UNITED STATES COURT OF APPEALS For the Fifth Circuit
___________________________
No. 00-10337 ___________________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
VERSUS
DAVID LADON CRADER and GERALD KENNETH ECKERT,
Defendants-Appellants.
___________________________________________________
Appeals from the United States District Court for the Northern District of Texas (5:99-CR-92) ___________________________________________________
July 2, 2001 Before HIGGINBOTHAM, DAVIS, and BENAVIDES, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:*
David Crader, Gerald Eckert, and Jeffrey Echols were indicted
on multiple charges of mail fraud, false claims, false statement to
a federal agency, fraud in connection with Social Security
payments, controlled substance offenses, money laundering, and
conspiracy, in violation of 18 U.S.C. §§ 287, 371, 1001, 1010,
1341, and 1956; 42 U.S.C. §§ 408(a)(4) and 1383a(a)(3); and 21
U.S.C. §§ 841(a)(1), 843(b), and 846. The core charges in the
indictment alleged that Crader, Eckert, and Echols defrauded
* Pursuant to 5th Cir. R. 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5th Cir. R. 47.5.4. clients of the South Plains Aids Resource Center (“SPARC”) and
various federal and private entities that provided grants to SPARC.
Echols died five days before trial. Crader and Eckert were tried
and convicted on more than seventy counts. They now appeal these
convictions on multiple grounds. For the reasons that follow, we
AFFIRM the judgment of the district court.
I.
The South Plains AIDS Resource Center of Lubbock, Texas, is a
non-profit, tax-exempt organization that was formed in 1989 to
provide direct services to persons afflicted with Acquired Immune
Deficiency Syndrome (“AIDS”) or Human Immunodeficiency Virus
(“HIV”), and to provide community education on those diseases.
SPARC received its primary funding from federal grants, and
additional funding from non-governmental charitable entities.
Defendant-Appellant David Crader was Executive Director of
SPARC; Defendant-Appellant Gerald Eckert was the Care Coordinator
and generally considered the “number two” man. Jeffrey Echols, who
died five days before trial, was the Special Care Coordinator. The
multiple count indictment of all three men arose from their
activities in running SPARC. In essence, the government presented
evidence designed to show that the defendants concocted and carried
out a scheme to create a “cash hoard” by overcharging their clients
and fraudulently obtaining funds from various grant programs. The
government’s evidence also tended to show that the defendants used
this “cash hoard” for two purposes: to benefit themselves and to
secretly pay the salaries and expenses of favored SPARC clients
2 whose social security benefits would have been terminated or
reduced if this additional income had been disclosed. The
government also charged the defendants with controlled substance
violations for stockpiling the medication of deceased clients and
unlawfully dispensing it to living clients without a doctor’s
prescription.
At trial, the government presented specific evidence that the
defendants defrauded several federal programs providing help to
AIDS patients. For example, the Housing Opportunities for Persons
with AIDS (“HOPWA”) program, a United States Department of Housing
and Urban Development (“HUD”) initiative, provided funds for rent
and utilities for individuals with AIDS or HIV. SPARC administered
this program in the Lubbock area beginning in 1993. The HOPWA
rules generally required aid recipients to contribute the greater
of ten percent of their gross income or thirty percent of their
adjusted gross income towards their rent, and the balance was
subsidized through HOPWA funds. SPARC collected more rent from the
clients than the regulations allowed, and then obtained grants on
the assumption that the clients had paid the smaller, correct
portion of the rent. The government argued at trial that by
charging and collecting excess rent from clients while also
receiving federal assistance, defendants engaged in a “double-
dipping,” resulting in both SPARC clients and the federal
government being defrauded.1
1 The government produced evidence that the defendants also defrauded several other organizations by either engaging in the
3 The evidence at trial showed that the defendants used a
portion of the funds they accumulated to secretly pay salaries of
favored SPARC clients. Because those favored SPARC clients’ social
security benefits would have been either reduced or terminated had
this extra income been reported, the defendants paid the monies
intended for these favored clients to third parties. SPARC labeled
some of the payments as payments to clients’ landlords, although
evidence at trial showed that SPARC officials knew that some of the
third parties to which the checks were made out were not the
clients’ landlords. In other instances, the defendants delivered
“expense” checks made payable to third party payees directly to
favored clients. By structuring the payments in this manner, the
defendants were able to circumvent the social security and tax
laws.
Numerous witnesses at trial testified regarding both the over-
charging of rent and the payment scheme. One witness who
discovered that he was being overcharged for rent confronted
Crader, and was told that the excess went for needs of those who
were “worse off.” Crader suggested to certain employees of SPARC
that their salaries would be better paid to a third party so as not
to risk a reduction of the employees’ social security benefits.
Crader asked several of his employees for names of other persons to
same double-dipping scheme, or by using the program’s funds for unauthorized purposes. These organizations include the following: The Community Housing Resources Board of Lubbock; The Ryan White Assistance Program; Catholic Family Services, Inc.; St. Mary’s Hospital; Project HELP.
4 whom he could make out their checks. At least one witness
testified that he received a W-2 form including these payments, but
that when he complained, Crader said that he would “take care of
it,” and the witness never saw the form again.
Although much of the trial testimony focused on Crader, as the
head of the organization, the record is replete with evidence of
Eckert’s involvement in the scheme. Although Echols usually
collected the cash rents from all of the clients, Eckert,
occasionally assumed these duties. The record also shows that
Eckert “cleaned up” the HOPWA files after a HUD audit of SPARC’s
offices, and falsified some of the records. Finally, twenty-one of
the forty-seven third party checks where signed by Eckert. Most
were signed by Crader as well, but four were executed by Eckert
alone. The government’s case included testimony that Eckert was
extremely involved in the day-to-day management of the office, with
many responsibilities and a great deal of direct client contact.
Eckert was also Crader’s life partner, and as such, the two had
almost constant contact with each other, both at work and at home.
On the drug counts, appellants’ argued that the lengthy
waiting periods many AIDS patients were required to endure before
receiving government assistance to purchase medication placed the
lives of these patients in peril, and that providing these
medications immediately saved lives. Essentially, the defendants
argued that they were choosing between the “lesser of two evils.”
The defense requested a jury instruction on necessity directed at
this issue, but that request was denied by the trial court.
5 Crader was indicted on seventy-two counts, and convicted by
the jury on all seventy-two. Eckert was charged with seventy-one
counts, and again, was convicted on all seventy-one counts. Both
defendants now appeal these convictions on the grounds discussed
below.
II.
The defendants argue first that the evidence is legally
insufficient to support their convictions on the money laundering
counts (Counts 30-37, 39, and 43-76). When reviewing the
sufficiency of the evidence, this court views all evidence, whether
circumstantial or direct, in the light most favorable to the
verdict with all reasonable inferences to be made in support of the
jury’s verdict. United States v. Salazar, 958 F.2d 1285, 1290-91
(5th Cir. 1992). The evidence is sufficient to support a
conviction if a rational trier of fact could have found the
essential elements of the crime beyond a reasonable doubt. Id. To
obtain a conviction for money laundering, the government must prove
that the defendant (1) conducted or attempted to conduct a
financial transaction; (2) which the defendant knew involved the
proceeds of a specified unlawful activity; (3) with the intent
either to promote the specified unlawful activity (the “promotion
prong”), or to conceal or disguise the nature, location, source,
ownership, or control of the proceeds of unlawful activity (the
“concealment prong”), or to engage in conduct constituting a
violation of section 7201 or 7206 of the Internal Revenue Code (the
“tax avoidance prong”). 18 U.S.C. § 1956; see United States v.
6 Wyly, 193 F.3d 289, 295 (5th Cir. 1999). All forty-two money
laundering counts charged the defendants with violating the tax
avoidance and concealment prongs of the statute. Counts 65 through
76 also charged the defendants with violating the promotion prong.
Specifically, the defendants allege that the government’s
proof on these counts fails in three distinct areas:
A. The money laundering counts are merged into the counts
charging mail fraud and false statements because the unlawful
activity underlying these counts is the same activity that
comprises the factual basis for the financial transactions
under the money laundering offenses;
B. The government’s theory of the case is that the defendants
were concealing income to avoid the loss of Social Security
benefits for the agency’s clients. The government’s evidence,
which proceeded under this theory, fails to establish an
intention to violate the income tax laws to meet the tax
avoidance prong of the money laundering offense; and
C. The financial transactions that are the basis of the money
laundering counts are innocent spending of proceeds, not
illegal money laundering.
A.
On the defendants’ first point, they argue that because
“specified unlawful activity” relied on by the government under the
money laundering statute was the same activity the government
relied on to establish the statute’s “financial transaction,” the
7 government failed to prove these two independent statutory
elements. The defendants obviously misapprehend the government’s
case. Each money laundering count in the indictment alleges that
the defendants obtained the proceeds by means of the mail fraud
scheme outlined in Counts two through nine (the specified unlawful
activity). To establish this element, the government produced
proof that SPARC fraudulently charged clients for rent, utilities
and other services, while at the same time sought and collected
reimbursement for those charges from federal and private grants.
To establish the additional element, the government produced
evidence that the defendants then engaged in separate financial
transactions by disbursing those fraudulently obtained funds to
favored SPARC clients via “rent” or “expense” checks made out to
third parties. Because the charged “specified unlawful activity”
is independent from the charged “financial transactions,” the
defendants’ merger argument fails.
B.
The defendants argue next that the conduct alleged does not
satisfy the tax avoidance prong of the money laundering statute
because they had no intent to evade the income tax laws. Rather,
the third party payments were structured for the purpose of
preventing the true recipients of the payments from losing their
Social Security disability benefits. The tax avoidance prong of
the money laundering statute prohibits financial transactions made
with the proceeds of an unlawful activity with the “intent to
engage in conduct constituting a violation of Sec. 7201 or 7206 of
8 the Internal Revenue Code of 1986.” 18 U.S.C. § 1956
(a)(1)(A)(ii). Section 7201 of the Internal Revenue Code prohibits
the evasion of income taxes. Section 7206 prohibits willfully
aiding, assisting or counseling the preparation of any document
which is false or fraudulent and which relates to a matter arising
under the internal revenue laws.
The government produced sufficient evidence to establish that
the defendants intended to violate both Sections 7201 and 7206.
The defendants aided the ultimate beneficiaries of the third party
checks in evading income taxes by issuing the checks in a third
party’s name, rather than in the name of the actual recipient, and
by characterizing the payments as rent or reimbursements, rather
than as salary or other income. SPARC’s accountants counseled the
defendants not to engage in these practices. The defendants also
failed to issue 1099's or W-2's to the ultimate beneficiaries of
the checks, which allowed them to evade income taxes due on those
funds. In addition, the defendants’ actions clearly violated
Section 7206. Following the issuance of the third party checks,
the defendants directed the preparation of Forms 1099 and W-2 which
reported taxable income under the names and tax identification
numbers of the third party recipients rather than the actual
recipients of the funds. These documents were false as to a
material matter in connection with the internal revenue laws. The
record shows that the defendants’ accountants also repeatedly
counseled against these practices. Clearly the evidence of a
violation of the tax avoidance prong of the money laundering
9 statute was factually and legally sufficient.
C.
The defendants’ final sufficiency argument is that the
financial transactions that are the basis of the money laundering
counts were consistent with legal, legitimate activities and based
on attorney/accountant advice; accordingly, they do not satisfy the
promotion prong of the money laundering statute. This argument
also fails. The advice of counsel defense was presented to the
jury by testimony of Crader and SPARC employee Strange that they
had been advised that the third party payments they were making
were legitimate. By finding the defendants guilty on all counts,
the jury obviously rejected this testimony, which is not surprising
in light of conflicting testimony by SPARC’s accountants that they
counseled defendants not to engage in these practices, and direct
evidence that the defendants acted deliberately to conceal the true
recipients of the payments.
Only counts sixty to seventy-six allege a violation of the
promotion prong of the money laundering statute. Those counts are
based on payments made to co-defendant Echols which were disguised
as payments to Mack Durran. We need not consider whether those
payments satisfy the promotion prong of the money laundering
statute. Those counts also alleged violations under the
concealment prong and tax avoidance prong. The tax avoidance prong
was discussed previously. By establishing that the defendants
used fictitious payees and disguised the nature of the many
payments as reimbursements, the government also proved that the
10 financial transactions were designed to conceal or disguise the
nature, ownership, or control of the proceeds of unlawful activity,
thus satisfying the concealment prong of the statute.
III.
Eckert also challenges his money laundering convictions on
grounds that the evidence failed to establish a knowing or
intentional violation on his part. He argues that the evidence is
insufficient to show his knowledge under all three prongs of the
money laundering statute (i.e., the concealment, promotion, and tax
evasion prongs discussed above).
After reviewing the record, we are convinced that the evidence
is sufficient to show that Eckert possessed the required mental
state to satisfy all three varieties of money laundering charged.
As discussed above, the evidence showed that Eckert was the number
two man at SPARC and also Crader’s life partner. Eckert
occasionally collected the illegal cash rents personally, “cleaned
up” files in the office after federal agency inspections, and
signed twenty-one of forty-seven third party checks, four without
Crader’s signature. It was certainly reasonable for the jury to
infer from these and other facts presented at trial that Eckert
knew of the “double-dipping” scheme and knew exactly why the third
party checks were being issued, and knew that the use of this
payment method would result in tax fraud. The jury was therefore
reasonable in finding that Eckert was guilty of all three types of
money laundering charged, and we will not disturb its verdict.
IV.
11 Defendants next argue that the district court erred in
refusing to instruct the jury on the defense of necessity as to the
controlled substance violations. We review the district court’s
failure to submit the requested instruction for abuse of
discretion. United States v. Posado-Rios, 158 F.3d 832, 875 (5th
Cir. 1998).
To raise the defense of necessity, the defense must present
evidence from which a reasonable jury could infer each of the
following:
(1) That defendant was under an unlawful and present, imminent, and impending threat of such a nature as to induce a well-grounded apprehension of death or serious bodily injury;
(2) That defendant had not recklessly or negligently placed himself in a situation in which it was probable that he would be forced to choose the criminal conduct;
(3) That defendant had no reasonable, legal alternative to violating the law...; and
(4) That a direct causal relationship may be reasonably anticipated between the criminal action taken and the avoidance of the threatened harm.
United States v. Gant, 691 F.2d 1159, 1162-63 (5th Cir. 1982).
Because the defendants failed to submit evidence from which
the jury could have found the required elements of this defense,
the district court did not abuse its discretion in refusing to
submit the requested instruction.
First, the defendants failed to identify a single situation in
which their clients were faced with an “imminent threat...of death
or serious bodily injury,” which is required to establish the
12 defense of necessity. Although many SPARC patients ultimately died
as a result of complications arising from the AIDS virus, the
defendants could not pinpoint any particular episode in which one
of their clients was faced with an emergency condition that might
be alleviated through the use of the stockpiled medication. To the
contrary, the medical testimony at trial showed that “there is
rarely, if ever, an emergency to treating HIV/AIDS” and that “the
fact that there was a waiting period for [AZT] did not endanger
people’s health.”2 Additionally, the evidence adduced at trial
confirmed that some of the medications defendants dispensed merely
eased pain or alleviated annoying, though not life-threatening
symptoms of the AIDS virus.
Second, the defendants’ evidence did not show that they had no
alternative but to stockpile and dispense the drugs. Although
there was a waiting period to obtain free prescriptions for many of
the drugs that defendants distributed, the defendants never
established why they could not have taken gravely ill patients to
the hospital, or used SPARC monies to purchase the needed
medications. Additionally, the record showed that numerous federal
and state programs assist HIV/AIDS patients in obtaining
medication, sometimes in as little as two weeks, and pharmacies
sometimes assist patients by filling their prescriptions on credit
and waiting until a later date for payment. The defendants must
show that they actually tried the alternative, had no time to try
2 R. at 6-1296; R. at 3-533-34.
13 it, or that a history of futile attempts revealed the illusionary
benefit of the alternative. Gant, 691 F.2d at 1164. They made no
such showing.
Finally, the defendants failed to produce adequate evidence of
a direct causal relationship between their distribution of
stockpiled medication and the avoidance of a threatened harm. As
discussed above, no specific instance was identified in which the
defendants’ conduct saved a patient from death or great bodily
harm. On the contrary, the evidence at trial suggested that
distribution of medication in this manner could actually cause
greater harm, in the form of mutations in the AIDS virus due to
decreased potency of expired antibiotics and potentially fatal
heart attacks due to decreased potency of expired nitroglycerin.
The district court was also correct in refusing to charge the
jury on necessity because the defendants failed to submit a jury
instruction that was “substantially correct.”3 Defendants’
proposed instruction read as follows:
In order to excuse an act that would otherwise be criminal, however, the defendants must, by a preponderance of the evidence, show the following:
(1) That the defendants were faced with a choice of evils
3 This Court has developed a three-part test to determine whether a jury instruction should be submitted: “(1) The instruction is substantially correct; (2) The requested issue is not substantially covered in the charge actually given to the jury; and (3) The instruction concerns an important point in the trial so that the failure to give it seriously impaired the defendant’s ability to effectively present a defense.” United States v. th Correa-Ventura, 6 F.3d 1070, 1076 (5 Cir. 1993).
14 and chose the lesser evil;
(2) That the defendants acted to prevent imminent harm;
(3) That the defendants reasonably anticipated a causal relationship between their conduct and the harm to be avoided; and
(4) That there were no other reasonable legal alternatives to violating the law.
The requested instruction misstates the law of necessity in
omitting the requirement that they be operating under a “present,
imminent, and impending [threat] of such a nature as to induce a
well-grounded apprehension of death or serious bodily injury.”
Choosing the “lesser of two evils” is clearly not the equivalent,
nor is acting to prevent “imminent harm.” Because the requested
instruction was not substantially correct, the district court did
not err in refusing to submit it to the jury.
V.
Finally, the defendants argue that the district court erred in
admitting SPARC American Express billing statements into evidence.
The government offered these records in an attempt to account for
the use of the illegally collected funds and to rebut defense
counsel’s opening statement that the defendants did not personally
benefit from these transactions. Many of the purchases made by
defendants on the account are obviously for their personal use.4
Certainly, then, the government wanted these records in evidence to
4 For example, the defendants purchased items such as clothing, art supplies, and tanning products.
15 provide the jury with a basis to infer that the defendants
personally benefitted from their scheme.
The defendants argue that these records should have been
excluded under Federal Rules of Evidence 401 (relevance) and 403
(probative value outweighed by unfair prejudice). We review the
district court’s admission of the records for abuse of discretion.
United States v. Pena, 949 F.2d 751, 757 (5th Cir. 1991).
Although the defendants objected to the admission of the
records on the grounds that the government failed to lay the proper
foundation for the introduction of the documents as business
records, they failed to object to the admission of the American
Express statements on either 401 or 403 grounds.5 We therefore
review the admission of the records for plain error. United States
v. Hernandez-Guevara, 162 F.3d 863, 873 (5th Cir. 1998).
5 The defendants did object on 403 grounds to an earlier introduction of summaries of these billing statements. These summaries explained the charges made on the account and the payments made against that account. The payments made were tracked by their source - e.g., those funds that came from SPARC to pay off a portion of the American Express account were labeled “SPARC” and those coming from Crader himself were labeled as such. However, the government was unable to determine the source of the funds used to pay approximately $38,000 in receipts. The government therefore labeled the source of these funds as “unknown.” The defendants objected to the use of the term “unknown” as unfairly prejudicial. The trial court admitted the summaries over defense objection.
When the American Express records themselves were introduced, defendants objected, as discussed above, on grounds that the government did not lay a proper foundation to meet the business records exception and “also for the reasons previously stated in our motion outside the presence of the jury.” However, since the previous objection was only to the use of the term “unknown” on the billing summaries, this objection was certainly not sufficient to preserve error as to the entire American Express statements on 401 and 403 grounds.
16 Before an appellate court can correct an error not raised at
trial, there must be (1) error, (2) that is plain, (3) that affects
substantial rights, and (4) seriously affects the fairness,
integrity or public reputation of judicial proceedings. United
States v. Olano, 507 U.S. 725, 732, 113 S.Ct. 1770, 1776 (1993).
The defendants have not demonstrated to us that the admission of
the records here meets any of the four prongs of this test. Even
if there were error, which is doubtful, there was no plain error,
and the district judge did not abuse his discretion in admitting
the American Express records into evidence.
VI.
For the foregoing reasons, we AFFIRM the judgment of the
district court.