United States v. Kones ( 1996 )

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Precedential or Non-Precedential: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.
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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
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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
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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
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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
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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).
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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.
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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
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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,
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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.
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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.
III.
For the foregoing reasons, we will affirm the judgment
of the district court.
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