United States v. Kones

• Court: Court of Appeals for the Third Circuit
• Decided: February 20, 1996
• Docket: 95-1434
• Status: Unknown

Opinion

Opinions of the United 1996 Decisions States Court of Appeals for the Third Circuit

2-20-1996

United States v. Kones Precedential or Non-Precedential:

Docket 95-1434

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Recommended Citation "United States v. Kones" (1996). 1996 Decisions. Paper 236. http://digitalcommons.law.villanova.edu/thirdcircuit_1996/236

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 1996 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

N0S. 95-1434 and 95-1435

UNITED STATES OF AMERICA

v.

RICHARD JOSEPH KONES

Michele Harris Appellant*

*Pursuant to Rule 12(a), FRAP

On Appeal From the United States District Court For the Eastern District of Pennsylvania (D.C. Crim. Action Nos. 94-cr-00266 and 95-cr-00037)

Argued December 5, 1995

BEFORE: SLOVITER, Chief Judge, and STAPLETON and SAROKIN, Circuit Judges

(Opinion Filed February 20, l996)

Michael R. Stiles United States Attorney Walter S. Batty, Jr. Assistant U.S. Attorney Chief of Appeals Edward Zittlau (Argued) Assistant U.S. Attorney Office of the U.S. Attorney 615 Chestnut Street - Room 1250 Philadelphia, PA 19106 Attorneys for Appellee United States of America

Laurence S, Shtasel Blank, Rome, Comisky & McCauley

1 1200 Four Penn Center Plaza Philadelphia, PA 19103 and Bruce A. Franzel (Argued) Oxenburg & Franzel 1760 Market Street Philadelphia, PA 19103 Attorneys for Appellee Richard Joseph Kones

Anna M. Durbin (Argued) Pamela A. Wilk 50 Rittenhouse Place Ardmore, PA 19003 Attorneys for Appellant Michele Harris

OPINION OF THE COURT

STAPLETON, Circuit Judge:

Michele Harris appeals the judgment of sentence imposed

on Richard Kones. At sentencing, Harris sought restitution

pursuant to the restitution provisions of the Victim and Witness

Protection Act of 1982 (VWPA), 18 U.S.C. §§ 3663-3664. The district court concluded that it had no power to order

restitution because Harris was not a "victim" of Kones' offenses

within the meaning of 18 U.S.C. § 3663(a). We agree with this

conclusion and will affirm.

I.

Kones was a medical doctor licensed to practice

medicine in the Commonwealth of Pennsylvania when a grand jury

indicted him on 200 counts of mail fraud in violation of 18

2 U.S.C. § 1341. Specifically, the indictment alleged that Kones

had submitted over $1,000,000 in false insurance claims based on

nonexistent medical services to eighteen of his patients. Harris

was one of those patients. According to the indictment, Kones

submitted approximately $85,000 in false insurance claims for

services that he never provided to Harris.

The government also filed an information adding charges

for filing false claims with the Civilian Health and Medical

Program of the Uniformed Services (CHAMPUS) in violation of 18

U.S.C. § 287 and laundering the funds received from the insurance

companies in violation of 18 U.S.C. § 1957. The information

sought criminal forfeiture of $2 million pursuant to 18 U.S.C.

§ 982.

Kones and the government reached a plea agreement.

Kones plead guilty to all counts and agreed to the $2 million

forfeiture for purposes of restitution to the health insurance

companies which were victims of his fraud, a sentence of between

51 and 71 months in prison, a fine of up to $4 million, a payment

of $1.5 million to the IRS to settle outstanding tax claims, a

$10,100 special assessment, and the surrender of all of his

licenses to practice medicine in the United States.

Before sentencing, Harris filed a claim for $1 million

in restitution and submitted supporting affidavits. Harris

alleged that Kones gave her prescriptions for excessive amounts

of a pain killer. She contended that she became addicted, lost

her job, and continues to need psychiatric care. According to

Harris, Kones did this in furtherance of his scheme and it was

3 only by inducing her drug dependency that he was able to control

her and carry out his fraudulent scheme.

Accepting arguendo Harris' allegations of injury and

Kones' motivation in prescribing drugs for her, the district

court rejected Harris' claim for restitution and sentenced Kones

pursuant to the plea agreement. The district court concluded

that it was without power to order restitution to Harris because

Harris was not a "victim" of Kones' offenses of conviction within

the meaning of 18 U.S.C. § 3663(a).

II.

The district court had jurisdiction pursuant to 18

U.S.C. § 3231 as Kones was charged with violations of federal

law. We have appellate jurisdiction pursuant to 28 U.S.C.

§ 1291. We exercise plenary review regarding whether a district

court has power to order restitution. United States v.

Seligsohn, 981 F.2d 1418, 1421 (3d Cir. 1992).

III.

A.

VWPA, 18 U.S.C. § 3663(a)(1) provides that a court,

"when sentencing a defendant convicted of an offense under this

title or section 46312, 46502, or 46504 of title 49, may order,

in addition to or, in the case of a misdemeanor, in lieu of any

other penalty authorized by law, that the defendant make

restitution to any victim of such offense." Thus, in order for a

district court to have power to order restitution, the person

4 awarded restitution must be "a victim of such offense." Even

where there is a "victim of the offense," § 3663(d) provides that

the court may decline to order restitution "to the extent that

the court determines that the complication and prolongation of

the sentencing process [required to do so] outweighs the need to

provide restitution to any victims." We understand this

provision to call for a weighing of the burden of adjudicating

the restitution issue against the desirability of immediate

restitution -- or otherwise stated, a weighing of the burden that

would be imposed on the court by adjudicating restitution in the

criminal case against the burden that would be imposed on the

victim by leaving him or her to other available legal remedies.1

The legislative history of the VWPA does not provide a

direct answer to the issue posed in this appeal, but it does

reflect what Congress contemplated would be involved in making

restitution awards and we find this helpful. Nothing in the

legislative history evidences an expectation that a sentencing

judge would adjudicate, in the course of the court's sentencing

proceeding, all civil claims against a criminal defendant arising

from conduct related to the offense. Rather, it was expected

that entitlement to restitution could be readily determined by

1 Section 5E1.1 of the United States Sentencing Guidelines provides that the sentencing court "shall . . . enter a restitution order if such order is authorized under 18 U.S.C. §§3663-3664" except to the extent that "full restitution has been made, or to the extent the court determines that the complication and prolongation of the sentencing process resulting from the fashioning of a restitution requirement outweighs the need to provide restitution to any victims through the criminal process." U.S.S.G. § 5E1.1 (emphasis added).

5 the sentencing judge based upon the evidence he had heard during

the trial of the criminal case or learned in the course of

determining whether to accept a plea and what an appropriate

sentence would be. While the original statute, similar to the

current version, provided for discretion to decline to grant

restitution when it would be an undue burden to do so, this was

not because Congress expected that sentencing judges would be

required to hold an evidentiary hearing on liability issues in

the course of the sentencing proceedings. As the Senate Report

explains, "the Committee added this provision to prevent

sentencing hearings from becoming prolonged and complicated

trials on the question of damages owed the victim." S. Rep. No.

532, 97th Cong., 2d Sess. 31 (1982), reprinted in 1982 U.S.C.A.N.

2515, 2537 (emphasis added). The kind of case that Congress had

in mind was one in which liability is clear from the information

provided by the government and the defendant and all the

sentencing court has to do is calculate damages. See id. at

2536-37 (discussing a case where the victim of a purse snatching

suffered a broken hip).

This aspect of Congress' expectation is important

because it counsels against construing the text of the statute in

a way that would bring fault and causation issues before the

sentencing court that cannot be resolved with the information

otherwise generated in the course of the criminal proceedings on

the indictment. We are persuaded that this counsel should guide

our interpretation of the restitution provisions of the VWPA.

6 In Hughey v. United States, 495 U.S. 411 (1990), the

Supreme Court interpreted the phrase "restitution to any victim

of such offense" as used in § 3663(a). Hughey was indicted for

three counts of theft by a Postal Service employee in violation

of 18 U.S.C. § 1709, and three counts of use of an unauthorized

credit card in violation of 18 U.S.C. § 1029(a)(2). After he

pled guilty to one count of use of an unauthorized credit card,

the district court ordered restitution for loss caused by all of

the counts. Id. at 413-14. The Supreme Court held that "such

offense" in § 3663(a)(1) refers to the offense of conviction. In

other words, Congress authorized restitution "only for the loss

caused by the specific conduct that is the basis of the offense

of conviction." Id. at 413. Accordingly, the district court

exceeded its powers when it ordered restitution for similar and

related conduct that was not a part of the conduct constituting

the offense of which the defendant was convicted. Id. at 422.

Not long after the Supreme Court decided Hughey,

Congress amended the VWPA by adding 18 U.S.C. § 3663(a)(2) which

provides: For the purposes of restitution, a victim of an offense that involves as an element a scheme, a conspiracy, or a pattern of criminal activity means any persons directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern.

Crime Control Act of 1990, Pub. L. No. 101-647, 104 Stat. 4789,

4863 (1990). This amendment, as Kones stresses, expands the

restitution granting authority of district courts beyond that

found in Hughey. By its own terms, however, § 3663(a)(2) applies

7 only in cases where a scheme, conspiracy, or pattern of criminal

activity is an element of the offense of conviction. In such

cases, § 3663(a)(2) authorizes restitution to "any person

directly harmed by the defendants' criminal conduct in the course

of the scheme, conspiracy, or pattern" that was an element of the

offense of conviction.

Section 3663(a)(2) expanded the district courts'

restitution powers in such cases to the extent that a district

court could order restitution for any harm directly caused by the

defendant's criminal conduct in the course of the scheme,

conspiracy, or pattern, even though such conduct is not "the

specific conduct that is the basis of the offense of conviction."

See United States v. Seligsohn, 981 F.2d 1418, 1421-22 (3d Cir.

1992). For example, where a defendant is convicted of defrauding

person X and a fraudulent scheme is an element of that

conviction, the sentencing court has power to order restitution

for the loss to defrauded person Y directly caused by the

defendant's criminal conduct, even where the defendant is not

convicted of defrauding Y.

This expansion of restitution powers, however, is

limited by its terms. Section 3663(a)(2) is not so broad that it

permits a district court to order restitution to anyone harmed by

any activity of the defendant related to the scheme, conspiracy,

or pattern. Rather, in order for restitution to be permissible,

the harm must "directly" result from the "criminal conduct" of

the defendant. In this context, we interpret "direct" to require

that the harm to the victim be closely related to the scheme,

8 rather than tangentially linked.2 Further, we interpret

"criminal defendant's conduct in the course of the scheme,

conspiracy or pattern" to mean conduct that is both engaged in

the furtherance of the scheme, conspiracy or pattern, and

proscribed by the criminal statute the defendant was convicted of

violating.3 When § 3663 is construed in this manner, restitution

liability issues of fault and causation can be resolved on the

basis of the evidence tendered by the government and the

defendant in the criminal case without resort to evidentiary

hearings on these collateral issues.

B.

Here the offense of conviction was mail fraud in

violation of 18 U.S.C. § 1341.4 A person commits mail fraud when

2 The scanty legislative history on point provides us with only the following information:

The use of "directly" precludes, for example, an argument that a person has been harmed by a financial institution offense that results in a payment from the insurance fund because, as a taxpayer, a part of that person's taxes go to the insurance fund.

H.R. Rep. No. 681(I), 101st Cong., 2d Sess. 177 n.8, reprinted in 1990 U.S.C.C.A.N. 6472, 6583 n.8. 3 We have no occasion here to address, and reserve for another day, the issue of whether in this context "conduct in the course of the . . . conspiracy" includes only conduct prohibited by the substantive statute which the co-conspirators conspired to violate. 4 18 U.S.C. § 1341 provides:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses,

9 she has "devised" or intends to "devise" a scheme to defraud, and

she uses the mails for the purpose of executing or attempting to

execute the scheme. 18 U.S.C. § 1841; see United States v. Frey,

42 F.3d 795, 797 (3d Cir. 1994). Since a scheme is an element of

mail fraud, 18 U.S.C. § 3663(a)(2) applies. Harris is not a

"victim" of Kones' mail fraud offenses within the meaning of §

3663(a), however.

The conduct that Harris alleges caused her harm is not

conduct proscribed by the mail fraud statute. The conduct

representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or received therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined under this title or imprisoned not more than five years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

Kones also plead guilty to violations of 18 U.S.C. §§ 287 and 1957. However, it is apparent that Harris' alleged injuries are wholly unrelated to the conduct which violated those statutory provisions.

10 proscribed by the mail fraud statute is the use of the mails for

the purpose of executing a scheme to defraud. Specifically, in

this case it is Kones' submission of false insurance claims

through the mail. Harris does not allege that she was injured by

the submission of the insurance claims. She alleges that she was

injured by faulty medical services. While Harris alleges that

Kones' provision of drugs to her was malpractice and was done in

furtherance of his scheme, the provision of drugs, properly or

improperly, is not conduct proscribed by the mail fraud statute.

Thus, we agree with the district court that "victim"

within the meaning of § 3663(a)(1) and (a)(2) does not include a

person who has experienced no harm arising from the criminal

conduct that gives rise to the offense of conviction. As the

facts of this case illustrate, to hold otherwise would unduly

burden sentencing courts. No information developed in the course

of these proceedings provided the district court with a basis for

adjudicating whether Kones' treatment of Harris was legal or

illegal, was consistent or inconsistent with medical standards

prevailing in the community, or was or was not causally related

to the injuries she allegedly suffered. As the district court

aptly observed, it could not grant Harris' restitution request

without fully litigating a tangentially related medical

malpractice case as a part of the sentencing process.

For the foregoing reasons, we will affirm the judgment

of the district court.

11 12