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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF SOUTHERN DIVISION

UNITED STATES OF AMERICA,

Plaintiff, Case No. 10-20403 v. Hon. Nancy G. Edmunds

VICTOR M. MERCADO, D-4,

Defendant. /

DEFENDANT VICTOR MERCADO’S SENTENCING MEMORANDUM Defendant Victor Mercado asks the Court to consider the facts discussed in the following Sentencing Memorandum when determining an appropriate sentence.

Mercado respectfully requests a sentence of probation due to the fact that he acted under duress and did not profit nor ever try to profit illegally from his position as

Director of the Water and Sewerage Department.

INTRODUCTION Mercado stood trial along with co-Defendants Kwame Kilpatrick, Bernard

Kilpatrick, and Bobby Ferguson. The forty-six count Fourth Superseding

Indictment alleged a RICO , bribery, extortion, mail/wire fraud, obstruction of justice, false tax returns, tax evasion, money laundering, aiding & abetting, and forfeiture of illegal proceeds. Unlike his co-Defendants, Mercado did not receive any money beyond his salary. Mercado was charged in Count One, the

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RICO Count (18 U.S.C. § 1962(d)); Count Four, Extortion (18 U.S.C. § 1951);

Count Five, Extortion (18 U.S.C. § 1951); and Count Fourteen, Obstruction of

Justice (18 U.S.C. § 1512(c)).

As the government’s case moved to the counts related to Mercado, Mercado began to establish his defense via cross-examination of government witnesses.

However, early in that part of the government’s case, and before Mercado had a chance to set out his defense, Mercado agreed to a narrow Rule 11 Plea

Agreement. The government filed a Fifth Superseding Information alleging one count of Conspiracy to Commit an Offense Against the United States, 18 U.S.C. §

371. Mercado pled guilty to that count and in exchange the government agreed to dismiss all the counts in the Fourth Superseding Indictment, and further agreed to a downward departure under U.S.S.G. § 5K.2.0 due to the existence of mitigating facts not adequately taken into consideration in the sentencing guidelines, including that Mercado was acting under duress of a type not amounting to a complete defense. The parties agreed that if the Court were to grant the downward departure, the guideline range should be no higher than 18 months, with no minimum.

Mercado admits to his mistakes, but wants the Court to consider the context when imposing sentence, including understanding the difficult job he was asked to perform by the late Honorable Judge Feikens, the long-standing history of

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inefficiency at the Detroit Water and Sewerage Department, the close relationships which existed between construction contractors and city government, and the unusual power wielded by Kilpatrick as Special Administrator over the DWSD, which allowed him to override and Michigan state law. The

Mayor abused this power, which was meant to combat the Clean Water Act compliance problems with DWSD, and instead personally enriched himself and his friends. City workers like Mercado found themselves in the unenviable position of needing to placate a corrupt Mayor and his corrupt administration.

This memorandum will provide a portrait of Victor Mercado, his family, and career, and describe the nature of the duress under which he and the government agree he acted. Mercado asks the Court to consider all of the circumstances involved and impose a sentence of probation, which is appropriate in light of the duress under which Mercado acted and the fact that Mercado, in contrast to all the other defendants who have plead guilty or been convicted at trial, never took a single illicit penny.

BACKGROUND

Personal Background Victor Mercado is sixty two years old. He was born in 1951 in the Bronx and raised by his parents, who emigrated from Puerto Rico. His parents taught him and his three siblings the value of hard work and education, lessons Mercado has

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lived by his entire life and which he has imparted to his children. Mercado grew up in near poverty, close to Yankee Stadium, but was never able to afford a ticket to a ball game. He has never been materialistic, knowing that a job well done is its own reward.

Mercado has always been employed from the time he was a young man. He worked his way through college in New York, earning a Bachelor’s Degree in

Industrial Management and Economics. His work ethic and ability to get things done resulted in him landing a wide range of jobs around the world as his expertise and reputation grew, including London, the Dominican Republic, Puerto Rico,

Argentina, Mexico, Panama, Turkey, and Costa Rica. His reputation and work ethic are what lead Hendrick & Struggles (a head hunting firm) to recruit him for the DWSD director job. After leaving DWSD, he was fired from his job as director at BexarMet Water in San Antonio, , because of the Indictment. He eventually took a job working at a home improvement store as a floor clerk, a job he maintains to this day.

Mercado is a loving father to his three children from his first marriage and his step daughter, whom he considers his own daughter, from his second marriage.

He is married to Dadila Mercado and resides with her in Florida today. His wife and children have been supportive of him through this ordeal and are concerned for his future. Please see character reference letters submitted separately to the court

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from family, friends, and former coworkers which demonstrate the impact and positive influence he has had on all of their lives.

Hiring Into Detroit Water and Sewerage Department Mercado had no ties to Detroit prior to being hired to run the DWSD. He was not brought in because he was a friend of Kilpatrick, whom he did not meet until he arrived in Detroit. Judge Feikens and Kilpatrick engaged a head hunting firm to perform a nationwide search to identify an appropriate candidate, and that firm identified Mercado as the best candidate.

The reason for Judge Feikens’ involvement in the hiring process is explained in the history of federal court oversight of the DWSD.1 Judge Feikens appointed various Detroit mayors to the Special Administrator position, empowering them to override both state and city laws, giving them “the power to swiftly take the necessary actions to achieve compliance” with the Clean Water Act.2 This power was analogous to that of a federal receiver.3 Mercado learned at his very first job interview that the job at the DWSD was going to be unique, because he would be reporting to both a federal judge as well as Kilpatrick.

Mercado knew that Kilpatrick’s responsibility was to ensure compliance with the Clean Water Act, and Mercado knew Kilpatrick could ignore city

1 For a brief history of the Special Administrator authority, see United States v. Michigan, 409 F. Supp. 2d 883, 885- 88 (E.D. Mich. 2006). 2 Id. at 886. 3 Id. at 886. 5

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contracting laws and override DWSD contracting procedures at whim. This helps explain the duress under which Mercado acted under during his tenure at DWSD.

Mercado knew Kilpatrick had the legal authority to refuse to approve contracts until he was satisfied and could simply dictate to whom DWSD contracts should be awarded. Mercado felt pressure to do as Kilpatrick demanded, even though what

Kilpatrick demanded seemed at odds with city contracting ordinances and seemed to favor Ferguson. Mercado was not one to let bureaucratic obstacles stand in his way. He did not care about politics and Kilpatrick’s motives, he just wanted to do his job, to ensure the DWSD complied with the Clean Water Act and also ensuring that proper investments in capital improvements were timely made to the constantly aging and failing Detroit water system—as he had learned to do in New

York and San Juan.

Mercado’s Tenure at the DWSD On his first day on the job, the DWSD experienced a massive water main break on E. Jefferson Avenue near Mt. Elliott. Mercado told his deputy director

Gary Fujita to take him to the repair site. Mercado spoke with the repair foreman, observed the repair work, and stated to Fujita that the repair methods being used were 40 years old and that there were cheaper, safer, and quicker methods available that he had learned at prior positions in New York and San Juan.

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Fujita had served as interim director of the DWSD while Judge Feikens and

Kilpatrick searched for a new director. Fujita told Kilpatrick that he would work at the DWSD until he was eligible for retirement in June, 2002, but he ultimately stayed and served as Deputy Director under Mercado until 2008 because of

“Victor’s commitment to the successful operation of the water and sewerage systems [which] made the day-to-day work effort challenging and fulfilling for”

Fujita until Mercado resigned. See, character reference letter from Gary Fujita submitted separately to the court.

Mercado shook up the DWSD shortly after he arrived, starting with reducing the Engineering Department’s influence and elevating the prominence of Waste

Water Operations and the Maintenance Department. Mercado felt that engineering held too much sway over what projects were given priority, when the water system should focus on its core functions of treating waste water and maintenance of an aging water system. This upset DWSD engineering employees who had become comfortable with the inefficient way business had been done for years. DWSD engineers had long been too close to the contractors who bid on contracts.

Government witness interviews showed there were information leaks at

DWSD during the contracting process and how Mercado took steps to combat leaks by making the bid scoring process more secretive. Some engineering employees took offense to this, though it would have been inappropriate for them

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to share inside DWSD information, including bid scoring. Unknown to Mercado, it was Kilpatrick and his administration who were leaking the 30, 60, and 90 day reports listing what bids would be coming up soon to contractors, including

Ferguson. Trial evidence showed it was Kilpatrick, not Mercado, who maintained close relationships with major construction contractors and who accepted private jet flights and gifts from contractors with no expectation of repayment. Mercado never took any private jet flights, nor was he an active player in politics. Mercado did not like Kilpatrick, or Ferguson, or the glad-handing attendant to politics in general. Mercado took the job, because water system construction and maintenance was what he loved to do and because he was very good at it.

Judge Feikens lauded Mercado’s performance. Mercado took steps to reduce excess vehicle inventory and staffing, saving DWSD money. The late and highly respected Hon. Judge Feikens noted that when difficulties arose,

Mercado has promptly alerted this Court to any potential problems and reported on his efforts to solve those problems in regular oversight meetings. The formal reports required by the Consent Judgment's have also been completed in a timely fashion.

Mercado has cut DWSD's operating budget by approximately 10 percent without having a negative impact on compliance. Consequently, the increases in water rates during Mercado's tenure have been relatively small, especially in comparison to previous years. DWSD's water and sewerage rates are among the lowest in the nation despite the cost of many required improvements. The reduction in rate increases also has 8

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not impeded DWSD's current compliance with federal and state law. Moreover, the reduction in rate increases has not impeded DWSD's ability to comply with federal and state law in the future, in that DWSD's bond ratings have remained good.

Mercado has proven himself capable of executing the necessary projects to comply with federal and state law while keeping costs low. The ability to keep costs low without jeopardizing DWSD's services is key to the long- term success of DWSD's compliance, because DWSD's difficulties in maintaining compliance with federal and state law has been exacerbated by the continuing controversies over rate increases resulting from heavy infrastructure requirements.

United States v. Michigan, 409 F. Supp. 2d 883, 887 (E.D. Mich. 2006).

Judge Feikens noted that Mercado had “regular oversight meetings” with the court and was in communication with Judge Feikens about what the DWSD was doing.

Mercado’s actions and achievements stand in contrast with those of

Kilpatrick. Kilpatrick engaged in corruption, conning everyone around him for years on end while lining the pockets of his friends and family. But Kilpatrick never attempted to bribe Mercado. Mercado did have a weakness; he did not care about politics and made it his work to cut through bureaucracy. DWSD was terribly inefficient when Mercado took the job. His purpose was to streamline operations. Given that Kilpatrick held Special Administrator authority which allowed him to cut through red tape, Mercado decided it was better to get the job done as Kilpatrick requested than not get the job done at all.

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Kilpatrick manipulated not only the Court, but also Mercado. Perhaps the most amazing aspect was how long he got away with it, and how it was ultimately a cache of text messages that lead to his downfall.

The text messages showed that Mercado was not a Kilpatrick insider. They showed that Kilpatrick had frequent conversations with Ferguson, excluding

Mercado. They viewed him as an obstacle and talked about Mercado, not to him, and how to manipulate him. On numerous occasions Ferguson complained to

Kilpatrick that Mercado was not helping him out. Mercado’s failure to recognize this manipulation and appreciate how corrupt Kilpatrick was is a mistake for which he will suffer the remainder of his days.

GUILTY PLEA Mercado pled guilty to the one count Information charging violation of 18

U.S.C. §§ 371 and 1951. Mercado agrees that the offense occurred, and agrees that there are mitigating factors demonstrating he acted under duress not amounting to a complete defense, which supports the agreed upon basis for a downward departure under U.S.S.G. § 5K2.0.

The offense occurred on February 1, 2007. DWSD was planning to put a contract out for bid called PC 755. Walbridge was a contractor which was going to bid on the contract. Ferguson, without Mercado’s knowledge, began to pressure

Walbridge to partner with him. Before the contract was put out for bids, Mercado,

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acting on the direction of Kilpatrick, telephoned Ronald Hausmann of Walbridge.

Mercado said that he knew Hausmann’s boss, John Rakolta, had recently spoken with Kilpatrick, and that he understood Walbridge was considering partnering with

Ferguson. Mercado told Hausmann that if Walbridge were to partner with

Ferguson DWSD would approve of it, in order to influence Walbridge to partner with Ferguson. Kilpatrick often pressured Mercado, and in this instance he relented and relayed the message from Kilpatrick.

While Mercado accepts his responsibility, he and the Government also agree that he was acting under duress sufficient to warrant a downward departure.

Mercado did not act out of a motive for personal gain. As the Government indicated on the record during Mercado’s plea, Mercado is the only defendant to have plead guilty as a result of the investigation who did not receive money illegally. Mercado did not take a single penny beyond his salary, which was negotiated by the head hunting firm which recruited him.

Mercado had frequent pressure and interference from Kilpatrick, who abused his position as Special Administrator. He was supposed to use that position to ensure DWSD complied with the Clean Water Act, but instead used it to influence the contracting process to benefit his friend, Ferguson, and himself.

Mercado could not oversee construction and repairs of the water system if

Kilpatrick stood in the way, and Mercado admits he succumbed to the pressure.

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The existence of pressure was apparent even to outside observers. Hausmann told the Government that during the February 1, 2007 conversation with Mercado, he could tell Mercado was uneasy about relaying the message.

Hausmann also told the FBI about an incident at a City of Detroit Christmas party during December 2006. Hausmann was speaking with Mercado when

Kilpatrick called Mercado over to speak with him privately. When Mercado returned from the conversation with Kilpatrick, he asked Hausmann about a contaminated soil issue at a construction project commonly referred to as Baby

Creek/Patton Park. Walbridge and Ferguson were working together on that project, and at that time were negotiating a billing dispute. Hausmann told the FBI this conversation made him uncomfortable, because it appeared Kilpatrick was injecting himself into issues between a prime contractor and a sub-contractor.

Hausmann also said that Mercado had a reputation as an honorable man, and in his opinion, Mercado never asked him to do anything that was “over the line.”

Hausmann described another conversation which showed that while

Mercado may have succumbed to pressure and relayed messages from Kilpatrick, he was not fully informed of Kilpatrick and Ferguson’s schemes. On February 8,

2007, Hausmann and Mercado met at Mercado’s request. Mercado told Hausmann that Kilpatrick asked him to make sure there were no issues between Walbridge and Ferguson. Hausmann asked Mercado if he knew that another contractor, DCI,

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was also to be in the deal at Ferguson’s insistence. Mercado said he did not know about DCI’s involvement, only Ferguson’s. Hausmann informed Mercado that

Ferguson was asking for a large percentage of the contract through a joint venture, and Mercado replied he did not know that and found it surprising. Mercado told

Hausmann, “Ron, as a friend, I want you to know that this job is going to be awarded to the low bidder. You have to be low, no matter who’s on your team.”

Hausmann took this statement as “man to man advice” outside of the directions

Mercado was taking from Kilpatrick. Mercado, once informed of the demands upon Walbridge by Ferguson, tried to correct it by indicating that the low bidder would win the contract regardless of the contractor’s partners. Walbridge was ultimately not the lowest bidder and did not receive the contract.

DOWNWARD VARIANCE IS WARRANTED 18 U.S.C. § 3553 (a) instructs courts to impose a sentence “sufficient, but not greater than necessary, to comply with the purposes set forth” within the statute. United States v Foreman, 436 F. 3d 638, 644, fn.1 (6th Cir. 2006). Of course, the Court must consider the 18 U.S.C. § 3553(a) factors when determining the appropriate sentence. And 18 U.S.C. § 3553(b) allows the Court to depart downward if it finds that “there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission.”

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Mercado acknowledges the seriousness of his offense. However, the agreement acknowledges the existence of mitigating facts not adequately captured by the guidelines, namely the constant pressure from Kilpatrick. That duress warrants a U.S.S.G. § 5K.2.0 downward departure. Mercado’s plea deal sets a guideline range of no higher than eighteen months, with no minimum. Therefore a sentence of probation would be within the agreed upon guideline range.

In Gall v. United States, 552 U.S. 38, 48-49, 128 S. Ct. 586, 169 L. Ed. 2d

445 (2007), the Supreme Court recognized that probation is a significant sanction:

Offenders on probation are nonetheless subject to several standard conditions that substantially restrict their liberty. . . . (“Inherent in the very nature of probation is that probationers ‘do not enjoy the absolute liberty to which every citizen is entitled.’” . . . Probationers may not leave the judicial district, move, or change jobs without notifying, and in some cases receiving permission from, their probation officer or the court. They must report regularly to their probation officer, permit unannounced visits to their homes, refrain from associating with any person convicted of a , and refrain from excessive drinking. U.S.S.G. § 5B1.3. Most probationers are also subject to individual “special conditions” imposed by the court.

As for the characteristics and history of the defendant, Mercado is sixty- two years old. He suffers from diabetes and high blood pressure, and those conditions are not under control. Since he secured employment at a home improvement store as a retail floor clerk, Mercado worked 40 hours a week, except for the time he spent attending trial. Since he is now receiving Social

Security, he is working 25-30 hours per week. He is the sole provider for him and

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his wife. If Mercado is sentenced to prison, his wife would have no means of support beyond her small social security income and a pension, since their finances are in ruins and their mortgage is under water.

The government acknowledges that Mercado never received any money illegally, which distinguishes him from every other defendant charged in this investigation. He has no criminal history. His career and life’s work are forever destroyed. He will never again hold a position of any public authority or trust, because of this conviction. There is virtually no risk that Mercado will ever commit a crime again. He has suffered public shame and embarrassment in the eyes of his peers, friends and family, and will forever be remembered not for the good and honest work he did over the course of his life and career, but only for this lapse of good judgment. Mercado’s fall from director of one of the largest municipal water systems in the country to now barely being able to afford rent will have a deterrent effect on any person tempted to commit a similar crime.

Paragraphs 109 through 115 of his PSR note repeatedly that “any sentence” will reflect the seriousness of the offense, protect the public from further crimes, and deter future conduct. The PSR notes that it was Mercado’s relationship with

Kilpatrick that led him to engage in the conduct charged, and that he has never otherwise broken the law. The PSR notes that if sentenced to probation Mercado could be required to report all financial information to the probation department

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and be ordered to maintain a restitution payment plan. Probation is an appropriate sentence.

CONCLUSION Mercado respectfully requests that the Court accept the Rule 11 agreement, weigh the § 3553(a) factors as well as its discretion to deviate downward, consider his life as well as the duress he experienced, and impose a sentence of probation.

Mercado will pay for his crime for the remainder of his life. He has suffered personal ruin from which he will never recover. He regrets his actions and the harm to the public trust, regrets ever meeting Kilpatrick, and regrets not simply walking away when Kilpatrick pressured him to cross the line. Mercado asks the

Court for mercy and to allow him to return home to his wife, salvaging what remains of an otherwise shattered life.

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Respectfully submitted,

CLARK HILL PLC By: s/ Martin E. Crandall Martin E. Crandall 500 Woodward Avenue, Suite 3500 Detroit, MI 48226 (313) 965-8300 [email protected] P26824 Attorneys for Defendant Victor M. Mercado

John R. Minock CRAMER MINOCK & SWEENEY PLC 339 E Liberty Street, Suite 200 Ann Arbor, MI 48104 (734) 668-2200 [email protected] (P24626) Co-Counsel for Defendant Victor M. Mercado Date: May 15, 2014

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CERTIFICATE OF SERVICE I hereby certify that on May 15, 2014, my secretary electronically filed the foregoing paper with the Clerk of the Court using the ECF system which will send notification of such filing to all attorneys of record.

s/ Martin E. Crandall Martin E. Crandall 500 Woodward Avenue, Suite 3500 Detroit, Michigan 48226 (313) 965-8300 [email protected] (P26824) Attorneys for Defendant Victor M. Mercado

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