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United States v. Ganos

United States District Court, E.D. Wisconsin

May 20, 2019




         Defendant Sonag, Inc. moved to dismiss Counts One (conspiracy to engage in mail and wire fraud) and Fourteen (conspiracy to engage in money laundering) of the superseding indictment under Rule 12(b)(3)(B).[1] Dkt. No. 36. Sonag argues that, as a solely-owned corporation, it cannot conspire with anyone if its sole owner, co-defendant Brian Ganos, did not do so. Id. at 1. Ganos moved to dismiss Count Fourteen, asserting that he could not conspire with his solely-owned corporation, Sonag. Dkt. No. 38. Magistrate Judge David Jones has recommended that the court deny the motions because the superseding indictment alleges that Ganos and Sonag each conspired with at least one other person or entity. Dkt. No. 90. The defendants have objected to that recommendation. Dkt. Nos. 96, 99. The court adopts the recommendation and denies the motions to dismiss.

         I. BACKGROUND

         A. The Allegations

         The superseding indictment alleges that between June 2004 and August 2016, Ganos was the sole owner and president of Sonag Co., a construction company. Dkt. No. 25 at ¶11. He also was “the purported” CEO and treasurer of a company called Sonag Ready Mix, LLC; Sonag (owned by Ganos) owned 50% of Sonag Ready Mix. Id. Nuvo Construction Co., Inc. was a construction company that “purported to provide ready-mix concrete.” Id. at ¶16. A person referred to as “J.L.” was “Nuvo's nominal president and 85% owner, ” and the superseding indictment alleges that Ganos “purported to own only 15% of Nuvo and to serve only as its vice president.” Id. According to the superseding indictment, the Small Business Administration had certified Nuvo as a Small Disadvantaged Business, and it was certified by Milwaukee County as a disadvantaged business enterprise to provide ready-mix concrete. Id. Mark Spindler co-owned an accounting firm that “performed outside accounting services for Ganos-affiliated companies, including Sonag Company, Nuvo Construction Company, Inc., C3T, Inc. and Sonag Ready Mix.” Id. at ¶12. (The superseding indictment identifies C3T as another construction company; an individual identified as “T.A.” was C3T's “purported president and majority owner, ” and was certified under the Department of Veterans Affairs' Service-Disabled Veteran Small Business program. Id. at ¶17.)

         Count One of the superseding indictment alleges that, in violation of 18 U.S.C. §1349, Ganos, Spindler, Sonag Co. and Nuvo conspired with each other to commit mail and wire fraud (18 U.S.C. §§1341 and 1343). Id. at ¶2. It alleges that they conspired

to operate companies with straw owners who qualified as a socially and economically disadvantaged individual or as a service-disabled veteran, but who did not actually control the companies. The conspirators then fraudulently obtained small business program certifications as to the status of the companies and used those certifications to obtain over $200 million in federal, state, and local contract payments to which they were not entitled.

Id. Count One describes the straw owners (including “J.L.” and “T.A.”), as well as the small business certification programs, processes and requirements. Those details help one understand how the conspiracy allegedly worked but are not necessary to understand the defendants' arguments for dismissal.

         Count Fourteen of the superseding indictment charges Ganos and Sonag with conspiring to launder money. Id. at 15, ¶¶45-46. It says that between 2007 and August 2016, Ganos and Sonag conspired with each other “and with other persons and entities known and unknown to the Grand Jury, including L.M. and Ganos-controlled entities Sonag I, LLC and Trinity Marketing Services, Inc.” to

knowingly conduct and attempt to conduct financial transactions affecting interstate commerce and foreign commerce, which transactions involved the proceeds of specified unlawful activity, that is, mail fraud and wire fraud in violation of Title 18, United States Code, Section 1341 and 1343, knowing that the transactions were designed in whole or in part to conceal and disguise the nature, location, source, ownership, and control of the proceeds of specified unlawful activity, and knowing that, while conducting and attempting to conduct such financial transactions, the property involved in the financial transactions represented the proceeds of some form of unlawful activity, in violation of Title 18, United States Code, Section 1956(a)(1)(B)(i).

Id. at ¶46. The count describes the mechanics of the alleged conspiracy; paragraph 48 states that “Ganos conspired with L.M. and Sonag Company to engage in the types of financial transactions described” in the count. Id. at ¶48. Again, the details of the transactions alleged in Count Fourteen are not necessary to understand Ganos's motion.

         B. The Arguments in the Motions

         Sonag asserted that, as a matter of law, “a solely-owned corporation cannot conspire separably from its owner.” Dkt. No. 36 at 3. It argued that “the acts and agreements of the owner are the acts and agreements of the corporation and are the only way in which the solely-owned corporation, itself a legal fiction at all only by statute, can act or agree, when the owner holds all shares of the corporation.” Id.

         Despite the straightforward nature of this argument, Sonag filed a fourteen-page brief in support of the motion. Dkt. No. 37. After explaining that the superseding indictment does not allege that Sonag committed any substantive offenses, id. at 2-4, the brief devotes six pages to tracing the development of the law of conspiracy, starting in England in the late thirteenth and early fourteenth centuries and moving through its growing popularity in the early twentieth century United States to the doctrine of intra-corporate conspiracies in the “modern era.” Id. at 4-10. While conceding that an intra-corporate conspiracy is possible in criminal cases, Sonag argued that an intra-corporate conspiracy “requires two or more agents of the corporation, not just one.” Id. at 10 (citing United States v. Hughes Aircraft Co., Inc., 20 F.3d 974, 979 (9th Cir. 1994); United States v. Sain, 141 F.3d 463, 474-75 (3d Cir. 1998); United States v. Hartley, 678 F.2d 961, 970-972 (11th Cir. 1982), cert. denied, 459 U.S. 1170 (1983)). Sonag explained that

[w]ithout at least one other mind in accord, there is no “agreement” in any coherent sense at all; there is only a bad idea hiding between two ears. That idea may die or remain inert. Only if two or more people share it, affirm it mutually, does the risk arise that the inertia or second thoughts of one will not stop action of the other, or that each will be emboldened by a sense of shared mission.

Id. at 7.

         Sonag reached the heart of his argument on the penultimate page of the brief. It asserted that, while Brian Ganos “may remain a defendant in Count 1, ” because the superseding indictment charged him with conspiracy with Spindler (an individual) and Nuvo (a corporate entity), “as a matter of law, Sonag could not have conspired separately with anyone.” Id. at 13. Thus, Sonag asserted, the court must dismiss Count One “as to Sonag.” Id. It argued that the court must dismiss Count Fourteen entirely, because “Sonag and Ganos are the only two named defendants in that count and the superseding indictment suggests nobody else with whom they legally could have conspired.” Id. It said that “[a] single formulaic reference to ‘other persons and entities known and unknown to the Grand Jury' does not cut it.” Id.

         Ganos, relying on Sonag's brief, was concise. Dkt. No. 38. He asserted simply that Count Fourteen accuses him of conspiring with his own, solely-owned corporation, and that “[a] single owner and his corporation cannot conspire with each other.” Id. at 3 (case citations omitted).

         C. The Government's Response

         The government responded that rather than standing for the proposition that a solely-owned corporation was incapable of conspiring, the cases the defendants had cited stood for “the much narrower proposition that a solely-owned corporation cannot conspire solely with its owner . . . .” Dkt. No. 57 at 1-2. Dkt. No. 57 at 2. That proposition, the government asserted, did not require dismissal of Counts One and Fourteen, because “the Superseding Indictment alleges a conspiracy that involved additional human and corporate co-conspirators beyond Sonag's owner, Ganos.” Id. at 2.

         The government contended that the defendants based their argument on a logical fallacy-

(1) Premise: An intra-corporate conspiracy requires two human individuals acting on behalf of a corporation.
(2) Premise: A corporation can only be guilty of a conspiracy through an intra-corporate conspiracy.
(3) Conclusion: A solely-owned and solely-controlled corporation cannot conspire as a matter of law because there is no way it can form an intra-corporate conspiracy.

Id. at 2 (citation omitted). It argued that the second premise is false, citing cases recognizing that solely-owned and operated corporations are capable of conspiring with other entities or individuals outside the corporation. Id. The government also disputed the defendants' assertions that Ganos was the only possible human who could have worked for, controlled or acted on behalf of Sonag. Id. at 3.

         The government pointed out that Count One of the superseding indictment alleges that Sonag and Ganos conspired with Spindler, Nuvo Construction Company and unindicted co-conspirators J.L., J.H. and T.A. Id. at 4-5. It observed that Count Fourteen alleges that Sonag and Ganos conspired to engage in money laundering with unindicted co-conspirator L.M. Id. Finally, the government noted that, if it does not prove at trial that Sonag conspired with an individual or entity other than Ganos, Sonag could move for dismissal at the close of the government's case-in-chief. Id. at 5.

         D. The Defendants' Replies

         In reply, Sonag accused the government of “sovereign sophistry, ” based on its perception that the government had argued that Sonag-separate from Ganos-could conspire with others. Dkt. No. 63 at 1. It argued for the first time that “the attempt to try or to punish both Sonag and Ganos for the conspiracies alleged in Counts 1 and 14 is an attempt to impose double jeopardy on Ganos.” Id. at 2. Interestingly, Sonag asserted that Ganos faces “conviction and punishment twice on both Counts 1 and 14: once for what he agreed as Brian Ganos and again for the self-same agreement as Ganos for Sonag.” Id. While conceding that it “cannot speak for Ganos here, of course, ” Sonag pointed out that Ganos had joined Sonag's motion to dismiss Counts One and Fourteen, and advised Ganos to “consider an Abney appeal if the government's effort to try both him and his solely-owned, solely controlled fictional creature succeeds on these pretrial motions.”[2] Id. at 10.

         Sonag also argued that what it characterized as the government's reasoning-that Sonag could conspire with outside people and that Ganos could conspire with (possibly the same) outside people-led to the conclusion that Counts One and Fourteen are duplicitous, charging two conspiracies in the same counts. Id. at 11. Sonag also asserted that “[t]he grand jury here clearly meant to charge only one conspiracy-one in which Ganos and Sonag, impossibly as a legal matter here, conspired with each other, ” and that the government's “effort at mitosis to create two conspiracies in one count where the grand jury meant only one” violated the Grand Jury Clause of the Fifth Amendment. Id. at 12 (citing United States v. Miller, 471 U.S. 130, 135-45 (1985). Finally, Sonag accused of the government of postulating a “parade of horribles, ” a world where individuals could form solely-owned corporations, use those corporations to commit fraud, then escape liability because a solely-owned conspiracy cannot (according to Sonag) conspire. Id. at 13. Sonag pooh-poohed this postulation, arguing that the individual owner still could be held liable, as could the corporation if two or more individuals within the corporation conspired, and stated that “[t]he government should cancel plans for this parade.” Id. at 13-14.

         Ganos's reply consisted of a single paragraph, adopting Sonag's reply and stating that “Ganos and Sonag are not just a palindrome” but are, in fact and law, the same. Dkt. No. 66.

         II. ...

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