John Howard | Cohen Seglias Pallas Greenhall & Furman
Can deception used to secure a construction project bid constitute mail or wire fraud, even if there was no intent to financially harm the bid solicitor or even lower the project’s cost? That’s one of the questions the United States Supreme Court considered in Kousisis v. United States during an oral argument on December 9, 2024. Depending on the Court’s opinion, which is expected to be issued sometime this summer, contractors and subcontractors could face increased risk of wire fraud charges for making what many might consider “white lies” to win a bid.
Case Background: Kousisis v. United States
The Pennsylvania Department of Transportation (PennDOT) received federal grants in 2009 and 2010 for two major bridge-repair projects in Philadelphia. PennDOT put the projects out for bid and included Disadvantaged Business Enterprise (DBE) participation goals as part of the contract requirements. The DBE program, created by the U.S. Department of Transportation (USDOT), is designed to help small businesses owned by members of historically disadvantaged groups compete for federally funded contracts.
A joint venture known as the Alpha-Liberty Joint Venture (ALJV), formed by Alpha Painting & Construction Co., Inc. (Alpha) and Liberty Maintenance, Inc., submitted the lowest lump-sum bid for each project and was awarded both contracts. Stamatios Kousisis served as a project manager for the joint venture and was involved in the DBE planning and reporting. ALJV submitted plans showing how it would meet the DBE requirements on both projects, and over time, the joint venture reported qualifying payments to DBEs to PennDOT. However, those reports were misleading. In reality, the listed DBE supplier was a “pass-through,” and ALJV purchased supplies from non-DBE suppliers and paid the DBE a 2.25% markup on each invoice to appear compliant. Despite this act of deception, PennDOT received exactly what it wanted and did not contest the quality of the work or the supplied materials.
Nevertheless, the federal government charged Alpha and Kousisis specifically with wire fraud, wire fraud conspiracy, and causing the submission of false statements in violation of federal law. After a trial, the jury found them guilty on some of the charges. The trial court then sentenced Kousisis to 70 months’ imprisonment, ordered Alpha to forfeit 100% of its profits on the projects, and imposed a $500,000 fine. The Court of Appeals for the Third Circuit affirmed the convictions.
Supreme Court Impressions
In general, the Justices appeared split as to whether such lies were indictable under the federal wire fraud statute. While Alpha and Kousisis argued that ruling in the government’s favor would massively expand its ability to indict anyone for making the slightest lie or exaggeration to induce another to enter into a contract, the government argued that not recognizing such deception would allow parties to deliver completely different goods and services than what they promised as long as the goods and services were of equal economic value. The Justices posed multiple hypotheticals to both sides to better understand their positions and to perhaps come to a consensus on the issue, but the Court appeared no more convinced of either position. One idea that seemed to ripple in the Court was that parties who commit such relatively minor misconduct should merely be fined, not imprisoned. But only time can tell which position wins out or if the Court will take an alternative stance on the issue.
What Lies Ahead
While the Supreme Court has yet to render its decision, one thing is clear: contractors and subcontractors must fully understand the requirements in their contracts, including DBE certifications, and ensure they can meet them before making promises they cannot or do not intend to keep, or they risk facing significant fines and prison time. Stay tuned for part two of this blog, which will be published after the Supreme Court releases its opinion.
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