United States v. Logal ( 1997 )

United States Court of Appeals,
Eleventh Circuit.
No. 94-4748.
UNITED STATES of America, Plaintiff-Appellee,
v.
Nelson LOGAL, Aarid Dahod, a.k.a. Aarid Mansur Dahodwala, John
Kuczek, Defendants-Appellants.
March 6, 1997.
Appeal from the United States District Court for the Southern
District of Florida. (No. 93-6014 CR-SM), Stanley Marcus, Jr.,
District Judge.
Before HATCHETT, Chief Judge, DUBINA, Circuit Judge, and COHILL*,
Senior District Judge.
DUBINA, Circuit Judge:
I. Statement of the Case
1. Factual History.
In 1981, Howard F. Sahlen, Jr. ("Sahlen") founded a private
investigation and security firm called Sahlen & Associates, Inc.
("SAI"). Sahlen was chairman and chief executive officer of the
company through April of 1989. In 1984, SAI became a publicly
traded company with its headquarters in Atlanta, Georgia.1
As a publicly traded corporation, SAI was required to file a
registration statement with the Securities and Exchange Commission
("SEC") detailing certain information for use by potential
investors. In addition, SAI was required to file quarterly and
*
Honorable Maurice B. Cohill, Jr., Senior U.S. District
Judge for the Western District of Pennsylvania, sitting by
designation.
1
The headquarters were later relocated to Deerfield Beach,
Florida.
annual reports containing financial information about the
corporation's worth and profit levels. Financial statements
included in SEC filings must be audited, and between 1985 and 1989
SAI's annual reports were audited by the accounting firm of Peat
Marwick or its predecessor, Main Hurdman.
Between 1983 and 1989, SAI's operation grew from one office
with 10 to 15 employees to about 100 offices with approximately
12,000 employees, and the company reported a tremendous increase in
revenues. Unfortunately, SAI achieved this growth by making public
stock offerings and obtaining bank loans through the use of false
financial documents. SAI employees and others—including Sahlen,
Nelson Logal ("Logal"), Aarif Dahod ("Dahod"), and John Kuczek
("Kuczek")—used various means to misrepresent SAI's financial
condition, including check kiting, falsifying revenue figures in
financial statements, and creating false documents to support the
inflated revenue figures. Sahlen, Logal, Dahod, and Kuczek also
devised and implemented various schemes to conceal the fact that
they had inflated and fabricated SAI's revenue figures.
One of Sahlen's schemes to inflate revenue figures involved
the generation of false invoices and investigative files for
clients who were closely associated with Sahlen. SAI listed these
accounts, which were never paid, under the heading of "special
accounts." P.J. Management—whose president, Logal, was a childhood
friend of Sahlen—enjoyed one of these "special accounts" with SAI.
Kuczek & Associates, an insurance brokerage company owned by
Kuczek, also had a "special account" during the 1987 fiscal year.
Dahod was actively involved in the generation of false
investigative files to authenticate the invoices, even going so far
as to create a computer program to facilitate the generation of
false documentation on a computer he called "Betsy."
In order to disguise the financial instability of SAI, Sahlen
devised a check kiting scheme to give the illusion that SAI had the
funds necessary to pay operating expenses. Logal, who was
operating his own business in Ohio called N.H. Logal, assisted
Sahlen in the check kiting scheme by helping to deposit checks with
full knowledge that the checks were backed by insufficient funds.
In another scheme to conceal SAI's true fiscal status, SAI reported
non-existent revenue in a category called "work in progress."2
The reporting of false revenue escalated substantially with
each quarterly report filed by SAI, ultimately growing to
$7,124,073. The house of cards began to fall when auditors from
Peat Marwick started expressing concern about the large amount of
aging accounts receivable on SAI's books. Peat Marwick told Sahlen
that unless SAI began showing significant collections activities,
the accounts receivable figures would have to be discounted, which
would result in the reporting of much smaller income and revenue
figures. To cover up the false revenue reported as accounts
receivable, the defendants created additional schemes.
By the end of 1988, the amount of false revenue had grown to
millions of dollars, and most of the uncollected receivables were
fictitious. In late March of 1989, Sahlen learned that the SEC was
investigating SAI's methods of reporting revenue. Sahlen also
2
"Work in progress" is an accounting device used to report
anticipated revenues from partially completed work.
learned that Peat Marwick auditors planned to visit SAI's Miami,
Florida, and Newark, New Jersey, field offices to examine files.
Upon completion of its investigation, the SEC sought federal
indictments against Sahlen, Logal, Dahod, and Kuczek.
2. Procedural History.
A federal grand jury in the Southern District of Florida
returned a 29-count superseding indictment charging Logal, Dahod,
and Kuczek, as well as Sahlen, with various violations of federal
law.3 All four defendants were charged in count 1 with conspiring
to defraud the SEC and to commit securities fraud, bank fraud, and
mail fraud, in violation of 18 U.S.C. § 371, and in count 28 with
filing a false registration statement with the SEC on or about
March 14, 1989, in violation of 15 U.S.C. §§ 78m and 78ff(a) and 18
U.S.C. § 2. Logal, Dahod, and Sahlen were also charged with seven
counts of securities fraud, in violation of 15 U.S.C. §§ 78j(b) and
78ff(a), 17 C.F.R. § 240.10b-5 (Rule 10b-5), and 18 U.S.C. § 2
(counts 2-8); eight counts of mail fraud, in violation of 18
U.S.C. §§ 1341 and 2 (counts 9-16); six counts of filing false
reports and statements with the SEC, in violation of 15 U.S.C. §§
78m and 78ff(a) and 18 U.S.C. § 2 (counts 22-27); and one count of
bank fraud, in violation of 18 U.S.C. §§ 1344 and 2 (count 29).
Logal was charged with one additional count of bank fraud (count
17), and Sahlen was charged with five additional counts of bank
fraud (counts 17-21).
Sahlen pled guilty to all counts of the indictment, but Logal,
3
Additional defendants Theodore Leinweber, Paula Firebaugh,
and Tony Davis pled guilty before the return of the superseding
indictment and testified for the government at trial.
Dahod, and Kuczek proceeded to trial. The district court granted
a motion for judgment of acquittal as to Dahod and Logal on count
9. The jury found Logal guilty of counts 1-8, 10-16, 22-25, and 29,
and not guilty of counts 17 and 26-28. The jury found Dahod guilty
of counts 1-8, 10-16, and 24-29, and not guilty of counts 22 and
23. The jury found Kuczek guilty of count 1 and not guilty of
count 28.
Logal was sentenced to 60 months imprisonment as to count 1
and to 27 months of imprisonment as to the remaining counts, with
the 27-month sentence to run consecutively to the 60-month
sentence, for a total of 87 months of imprisonment. The court also
ordered Logal to pay restitution totaling $59,338,184. Dahod was
sentenced to a total of 144 months imprisonment and ordered to pay
restitution in the amount of $59,338,184. Kuczek was sentenced to
37 months imprisonment and a 3-year term of supervised release and
ordered to pay a fine of $4,000 and restitution totaling
$21,586,487. Logal and Dahod are currently incarcerated.
Kuczek is not incarcerated, however, because he committed
suicide the day before he was to begin serving his term of
imprisonment. Following Kuczek's suicide, his counsel filed a
"suggestion of death" with this court and asked this court to
dismiss Kuczek's appeal as moot, to vacate Kuczek's sentence and
conviction in toto, and to remand the case to the district court
with instructions to dismiss the indictment. This court ordered
that Kuczek's motions be carried with the case and instructed
Kuczek's counsel to address in his brief the effect of Kuczek's
suicide on the restitution order imposed by the district court. In
response to a motion for clarification, we specified that only
issues relating to the effect of Kuczek's death on the restitution
4
order should be addressed in Kuczek's appellate brief. In his
brief, counsel for Kuczek requests that he be allowed to file a
brief presenting further challenges to the restitution order if
this court determines that it has jurisdiction to entertain the
merits of the appeal.
II. Issues Presented
1. Whether the district court abused its discretion by denying
Logal's motions for severance from Kuczek.
2. Whether Dahod's allegations of prosecutorial misconduct warrant
reversal of his and Logal's convictions.
3. Whether the district court abused its discretion by admitting
challenged evidence.
4. Whether the district court abused its discretion by declining to
give requested jury instructions.
5. Whether the district court abused its discretion in framing its
response to a jury question.
6. Whether the district court properly sentenced Dahod and Logal.
7. Whether the restitution component of Kuczek's sentence survives
his death.
8. Whether this court should dismiss Kuczek's appeal as moot,
vacate his conviction and sentence, and remand this matter to
the district court to dismiss the indictment.
III. Standards of Review
Regarding all but the last three issues presented in this
appeal, we conclude that the defendants' arguments are meritless.
Accordingly, we affirm the defendants' convictions without further
4
Counsel for Kuczek complied fully with this court's
directives.
discussion. 5 We also affirm without discussion all of the
sentencing issues raised by Dahod and Logal, save for their
contention that the district court, in imposing their sentences,
violated the Ex Post Facto Clause of the Constitution by
considering amendments to the United States Sentencing Guidelines
("U.S.S.G." or "guidelines") that went into effect after Dahod and
Logal's crimes had been completed. A defendant's claim that his or
her sentence was imposed in violation of the Ex Post Facto Clause
presents a question of law, and we review questions of law de novo.
See, e.g., United States v. Hooshmand, 931 F.2d 725, 727 (11th
Cir.1991). The remaining issues—viz., whether the restitution
component of Kuczek's sentence survives his death, and whether this
court should dismiss the appeal as moot, vacate Kuczek's conviction
and sentence, and remand to the district court for dismissal of the
indictment—also present questions of law subject to de novo review.
See generally United States v. Asset, 990 F.2d 208 (5th Cir.1993);
United States v. Dudley, 739 F.2d 175 (4th Cir.1984); United
States v. Schumann, 861 F.2d 1234 (11th Cir.1988).
IV. Discussion
1. Guidelines Issue.
Although Dahod and Logal were sentenced in 1994, they were
sentenced pursuant to the pre1989 guidelines, because their
offenses had ended prior to the enactment of the 1989 amendments
and because those amendments included increases in the offense
levels for fraud cases. See Miller v. Florida, 482 U.S. 423, 435-
36, 107 S. Ct. 2446, 2454, 96 L. Ed. 2d 351 (1987). Both Dahod and
5
See 11th Circuit Rule 36-1.
Logal acknowledge that the district court imposed sentence on them
pursuant to the pre-1989 version of U.S.S.G. § 2F1.1. Nevertheless,
they argue that the district court violated the Ex Post Facto
Clause by looking to the 1989 amendment to § 2F1.1 for guidance in
determining the degree of their upward sentencing departures.
Because the court indisputably used the pre-1989 guidelines to
sentence Dahod and Logal, we conclude that no Ex Post Facto Clause
violation occurred. Moreover, we note that six of our sister
circuits have already approved the practice of looking at
guidelines amendments that post-date applicable guidelines for the
purpose of determining the appropriate degrees of upward sentencing
departures. See United States v. Harotunian, 920 F.2d 1040, 1046
(1st Cir.1990) (approving use of amended guideline to guide upward
departure); United States v. Rodriguez, 968 F.2d 130, 140 (2d
Cir.) (same), cert. denied, 506 U.S. 847, 113 S. Ct. 140, 121
L. Ed. 2d 92 (1992); United States v. Bachynsky, 949 F.2d 722, 734-
35 (5th Cir.1991) (approving district court's consideration of
proposed amendments to § 2F1.1 in determining level of upward
departure), cert. denied, 506 U.S. 850, 113 S. Ct. 150, 121 L. Ed. 2d
101 (1992); United States v. Boula, 997 F.2d 263, 267 (7th
Cir.1993) (approving district court's consideration of amended §
2F1.1 to fashion upward departure and rejecting argument that doing
so constituted application of the amended guideline); United
States v. Saffeels, 39 F.3d 833, 838 (8th Cir.1994) (holding that
"subsequent guidelines can be a useful touchstone in making the
determinations of reasonableness called for in upward departure
cases"); United States v. Tisdale, 7 F.3d 957, 967-68 (10th
Cir.1993) (holding that use of amended guideline to guide upward
departure is permissible so long as the district court understands
that the amended guideline provision is not controlling), cert.
denied, 510 U.S. 1169, 114 S. Ct. 1201, 127 L. Ed. 2d 549 (1994). But
see United States v. Canon, 66 F.3d 1073, 1080 (9th Cir.1995)
(holding that district court erred in referring to amended
guideline to determine reasonable amount of upward departure). We
choose to adopt the majority view of our sister circuits.
Accordingly, we affirm Dahod and Logal's sentences.
2. Restitution.
Counsel for Kuczek asserts that the restitution order entered
by the district court cannot survive Kuczek's suicide. Kuczek was
sentenced to serve a 37-month term of imprisonment and a 3-year
term of supervised release. Additionally, Kuczek was ordered to
pay a fine of $4,000 and restitution totaling $21,586,487, pursuant
to the Victim and Witness Protection Act ("VWPA"), 18 U.S.C. §
3663. Kuczek filed a notice of appeal, but the day before he was
to begin serving his sentence of incarceration, he committed
suicide. Kuczek's appellate attorney argues that his client's
death rendered the entire conviction and sentence, including the
restitution order, void ab initio, and that the restitution order
is therefore without effect.
This circuit has adopted the general rule that the death of a
defendant during the pendency of his direct appeal renders his
conviction and sentence void ab initio; i.e., it is as if the
defendant had never been indicted and convicted. See United States
v. Pauline, 625 F.2d 684, 685 (5th Cir.1980)6; United States v.
Schumann, 861 F.2d 1234, 1236 (11th Cir.1988). However, two of our
sister circuits have recognized an exception to the general rule of
abatement ab initio in cases in which a criminal sentence includes
an order that the defendant pay restitution to the victims of his
crimes. See United States v. Dudley, 739 F.2d 175, 177 (4th
Cir.1984); United States v. Asset, 990 F.2d 208 (5th Cir.1993).
In Dudley, the Fourth Circuit premised its holding on the
assumption that a restitution order is compensatory in nature.
That assumption is clearly at odds with our holding in United
States v. Johnson, 983 F.2d 216, 220 (11th Cir.1993), that "though
restitution resembles a judgment "for the benefit of' a victim, it
is penal, rather than compensatory." Furthermore, any implication
that restitution resembles a civil judgment is undermined in this
court's opinion in United States v. Satterfield, 743 F.2d 827, 836
(11th Cir.1984), cert. denied, 471 U.S. 1117, 105 S. Ct. 2362, 86
L. Ed. 2d 262 (1985).
The Fifth Circuit's opinion in United States v. Asset, 990
F.2d 208 (5th Cir.1993), is also distinguishable. Asset held only
that an abatement did not disturb a voluntary restitution payment
made prior to the defendant's death. Id. at 214. This holding is
in accordance with our decision in Schumann where we amended
Pauline to hold that only fines not yet collected at the time of
death are abated. Schumann, 861 F.2d at 1236.
6
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th
Cir.1981) (en banc ), this court adopted as binding precedent all
decisions of the former Fifth Circuit handed down prior to
October 1, 1981.
If we were to allow the restitution order to survive Kuczek,
a statutory problem would also arise. Title 18 U.S.C. § 3663(a)(1)
states that before the court can impose a restitution order, a
defendant must first be convicted of a crime. Under the doctrine
of abatement ab initio, however, the defendant "stands as if he
never had never been indicted or convicted." Schumann, 861 F.2d at
1237. The absence of a conviction precludes imposition of the
restitution order against Kuczek or his estate pursuant to § 3663.
Moreover, a fundamental principle of our jurisprudence from
which the abatement principle is derived is that a criminal
conviction is not final until resolution of the defendant's appeal
as a matter of right. See Griffin v. Illinois, 351 U.S. 12, 18, 76
S. Ct. 585, 590, 100 L. Ed. 891 (1956). As the Seventh Circuit has
stated, "when an appeal has been taken from a criminal conviction
to the court of appeals and death has deprived the accused of his
right to our decision, the interests of justice ordinarily require
that he not stand convicted without resolution of the merits of his
appeal...." United States v. Moehlenkamp, 557 F.2d 126, 128 (7th
Cir.1977). In the present case, Kuczek appealed both the
conviction and the restitution order with the expectation that his
appeal would result in a reversal. To uphold the restitution order
against Kuczek, who has been denied the opportunity to properly
contest his conviction, violates the finality principle.
Concerning the argument that the heirs of Kuczek's estate may
receive a windfall, nothing precludes the victims from bringing a
separate civil action to prevent any improper benefit to Kuczek's
estate. Accordingly, we grant Kuczek's motion requesting that we
vacate his conviction and sentence, remand the case to the district
court, and instruct the district court to dismiss the indictment.
AFFIRMED in part, VACATED in part, and REMANDED for further
proceedings consistent with this opinion.
COHILL, Senior District Judge, concurring in part and
dissenting in part.
I respectfully dissent from that portion of the opinion in
which a majority of the panel holds that Mr. Kuczek's death by
suicide, before his appeal was decided, necessitates the abatement
of the restitution order. While United States v. Moehlenkamp, 557
F.2d 126, 128 (7th Cir.1977), states that a conviction can not
stand where "death has deprived the accused of his right to appeal
our decision," in this case the accused deprived himself of that
right by his own hand. This situation is more analogous to the
scenario in which the appellant in a criminal case becomes a
fugitive; in such a case, his appeal is lost. Molinaro v. New
Jersey, 396 U.S. 365, 365-366, 90 S. Ct. 498, 498-499, 24 L. Ed. 2d
586 (1970). I believe that a narrow exception should be carved out
of the general abatement rule where an appellant takes his own
life.
I join in the opinion in all other respects.