On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. No. 93-cr-00329).
Before: Sloviter, Chief Judge, Scirica, Circuit Judge, and Ambrose, District Judge*fn*
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.
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 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 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 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, 116 L. Ed. 2d 785, 112 S. Ct. 881 (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 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.
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, 86 L. Ed. 680, 62 S. Ct. 457 (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, 113 L. Ed. 2d 733, 111 S. Ct. 1637 (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." 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 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 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 ...