denied, 517
U.S. 1192 (1996); United States v. Moede, 48 F.3d
238, 241 (7th Cir. 1995). Presumably it is the
third part of this formulation that Masquelier
wishes to challenge, as he admittedly acted
knowingly (as opposed to inadvertently), and
certainly intended to deceive when he filled out
blank invoices from a defunct company and
submitted them to the government knowing the
content was false. He was not, he claims, trying
to obtain financial gain for himself or cause
financial loss to the government, although he
admits he submitted the request in order to
obtain in excess of $150,000 from the government,
money that he knew he was not entitled to under
the contract. In support of his contention that
he was not trying to obtain financial gain for
himself, he points out that the money did not go
into his personal account but went towards the
completion of the contract.

  We addressed that very issue in Moede, where we
held that it is not necessary for the defendant
to receive personal benefit to support a fraud
conviction (in that case, bank fraud). Rather, it
is sufficient that the defendant intended to
cause actual or potential loss to the victim. 48
F.3d at 242. We have also held that it is
irrelevant in a fraud prosecution that the
defendant sincerely believed that he would
ultimately be able to return the victim’s money
after his scheme succeeded. See United States v.
Dunn, 961 F.2d 648, 650 (7th Cir. 1992) (an
honest belief that the defendant will ultimately
be able to perform is not itself a defense to the
fraud crime charged); United States v. Chandler,
98 F.3d 711, 716 (2nd Cir. 1996) (intent to repay
fraudulently obtained loan irrelevant in light of
exposure of victim to potential loss).

  Masquelier insists he is not propounding the
affirmative defense of good faith but rather
wishes to put on this evidence to show that the
government cannot prove an element of the crime.
However he frames his claim, the result is the
same. His ultimate intention to make good on the
contract is irrelevant to his intent to obtain
government money to which he was not entitled
through deceptive means. As our esteemed Chief
Judge commented at oral argument, to hold
otherwise would require us to overturn a thousand
years of criminal law. Indeed, Judge Posner
challenged Masquelier to find a case with a
contrary result, offering that if counsel was
able to find such a case, Judge Posner would eat
his hat "in public." Fortunately, the Chief will
not be forced to feast on his fedora./1 Fraud is
complete when the defendant obtains money by
false pretenses. United States v. Stafford, 136
F.3d 1109, 1112 (7th Cir. 1998), modified, 136
F.3d 1115 (7th Cir. 1998), cert. denied, 119 S.
Ct. 123 (1998). What Masquelier intended to do
with the fraudulently obtained funds is
irrelevant and the district court was well within
its discretion to exclude any evidence of the
government’s allegedly bad acts or Masquelier’s
plans to follow through on the contract. Id.
Masquelier did not stumble over the Department of
Defense; he kicked it.

AFFIRMED.



/1 Masquelier cites Judge Posner in his opening
brief for the proposition that intent should be
approached in cost-benefit terms, imposing
punishment only where it would serve as a
deterrent to socially undesirable behavior. See
Richard A. Posner, The Problems of Jurisprudence, ch. 5
(1990). Because he was engaging in behavior most
likely to result in the contract being fulfilled
(a socially desirable result), Masquelier urges
that he should be allowed to put on his evidence.
He boldly asserts that "any deterrent-creating
sanctions in this case should be applied to the
government, not the defendant." We are reminded
of the adage defining chutzpah, where the man who
kills both his parents throws himself on the
mercy of the court because he is an orphan. True,
certain theories of economic efficiency are easy
to misapprehend, but we are beyond certain that
Judge Posner would not advocate fraud as a self-
help remedy for breach of contract.
