United States v. Williams

• Court: Court of Appeals for the First Circuit
• Decided: December 3, 1993
• Docket: 93-1661
• Status: Published

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

                                 ____________________

        No. 93-1661

                              UNITED STATES OF AMERICA,

                                 Plaintiff, Appellee,

                                          v.

                                 STEPHEN E. WILLIAMS,

                                Defendant, Appellant.

                                 ____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                     [Hon. William G. Young, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                               Torruella, Circuit Judge,
                                          _____________

                            Bownes, Senior Circuit Judge,
                                    ____________________

                               and Cyr, Circuit Judge.
                                        _____________

                                 ____________________

William J. Genego for appellant.
            _________________
            Roberta  T. Brown, Assistant United States Attorney,  with whom A.
            _________________                                               __
        John  Pappalardo, United  States  Attorney,  and  Michael  K.  Loucks,
        ________________                                  ___________________
        Assistant United States Attorney, were on brief for appellee.

                                 ____________________

                                   December 3, 1993

                                 ____________________

CYR,  Circuit Judge.   Pursuant  to  a plea  agreement,
                    CYR,  Circuit Judge.
                          _____________

          appellant Stephen Williams pled guilty to fourteen counts of mail

          fraud,  whereupon other charges  were dismissed and  Williams was

          sentenced to  seven months'  imprisonment.   On appeal,  Williams

          challenges,  among other things,  the district court's  denial of

          his request for an evidentiary hearing and its determination that

          certain criminal acts alleged in the dismissed counts constituted

          "relevant conduct"  under the counts  of conviction.   Finding no

          error, we affirm.  

I
                                          I

                                        FACTS
                                        FACTS
                                        _____

In 1980,  Williams and codefendant Bruce  Kotek founded

          S.E.R.V.E.S.S.,  Inc. (SERVESS),  a Massachusetts  not-for-profit
                                                             ______________

          corporation  which operated homes  for the handicapped.   SERVESS

          entered  into at-cost contracts  with the Commonwealth  of Massa-
                        _______

          chusetts (Commonwealth) for the placement of mentally handicapped

          persons in SERVESS group homes.  These contracts entitled SERVESS

          to reimbursement for its expenses but  prohibited it from realiz-

          ing  a profit.   In 1984, while  serving on the  SERVESS board of

          directors,  Williams and  Kotek  established Community  Services,

          Inc.  (CSI), a for-profit  corporation which would  contract with
                         __________

          companies like SERVESS to operate their group homes in return for

          a  management fee.   In July 1984,  Williams and  Kotek, in their

          capacity as SERVESS directors:  (1) voted to enter into a manage-

          ment contract with CSI; (2) promoted a  SERVESS employee, William

Polis,  to serve  as SERVESS's  new executive  director; and  (3)

          resigned from  the SERVESS Board  effective August 31, 1984.   On

          September 1, 1984, the  day after the Williams and Kotek resigna-

          tions became effective,  the SERVESS-CSI management contract  was

          executed by Polis on behalf of SERVESS.   In 1985, during Polis's

          tenure, at the  instance of  Williams and  Kotek SERVESS  entered

          into  several long-term leases  of property owned  by real estate

          trusts  controlled by  the third  codefendant,  Robert Alexander.

          Although only  Alexander received  income from  these properties,

          Kotek,  Williams and  Alexander were  all residual  beneficiaries

          under the real estate trusts.

                    In January  1986,  Williams and  Kotek founded  another

          not-for-profit corporation called D.A.R.S.O., Inc. (DARSO), which
          ______________

          operated day-care centers for mentally handicapped persons.  Like

          SERVESS,  DARSO  contracted  directly with  the  Commonwealth for

          reimbursement of its at-cost expenses, and leased several parcels

          of real property from  the same real  estate trusts.  DARSO  also

          purchased furniture  from a  company  in which  Williams held  an

          interest.   Williams  served  as  a director  of  DARSO from  its

          inception.

                    Massachusetts  law  requires  that  any  not-for-profit

          corporation  submitting  expense  reimbursement requests  to  the

          Commonwealth disclose  whether the  expense was  incurred with  a

          "related person," defined as "[a] person or organization which is

          associated or affiliated with or  has control of or is controlled
                                            ___ _______ __

          by the  [not-for-profit corporation] or  is related to  the [not-

3

for-profit  corporation] or  any director,  stockholder, trustee,

          partner or  administrator of the [not-for-profit  corporation] by

          common ownership or  control or in a manner  specified in [I.R.C.

            267(b), (c).]"  See 114.5 Mass. Reg. 3.02 (emphasis added).
                            ___

                    In  November 1990, Williams,  Kotek, Alexander, and the

          various  corporate entities were indicted for RICO violations, 18

          U.S.C.    1962(c),  RICO  conspiracy, 18  U.S.C.     1962(d), and

          multiple counts  of mail fraud,  18 U.S.C.   1341,  in connection

          with the alleged SERVESS and DARSO schemes to defraud the Common-

          wealth.    The indictment  was  based  on Williams's  failure  to

          disclose:   (1)  that  he and  Kotek, through  executive director

          Polis,  "controlled" SERVESS at the  time CSI and SERVESS entered
                   __________

          into  their management contract;  and (2) that  both corporations

          leased  property from real estate trusts whose beneficiaries were

          "related parties."  The  government charged that the  SERVESS and

          DARSO  reimbursement  requests  exceeded their  costs,  and  that

          Williams  and Kotek  defrauded the  Commonwealth  by using  these

          "hidden profits"  to improve,  and  acquire equity  in, the  real

          estate leased to SERVESS and DARSO by the real estate trusts.

                    At sentencing,  the government  characterized the  dis-

          missed  SERVESS  counts  as  "relevant  conduct"  under  U.S.S.G.

            1B1.3 and introduced a transcript  of the grand jury  testimony

          of  William Polis,  to the effect  that he was  acting under Wil-

          liams's  "control"  when  he signed  the  SERVESS-CSI  management

4

contract in  September 1984.1   Williams argued that  the SERVESS

          scheme was too remote in time and context to constitute "relevant

          conduct" under  the DARSO  counts, and  requested an  evidentiary

          hearing  for the purpose  of cross-examining  Polis on  his grand

          jury testimony concerning the  issue of "control."  The  district

          court denied the request for an evidentiary hearing and found the

          loss occasioned by  the SERVESS counts to be  "relevant conduct."

          Williams appeals the resulting seven-month prison sentence.2

____________________

               1The  gross loss  occasioned the  Commonwealth  by the  mail
          fraud directly  related to  the SERVESS  counts was  estimated at
          between $500,000 and $1 million, while  the DARSO counts involved
          estimated loss  of $50,000  to $100,000.   See U.S.S.G.    2F1.1.
                                                     ___
          The district court  imposed an 8-level enhancement, based  on the
          $500,000 to $1 million loss  occasioned by the SERVESS scheme, as
          "relevant  conduct," see  id.    1B1.3, in  connection with  Wil-
                               ___  ___
          liams's sentencing  on the DARSO  scheme counts to which  he pled
          guilty.

               2The pre-November 1989  Sentencing Guideline calculation was
          as follows:

               Base offense level (  2F1.1)                 6
               + Loss between $500,000 and $1 million      +8
               + More than minimal planning                +2
               + Abuse of trust position                   +2
               - Acceptance of responsibility              -2

               Adjusted offense level                      16
               Adjusted offense level                      16

               GSR (Criminal History Category I)           21-27 mos.
               Downward departure for Substantial
                 Assistance                                -14 mos.

               Sentence                                     7 mos.
               Sentence                                     7 mos.

                                          5

II
                                          II

                                      DISCUSSION
                                      DISCUSSION
                                      __________

The  crux  of  Williams's grievance  is  that  his plea

          agreement with the government, which  led to the dismissal of the

          SERVESS counts, resulted  in no lower sentence  since the Common-

          wealth loss relating to the SERVESS counts was  considered "rele-

          vant conduct"  for purposes  of sentencing  on the DARSO  counts.

          Our cases, see, e.g., United States v. Wright, 873 F.2d 437, 440-
                     ___  ____  _____________    ______

          42 (1st Cir. 1989),  long since have recognized the  appropriate-

          ness  of just  such  "relevant  conduct"  adjustments  as  these.

          Moreover, unlike "relevant conduct"  adjustments that may  appear

          to erode the intended benefit  of a defendant's plea bargain, see
                                                                        ___

          United States v. Fox, 889  F.2d 357, 362-63 (1st Cir. 1989);  see
          _____________    ___                                          ___

          also Kinder  v. United  States, 112 S.  Ct. 2290,  2292-93 (1992)
          ____ ______     ______________

          (White, J., dissenting  from a denial of  certiorari) (collecting

          cases and noting  circuit split), in  this case Williams  plainly

          was  on notice  that the  government would  request the  court to

          treat  the SERVESS-related loss  as "relevant conduct"  under the

          DARSO counts.3 Finally,  while the government reserved  its right
                              
          ____________________

               3The plea agreement provides:

                    Williams  agrees that  the United  States may
                    argue that  the loss suffered . .  . from all
                    of the fifteen charged schemes to defraud set
                    forth in  predicate acts one  through fifteen
                    of  Count One  of the  indictment [i.e.,  the
                                                       ____
                    SERVESS-related conduct]  may be  included by
                    the  court  in its  calculation  of  the loss
                    suffered  by  the Commonwealth  of  Massachu-
                    setts.   The Government  agrees that Mr. Wil-
                    liams  may argue that the Court should not do

                                          6

to  recommend a "relevant conduct" adjustment, the plea agreement

          afforded Williams  significant benefit.   The  government agreed,

          inter  alia,  to move  to  dismiss all  RICO  and RICO-conspiracy
          _____  ____

          counts, and to  recommend a sentence at the low-end of the appli-

          cable guideline sentencing range.   The government also left  the

          door open  to a  downward departure  for substantial  assistance.

          Ultimately,  of course,  the district  court  granted a  downward

          departure for  substantial assistance, see  supra note 2,  on the
                                                 ___  _____

          government's recommendation.  See U.S.S.G.   5K1.1. 
                                        ___

                    Thus, our  review discloses  that both  the letter  and

          spirit of the plea agreement was observed, resulting  in substan-

          tial benefit to Williams.   The fact that the district  court, in

          scrupulous  observance  of  the  Sentencing  Guidelines  and  our

          caselaw,  did not  grant  appellant  all he  had  hoped does  not

          warrant appellate relief.  

1.   "Relevant Conduct"
          1.   "Relevant Conduct"
                ________________

                    Absent a mistake  of law, we review  "relevant conduct"

          findings for clear  error.  United States v. Wood,  924 F.2d 399,
                                      _____________    ____

          403 (1st  Cir. 1991).    Only after  the government  has met  its

          burden  of establishing, by  a preponderance of  the evidence, "a

          sufficient nexus between the [extraneous] conduct and the offense
          __________ _____

          of conviction," may  the sentencing court,  in its sound  discre-

          tion, make  a "relevant  conduct" adjustment.   United  States v.
                                                          ______________

____________________

                    so.

                                          7

Sklar, 920 F.2d 107, 110  (1st Cir. 1990) (emphasis added).   The
          _____

          district court supportably found the required nexus in this case.

                    The principal  argument advanced by Williams  on appeal

          is that the conduct allegedly  involved in the SERVESS scheme was

          too dissimilar  to be  considered "relevant"  to  the conduct  of

          conviction involved in the DARSO counts.4  This supposed dissimi-

          larity springs  from the  fact that  Williams's alleged  criminal

          liability under the dismissed SERVESS  counts was predicated on a

          determination  that  Williams controlled  Polis,  thereby causing

          SERVESS  to violate its obligation to disclose "related parties,"

          whereas criminal liability  for the DARSO scheme  rested directly

          on the conduct of Williams and his codefendants.

                    The  SERVESS and DARSO  schemes shared a  great deal in

          common:   (1) the  same victim, i.e.,  the Commonwealth;  (2) the
                                          ____

          same method of  operation, i.e., SERVESS's improper  requests for
                                     ____

          Commonwealth  reimbursement of the  management fees paid  CSI, or

          the  rental fees paid  for the real  estate trusts; (3)  the same

          three principals, i.e., Williams and Kotek as influential "insid-
                            ____

          ers," Alexander  as the  "outsider" recipient;  and (4)  the same

          underlying substantive  offense, i.e., the  fraudulent failure to
                                           ____

          identify the  defendant's "related  party"  status in  accordance
                              
          ____________________

               4Appellant's  other  arguments  warrant  little  discussion.
          First, he  questions the temporal proximity between the DARSO and
          SERVESS schemes.   But  this argument ignores  the nature  of the
          underlying  crime.  Assuming  arguendo that the  SERVESS contract
                                        ________
          with CSI was executed before  DARSO came into existence, the mail
          fraud,  based  on  the  continuing non-disclosure  of  Williams's
                                             ______________
          "related party" status,  continued well beyond that date.  Appel-
          lant's second contention    that any control exercised over Polis
          was "intermittent"    is likewise inapposite.  

                                          8

with 114.5 Mass. Reg. 3.02.   Thus, the district court reasonably

          could conclude that the DARSO  and SERVESS schemes, while not one

          and the same, were nonetheless sufficiently comparable in charac-

          ter, cast and  plot, to warrant similar billing  under U.S.S.G.  

          1B1.3.

2.   Sufficiency of the Evidence
          2.   Sufficiency of the Evidence
               ___________________________

                    The second argument Williams makes is that the evidence

          was insufficient  to link him to the  SERVESS scheme.  The eight-

          level  adjustment under U.S.S.G.   1B1.3 was based exclusively on

          the  government's  contention  that  Williams controlled  Polis's

          approval of the CSI management contract, and the long-term leases

          with the  real estate  trusts, on  behalf of  SERVESS.  The  only

          "control"  evidence introduced  at sentencing  was Polis's  grand

          jury testimony, which  Williams correctly characterizes as  hear-

          say.  Williams insists that the grand jury testimony was rendered

          even  less  reliable because  the  prosecutor posed  a  series of

          hostile or leading questions to  Polis on the issue of "control."

          Moreover, Williams argues, Polis  testified that following  their

          resignations  from the  SERVESS  Board  in  August  1984  neither

          Williams nor Kotek had the power to remove Polis as the executive

          director of SERVESS, and  that Polis named a new board  of direc-

          tors, increased his  own salary, and  leased other properties  in

          which Williams had no ownership interest.

                    Given the deferential "clear error" standard of review,

          United States v. Zuleta-Alvarez, 922 F.2d 33, 36 (1st Cir. 1990),
          _____________    ______________

          cert. denied, 111  S. Ct. 2039 (1991), and the  modest burden and
          _____ ______

                                          9

quality of proof  incumbent on the government  at sentencing, id.
                                                                        ___

          at 37  (citing United States  v. Mocciola,  891 F.2d 13,  17 (1st
                         _____________     ________

          Cir.  1989)), Williams's claim founders  on the plain language in

          U.S.S.G.   6A1.3(a): 

                    In resolving any  reasonable dispute concern-
                    ing  a  factor  important to  the  sentencing
                    determination, the  court may  consider rele-
                    vant information without regard to its admis-
                    sibility under the  rules of evidence applic-
                    able at trial, provided  that the information
                    has  sufficient  indicia  of  reliability  to
                    support its probable accuracy.

                    Under U.S.S.G.    6A1.3(a), we  repeatedly have  upheld

          reliance on  prior hearsay  testimony never  subjected to  cross-

          examination,  so long  as there  were  other adequate  indicia of

          reliability.   See, e.g.,  Wright, 873  F.2d at  441.  Here,  the
                         ___  ____   ______

          Polis testimony was given under oath, subject to the penalties of

          perjury,  in a  formal  grand jury  proceeding  that resulted  in

          Williams's indictment on the DARSO counts, as well as the SERVESS

          counts which were dismissed pursuant  to the plea agreement.  The

          district court was provided with  the complete transcript of  the

          Polis grand jury  testimony, wherein Polis admitted,  inter alia,
                                                                _____ ____

          that Williams was still "calling  the shots" during the first two

          years Polis served as President  of SERVESS.5  The Polis testimo-
                              
          ____________________

               5Polis testified as follows:
                    Q:   But, Mr.  Polis,  [why did  you sign]  a
                    document  [the  SERVESS-CSI  management  con-
                    tract] you had never seen before, a  document
                    in which you  played no role in  the negotia-
                    tion  of on your first day  on the job, which
                    obligated your entity to five years relation-
                    ship  with [CSI].   What  is  the reason  you
                    signed it?
                    A:   I didn't really feel I had the choice.

                                          10

ny  was the  only direct  evidence before  the district  court on

          Williams's influence upon Polis.  So far as the record discloses,

          the Polis testimony was also  the only direct evidence before the

          grand jury on the issue of Williams's "control," and would appear

          to have  been critical to  the "probable cause"  determination on

          which Williams's indictment on the  SERVESS counts was based.  In
                              
          ____________________

                    Q:   And what  was     what was  it that  was
                    taking away your ability to have a choice?
                    A:   Stephen Williams and Bruce Kotek.
                    Q:   How?
                    A:   The fact that they had the contracts and
                    the control.
                                        * * *
                    Q:   Mr. Polis, in the sort of natural scheme
                    of  human relationships,  two people  who are
                    running  an entity  don't voluntarily  relin-
                    quish all control over it to somebody else on
                    the faint hope that person will turn  control
                    right back to them  in a consulting agreement
                    or leave control with them by letting them do
                    what they  want to  do in  terms of  who they
                    execute leases with and the like.
                         Is  it your testimony  that there was no
                    conversation  . .  . in  which you  indicated
                    that you  would continue to  do their bidding
                    as director of SERVESS?
                    A:   There  was a  discussion about  they had
                    gone to the state, they had gone to an attor-
                    ney, they  were coming  up with an  agreement
                    and  that they wanted it signed and that they
                    would  become  the  management  entity and  I
                    would run the programs.
                    Q:   Well  didn't somebody  ever  say at  any
                    point  in time you're going to continue to do
                    as we tell you to do, Bill.  We're making you
                    executive-director  but  we  still  call  the
                                                 _____  ____  ___
                    shots here.
                    _____
                    A:   That's obviously how they felt.
                    Q:   And that  for a while,  that's obviously
                    what happened Mr. Polis?
                    A:   Yes.
                    Q:   True?
                    A:   True.

          (emphasis added).

                                          11

these circumstances, we  think there can be  little question that

          the  Polis  grand  jury testimony  was  sufficiently  reliable to

          permit reliance by  the sentencing court.  Compare, e.g., Zuleta-
                                                     _______  ____  _______

          Alvarez,  922 F.2d at  37 (upholding consideration  of grand jury
          _______

          testimony where sentencing  judge presided over trial  and formed

          independent  assessment of  reliability),  with United  States v.
                                                     ____ ______________

          Harris, 982 F.2d  317 (8th Cir. 1992) (upholding  refusal to rely
          ______

          on  grand jury  testimony  where  sentencing  judge  doubted  its

          veracity). 

                    The sentencing  judge was  highly conversant  both with

          the facts of the case and Williams's association  and involvement

          with his  codefendants in the SERVESS  scheme.  By  the time Wil-

          liams was  sentenced, the judge not  only had the benefit  of the

          presentence investigation report and Williams's written response,

          but the understanding gained from more than two years of pretrial

          proceedings.   Indeed,  a few  weeks earlier  the same  judge had

          sentenced  Alexander  and Kotek  on  the  SERVESS and  the  DARSO
                                                            ___

          counts.   Cf. Zuleta-Alvarez,  922 F.2d at  37 (holding  that en-
                    ___ ______________

          hanced deference was due findings  of fact where sentencing judge

          had presided at trial).

                    The  district  court  supportably  found  that  Polis's

          actions on behalf of SERVESS  in entering into the CSI management

          contract were controlled by Williams. 

3.   Evidentiary Hearing
          3.   Evidentiary Hearing
               ___________________

                    Finally,  Williams  argues  that  the district  court's

          refusal  to allow an  evidentiary hearing,  at which  Polis could

                                          12

have been cross-examined, constituted an abuse of discretion.  We

          have yet to hold that it is an abuse of discretion to deny cross-

          examination  in the  sentencing context.   See  United  States v.
                                                     ___  ______________

          Regan, 989 F.2d 44, 47 (1st Cir. 1993).
          _____

                    Williams  has not demonstrated  an abuse  of discretion

          here.  See  Garcia, 954  F.2d at  19.  Even  though, as  Williams
                 ___  ______

          alleges,  the Polis grand jury testimony on "control" was central

          to  the "relevant  conduct" adjustment  relating  to the  SERVESS

          counts,  we cannot  say that  the district  court, which  had the

          benefit of the grand jury transcript and its own long-term famil-

          iarity  with these proceedings,  was presented with  a compelling

          basis  for conducting an evidentiary  hearing to revisit the same

          ground.   Williams  was accorded  an opportunity  to contest,  in

          writing, the  government's evidence of "control."  Yet he neither

          proffered rebuttal evidence  nor alleged or identified  any false

          grand jury testimony by Polis,  but simply disputed the import of

          Polis's testimony  by denying  "control" without  suggesting what

          additional  or different information might be gleaned from cross-

          examining  Polis.  Williams's  sheer earnestness in  pursuing the

          request was not enough.   In these circumstances, and absent some

          more  concrete  proffer, the  district  court did  not  abuse its

          discretion in denying an evidentiary hearing.  

                    Affirmed.
                    Affirmed.
                    ________

13