Opinions of the United 1995 Decisions States Court of Appeals for the Third Circuit
8-23-1995
United States v Coyle Precedential or Non-Precedential:
Docket 94-2208
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Recommended Citation "United States v Coyle" (1995). 1995 Decisions. Paper 233. http://digitalcommons.law.villanova.edu/thirdcircuit_1995/233
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova University School of Law Digital Repository. It has been accepted for inclusion in 1995 Decisions by an authorized administrator of Villanova University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu. UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
N0. 94-2208
UNITED STATES OF AMERICA
v.
MICHAEL C. COYLE,
Appellant
On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 93-cr-00329)
Argued July 17, 1995
Before: SLOVITER, Chief Judge, SCIRICA, Circuit Judge, 298 and AMBROSE, District Judge
(Filed August 23, 1995)
Elizabeth K. Ainslie (Argued) Ainslie & Bronson Philadelphia, PA 19107
Attorney for Appellant
Robert E. Goldman Tammy E. Avery (Argued) Office of United States Attorney Philadelphia, PA 19106
Attorneys for Appellee
1 OPINION OF THE COURT
SLOVITER, Chief Judge. Michael C. Coyle appeals his conviction and sentence on
three counts of mail fraud, 18 U.S.C. § 1341, five counts of
making false statements on documents required by ERISA, 18 U.S.C.
§ 1027, and two counts of blackmail, 18 U.S.C. § 873. I.
Facts and Procedural Background
Michael C. Coyle was the Chief Financial Officer for
Health Corporation of America (HCA) from December 1986 through
October 1990. HCA, a publicly traded corporation, was in the
business of designing, operating and administering medical,
dental and vision care plans. It had two subsidiaries: the North
American Dental Administrators (NADA) and the Cytex Corporation.
Through the assistance of Larry Smith, the principal of Eastern
State Casualty Associates, HCA was awarded three contracts by the
United Paper Convertors Local 286 Welfare Trust Fund to
administer plans providing health care benefits to members of the
Paper Convertors Local 286. These are employee benefit plans
subject to Title I, as amended, of the Employee Retirement Income
Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1145. The
duration of these particular contracts is unclear from the record
although it appears that the contracts were renewed prior to
their eventual termination in 1990.
NADA administered the Fund's dental plans for members
in New Jersey (New Jersey dental plan). Cytex administered the
2 Fund's dental plan for members in Pennsylvania and Delaware
(referred to here as the Pennsylvania dental plan). A division
of Cytex, National Vision Plan (NVP), administered the Fund's
vision care plan. The companies will be referred to collectively
as HCA.
HCA received monthly premiums from the Fund, which were
calculated at a fixed rate per covered employee per month, and
HCA made the payments to participating physicians, dentists and
laboratories. The Pennsylvania dental contract covered about
2700 members while the New Jersey dental contract covered about
300. Under the contracts covering the vision care plan and the
New Jersey dental plan, all premium payments not disbursed to
participating physicians or laboratories or retained as
administrative costs were to be returned to the Fund. There was
no similar provision for refund of surplus premiums in the
Pennsylvania dental contract although the contracts appear to
have functioned similarly in all respects. In particular, there
was no refund of any premiums under any of the contracts.
All three contracts contained provisions for assuring
disclosure to and record inspection by the Fund, and required HCA
to prepare and submit to the Fund annual reports containing
complete and accurate accounting of all funds received and
disbursements made.
Under ERISA, the Fund was required to file a federal
Form 5500, also referred to as the "annual report," showing
financial information of, inter alia, assets and liabilities, income and expenses, including the amounts and purposes of
3 disbursements and money retained. See 29 U.S.C. § 1023. Form
5500 is filed with the Internal Revenue Service which provides
copies to the Department of Labor and the Pension Benefit
Guaranty Corporation. Schedules A, attached to Form 5500, must
be filed for every defined benefit plan when any benefits are
"purchased from and guaranteed by an insurance company, insurance
service, or other similar organization." 29 U.S.C. § 1023(e). In
addition, ERISA obliges "an insurance carrier or other
organization which provides some or all of the benefits under the
plan, or holds assets of the plan" to transmit and certify
certain information to the plan administrator, here the Fund, to
assist in its preparation of the annual report. See 29 U.S.C.
§1023(a)(2)(A). The information received by the Fund must be
maintained publicly. 29 U.S.C. § 1026(a).
It was Coyle's responsibility to approve all
disbursements to service providers on behalf of the Fund and to
prepare or to direct the preparation of the financial reports
submitted to the Fund. Pursuant to the Fund's request, Coyle
prepared or supervised the preparation of the Schedules A for
1986, 1987 and 1988 which HCA transmitted to the Fund's
accountants for inclusion with the federal Forms 5500.
Joseph R. Cusumano, the Chief Executive Officer of HCA
until 1990, devised a scheme whereby HCA would conceal the true
amount of disbursements and administrative costs, and thereby
retain as administrative retention a higher amount than reported
to the Fund or than permissible under at least some of the
contracts and under New Jersey law. See Dental Plan Organization
4 Act, N.J. Stat. Ann. §§ 17:48D-1 to 17:48D-24 (West 1985 and
Supp. 1995). In order to effectuate this scheme, Coyle prepared
the Schedules A with false or distorted figures, overstating the
amounts paid to medical service providers and understating the
amounts retained by HCA. Agent James L. Black, Department of
Labor, Office of Labor Racketeering, testified that Coyle
understated the amount of premiums retained by HCA by $84,000 in
1986, and $214,000 in 1987 and 1988. The government's evidence
shows an understatement of administrative retention by $298,000
during the relevant period. Coyle does not contest that the
figures provided by HCA were false or that he was responsible for
submitting them falsely.
When the scheme was uncovered, Coyle was indicted on
charges of mail fraud, false statements on documents required by
ERISA, and blackmail of Cusumano. By the time of Coyle's trial,
Cusumano, who had been convicted by a jury in 1990 on a 49-count
indictment for defrauding another welfare benefit plan, see
United States v. Cusumano, 943 F.2d 305 (3d Cir. 1991), cert.
denied, 502 U.S. 1036 (1992), was no longer involved with HCA. In
fact, Cusumano testified for the prosecution at Coyle's trial in
this case. The jury returned a verdict against Coyle on all
counts, and Coyle was sentenced to twenty-seven months
incarceration with three years supervised release and restitution
of $298,330.00.
On appeal, Coyle challenges the sufficiency of the
evidence on the mail fraud counts, the propriety of the jury
instructions on the false statements and blackmail counts, and
5 the district court's imposition of enhancements under the
sentencing guidelines for abuse of trust and the amount of the
fraud loss incurred by the Fund. II.
Mail Fraud Conviction
Coyle first argues that the evidence with respect to
the mail fraud was insufficient for the jury to find that he
engaged in a scheme intended to defraud the Fund or that the
mailings of the Schedules A were in furtherance of the fraudulent
scheme. When the sufficiency of the evidence at trial is
challenged, we must view the evidence in the light most favorable
to the government. Glasser v. United States, 315 U.S. 60, 80
(1942). A claim of insufficiency of evidence places a very heavy
burden on the appellant. We must affirm the convictions if a
rational trier of fact could have found defendant guilty beyond a
reasonable doubt, and the verdict is supported by substantial
evidence. United States v. Gonzalez, 918 F.2d 1129, 1132 (3d
Cir. 1990), cert. denied, 498 U.S. 1107, and cert. denied, 499
U.S. 968, and cert. denied, 499 U.S. 982 (1991).
The mail fraud statute, 18 U.S.C. § 1341, proscribes
any "scheme or artifice to defraud" in which the defendant
participated with the specific intent to defraud and in which the
mails were used "in furtherance of the fraudulent scheme." United States v. Hannigan, 27 F.3d 890, 892 (3d Cir. 1994). The scheme
"need not be fraudulent on its face but must involve some sort of
fraudulent misrepresentations or omissions reasonably calculated
to deceive persons of ordinary prudence and comprehension."
6 United States v. Pearlstein, 576 F.2d 531, 535 (3d Cir. 1978)
(citation omitted). Proof of specific intent is required, id. at
537, which "may be found from a material misstatement of fact
made with reckless disregard for the truth." Hannigan, 27 F.3d at
892 n.1.
Coyle argues that the Fund was not induced to enter
into these contracts by fraud. The issue before us is not
whether there was fraud in the inducement of the contract, but
whether Coyle intentionally engaged in a scheme by which the Fund
was defrauded of premiums under the guise of administrative
costs. There is sufficient evidence that there was such a
scheme, and that Coyle knowingly participated in it.
There was testimony that the amounts reported on the
Schedules A which Coyle prepared for the Fund did not accurately
reflect the administrative costs retained and the amounts paid to
providers. App. at 259-64. Cusumano, who was intimately
involved in the scheme, testified that "we reported improperly,
with my full knowledge, and kept more dollars for administration
than we were supposed to where we were compelled to by the New
Jersey contract and kept more dollars in Pennsylvania by not
paying the dentists as many dollars as we were supposed to pay
them, through various functions, we kept an excessive amount of
dollars for administration so that we could keep the company
going." App. at 54.
Cusumano also testified that Coyle was the HCA
representative who dealt with the Fund. App. at 56. Moreover,
it was Coyle who supervised the preparation of the Schedules A by
7 the HCA staff and he personally provided the figures for
administrative costs. App. at 44.
HCA accountant Keith Geyer explained that, rather than
following standard accounting procedures, Coyle set an amount to
report for administrative retention and directed him to subtract
that amount plus the amount of Smith's commissions from the
premiums received to arrive at the amount HCA reported as "claims
paid." Cusumano testified that a fair retention rate for
administrative costs would have been at most in the low 20% of
the total premiums received, App. at 60, and Alex Johns, a
consultant hired by the Fund, testified that 10% was a fair rate.
Agent Black produced documents evidencing that HCA's actual
retention rate (including the amount paid in commissions) was
between 30% and 70%. See App. at 251-64.
Coyle argues that the Fund Trustees were not deceived
by HCA because they knew that HCA was not accounting to the Fund
based on HCA's actual payments to the providers but was instead
accounting to the Fund on the basis of the "usual, customary and
reasonable" value of the providers' services. Coyle notes that
although Johns had advised the Trustees that the Fund might be
entitled to a refund from HCA and that it should cancel its
contracts with HCA, the Fund did not take that advice. In
addition, Coyle argues that the government failed to produce any
evidence that the Fund Trustees reviewed the Schedules A.
To the extent that Coyle is arguing the Fund was
negligent in ignoring Johns' advice and in failing to review the
Schedules A, we reject the relevance of those allegations, even
8 if true. The negligence of the victim in failing to discover a
fraudulent scheme is not a defense to criminal conduct. United
States v. Kreimer, 609 F.2d 126, 132 (5th Cir. 1980). As
Cusumano explained, the false reporting was necessary to the
scheme to retain the excessive administrative costs, because the
consequence of accurate reporting would have been that they
"would have had to lower the price for the ensuing year" for that
contract. App. at 54. As for the Fund's reliance, Jack Klein,
the Fund's accountant, testified that he had no obligation to
independently verify the validity of the figures provided by HCA
and, therefore, did not do so. An employer trustee for the Fund,
Theodore Seidenberg, who was later co-chair of Local 286's health
and welfare and pension boards, testified that the Trustees would
never have agreed to contract with HCA if they had known that HCA
was withholding between 50% and 70% for administrative costs.
App. at 165. A rational jury could infer that the Fund was
deceived by the intentional actions of Coyle and his associates.
Coyle's participation in HCA's unlawful activities by preparing
the Schedules A or directing their preparation with false figures
and the knowledge that the Schedules A would be sent to the
Fund's accountant and, eventually, to the IRS fully supports the
conclusion that he intended that the scheme's illicit objectives
be achieved. Pearlstein, 576 F.2d at 541.
Coyle also contends that even if the three Schedules A
on which the three mail fraud counts are predicated were intended
to conceal HCA's true profits from the Fund, the mailings did not
further the scheme. The three mailings which formed the basis of
9 the three mail fraud counts were a mailing of a Form 5500 with a
Schedule A by the Fund to the IRS in 1987, (Count One), a mailing
of a Schedule A by HCA to the Fund's accountant in 1988, (Count
Two), and a mailing of a Form 5500 with the Schedule A by the
Fund's accountant to the IRS in 1990, (Count Three).
The federal mail fraud statute reaches only the use of
the mails when that mailing is part of the execution of a fraud.
Schmuck v. United States, 489 U.S. 705, 710 (1989) (citing Kann
v. United States, 323 U.S. 88, 95 (1944)). However, the use of
the mails need not be an essential element of the scheme. Id.
(citing Pereira v. United States, 347 U.S. 1, 8 (1954)). It is
sufficient if the mailings are "'incident to an essential part of
the scheme' or 'a step in [the] plot.'" Id. at 710-11 (quoting
Badders v. United States, 240 U.S. 391, 394 (1916)). We have
held that the mailings must be sufficiently closely related to
the scheme to bring the conduct within the ambit of the mail
fraud statute, United States v. Lebovitz, 669 F.2d 894, 896 (3d
Cir.), cert. denied, 456 U.S. 929 (1982), and the "scheme's
completion [must] depend[] in some way on the charged mailings."
United States v. Otto, 742 F.2d 104, 108 (3d Cir. 1984), cert. denied, 469 U.S. 1196 (1985). Even mailings made after the
fruits of the scheme have been received may come within the
statute when they are "designed to lull the victims into a false
sense of security, postpone their ultimate complaint to the
authorities, and therefore make the apprehension of the
defendants less likely than if no mailings had taken place." Id. (citation and quotation omitted).
10 In this case, there was a basis for the jury to
conclude that the mailings induced the Fund Trustees to accept
the accuracy of the financial figures on the Schedules A and made
apprehension of HCA's fraudulent scheme less likely. There was
sufficient evidence for the jury to infer that but for the
mailings of the Schedules A with the false amounts HCA would have
been unable to carry out its scheme either because the true
figures would have prompted an investigation by the Department of
Labor, see Transcript of Jury Trial, Dec. 1, 1993 (9:30 a.m.) at
103-16 (Testimony of Howard Hensley, Chief of Division of
Reporting and Disclosure, Department of Labor), or because the
Fund's accountants or consultant would have alerted the Fund to
the amount of HCA's profit, see Transcript of Jury Trial, Dec. 1,
1993 (9:30 a.m.) at 25-55 (Testimony of Alex Johns), and
Transcript of Jury Trial, Nov. 30, 1993 (9:30 a.m.) at 133-52
(Testimony of Jack Klein).
Thus, the mailings were incident to an essential part
of the scheme, i.e., concealing HCA's true profits. We hold that
there was sufficient evidence to sustain Coyle's conviction on
the three counts of mail fraud. III.
False Statements Conviction Counts Four through Eight charged Coyle with making
false statements on documents required by ERISA in violation of
18 U.S.C. § 1027. That section, which can be read and understood
more easily with some editorial emphasis and bracketed numerical
insertions, reads:
11 Whoever, in any document required by title I of the [ERISA] to be published, or kept as part of the records of any employee welfare benefit plan or employee pension benefit plan, or certified to the administrator of any such plan, [1] makes any false statement or representation of fact, knowing it to be false, or [2] knowingly conceals, covers up, or fails to disclose any fact the disclosure of which is required by such title or is necessary to verify, explain, clarify or check for accuracy and completeness any report required by such title to be published or any information required by such title to be certified, shall be fined under this title, or imprisoned not more than five years, or both.
18 U.S.C. § 1027 (emphasis and bracketed numbers added). This
court has previously stated that the three elements necessary to
sustain a conviction under section 1027 are (1) the defendant
made a false statement; (2) knowing it to be false; and (3) in a
document required by ERISA. United States v. Furst, 886 F.2d
558, 568 (3d Cir. 1989), cert. denied, 493 U.S. 1062 (1990).
Coyle does not argue that the government failed to
prove that he made false statements knowing them to be false.
Instead he argues that the district court erred in "refus[ing] to
give the instruction proposed by the defense limiting the jury's
consideration to only those factual disclosures on the Schedule A
forms which were legally compelled." Appellant's Brief at 20. In
another, but related contention, Coyle argues that the indictment
charged only one of the disjunctive methods of violating 18
U.S.C. § 1027, but that the court instructed the jury about both,
and that this led to a fatal variance.
12 Generally, we review the district court's refusal to
give certain jury instructions under an abuse of discretion
standard although where, as here, the question is whether the
jury instructions stated the proper legal standard, our review is
plenary. See Government of the Virgin Islands v. Isaac, 50 F.3d
1175, 1180 (3d Cir. 1995). As on all occasions when we consider
jury instructions we consider the totality of the instructions
and not a particular sentence or paragraph in isolation. In Re
Braen, 900 F.2d 621, 626 (3d Cir. 1990), cert. denied, 498 U.S.
1066 (1991).
Each of the five false statement counts alleges that
Coyle "in a document required to be published by ERISA . . . and
required to be kept as part of an employee welfare benefit plan
by ERISA" unlawfully and knowingly caused the making of a false
statement and representation of fact, and that those acts
violated 18 U.S.C. §§ 1027 and 2 (emphasis added). Each of the
false statements counts unambiguously charges that the false
information consisted of "the amounts of claims paid, [HCA's
payments to the physician and dentist providers],"
"administrative service or other fees" and "total retention."
Each false statement count unambiguously charges that the false
reports with which Coyle is charged appeared in the Schedules A
prepared by HCA and filed by or on behalf of the Fund as part of
the Forms 5500.
We discern what appear to be several different threads
to Coyle's challenge to his false statements conviction, none of
which are convincing. We do not understand Coyle to argue that
13 the documents, i.e., the Schedules A, were not documents that
were required by ERISA to be published or kept. He argues
instead, in somewhat abbreviated fashion, that HCA does not fall
within the statutory sections that impose the obligation to make
the factual disclosures that were proven to be false. However,
inasmuch as the false factual statements were in documents
required by ERISA to be published or kept, Coyle's argument
misses the mark.
29 U.S.C. § 1023 requires an annual report to be
published and filed with the Secretary of Labor for every covered
employee benefit plan, and that it contain specified information.
Subsection (a)(2)(A) requires that if some of the information
that the administrator, here the Fund Trustees, needs to submit
the annual report and to comply with title I of ERISA is
maintained by "an insurance carrier or other organization which
provides some or all of the benefits under the plan, or holds
assets of the plan in a separate account," that organization must
transmit and certify the accuracy of such information to the
administrator. (emphasis added). See also 29 C.F.R. § 2520.103-
5(a). Subsection (e) requires that information as to, inter alia, total claims paid, commissions paid, and administrative
fees paid be enumerated on a statement included in the annual
report (the Schedule A) "[i]f some or all of the benefits under
the plan are purchased from and guaranteed by an insurance
company, insurance service, or other similar organization."
(emphasis added).
14 Coyle contends that HCA is not an "other similar
organization." The district court instructed the jury that as a
matter of law HCA was "a medical service provider" and therefore
subject to the obligation to transmit and certify information
needed by the administrator to file its annual report. In doing
so, the court relied on our decision in United States v.
Martorano, 767 F.2d 63 (3d Cir.) (per curiam), cert. denied, 474
U.S. 949 (1985). In Martorano, a welfare fund had contracted
with AMMA Health Center, Inc. to provide outpatient medical
coverage to union members. Id. at 64. The Fund requested that
AMMA prepare utilization reports which it needed to complete Form
5500. Martorano, who prepared AMMA's reports, significantly
understated its profits on the utilization reports, and was
indicted under 18 U.S.C. § 1027 for making false statements in
documents required by ERISA.
We rejected Martorano's argument that 18 U.S.C. § 1027
applies only to fiduciaries of union pension and welfare funds
and does not apply to medical service providers. We held that by
selling medical services to the Fund, AMMA fell under the
statutory coverage of 29 U.S.C. § 1023(e) of ERISA. Id. Therefore, the "understatement of profits by a health care
organization that furnishes outpatient medical coverage to
members of a health and welfare fund governed by ERISA
constitutes a violation of [18 U.S.C. § 1027]." Id. at 64; see
also United States v. Sarault, 840 F.2d 1479 (9th Cir. 1988)
(false statements made by attorney representing an assetless
insurance company). We concluded that the language in 18 U.S.C.
15 § 1027 is broad enough to cover medical service providers and
reasoned that such a construction would promote the goals of
ERISA because "[i]f medical service providers are not sanctioned
for providing false information, plan participants will suffer."
Martorano, 767 F.2d at 65.
Although AMMA, unlike HCA, itself provided the medical
services, it was HCA that undertook to design, contract for
and administer the dental and vision care benefit plans for Local
286's Fund, and it was only HCA that maintained the records and
was in the position to supply the Fund with the information to
which 29 U.S.C. §§ 1023(e) and 1023(a)(2)(A) refer. Moreover, it
was HCA which held the premiums, i.e., the "assets of the plan"
as referred to in the statute, in a separate account. See
Transcript of Jury Trial, Nov. 30, 1993 (9:30 a.m.) at 140
(Testimony of Jack Klein). Therefore, we agree with the district
court that HCA had the reporting and record-retaining obligations
that ERISA imposes.
Coyle also seems to argue that the false statements can
be excused because they were made in response to questions on
Schedules A that apply only if the contracts were "experience-
rated," and Coyle contends the Fund's plans were not because they
did not set group premiums by evaluating participant utilization
of medical services. This is a red herring. Coyle admits that
HCA completed the Schedules A on behalf of the Fund for the years
in question as though the contracts were "experience-rated," and
that the figures for claims paid and administrative costs
retained in the responses to those questions were false. Coyle's
16 argument on the "experience-rated" issue seems based on his
premise that the crime charged was that of making false
statements as to factual "disclosures" which were required, but
as discussed above the crime charged and proven was that the
false statements appeared on ERISA-required "documents."
Moreover, the Fund specifically requested that HCA
prepare the Schedules A. HCA was obliged by the statute to
certify the accuracy of its statements. See 29 U.S.C.
§1023(a)(2)(A). It also had an obligation under title I of ERISA
to maintain records which provide in sufficient detail
information from which required documents might be verified and
checked for accuracy and completeness. See 29 U.S.C. § 1027. HCA
purported to comply with its obligations by reporting to the Fund
on the Schedules A it prepared. Even if HCA erred by completing
the section for experience-rated contracts, the information it
did provide was proven false, thus violating the prohibition of
18 U.S.C. § 1027 against "making any false statement or
representation of fact, knowing it to be false" in a document
ERISA requires be published or kept.
Coyle offers no authority to support the implicit and
rather bold proposition that one may make false statements or
supply information to the government on required forms, but avoid
liability if the false information voluntarily supplied may have
been more than required. Such an argument would undercut one of
the purposes of section 1023 of ERISA, which is to enable the
Department of Labor to use the annual reports and the Schedules A
to carry out its statutory responsibilities, including the
17 initiation and conduct of investigations to assure the integrity
of the individual plans and the $205 trillion estimated to be in
ERISA plan assets. We thus reject Coyle's contention that the
court should have limited the jury's consideration to required
factual "disclosures."
Coyle's other argument, i.e., that the instruction the
court did give was erroneous because the indictment charged only
one of the two methods of violating 18 U.S.C. § 1027 but the
court charged as to both, also stems from Coyle's preoccupation
with the "disclosure" language. Admittedly, in this respect the
indictment could have been more carefully drawn, but we see no
reversible error in the charge.
To understand we return to the statute, and the
disjunctive crimes set forth in 18 U.S.C. § 1027. The statute as
read by this court, and as read by Coyle, is set forth in the
Appendix to this opinion.
The district court's comprehensive charge correctly
delineated both crimes. The court explained that the indictment
charged Coyle, inter alia, with "false statements and concealment
of facts in relation to documents required by [ERISA]." App. at
422-23 (emphasis added). After explaining that the jury must
find that the Fund fell within ERISA, the court stated that the
Government must prove beyond a reasonable doubt "that [1] the
defendant made or caused the making of a false statement or
representation of fact knowing it to be false or [2] knowingly
concealed, covered up or failed to disclose any fact, the
disclosure of which is necessary to verify, explain, clarify or
18 check for accuracy and completeness any form 5500 Schedules A
published by the Local 286 Paper Converters Welfare Trust Fund."
App. at 423 (bracketed material and emphasis added). The court
then told the jury it must find that the Schedules A submitted by
Coyle to the Fund were documents required by ERISA, and that
Coyle acted knowingly.
Coyle reads the statute to set out the following two
methods of violation, i.e., "[t]he first method is by making a
false statement of fact (or by covering up or failing to disclose
such fact) the disclosure of which fact is required by Title I of
ERISA," Appellant's Brief at 19, and the second method is "making
a false statement of fact, the disclosure of which is not
required by ERISA, but is nonetheless necessary to verify,
explain, clarify or check the accuracy or completeness of reports
which are required to be filed." Id. at 20. Coyle misreads the
statute.
The court correctly told the jury that to establish a
violation the government must prove (1) the knowing making of a
false statement or representation of fact in an ERISA-required
document or (2) the knowing concealment, cover-up, or failure to disclose any fact the disclosure of which is required or is
necessary to verify, explain, etc. One violation deals with the
making of a false statement, the other with the omitting or
concealment of relevant facts. They are separated by an "or"
with verbs on either side, i.e., "makes any false statement" or
"knowingly conceals . . ." The statute would charge a violation
in grammatical terms even if the language describing one or the
19 other prong were completely eliminated. In contrast, Coyle's
reading of the statute erroneously divides the violations in an
ungrammatical manner. This is evident from the Appendix to this
opinion.
Coyle's theory of a variance between the indictment and
the charge may stem from the fact that the indictment contained
surplus language relating to facts the "disclosure of which is
required" by ERISA, added to what we have referred to as the
"making false statement" prong of 18 U.S.C. § 1027. That
language more appropriately belongs with the "knowing
concealment" prong of 18 U.S.C. § 1027, i.e., concealment or
nondisclosure of a fact "disclosure of which is required . . . or
is necessary to verify," etc. The indictment does not expressly
charge that second violation, although it is arguable that the
concealment of a necessary fact is but the mirror image of
supplying false statements of fact, i.e., not disclosing or
concealing the true facts.
Coyle is not entitled to a reversal because of the
inclusion of the unnecessary "disclosure of which is required"
language which, at most, is mere surplusage. It is a long-
standing principle of criminal procedure that "[a] part of the
indictment unnecessary to and independent of the allegations of
the offense proved may normally be treated as 'a useless
averment' that 'may be ignored.'" United States v. Miller, 471
U.S. 130, 136 (1985) (quoting Ford v. United States, 273 U.S.
593, 602 (1927)). Moreover, if the additional language created
any confusion, the explanation following the "that is" language
20 of the same sentence made absolutely clear what the charge
against Coyle was. Three false statement counts ended with the
language, "that is, that defendant caused the filing of a
Schedule A with the IRS reporting falsely the amounts of claims
paid, administrative service or other fees, and total retention,
knowing these amounts to be false." App. at 16. The other two
are similar in respects relevant here. These charges were
supported by substantial evidence.
Because Coyle contends there was a lack of proof that
the factual disclosures were required, he frames an argument of a
fatal variance between the indictment and the proof. This is a
far cry from the classic fatal variance case on which Coyle
relies. In Stirone v. United States, 361 U.S. 212 (1960), the
Court held that the trial evidence and the instruction so
broadened the possible bases for conviction that they "destroyed
the defendant's substantial right to be tried only on charges
presented in an indictment returned by a grand jury." Id. at
217.
Here, the concealed facts were the very facts that were
the subject of the false statements, i.e., the accurate facts as
to payments to doctors and dentists and HCA's administrative
costs. Thus, the court's instruction did not prejudice Coyle.
See United States v. Pelullo, 964 F.2d 193, 216 (3d Cir. 1992). In order to convict Coyle for the crime charged, under both the
indictment and the court's instructions the jury would have had
to find that there were false statements made on the Schedules A.
The indictment identified the false statements made in the
21 Schedules A with the requisite specificity. See Fed. R. Crim. P.
7. There were no other allegedly false documents before the
jury. Therefore, the variance, if any, did not alter the
elements of the offense charged. See United States v. Asher, 854
F.2d 1483, 1497 (3d Cir. 1988), cert. denied, 488 U.S. 1029
(1989). See also Turner v. United States, 396 U.S. 398, 420
(1970) ("[W]hen a jury returns a guilty verdict on an indictment
charging several acts in the conjunctive . . . the verdict stands
if the evidence is sufficient with respect to any one of the acts
charged.").
We reject Coyle's contention that the evidence was
insufficient to sustain a conviction or that the district court
erred in its instruction. IV.
Blackmail Conviction
Coyle contends that the district court erred in its
jury instruction on the blackmail charge. In so arguing, Coyle
notes correctly that the case law on blackmail is "sparse."
Nonetheless, we find no ambiguity in the statutory language
relevant here.
The blackmail statute provides: Whoever, under a threat of informing, or as a consideration for not informing, against any violation of any law of the United States, demands or receives any money or other valuable thing, shall be fined under this title or imprisoned not more than one year, or both.
22 18 U.S.C. § 873. The court's instruction closely tracked the
statutory language. App. at 429-30.
Two blackmail letters were identified in the indictment
and at trial the government produced evidence of a series of five
letters written by Coyle to Cusumano beginning October 18, 1990
and continuing until October 29, 1990. They alternate between
vague threats, accusations and demands. App. at 81-96.
In one of these letters, Coyle advised Cusumano that he
had "been contacted by the FBI to discuss their investigation of
the expense accounts you provided them earlier this year,"
stated, "I really don't wish to be involved and hope to stonewall
the request based on unavailability and a lack of a clear memory
at this time," and then -- in language that leaves no doubt as to
its purpose -- stated, "Any attempt to tamper with my severance,
deferred compensation or paid time off adjustment pay or any
other moneys due me could reflect in my decision. I know you
understand." App. at 87-88.
Coyle engages in semantic sophistry when he argues that
because the payment of the benefits was to come from HCA rather
than Cusumano, he did not "demand" anything from Cusumano within
the meaning of the statute. But the statute does not require
that the quid pro quo be a two-party transaction. Coyle's offer
"to stonewall" the FBI in exchange for receiving Cusumano's
assistance in securing (or forbearance in interfering with) his
severance pay from HCA falls within the language of the statute.
Coyle argues that the district court erred in denying
his proposed instruction that he could not be convicted if he was
23 entitled to the benefits he demanded. He argues that something
to which he was entitled could not be "consideration." However,
what is made unlawful by the blackmail statute is Coyle's use of
the offer not to report the fraudulent activity or not to
cooperate with the authorities as leverage over Cusumano, see
United States v. Smith, 228 F. Supp. 345, 348 (E.D. La. 1964),
whether or not Coyle had a claim of right to the benefits. The
blackmail statute thus reaches those who would evade their
responsibility to inform the authorities about a violation of the
law by exchanging the promise to forebear from giving such
information for some benefit. It is the use of the information
in this manner that Congress sought to penalize. A jury could
find that this is exactly what Coyle did. The district court did
not err in rejecting Coyle's attempt to restrict the scope of the
blackmail statute. V.
Calculation of Sentence
Finally, Coyle raises two claims of error in the
calculation of his sentence.
Coyle claims that the district court erred in enhancing
his offense level by two points for abuse of a position of trust
pursuant to U.S.S.G. § 3B1.3. A sentencing court must first
determine whether the defendant held a position of trust, a
purely legal question for which our review is de novo. United
States v. Craddock, 993 F.2d 338, 340 (3d Cir. 1993). The second
question, whether defendant abused his position in a way that
24 significantly facilitated the crime, is a question of fact which
we review for clear error. Id.
"[O]ne has been placed in a position of trust when, by
virtue of the authority conferred by the employer and the lack of
controls imposed on that authority, he is able to commit an
offense that is not readily discoverable." Id. at 342; see also
United States v. Lieberman, 971 F.2d 989, 993 (3d Cir. 1992). In
both Craddock and Lieberman this court affirmed the two-level
enhancement, finding it significant that the defendants'
positions--a Western Union teller and a bank vice president,
respectively--provided them with the "freedom to commit a
difficult-to-detect wrong." See Lieberman, 971 F.2d at 993
(citation and quotation omitted).
In this case, Coyle's position as Chief Financial
Officer of HCA afforded him the authority to conceal HCA's true
profits and the evidence fully supports the conclusion that the
Fund's reliance on his accounting expertise allowed him to commit
a "difficult-to-detect" wrong. Coyle's arguments that the
government was obliged to offer proof that he was in some way a
fiduciary or that the Trustees were naive are unavailing. The
district court's imposition of the two-level enhancement was
proper.
Coyle also challenges the calculation of fraud loss.
Because Coyle is challenging the district court's legal
interpretation of "fraud loss," our review is plenary. United States v. Badaracco, 954 F.2d 928, 936 (3d Cir. 1992).
25 Under the applicable guideline, the base offense level
for fraud is six, U.S.S.G. § 2F1.1(a), which must be increased
according to the size of the loss attributable to the fraud,
U.S.S.G. § 2F1.1(b). The district court set the amount of fraud
loss at $298,330, and accordingly enhanced Coyle's offense level
by eight. U.S.S.G. § 2F1.1(b)(1)(I). This amount was derived
from testimony at trial about the difference between the amount
HCA reported to be its administrative retention on the Schedules
A and the amount it actually retained. The government contended
that this was a reasonable estimate of the fraud loss because
there was testimony that if the actual amount of administrative
retention had been accurately reported, the Fund would have
renegotiated the contract and demanded a refund. See App. at 164
(Testimony of Theodore Seidenberg) and App. at 336-41, 351
(Testimony of Alex Johns).
Coyle recognizes that the government's figure may
accurately measure the magnitude of HCA's misrepresentation of
its actual costs. He argues that it does not measure any loss
suffered by the Fund because the Fund could have at most
renegotiated lower premium contracts and that the amount of fraud
loss should be reduced by the percentage of the loss which
derives from the Pennsylvania dental contract because there was
no obligation to refund premiums under that contract.
"As in theft cases, [fraud] loss is the value of the
money, property, or services unlawfully taken." U.S.S.G. §2F1.1,
comment. (n.7); see also United States v. Mummert, 34 F.3d 201, 204 (3d Cir. 1994). Our precedents establish that "fraud 'loss'
26 is, in the first instance, the amount of money the victim has
actually lost" revised upward to the "intended or probable loss
if either amount [is] higher and determinable." United States v.
Kopp, 951 F.2d 521, 523, 536 (3d Cir. 1991). But that is not the
exclusive method of measuring fraud loss. Under the guidelines
and our precedent, "the offender's gain from committing the fraud
is an alternative estimate that ordinarily will underestimate the
loss." U.S.S.G. § 2F1.1, comment. (n.8); see also Badaracco, 954
F.2d at 938. Also, "[t]he loss need not be determined with
precision [and] [t]he court need only make a reasonable estimate
of the loss." U.S.S.G. § 2F1.1, comment. (n.8).
In Badaracco, we recognized that certain breaches of
fiduciary duty comparable to embezzlement may justify estimating
fraud loss by using the "gross gain" alternative, as expressly
authorized in Application Note 8. 954 F.2d at 938. In
Badaracco, a bank president used his position to approve
financing for real estate developments on the condition that the
borrowers distribute subcontracting work to companies in which he
or members of his family had a financial interest. The district
court calculated the fraud loss by adding together the value of
the contracts awarded to defendant's family companies. Defendant
appealed, claiming that the court should have calculated the loss
based on the net profit earned by the family companies rather
than the face value of the contracts. Id. at 936. In affirming this aspect of the sentence, we referred
to our opinion in Kopp, where we declined to accept an automatic equation between loss in fraud cases and in theft cases. In
27 theft cases, "loss" was defined as "amount taken." In Kopp, we
had explained that "embezzlement," which is placed under the
theft guideline, involves "not only a taking but also an action
akin to a breach of fiduciary duty, which might justify always
using the amount taken as 'loss.'" 951 F.2d at 530 n.13. Thus,
we held that under the circumstances in Badaracco, i.e., "the
officer of a financial institution [who] uses his or her position
for personal benefit, there is a breach of fiduciary duty
comparable to that implicated by embezzlement." 954 F.2d at 938.
This justified using the defendant's "gross gain" as set forth in
Application Note 8.
For similar reasons, we hold that it was appropriate
for the district court to adopt "amount taken" or "gross gain" as
the measure of fraud loss, i.e., the difference between the
amount reported and the amount retained. Inasmuch as this
encompasses "gross gain," we reject Coyle's contention that the
amount of fraud loss should be reduced by the amount of
administrative retention attributable to the Pennsylvania
contract even though there was no explicit requirement that
surplus funds be returned in that contract. The circumstances of
this scheme have a strong resemblance to embezzlement, and HCA's
position vis-a-vis the Fund had elements strongly comparable to
those of Badaracco's relationship to the bank. Thus, the
district court's use of the $298,330 fraud loss figure was in
keeping with the applicable guidelines, and the district court's
decision to increase Coyle's base offense level by eight was not
error.
28 VI.
Conclusion
For the foregoing reasons, we will affirm the judgment
of conviction and sentence imposed by the district court.
____________________________
TO THE CLERK:
Please file the foregoing opinion.
_________________________ Chief Judge
29 A P P E N D I X
18 U.S.C. § 1027 (with emphasis and bracketed numbers supplied by court):
Whoever, in any document required by title I of the [ERISA] to be published, or kept as part of the records of any employee welfare benefit plan or employee pension benefit plan, or certified to the administrator of any such plan, [1] makes any false statement or representation of fact, knowing it to be false, or [2] knowingly conceals, covers up, or fails to disclose any fact the disclosure of which is required by such title or is necessary to verify, explain, clarify or check for accuracy and completeness any report required by such title to be published or any information required by such title to be certified, shall be fined under this title, or imprisoned not more than five years, or both.
18 U.S.C. § 1027 (with emphasis and bracketed numbers supplied by Coyle, Appellant's Brief at 19):
Whoever, in any document required by title I of the [ERISA] to be published, or kept as part of the records of any employee welfare benefit plan or employee pension benefit plan, or certified to the administrator of any such plan, makes any false statement or representation of fact, knowing it to be false, or knowingly conceals, covers up, or fails to disclose any fact [1] the disclosure of which is required by such title or [2] is necessary to verify, explain, clarify or check for accuracy and completeness any report required by such title to be published or any information required by such title to be certified, shall be fined under this title, or imprisoned not more than five years, or both.
30 298
Honorable Donetta W. Ambrose, United States District Judge for the Western District of Pennsylvania, sitting by designation.