United States v. Copple ( 1994 )

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
5-17-1994
United States of America v. Copple, et al.
Precedential or Non-Precedential:
Docket 93-3003
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_________________
No. 93-3003
_________________
UNITED STATES OF AMERICA,
Appellee
v.
COPPLE, JOHN R., an individual;
MECHEM FINANCIAL INCORPORATED, a
corporation,
JOHN R. COPPLE,
Appellant
_________________________________________________
On Appeal From the United States District Court
for the Western District of Pennsylvania
(D.C. Criminal No. 91-00026-1E)
_________________________________________________
Argued: August 27, 1993
Before: BECKER, NYGAARD and ALITO, Circuit Judges.
(Filed: May 17, 1994)
LEONARD G. AMBROSE III (Argued)
WILLIAM P. WEICHLER
Ambrose, Friedman & Weichler
319 West 8th Street
Erie, PA 16502-1495
Attorneys for Appellee
THOMAS W. CORBETT, JR.
United States Attorney
BONNIE R. SCHLUETER (Argued)
Assistant U.S. Attorney
Office of the United States
Attorney
633 U.S. Post Office and
Courthouse
Pittsburgh, PA 15219
Attorneys for Appellant
_________________________
OPINION OF THE COURT
_________________________
BECKER, Circuit Judge.
John Copple, former President of Mechem Financial,
Inc., ("Mechem"), an investment firm specializing in the
management of "pre-need" funeral funds, was convicted by a jury
of mail fraud, 18 U.S.C. §§ 1341, 1342, and income tax evasion,
26 U.S.C. § 7201. The district court sentenced him to 71 months
imprisonment, a $100,000 fine and three years supervised release,
and ordered him to pay over $4 million in restitution. In this
appeal, Copple challenges both his conviction and sentence.
Copple challenges his conviction on two principal
grounds. First, he argues that the government failed to comply
with the requirements of 26 U.S.C. § 6103(h)(5) (which requires
the IRS to report whether a prospective juror has been the
subject of an audit or other tax investigation) when it limited
the scope of the investigation into the jurors' tax records to
records since 1986. According to Copple, he is entitled to a new
trial because the district court did not strike the entire jury
panel after the limitation on the investigation had been
disclosed. Reading a reasonableness limitation into the statute,
however, we conclude that the requirements of § 6103(h)(5) were
met in this case and that the district court did not err when it
refused to strike the jury panel. Second, Copple argues that the
district court abused its discretion in admitting victim impact
testimony that was irrelevant and highly prejudicial. Although
we agree with Copple that the admission of the victim impact
testimony was error, we believe the error was harmless given the
overwhelming evidence of Copple's guilt. We therefore affirm the
conviction.
However, we must vacate the judgment of sentence and
remand the case for resentencing for two reasons. First, the
district court increased Copple's offense level four levels
because of the amount of money involved and the large number of
victims, which, whether viewed as an enhancement under
§2F1.1(b)(2) or as an upward departure, was improper; second, the
court ordered Copple to pay restitution without making the
required findings about Copple's ability to pay. On remand, the
district court is free to reconsider alternative grounds for
upward departure or increase in the offense level mentioned in
the original presentence report but not factored into the
original sentence. It also must support any order of restitution
with factual findings about Copple's ability to pay the order,
the financial need of his family, and the relationship between
the loss caused and Copple's conduct.
I. BACKGROUND
Over the years a practice has developed in the funeral
home business whereby persons who wish to rest assured that their
funeral needs are taken care of in the event of a sudden or
unexpected death may purchase "pre-need" funeral plans with the
funeral director of their choice. In 1986, two Pennsylvania
funeral directors, W. James Scott and Michael Orlando, realizing
that many funeral directors who had sold "pre-need" funeral plans
did not have the time or expertise to manage the plan funds, or
to deal with the tax, accounting, and disbursement problems
associated with the funds even when they had turned the funds
over to conventional trust management plans, conceived of a
business idea -- a money management firm specializing in "pre-
need" funeral accounts. As funeral directors themselves,
however, Scott and Orlando lacked the expertise needed to make
such a company successful, and hence they sought the aid of
someone with considerable experience as an insurance agent and
financial planner, defendant Copple.
Copple jumped at the chance to run a money management
business like the one Scott and Orlando proposed. He offered to
put up $50,000 if Scott and Orlando would contribute their
expertise in the funeral business to the venture. They agreed,
and Mechem was formed. Copple became president, and Scott and
Orlando became "silent partners." Copple promised to oversee the
investment decisions himself and to invest the money in "the
safest place."0
0
Soon after the company was formed, both Scott's and Orlando's
relationship with Copple deteriorated. Copple presented Scott
and Orlando with bills for start-up costs. Scott countered by
suing Copple. Orlando's response was to give up his stock in the
company in return for a fee for consulting services. As a result
of these disputes, Scott and Orlando ceased to have meaningful
Copple sold funeral directors on Mechem's services with
promises of high yields and low risk. He directed his staff to
tell the funeral directors that Mechem invested the "pre-need"
funds in high yield, low risk annuities and treasury bonds.
Mechem sent letters via the United States mail stating that the
money had been invested with reputable insurance companies like
John Hancock, Connecticut Mutual, New England Mutual Life, and
others. One letter told the funeral directors that "[o]ur
investments have been made in insurance companies, annuities, T-
bills, long term municipal bond funds, short-term CD's and money
markets. Our performance has reflected our excellent investment
posture for the last fifteen years."
Copple also had Mechem send out letters representing
that it was fidelity bonded. In particular, the letters pointed
to a policy issued by an agent named James Domino, a bond issued
by the Maryland Casualty Insurance Company, and certain Lloyds of
London bond certificates. In addition, Mechem issued quarterly
statements to the funeral directors reporting the interest that
had accrued on their "pre-need" funds. The sales technique
worked. Eventually, about $5 million in "pre-need" account money
from Pennsylvania funeral directors made its way into Mechem's
responsibilities at Mechem. In 1987, when an accountant reviewed
the Mechem corporate records, the officers were listed as Copple,
his brother Charles Copple, and G. Gustave McGovern. The records
made no mention of Scott or Orlando having any formal association
with the company.
coffers. Ohio and Massachusetts funeral directors deposited an
additional $7 million.0
Although Mechem and Copple promised the funeral
directors high yields and low risk, they gave them neither.
Copple did not invest any of the money he received for Mechem in
annuities, treasury bills or any similar investments. Mechem had
never purchased any fidelity bond. The Maryland Casualty Bond,
for example, was actually a general liability policy that a
salesman had altered, at Copple's direction, to make it look like
a fidelity or surety bond. And the quarterly reports of interest
earned were complete fabrications.
Copple actually used most of the money for speculative
investments and conspicuous personal consumption. During the
three year life of Mechem corporation, Copple bought $5.7 million
of rare coins, used $2.8 million to run Mechem, applied $1
million to pay death claims, and spent about $2.5 million on
himself. His personal expenses during the time he was running
Mechem were lavish to say the least. They included: $228,000 for
a building project on his home, $196,334 for furniture, $62,081
for jewelry from Les Crago, $70,279 for jewelry from Fortunoff's,
$398,000 for jewelry from Neiman-Marcus, $48,712 for a sable
0
Copple did not spend his entire time operating Mechem. He also
acted as a financial advisor to a number of individuals. The
three relevant to this case include: Audrey Garfield Woo, a widow
who gave Copple $55,000 that she had inherited from her husband
to invest for her grandchildren's education, Patrick Mastrian who
gave Copple $50,000, and Virginia Sczepanski who gave him
$25,000. All of this money was commingled with the Mechem "pre-
need" trust money.
coat, $480,000 for gifts to his family, and a host of similar
purchases.
The inevitable occurred in 1989. After rumors surfaced
that Mechem could no longer pay the funeral expenses for the
"pre-need" accounts and that Copple had invested all of the money
in rare coins, the funeral directors made a run on Mechem. Many
of the funeral directors asked Mechem to "roll-over" their funds
into other money management companies, but Mechem no longer had
the money to meet these demands. It filed for bankruptcy in
1990.
While administering the bankruptcy, the trustee
discovered Copple's serious mishandling of the Mechem "pre-need"
account funds. He discovered that all but $250,000 of the
individual "pre-need" account money that had been initially
placed in the Mechem investment account had been transferred to
the John R. Copple account, from which both business and personal
disbursements were made. Some of the assets were still in
Copple's hands. Copple turned over to the trustee the rare
coins, which were sold at auction for $209,045. The trustee took
control of four bank accounts which contained $68,875.73 and an
escrow account containing $210,480.78. He also secured the
return of a $110,000 deposit that Copple had placed at Neiman-
Marcus for the purchase of a 38.33 carat diamond. Most of the
money, however, was gone. At last count, the creditors,
including the funeral directors, will recoup about twelve cents
on the dollar.0 The total amount of money lost by the victims
relevant to this criminal case was $4,257,940.45.
On October 17, 1991 a grand jury in the Western
District of Pennsylvania returned a 37-count indictment charging
Copple and Mechem with mail fraud and tax evasion. Counts 1-16,
18-27, 29-32, and 34 charged Copple and Mechem with mail fraud of
the funeral directors. Counts 17, 28, and 33 charged Copple and
Mechem with mail fraud of individual investors.0 Counts 35-37
charged Copple with income tax evasion for failing to file
returns for 1986, 1987 and 1988.0
After a trial lasting about a month, the jury found
Copple guilty on all counts. On December 18, 1992, the district
court sentenced Copple on the counts covered by the Sentencing
Guidelines (the "Guidelines") to 71 months imprisonment, a
$100,000 fine, and three years supervised release. He also
ordered Copple to pay $4,257,940.45 in restitution to be made
through the bankruptcy trustee. On the counts not covered by the
Guidelines, the court sentenced Copple to five years imprisonment
to be served concurrently with the Guidelines sentence. Copple
0
The Pennsylvania Board of Funeral Directors and the Pennsylvania
Attorney General required the funeral directors, as a condition
of keeping their licenses, to replace the money that had been
taken from the "pre-need" trusts.
0
At trial, the district court granted a motion to dismiss Mechem
from the indictment because the corporation was defunct.
0
During the three years he ran Mechem, Copple did not file any
personal tax returns. At trial, the IRS estimated Copple's total
tax liability to be $753,323; minus withholdings and credits, the
IRS claimed that Copple owed taxes of $665,859 for the three
years.
has filed a timely appeal challenging both his conviction and
sentence.
II. COPPLE'S CHALLENGES TO HIS CONVICTION
A. The 26 U.S.C. § 6103(h)(5) Claim
The first issue we address is Copple's claim that we
should reverse his conviction because the requirements of
§6103(h)(5) were not met.0 Section 6103(h)(5) provides in
relevant part:
in connection with any judicial proceeding [related to
tax administration] to which the United States is a
party, the Secretary shall respond to a written inquiry
from . . . any person (or his legal representative) who
is a party to such proceeding as to whether an
individual who is a prospective juror in such
proceeding has or has not been the subject of any audit
or other tax investigation by the Internal Revenue
Service. The Secretary shall limit such response to an
affirmative or negative reply to such an inquiry.
26. U.S.C. § 6103(h)(5).
On July 27, 1992, about a month before jury selection,
Copple moved pursuant to § 6103(h)(5) for disclosure of tax
background information of prospective jurors. In its response to
Copple's motion, the government agreed to provide the
information, but stated that it would be virtually impossible to
obtain tax audit information from prior to 1986. The district
court granted Copple's motion for the § 6103(h)(5) investigation,
0
Our review of this issue is plenary since it requires the
interpretation of a federal statute. See Air Courier
Conference/Int'l Comm. v. U.S. Postal Serv., 959 F.2d 1213, 1217
(3d Cir. 1992).
but did not mention whether the IRS was to investigate the tax
records of the prospective jurors for the years preceding 1986.
The government provided Copple with the IRS review
indicating that none of the prospective jurors had been audited
or investigated from 1986 to 1991, the years for which the IRS'
records were computerized. At a hearing the day before
commencement of trial, Copple claimed that he was entitled to the
tax information without any limitation as to time period. The
government responded that checking records of possible audits
occurring before 1986 would require a manual search, which would
take weeks, even a month, to complete.
Copple then claimed that he was entitled to ask on voir
dire whether any of the prospective jurors had ever been audited
by the IRS or whether any of the prospective jurors had ever been
the subject of a civil or criminal tax investigation; he also
argued that he was entitled to have the IRS verify the answers
the jurors gave. The district court granted Copple's request for
voir dire but declined to order the IRS to verify the jurors'
answers.
On voir dire, the district court asked the prospective
jurors: "Have you or any member of your immediate family ever
been audited by the Internal Revenue Service?" In response to
this question, Juror Number 7, Art Borczon stated that he had
been audited during 1988 and 1989 (the audit for 1989 had not yet
been resolved), that he had paid a deficiency, and that he had
"never [been] satisfied with that." He also represented,
however, that he could be a fair and impartial juror. Juror
Number 45, James Henderson, also stated that he had been audited
about 35 years earlier, but he too testified that he could be
fair and impartial. A few other jurors responded that they had
not been audited personally, but that members of their families
had been.0
Copple did not ask that Borczon, Henderson or the other
jurors be dismissed; instead he moved to have the entire panel
rejected because the government had failed to comply with
§6103(h)(5). He provided two bases for his motion. First,
Copple argued that the investigation was inadequate because it
only went back five years. Second, Copple argued that the
investigation of all of the jurors was demonstrably unreliable
because it had failed to disclose Borczon's audits occurring
within the five year period.
The district court, however, denied the motion. Copple
submits that this was error and that his conviction therefore
should be reversed and the case remanded for a new trial. The
government responds that such a ruling was not error because the
district court properly found that ordering the IRS to supply
such information would have unduly delayed the trial and that,
even if it was error, such error was harmless and any prejudice
0
Juror Number 44, Lisa Hayes stated that her father-in-law had
been audited. Juror Number 75, John Moore responded that his
father had been audited. Juror Number 43, Jim Harry, stated that
a company for which he had worked had gotten into trouble with
the IRS and had gone out of business. As a result, Harry had
lost his job. He said that he could not be impartial and he was
dismissed.
was cured by asking the prospective jurors about their tax
histories.
The question whether Copple is entitled to a new trial
because the tax investigation was limited to the jurors' records
since 1986 requires us to determine the requirements of
§6103(h)(5), something we have not had occasion to do until now.
Although the statute explicitly provides a defendant with a right
to require that the Treasury provide an affirmative or negative
response as to whether a prospective juror has been audited,0 it
is silent on the appropriate time period covered by the
investigation. In addition, the statute does not specify the
procedures that a district court must follow to carry out the
purposes of the provision, and it is silent on the consequences,
if any, for noncompliance.
1. The Requirements of § 6103(h)(5).
Copple argues that the statute's lack of any limitation
on the appropriate time period covered by the investigation
implies that the investigation can have no time limitation and
that the government violated the statute when it limited the
investigation to the preceding five years. In addition to
relying on the statutory language, Copple relies on a Ninth
Circuit opinion, United States v. Sinigaglio, 925 F.2d 339,
amended, 942 F.2d 581 (9th Cir. 1991), which held that where the
defendant makes a timely motion for a § 6103(h)(5) investigation,
0
The explanation for this provision apparently is that a juror
who has been audited might either be 1) antagonistic to the
government or 2) fear retaliation from the government and convict
the defendant to curry favor.
the investigation must cover all of the years the prospective
jurors paid taxes. Id. at 341. Copple urges this Court to adopt
the Sinigaglio view of § 6103(h)(5).
The government counters with United States v. Spine,
945 F.2d 143 (6th Cir. 1991), in which the Sixth Circuit stated
that § 6103(h)(5) does not require an investigation extending to
all of the years the prospective jurors paid taxes. Spine held
that the requirements of § 6103(h)(5) are met as long as the
court orders an investigation and, if the IRS cannot locate all
of jurors' histories from the time they began paying taxes by the
time of trial, the district court obtains such information on
voir dire. Id. at 148. Spine reached this result by reading a
reasonableness limitation into § 6103(h)(5). According to Spine,
§ 6103(h)(5) merely required the district court to order an
investigation which would be appropriate under the circumstances,
one which would take into account both the cost and inconvenience
of the investigation and the ability to get the same information
on voir dire.
The Sixth Circuit's interpretation of the statutory
language is informed by practical considerations. Allowing a
defendant to request an investigation of all of the potential
jurors' tax information from the time they began paying taxes
could take months, indeed, even as much as a year. See United
States v. Johnson, 762 F. Supp. 275, 277 & n.1 (C.D. Cal. 1991),
rev'd on other grounds, 991 F.2d 569 (9th Cir. 1993). Scheduling
criminal cases, which is already difficult enough, would be made
even more difficult since a trial with a current jury pool would
have to be postponed for months while the IRS completed an
investigation. See Spine, 945 F.2d at 148.0 This might also
cause serious inconvenience to prospective jurors.0 In addition,
strict compliance with § 6103(h)(5) would also impose substantial
costs on the IRS since defendants would routinely request
information requiring the IRS to conduct manual searches of
noncomputerized records.
Interpreting § 6103(h)(5) to require tax investigations
stretching back twenty or thirty years would transform
§6103(h)(5) into a significant practical bar to tax prosecutions.
It potentially would permit a defendant in a tax case to postpone
a trial indefinitely by continually requesting potential jurors'
tax information. Spine, 945 F.2d at 148. Indeed, interpreting
§6103(h)(5) to require such an extensive search might make tax
prosecutions so expensive that the government would be reluctant
to bring them. See United States v. Nielsen, 1 F.3d 855, 858
(9th Cir. 1993), cert. denied, 1994 U.S. LEXIS 2762 (1994).
0
In United States v. Huguenin, 950 F.2d 23, 30 (1st Cir. 1991),
for example, the IRS took nineteen days to complete a manual
search of the jurors' tax histories. All of the jurors in that
case had filed their tax returns at a single IRS Regional Service
Center for all of the years they paid taxes. Had any of the
jurors lived outside the region at any other time they were
paying taxes, the search time would have been considerably
longer.
0
Moreover, it is not clear that all the checks can be completed
within a fixed window between identification of the panel and the
time for its appearance in court. Further complicating the
administration of the jury panel is that when the period between
identification and appearance is increased, continuances become
more likely.
We should not interpret the language of § 6103(h)(5) to
create such an absurd result absent a clear direction from
Congress, see Griffin v. Oceanic Contractors, Inc., 458 U.S. 564,
575, 102 S. Ct. 3245, 3252, 73 L. Ed. 2d 973 (1982), United
States v. Schneider, 14 F.3d 876, 880 (3d Cir. 1994), and there
is no such clear direction in either the language or the
legislative history of the provision. As has been mentioned, the
language of § 6103(h)(5) is silent on whether the IRS must search
the tax records for all of the time the jurors began paying
taxes. And the legislative history of § 6103(h)(5) demonstrates
that Congress' principal concern in enacting the provision was
merely to ensure that the government and the defendant would have
access to the same information -- not that the information had
such intrinsic worth that Congress meant to bring prosecutions to
a standstill while the IRS conducted an investigation.0 Spine,
945 F.2d at 147. There is simply no suggestion that § 6103(h)(5)
was meant to create the significant practical barrier to tax
prosecutions that would result if we were to accept Copple's
interpretation. See, United States v. Lussier, 929 F.2d 25, 30
0
Before Congress enacted § 6103(h)(5), the procedure for
inquiring into tax records of potential jurors was governed by
Treasury Regulation § 301.6103(a)-1(h). This regulation
authorized the government to inquire of the IRS whether a
prospective juror had been investigated by the IRS. Criminal
defendants, however, had no similar right to inquire. When
deciding whether to incorporate this regulation into the Tax
Reform Act of 1976, Congress decided to allow such disclosures as
long as the taxpayer had the same access to the information.
Spine, 945 F.2d at 147 (quoting Senate Committee on Finance, 94th
Cong., 2d Sess., June 4, 1976, Press Release (1976) reprinted in
Tax Magmt. (BNA), Primary Sources, Series II, § 6103 (1976), at
40 (Nov. 1, 1977)).
(1st Cir. 1991) (per curiam) ("The statute itself makes no
provision for such an extreme alteration of normal trial
arrangements.").
We therefore adopt the Sixth Circuit's approach and
conclude that § 6103(h)(5) requires only that the investigation
into the tax records of potential jurors meet the standard of
reasonableness.0 Specifically, upon timely request by the
0
Nearly every case considering § 6103(h)(5) has cited Spine
favorably and has held that a limitation on the time period
covered by the IRS investigation is not reversible error. Nearly
all of those cases, however, have analyzed limitations on the
time period covered by a § 6103(h)(5) investigation under the
rubric of harmless error. See, e.g., United States v. Axmear,
964 F.2d 792, 793 (8th Cir. 1992), cert. denied, 113 S. Ct. 963,
122 L. Ed. 2d 120 (1993); United States v. Droge, 961 F.2d 1030,
1034 (2d Cir.), cert. denied, 113 S. Ct. 609, 121 L. Ed. 2d 544
(1992); Huguenin, 950 F.2d at 29-30; United States v. Schandl,
947 F.2d 462, 469 (11th Cir. 1991), cert. denied, 112 S. Ct.
2946, 119 L. Ed. 2d 569 (1992); United States v. Hardy, 941 F.2d
893, 896 (9th Cir. 1991); United States v. Masat, 896 F.2d 88, 95
(5th Cir. 1990), cert. denied, 113 S. Ct. 108, 121 L. Ed. 2d 66
(1992). But see, Nielsen, 1 F.3d at 858 (where there is
substantial disclosure of the information about the persons
audited or investigated, voir dire supplements the information,
and there is no palpable suggestion of prejudice, § 6103(h)(5)
was not violated).
While the harmless error approach has a certain appeal,
we believe that its use to cure the perceived deficiency in the
statutory language is highly questionable and ultimately flawed.
Harmless error analysis is typically a retrospective analysis,
one that requires the reviewing court to make a considered
judgment about the impact an error had on a particular
conviction. See Kotteakos v. United States, 328 U.S. 750, 66 S.
Ct. 1239, 90 L. Ed. 1557 (1946) (discussing the theory behind
harmless error). Courts that have used harmless error analysis
to cure the purported "error" of limiting a tax record
investigation to six years have used the doctrine in quite a
different sense. Rather than using harmless error to consider
the particular circumstances of a given case, these courts have
used it to prescribe a course of action a district court may take
to insulate its "noncompliance" with the statute from challenge
on appeal. E.g., Droge, 961 F.2d at 1032-35. When used this
way, harmless error analysis becomes a surrogate for
defendant, the district court must grant a reasonable period of
time for the IRS to complete a search of the potential jurors'
tax records for the time period requested by the defendant. If
the district court only allows the defendant enough time for the
IRS to conduct a search of the computerized records and not a
search of the noncomputerized records,0 the grant of time will be
reasonable as long as the computer search is made, and the court
elicits on voir dire information about the jurors' tax histories
for the period of time not covered by the investigation.0 We add
only that Congress might be well advised to revisit the provision
interpretation of the statutory requirements in the first
instance, but this is not the function of the harmless error
doctrine.
0
As has been mentioned, the records are computerized for the
years following 1986 and the IRS can retrieve the information
without too much difficulty. The likelihood that a juror who had
been audited before 1986 would be biased and would refuse to
mention that bias on voir dire seems quite small, so that the
costs of a manual investigation prior to 1986 might not be
justifiable. At all events, as 1986 recedes, the number of
jurors who potentially will have had an audit or other
investigation which is not recorded on computer will diminish
and, eventually, the problem will disappear.
0
Although some cases might be read to require that the responses
of the jurors on voir dire should be verified, see, e.g.,
Huguenin, 950 F.2d at 29, and Lussier, 929 F.2d at 30, we believe
there is no need to verify the answers given by the jurors on
voir dire because jurors are presumed to respond truthfully to
such questions, see Masat, 896 F.2d at 95. Although some
prospective jurors might be reluctant to answer such questions
truthfully, "veniremen are often asked sensitive and potentially
embarrassing questions, including inquiries into their
involvement in criminal activity or the involvement of family or
friends in criminal activity, their religious or philosophical
beliefs, and other matters of a personal nature." Id. We see no
reason to depart from the presumption that the potential jurors
will respond truthfully.
and specify more clearly the intent behind it and its
requirements.
2. Did the district court comply with § 6103(h)(5)?
Under our reading of § 6103(h)(5), the district court's
failure to order a complete search of the jurors' past history
was not error. First, after Copple requested the § 6103(h)(5)
inquiry, the district court ordered the clerk to provide a list
of jurors in the case along with other relevant information to
the United States Attorney so that the IRS could conduct the
investigation. This occurred about twelve days before the trial
and it gave the IRS enough time to search the computerized
records and get information about the potential jurors' tax
histories for the period from 1986 to 1991.
Second, the district court conducted an extensive voir
dire about the potential jurors' tax histories and experience
with the IRS including whether they or any member of their family
had been audited. The questioning covered all of the period for
which the jurors had paid taxes. Moreover, the voir dire worked.
It identified a juror who was outside the scope of the IRS audit
(Henderson) and a juror who the IRS for some reason simply missed
(Borczon).0 Borczon, for example, indicated that he had been
unhappy with the audit results but also stated that he could
still be fair and impartial. Apparently, his answers were
satisfactory since Copple did not even move to strike him. In a
sense, then, Copple had access to more accurate information than
0
We do not believe that the fact that the IRS missed Borczon
necessarily means that the computerized search was inadequate.
he would otherwise have received had the inquiry been limited to
a full IRS investigation.
For all the foregoing reasons, we hold that the
district court complied with § 6103(h)(5).
B. The Victim Impact Evidence
1. Relevance and Prejudice.
During its case in chief, the government called to the
stand a number of the funeral directors who had put their money
in Copple's hands. They testified about their losses, and about
the impact of those losses on their lives. Copple argues that
evidence about the victims' losses was irrelevant under Federal
Rule of Evidence 401, and that the testimony about the impact of
the losses was both irrelevant (or at least of negligible
probative worth) and also unfairly prejudicial, and hence
excludable under Federal Rules of Evidence 401 and 403. Our
review of these challenges to the conviction is for abuse of
discretion. See United States v. Versaint, 849 F.2d 827, 831 (3d
Cir. 1988).
With respect to the testimony about the financial
losses, Copple properly argues that the government does not have
to show that the victims actually suffered a loss to satisfy the
elements of the mail fraud statute. The essential elements of
the crime of mail fraud are 1) a scheme or artifice to defraud;
2) participation by the defendant with specific intent to
defraud; and 3) use of the mail in furtherance of the scheme. 18
U.S.C. § 1341; see United States v. Burks, 867 F.2d 795 (3d Cir.
1989). Proof of actual loss by the intended victim is not
necessary. See United States v. Kelley, 929 F.2d 582, 585 (10th
Cir.), cert. denied, 112 S. Ct. 341, 116 L. Ed. 2d 280 (1991);
United States v. King, 860 F.2d 54, 55 (2d Cir. 1988), cert.
denied, 490 U.S. 1065, 109 S. Ct. 2062, 104 L. Ed. 2d 628 (1989).
But that does not mean that evidence of loss was
irrelevant. Proving specific intent in mail fraud cases is
difficult, and, as a result, a liberal policy has developed to
allow the government to introduce evidence that even peripherally
bears on the question of intent. See United States v. Foshee,
606 F.2d 111, 113 (5th Cir. 1979), cert. denied, 444 U.S. 1082,
100 S. Ct. 1036, 62 L. Ed. 2d 766 (1980).0 Proof that someone
was victimized by the fraud is thus treated as some evidence of
the schemer's intent. See, United States v. Heimann, 705 F.2d
662, 669 (2d Cir. 1983) ("While technically the success or
failure of a scheme to defraud is irrelevant in a mail fraud
case, realistically, when the contested issue is intent, whether
or not victims lost money can be a substantial factor in a jury's
determination of guilt or innocence." (citation omitted)). Also
relevant is the defendant's failure to take any steps to
ameliorate the loss. See Anderson v. United States, 369 F.2d 11,
15 (8th Cir. 1966), cert. denied, 386 U.S. 976, 87 S. Ct. 1171,
18 L. Ed. 2d 136 (1967). The government submits that the
evidence about the victims' losses and Copple's refusal to make
0
This policy extends in the other direction as well, and allows
the defendant to introduce testimony of collateral transactions
that tend to negate the requisite intent. See Id.
good those losses was relevant to show Copple's specific intent
to defraud. We agree, with the qualification that district
judges should exercise their wise discretion in imposing limits
on such testimony. The following discussion is a case in point.
Copple's defense was that he had simply made a bad
business decision when he, as trustee, had relied on the advice
of experts to invest in rare coins. Yet the funeral directors
had to pay for their losses out of their own pockets, while he
refused to part with any of the luxuries he had purchased with
the Mechem "pre-need" funds. The evidence of Copple's refusal to
part with the property under such circumstances was, we believe,
evidence of Copple's fraudulent intent. It tended to show that
Copple intended to convert the Mechem "pre-need" money to his own
personal use, something he had no right to do.
In addition, the testimony about the funeral directors'
losses also corroborated the testimony of insurance agent James
Domino, who said that he had never issued a surety bond to Mechem
despite Copple's requests. Yet a few of the funeral directors
testified that they had received a letter on Domino's stationary
stating that the surety bond had been issued, and that letter was
offered into evidence. Thus the fact that the funeral directors
had to pay the losses out of their own pockets corroborated
Domino's testimony that no such bond was issued and showed
Copple's intent to mislead the funeral directors with the letter.
Since the evidence about the extensive losses suffered by the
funeral directors was relevant to show Copple's failure to repay
and his intent to defraud, the evidence was admissible under the
low threshold of Rule 401.
When the district court ruled on the admissibility of
the testimony about the funeral directors' losses, however, its
ruling encouraged the government to introduce a wide range of
victim impact testimony in addition to the testimony about the
size of the losses. Some of the victim impact testimony went
beyond anything that was reasonable to prove Copple's specific
intent to defraud.
A number of the funeral directors testified that the
money they had used to pay back the losses came from money they
had saved for their children's college educations. Others
testified that paying back the money had affected their health,
or had been taken from savings dedicated to other special
purposes. For example, in response to the question of what
effect the loss of money had on his business, Frank Mihalcik
answered: "[w]ell, the situation . . . . has affected my health.
I have lost over 60 pounds, and I am currently under a doctor's
care." Terry Starr testified that he had to use every bit of
personal savings he had in order to retrust the lost money. He
then stated that, in order to obtain the money, he and his wife
were forced to break a contract to purchase a home and to use the
down payment money to retrust the money they had lost.
Testimony such as this had either no, or very little,
probative value and was unfairly prejudicial. We believe that it
was irrelevant either for the purposes of proving that Copple had
failed to make up the loss to the funeral directors or for any
other reason. Even if there had been some marginal relevance to
the testimony about the particular personal or professional
impact the losses had on the funeral directors, its principal
effect, by far, was to highlight the personal tragedy they had
suffered as victims of the scheme. The testimony was designed to
generate feelings of sympathy for the victims and outrage toward
Copple for reasons not relevant to the charges Copple faced. It
arguably created a significant risk that the jury would be swayed
to convict Copple as a way of compensating these victims wholly
without regard to evidence of Copple's guilt.
In short, we believe that the probative value of the
victim impact testimony was outweighed by unfair prejudice, and
that such testimony should have been excluded under Federal Rule
of Evidence 403.
2. Harmless Error.
Although the district court abused its discretion by
allowing all of the victim impact testimony into evidence, we
need not reverse if that error was harmless. Trial error is
harmless if it is highly probable that the error did not affect
the judgment. United States v. Simon, 995 F.2d 1236, 1244 (3d
Cir. 1993). High probability exists if the court has a "sure
conviction that the error did not prejudice the defendant." Id.
at 1244 (internal quotations omitted). There is no need to
disprove "every reasonable possibility of prejudice." Id. at
1244 (internal quotations omitted). We believe that the error of
admitting the victim impact statements was harmless because of
the overwhelming evidence of both the scheme to defraud and
Copple's specific intent.
First, Copple's claim that he had bought the rare coins
in order to get a higher return for Mechem was refuted by the
bankruptcy trustee's testimony that Copple had sold $877,000
worth of the coins just before declaring bankruptcy and had made
the checks from the coin companies payable to himself -- not
Mechem. Although $450,000 of that money was eventually
transferred to Mechem, Copple could not remember where the other
$427,000 of the proceeds from the sale went.
Second, Copple spent immense amounts of money for
personal use while he was drawing money from the Mechem account.
Copple's personal spending during the three-year life of Mechem
included the following purchases:
$228,000 Home improvement, Sesler Builders
196,334 Furniture, Russell's Country Manor
67,694 Home improvement, Kitchens by Meade
70,000 Home improvement, architects and
contractors.
62,081 Jewelry, Les Crago
70,279 Jewelry, Fortunoff's
398,000 Jewelry, Neiman-Marcus
48,712 Sable coat
11,000 Other fur coats
480,000 Gifts for family members
230,000 Payments to other Copple-owned
businesses
61,000 Automobiles
6,000 Country club fees
3,000 Gambling, Caesar's Palace
At the time of the bankruptcy, Copple had also just put a
$110,000 deposit down on a $450,000 diamond from Neiman-Marcus
that weighed 38.33 carats. Nearly all of the money for these
expenditures came from money in the "pre-need" accounts that
Copple had transferred to himself.
Third, the evidence was overwhelming that Copple had
prepared wholly fictitious reports about how Mechem was investing
the money, about the interest earned on the investments, and
about fidelity or surety bonding. Particularly incriminating is
the false letter Copple caused to be sent from Mechem to its
investors six months after it was incorporated stating that
Mechem's "investments have been made in insurance companies,
annuities, T-bills, long-term municipal bond funds, short-term
CD's and money markets," and that Mechem's "performance has
reflected our excellent investment posture for the last fifteen
years." Also highly probative of both the scheme to defraud and
Copple's fraudulent intent was the evidence that funeral
directors were sent fabricated quarterly reports showing the
interest that had accrued on the trust investments, and the
evidence that Copple had ordered a salesman to alter a general
liability policy to make it look like a fidelity or surety bond.
We believe that all of this evidence overwhelmingly
indicates that Copple knowingly devised or participated in a
scheme to defraud and did so with the specific intent to defraud
the funeral directors and others who had invested in Mechem. We
are satisfied that it was highly probable Copple would have been
convicted for violating the mail fraud statute even if the victim
impact testimony had been excluded. For these reasons, we hold
that the error was harmless.0
III. SENTENCING ISSUES
A. The Upward Departure
At the sentencing hearing the district court stated
that "an upward departure of two levels is appropriate based on
the large number of victims and the amount of monetary loss
involved as provided in section 2F1.1(b)(2)(B) of the
Guidelines." Copple contends that this departure was improper
because the Guidelines adequately take into consideration both
the amount of money involved in the offense (in § 2F1.1(b)(1))
and the number of victims of the fraud (in § 2F1.1(b)(2)(B)).0 We
0
Copple has also argued that the cumulative effect of six trial
errors in addition to the admission of the victim impact
testimony denied him a fair trial. A new trial is required on
this basis only when "'the[] errors, when combined, so infected
the jury's deliberations that they had a substantial influence on
the outcome of the trial.'" United States v. Thornton, 1 F.3d
149, 156 (3d Cir.), cert. denied, 114 S. Ct. 483, 126 L. Ed. 2d
433 (1993) (quoting United States v. Hill, 976 F.2d 132, 145 (3d
Cir. 1992)). The six asserted errors include a prosecutor's
allegedly improper remark during the opening statement, three
allegedly improper statements by witnesses, the admission of
testimony summarizing the testimony of other witnesses, and the
showing of a video tape of Copple's home. We have examined the
six asserted grounds for error and believe that they were at most
nothing more than minor aberrations in a long trial, and did not
consist of cumulative evidence indicating a proceeding dominated
by passion and prejudice. To the extent any of the incidents
constituted error, we believe that in light of the overwhelming
evidence of guilt, the errors were harmless and did not deprive
Copple of a fundamentally fair trial.
0
Copple argues alternatively that the district court did not
really depart upwards but instead gave a four level increase
pursuant to § 2F1.1(b)(2) because the offense involved both more
than minimal planning and more than one victim. Copple points
out that although at sentencing the district court stated that it
must therefore consider whether Copple's crime fell outside the
"heartland" of cases which are described in the Guidelines
because either the amount of monetary loss or the number of
victims swindled was so high that the guidelines which
"linguistically apply" significantly understate Copple's
culpability. See U.S.S.G. Ch.1 Pt.A(4)(b) (policy statement).0
We believe that neither ground articulated by the district court
is a valid basis for departure in this case.
To begin with, the amount of monetary loss falls well
within the range of monetary loss explicitly considered in the
Guidelines. Section 2F1.1(b)(1) gives the district court
authority to increase the offense level incrementally according
to the amount of loss. See U.S.S.G. § 2F1.1(b)(1)(A)-(S). The
$4.9 million loss in this case fits squarely within the loss
table's range of $2000 to $80 million. See U.S.S.G.
§2F1.1(b)(1)(N). This is not a case in which the amount of loss
was departing upward, the court checked the box in the judgment
that stated "[t]he sentence is within the guidelines range."
Copple correctly argues that § 2F1.1(b)(2) allows for a two level
increase if the offense involves either more than minimal
planning or more than one victim, and that a district court may
not impose a four level increase under § 2F1.1(b)(2) if the
offense involved both more than minimal planning and a scheme to
defraud more than one victim. United States v. Astorri, 923 F.2d
1052, 1057 (3d Cir. 1991). Thus to the extent that the district
court did not depart upwards, but rather gave a four level
enhancement because the crime involved both more than minimal
planning and more than one victim, we hold alternatively that the
increase was improper on such a basis.
0
Our review of this issue is plenary. See United States v.
Kikumura, 918 F.2d 1084, 1098, 1110 (3d Cir. 1990) (review of
upward departure is plenary on whether the increase was
permissible and for abuse of discretion on whether the degree of
the increase was reasonable).
exceeds the highest amount accounted for in the loss table. Since
the Guidelines appear to take into account adequately the amount
of monetary loss in this case, this factor was an invalid basis
for departure. See United States v. Davidson, 984 F.2d 651, 654
(5th Cir. 1993) (upward departure on the basis of amount of money
in a fraud impermissible where $800,000 fraud fell within range
of former Guidelines which had a ceiling of $5 million).
We also believe that the Guidelines adequately
calibrate the offense level to take account of the number of
victims in this case. The loss fell directly on thirty-one
funeral directors, who had to make good for their "pre-need"
customers by agreeing to retrust the money out of their own
pockets and to perform "pre-need" funerals without compensation.
Although thirty-one victims is far more than necessary to trigger
the two level enhancement pursuant to § 2F1.1(b)(2)(B) for
conducting a scheme to defraud more than one victim, thirty one
is not so extraordinarily large a number in a case of this type
that it falls outside the heartland of the fraud provisions. See,
e.g., United States v. Boula, 932 F.2d 651, 656-57 (7th Cir.
1991) (upward departure due to the number of victims in case
involving 3000 victims was not permissible because such a scheme
was not outside the heartland of the number of victims
contemplated by the Guidelines). Cf. United States v. Benskin,
926 F.2d 562, 564-65 (6th Cir. 1991) (relying on the pre-November
1989 Guidelines, the court upheld an upward departure involving
600 victims); Davidson, 984 F.2d at 654 (extraordinarily large
number of victims required for upward departure). In our view,
the Guidelines, through both the loss table in § 2F1.1(b)(1) and
§ 2F1.1(b)(2)(B), adequately account for frauds involving the
number of victims in this case.
Schemes involving large numbers of victims raise two
principal considerations. First, schemes involving large numbers
of victims tend to impose much greater losses. Second, schemes
involving numerous victims tend to be more systematic, and losses
actually caused by such schemes may underrepresent the amount of
losses the defendant intended. See U.S.S.G. § 2F1.1, background
(justifying the enhancement for schemes involving more than one
victim in 2F1.1(b)(2)(B)). In this case, the first consideration
seems to be adequately taken into account by the loss table in
§2F1.1(b)(1), for Copple's offense level was increased to reflect
the total loss in increments that the Sentencing Commission
deemed appropriate. Similarly, the second consideration
generally is adequately taken into account by giving Copple a
one-time enhancement pursuant to § 2F1.1(b)(2)(B) for involving
more than one victim. Although there may be cases in which the
loss table in § 2F1.1(b)(1) disproportionately underrepresents
the amount of intended loss that does not appear to be the case
here.
Moreover, Ponzi schemes, major securities frauds and
other similar frauds involving thousands of victims have been
around since the early twentieth century, and the Commission was
certainly aware of them when drafting the Guidelines. Indeed
such awareness seems implicit in the $80 million ceiling in the
loss table. Frauds of $80 million will almost certainly involve
numbers of victims far in excess of the thirty-one involved
here.0 Given the structure of the Guidelines and the interplay
between the loss table and the "more than one victim"
enhancement, the fraud in this case does not appear to involve a
number of victims that is outside the "heartland," and hence a
departure was impermissible. Accordingly the sentence must be
vacated and reconsidered.
Nevertheless, our holding does not preclude the
district court from making an upward departure. At the time it
granted the departure in this case, the district court did not
take cognizance of two bases for increasing the offense level
suggested in the presentence report.0 Although the district
0
Indeed two circuits, the Second and the Eleventh, seem to have
imposed a categorical bar on departures based on the number of
people involved. See United States v. Mandel, 991 F.2d 55, 58
(2d Cir. 1993); Alpert, 989 F.2d at 459.
0
The presentence report stated:
92. . . . Approximately thirty additional directors
and their clients were excluded because the losses were
less than $30,000 per funeral director. Also, the mail
fraud perpetrated by the defendant involved not only
Mechem Financial, Inc., but also Mechem Financial of
Ohio as evidenced by the results of the civil
investigation conducted by the Ohio Attorney General's
Office. If the losses suffered by that affiliate were
added to the fraud that occurred in this district, the
total loss to the funeral directors would exceed $11
million, and under the provisions of § 2F1.1(b)(1), the
offense level would increase by an additional 2 levels.
93. Section 4A1.3 provides that the court may consider
imposing a sentence departing from the otherwise
applicable guideline range if reliable information
indicates that the criminal history does not adequately
reflect the seriousness of the defendant's past
criminal conduct. A factor that may be considered is
prior similar adult criminal conduct not resulting in a
criminal conviction. (Section 4A1.3(e)). Paragraph 59
court implicitly rejected these grounds for departure by imposing
the departure in the way it did, nothing prevents the district
court from reconsidering them on remand.0
B. The Restitution Order
We must also vacate the portion of the judgment of
sentence ordering Copple to pay $4,257,940.45 in restitution.0
The Victim and Witness Protection Act ("VWPA") allows the
district court to order restitution as part of a sentence. 18
U.S.C. § 3663(a)(1). Section 3664(a) of the VWPA provides the
procedures the district court must employ in ordering the
restitution:
of this report deals with fraudulent transactions
involving over $100,000 for which the defendant was not
criminally prosecuted. This conduct began in December
1984 but was not discovered for several years. The
victim was reimbursed by the defendant's former
employer, and criminal charges were not pursued. This
conduct is similar to what occurred in the cases of
Patrick Mastrian, Audrey Garfield Woo, and Virginia
Sczepanski.
Of course we express no opinion on the appropriateness of these
bases for increasing the offense level, preferring to leave that
determination in the first instance to the district court.
0
On remand, a district court can consider matters not explicitly
or implicitly part of the decision in the appellate court. See
United States v. Uccio, 940 F.2d 753, 758-59 (2d Cir. 1991); cf.,
United States v. Kikumura, 947 F.2d 72, 76 (3d Cir. 1991) (law of
the case prevented the district court from reconsidering issue
explicitly decided by the appellate court). As long as the
district court gives Copple adequate notice that it might
reconsider these bases for departure and affords an adequate
hearing to allow the parties an opportunity to elaborate on their
position, see Burns v. United States, 501 U.S. 129, 111 S. Ct.
2182, 2187, 115 L. Ed. 2d 123 (1991), the court may reconsider
them.
0
Our review of the restitution issue is plenary. See Air Courier
Conference, 959 F.2d at 1217.
The court, in determining whether to order restitution
under section 3663 of this title and the amount of such
restitution, shall consider the amount of the loss
sustained by any victim as a result of the offense, the
financial resources of the defendant, the financial
needs and earning ability of the defendant and the
defendant's dependents, and such other factors as the
court deems appropriate.
18 U.S.C. § 3664(a) (emphasis supplied). This Court has required
the district courts "'to make specific findings as to the factual
issues that are relevant to the application of the restitution
provisions of the VWPA.'" United States v. Logar, 975 F.2d 958,
961 (3d Cir. 1992) (quoting United States v. Palma, 760 F.2d 475,
480 (3d Cir. 1985)).
In Logar, we identified the factual findings the
district court must make before ordering restitution: 1) the
amount of loss, 2) the defendant's ability to pay and the
financial need of the defendant and the defendant's dependents,
and 3) the relationship between the restitution imposed and the
loss caused by the defendant's conduct. 975 F.2d at 961. We
also held that, notwithstanding estimates of loss in a
presentence report, the district judge must point to the evidence
in the record supporting the calculation of loss to the victims.
Id. at 961-62. The district court in this case failed to follow
these procedures.
At the sentencing hearing, the district court ordered
restitution on the following basis:
We accept as factual the report in the presentence
report concerning money due victims, and this amount of
money, of course, is difficult to ascertain without
having a hearing that might go on for days, but we do
accept as fact those findings in the presentence report
and order that the defendant shall make restitution in
the amount of $4,257,940.45 through the Trustee of the
United States Bankruptcy Court for the Western District
of Pennsylvania who will make the distribution to the
victims listed in the indictment. It is further
ordered that the defendant shall pay to the United
States a fine of $100,000 and the costs of prosecution.
This fine shall be subject to the rights of creditors.
(emphasis in the original). The district court also stated that
the bankruptcy court should monitor the restitution ("we feel
that the bankruptcy court is better able than this Court to
determine who owes what to whom").
The district court made no findings about Copple's
ability to pay the restitution. The court also made no findings
about Copple's financial needs, or his ability to support himself
and his wife and two children (after his release from jail). We
will therefore remand for the district court to make the factual
findings necessary to support such order of restitution as it may
make. We note in this regard that the district court is not at
liberty to delegate its role with respect to restitution to the
bankruptcy court or the bankruptcy trustee.
IV. CONCLUSION
The judgment of the district court with respect to the
conviction will be affirmed. However, the judgment with respect
to the sentence will be reversed and the case remanded for
further proceedings consistent with this opinion.