United States v. Swan, Gregory ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 98-3760
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
GREGORY SWAN,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 97 CR 105-3--Charles R. Norgle, Judge.
Argued December 10, 1999--Decided August 10, 2000
Before Easterbrook, Rovner, and Diane P. Wood, Circuit
Judges.
Diane P. Wood, Circuit Judge. From 1987 until
1994, Gregory Swan worked for the City of
Chicago. During the last two years of that
period, his specific job was for 13th Ward
Alderman John Madrzyk. Unfortunately for the
City, neither Madrzyk nor Swan had its best
interests at heart. This case is Swan’s appeal
from his convictions for participating in a
racketeering conspiracy in violation of the
Racketeer Influenced and Corrupt Organizations
Act (RICO), mail fraud, theft of funds,
extortion, money laundering, obstructing the IRS,
failing to file tax returns, and using a false
social security card. The district court
sentenced him to five years’ imprisonment on
Counts 1 (racketeering), 2 (racketeering
conspiracy), 5 and 6 (theft of funds), 7 and 14
(extortion), and 8 (money laundering). He
received 12 months on counts 3 and 4 (mail
fraud), 9 (obstructing the IRS), 10, 12, and 13
(failure to file tax returns), and 15 and 16 (use
of a false social security card). All counts were
to run concurrently with each other. In addition,
the court ordered three years of supervised
release and ordered Swan to pay $100,000 in
restitution.
Swan’s appeal challenges the jury instructions
used to convict him on the RICO count; the
sufficiency of the evidence against him for
conviction on the RICO charges and the mail fraud
charges; and the district court’s admission of
evidence of his gambling and failure to complete
work that others had hired and paid him for. We
affirm all but Swan’s conviction on Count 1.
I
Swan and Madrzyk cheated the City in a number
of ways. The two of them created four "ghost
jobs" enabling Swan, his son (Greg Swan), his
girlfriend (Sharon Nova), and another friend
(David Sipich) to receive paychecks and benefits
from the City of Chicago, without doing any
actual work. Madrzyk received a kickback from
each of the ill-gotten paychecks. Swan and
Madrzyk also referred people and companies who
came to Madrzyk seeking City assistance such as
rezoning and inspection help to Swan’s
"consulting" firm. These people then paid a
"consulting fee" to the firm, notwithstanding the
fact that neither Swan, the firm, nor Madrzyk did
anything more for them than the Alderman was
required to do as part of his position. Swan
attempted to cover up these schemes by failing to
report his income from the ghost jobs and the
consulting fees to the IRS. By 1994, as Swan
became more desperate, he lied to federal agents
about the sources of his income and began to use
false social security numbers for various
purposes. He also stopped using bank accounts in
a desperate effort to eliminate the paper trail
related to his income, and he used other people
as intermediaries for his illegal gains.
II
Eventually, of course, federal authorities
caught up with him and brought the charges now
before us. Swan, Madrzyk, and two others were
charged in a superseding indictment with
violations of 18 U.S.C. sec.sec. 1962(c) (RICO),
1962(d) (RICO conspiracy), 1341 (mail fraud),
1951 (extortion), 1956 (money laundering), 666
(theft of funds), and 2 (aiding and abetting
various counts), as well as 26 U.S.C. sec.sec.
7212 (obstructing the IRS) and 7203 (failure to
file tax returns) and 42 U.S.C. sec. 408 (use of
a false Social Security card). (Madrzyk
eventually pleaded guilty and testified against
Swan under a grant of immunity.) To violate RICO
sec. 1962(c), a person employed by or associated
with an enterprise that is engaged in, or that
conducts activities that affect interstate or
foreign commerce, must conduct or participate,
directly or indirectly, in the conduct of that
enterprise’s affairs through a pattern of
racketeering activity or collection of unlawful
debt. In order to have conducted or participated
in the enterprise’s affairs under section
1962(c), the person charged must have had "some
part in directing those affairs." Reves v. Ernst
& Young, 507 U.S. 170, 179 (1993). In other
words, she must have participated in the
operation or management of the enterprise itself,
and she must have asserted some control over the
enterprise. See id. at 183; Goren v. New Vision
Int’l. Inc., 156 F.3d 721, 727-28 (7th Cir.
1998).
Overlooking this requirement of control (perhaps
mistakenly relying on pre-Reves jurisprudence),
the government insisted upon and the court
permitted the following jury instruction on Count
1:
The terms "conduct" and "participate in the
conduct of the affairs of the enterprise" include
the performance of acts, functions or duties
which are necessary to or helpful in the
operation of the enterprise.
There was no additional instruction requiring a
finding of operation or management of the
enterprise. The court gave that instruction over
Swan’s objection. Swan both objected and asked
the court to instruct the jury that the simple
giving of directions and performance of tasks
necessary or helpful to the organization, without
more, was insufficient. The court rejected his
position because it thought that Reves applied
only to civil RICO prosecutions and thus that
Swan’s proposed instruction did not correctly
state the law.
We review the trial court’s jury instructions
with deference, analyzing them as a whole to
determine if they accurately state the law. See
United States v. Kelly, 167 F.3d 1176, 1178 (7th
Cir. 1999). Even if we find that a jury
instruction was erroneous, we will reverse only
if we believe that the instruction confused the
jury and therefore prejudiced the defendant. See
id. at 1179.
In this case, it is plain that the RICO jury
instruction was deficient. We reiterate: "simply
performing services for an enterprise, even with
knowledge of the enterprise’s illicit nature, is
not enough to subject an individual to RICO
liability under sec. 1962(c)." Goren, 156 F.3d at
728. The instruction the court gave could not
have given the jury any idea that it needed to
find that Swan participated in the management and
operation of the enterprise.
The government argues that any error in the
instruction was harmless and thus does not
justify reversal. While we have no problem with
the general proposition that harmless error
analysis applies to jury instructions, see Neder
v. United States, 527 U.S. 1, 18 (1999), we do
not agree that this particular error could be
called harmless. To affirm the RICO conviction
here, we would have to find that it was "clear
beyond a reasonable doubt that a rational jury
would have found the defendant guilty absent the
error." Id.; see also Lanier v. United States,
205 F.3d 958, 964 (7th Cir. 2000). That we find
impossible to do on this record. It is true that
the jury found Swan guilty of conspiring to
violate sec. 1962(c), when it convicted him on
the charge in Count 2 of violating 18 U.S.C. sec.
1962(d). But this did not supply the missing
finding relating to participation in the
management and control of the enterprise--a
finding that the jury had no need to make under
the court’s instruction--for the simple reason
that a sec. 1962(d) conspiracy conviction does
not require the jury to find that the defendant
was an operator or manager of the enterprise. See
Brouwer v. Raffensperger, 199 F.3d 961, 967 (7th
Cir. 2000). To convict Swan on Count 2, the jury
needed only to find that he knowingly agreed to
facilitate the activities of those operators or
managers to whom sec. 1962(c) can apply (such as
someone like Madrzyk). See id. And the facts
established by the record (that Swan received a
ghost payroll check, took on clients referred to
him by Alderman Madrzyk, failed to file tax
returns, and used a false social security card)
do not prove that he managed or operated the
"enterprise" (which here was apparently the City
of Chicago itself). Because the record does not
contain overwhelming evidence that Swan managed
or controlled the enterprise, and because the
jury was not fully informed as to the elements of
a RICO violation, we reverse Swan’s conviction on
Count 1.
This conclusion, we note, however, will have no
effect on the amount of time Swan spends in
prison, even though it will entitle him to a
modest adjustment of the special assessment he
must pay. Count 1 was grouped, for sentencing
purposes, with Counts 2, 5-6, and 8-16 under
U.S.S.G. sec. 3D1.2. The offense level determined
for the group depended not on Count 1, but on
Count 8, money laundering, because U.S.S.G. sec.
3D1.3 provides that the offense level for the
group is derived from the count with the highest
offense level, which was money laundering at an
offense level of 25. The total combined offense
level is therefore not affected by reversal of
the RICO charge.
III
Swan argues next that there was insufficient
evidence to convict him of violating either the
racketeering or the mail fraud counts. Because we
are reversing his sec. 1962(c) conviction on
other grounds, we address only the sufficiency of
the evidence to support his mail fraud
conviction. As we constantly observe, the
governing standard of review makes success on
such a claim exceedingly hard. We must draw all
reasonable inferences in favor of the government,
and we affirm if any rational fact-finder could
have determined that Swan was guilty beyond a
reasonable doubt. See United States v. Yoon, 128
F.3d 515, 523 (7th Cir. 1997).
A mail fraud violation occurs when someone "for
the purpose of executing [a] scheme or artifice
[to defraud] or attempting . . . to do [so],"
places in the mails something to be delivered by
a mail carrier. 18 U.S.C. sec. 1341; see United
States v. Keane, 522 F.2d 534, 551 (7th Cir.
1975). Swan’s conviction rests on his use of the
mails to defraud the Hinsdale Orthopedic
Association. Around December 13, 1994, Blue
Cross/Blue Shield mailed a check for $171 to
Hinsdale Orthopedics to reimburse it for the
medical services it rendered to Nova, Swan’s
girlfriend. Swan had a hand in this mailing
because he helped procure the "ghost" job for
Nova that provided her with the Blue Cross/Blue
Shield insurance policy. Swan did not have to
mail the check himself to be guilty of mail
fraud. He only needed to cause it to be mailed or
to commit some act that would cause the mailing
of the check to be reasonably foreseeable. See
Keane, 522 F.2d at 551. When Swan got Nova the
ghost job, which came with pay and benefits, it
became reasonably foreseeable that Blue
Cross/Blue Shield would reimburse medical
institutions for her care.
Swan claims that the check was not mailed "for
the purpose of executing [the fraud]," as sec.
1341 requires. He points out that United States
v. Maze, 414 U.S. 395, 402 (1974) held that mail
fraud charges were not supported where the
evidence showed that reimbursement checks had
been mailed by banks to hotels after the
defendant had already used stolen credit cards to
obtain services from the hotels. But the point of
Maze was that the defendant had already completed
the fraud when he left the hotels. Whether or not
the banks actually paid the hotel bills did not
affect the defendant. Here, in contrast, the Blue
Cross/Blue Shield check served an important
purpose in furthering the fraud: without the
check, the fraud would have been frustrated,
because Hinsdale would simply have turned to Nova
for payment. Nova would not have received
fraudulently obtained medical services for free.
She remained personally liable for the services
she had received until the bill was paid by
someone. The evidence of the Blue Cross/Blue
Shield mailing was sufficient to form the basis
for Swan’s mail fraud conviction.
IV
Swan’s final quarrel is with the district
court’s decision to allow the government to
present evidence of his gambling and of his
failure to perform consulting services as
promised. We review the trial court’s evidentiary
decisions for abuse of discretion. See United
States v. Garcia, 986 F.2d 1135, 1139 (7th Cir.
1993).
Normally, evidence of prior bad acts is not
admissible to show character traits and
conformity with those traits. See Fed. R. Evid.
404(b). Such evidence is nonetheless admissible
where (1) it is relevant to establish some matter
in issue other than the defendant’s propensity to
commit the crime, (2) it shows that the defendant
actually committed the prior bad acts, and (3)
its probative value is not substantially
outweighed by the danger of unfair prejudice. See
Fed. R. Evid. Rules 404(b), 403; United States v.
Asher, 178 F.3d 486, 492 (7th Cir. 1999). The
government argued that the evidence here was
necessary to fill out the witnesses’ stories so
that they would make sense to the jury (see,
e.g., United States v. Gill, 58 F.3d 334, 337
(7th Cir. 1995)), and that the evidence helped to
explain Swan’s intent and motive to commit the
crimes. We do not find these grounds persuasive.
This is not a case like United States v. Mobley,
193 F.3d 492 (7th Cir. 1999), in which the
prosecution was allowed to introduce evidence of
gambling because the defense made the question of
cash flow relevant. Here, the references to
Swan’s gambling were gratuitous. None of Swan’s
fraudulent activity was inextricably related to
his gambling or failure to perform contractual
duties. Witnesses could have explained their
relationships with Swan without mentioning that
they met him while gambling, and they could have
discussed their giving Swan money for services
without adding that in the end he did not follow
through. Moreover, the fact that Swan gambled did
little to explain why he wanted to steal money.
Most people want money for a variety of reasons,
and the government did not attempt to show any
special circumstances such as a large gambling
debt hanging over Swan’s head that would have
provided him with a particularly weighty motive
to steal. The fact that Swan did not perform
services for some clients may evidence intent to
extort, but his actual taking of their money,
also introduced into evidence, proved that
intent. The non-performance of the services added
little or nothing.
Even though the admission of the evidence was
probably error under Rules 404 and 403 of the
Federal Rules of Evidence, we think it clear on
this record that any error was harmless. See
Garcia, 986 F.2d at 1139. The victims of Swan’s
extortion testified against him; several
witnesses testified that Swan set up the ghost
jobs and paid Madrzyk kickbacks; and Madrzyk
himself took the stand to testify against Swan.
There was overwhelming evidence that Swan was
part of a RICO conspiracy, and committed the
fraudulent acts with which he was charged.
V
In sum, we Affirm all of Swan’s convictions with
the single exception of the conviction under
Count 1, which we Reverse. The case is Remanded to
the district court for correction of the sentence
and the special assessment in accordance with
this opinion.