United States v. Todd

United States Court of Appeals,
Eleventh Circuit.
No. 95-9035.
UNITED STATES of America, Plaintiff-Appellee,
v.
James M. TODD, Defendant-Appellant.
March 31, 1997.
Appeal from the United States District Court for the Northern
District of Georgia. (No. 1:94-CV-147-01-WCO), William C.
O'Kelley, District Judge.
Before ANDERSON, Circuit Judge, and FAY and KRAVITCH, Senior
Circuit Judges.
FAY, Senior Circuit Judge:
Defendant James M. Todd ("Todd") was convicted on one count of
embezzlement from an employee benefit plan in violation of 18
U.S.C. § 664 (1994). Todd appeals his conviction, arguing that the
district court erred in excluding certain evidence. 1 Because we
agree that the district court's evidentiary rulings were erroneous,
we reverse the conviction and remand for a new trial.
BACKGROUND
In 1980, Todd founded Clinical Medical Equipment, Inc.
("CME"). CME was in the business of selling and servicing medical
equipment. Todd was the president and sole shareholder of CME. At
its inception, CME consisted of three or four employees working out
of Todd's home. The company lost approximately $80,000.00 during
its first year. During the eighties, CME expanded considerably and
1
On appeal, Todd also contends that the district court erred
in its jury instructions. Having concluded that Todd is entitled
to a new trial on the evidentiary issue, it is unnecessary that
we address Todd's appeal of the jury instructions.
enjoyed remarkable success. Towards the end of the eighties and at
the height of CME's success, the company employed eighty employees
and posted approximately seven million dollars in sales.
In October of 1987, CME adopted a 401(K) pension plan ("the
Plan"). One reason that CME adopted the Plan was to attract
qualified employees. Todd was the sole trustee of the Plan.
Pursuant to the terms of the Plan, CME employees, including Todd,
could contribute to the Plan through payroll withholdings. CME
would then match a percentage of the employees' contributions.
Thereafter, investments check would be drawn from the Plan's bank
account and sent to the Plan's administrator, Consolidated
Planning, Inc. ("Consolidated"). Consolidated would in turn make
the requisite investments on behalf of the employees. Initially,
the Plan went according to plan, CME made its required employer
payments and the employees' withdrawals were deposited in a bank
account established exclusively for the Plan.
At some point in 1988, the Internal Revenue Service ("IRS")
contacted CME about missing 940 ("Employer's Annual Federal
Unemployment Tax Return") and 941 ("Employer's Quarterly Federal
Tax Return") forms from the third and fourth quarters of 1985.
Apparently, Mary Rupert, a CME employee at the time had failed to
submit these forms to the IRS. This oversight resulted in CME
owing approximately $680,000.002 to the IRS. The IRS placed a lien
on CME and Todd personally. Around the same time in 1988, Todd
stopped the transfer of employees' contributions from CME's payroll
2
The $680,000.00 figure is derived from adding interest and
a one hundred percent late-filing penalty increase to the
original $197,000.00 owed.
account to the Plan's account. Moreover, the employees' Plan
contributions commingled with CME's payroll account were expended
on matters not connected with the funding of the Plan.
Throughout the period that the Plan's funds were being
misused, various people informed Todd that using employees'
contributions on expenses not affiliated with the Plan violated his
fiduciary responsibilities as trustee of the Plan. For instance,
Scott Wilson, CME's chief operating officer from April 1988 through
March 1989, aware that Todd was not forwarding the employees'
contributions to the Plan, advised Todd that he faced civil and
criminal penalties as a result of his failure to fund the Plan.
Consolidated, also aware of Todd's failure to fund the Plan, sent
Todd letters outlining his responsibilities as the trustee of the
Plan and advising him of potential criminal sanctions.
In November of 1990, the Department of Labor initiated an
investigation of CME to determine if the Plan was in compliance
with the Employee Retirement Income Security Act of 1974, 29 U.S.C.
§§ 1001-1461 (1994). During this investigation, Todd admitted that
employees' contributions had been used to meet other expenses, such
as the payroll and the tax debt. Todd also stated that the
employees were aware that their contributions to the Plan had been
used in an attempt to pay off the amount owed the IRS. From
September 1989 to January 1992, a Department of Labor investigator
calculated that CME had withheld more than $100,000.00 from Plan
employees' paychecks which Todd had then failed to deposit with the
Plan. Based on this information, Todd was eventually charged in a
one count indictment with embezzling funds from the Plan in
violation of 18 U.S.C. § 664 (1994).
In order to prove a violation of § 664, the government must
show that a defendant (1) embezzled (2) funds (3) from an employee
benefit plan, and (4) with the specific intent to deprive the plan
of its funds. United States v. Busacca, 936 F.2d 232, 239-40 (6th
Cir.), cert. denied, 502 U.S. 985, 112 S. Ct. 595, 116 L. Ed. 2d 619
(1991). From the outset, Todd attempted to establish as a defense
that he lacked the specific criminal intent to deprive the Plan of
its funds. In support of this theory of defense, Todd argues that
CME employees were compensated and treated so well that they were
more concerned with the survival of the company than the illegal
use of their employees' contributions to the Plan. To this end,
Todd contends that the employees implicitly authorized him to use
the Plan's funds in an attempt to save CME and consequently the
employees' jobs and salaries.
Throughout the trial, Todd's counsel attempted to establish
this defense through the testimony of various employee witnesses.
For instance, Karl Suchanek, a CME employee testified outside the
presence of the jury that he thought he was paid well. In response
to the question, "[w]ould it be fair to say that the employees
wanted him to do whatever it took to keep this good business
going," Suchanek, again, outside the presence of the jury,
responded in the affirmative. The government objected to the line
of questioning on the ground of irrelevancy and the district court
sustained the objection. Consequently, the jury never had the
opportunity to hear this portion of Suchanek's testimony.
Defense efforts to elicit similar testimony from other
employee witnesses were similarly rejected. R8-740 (Perry
McDaniel's testimony of whether Todd acted improperly in using
Plan's money not allowed). The district court also rejected
testimony of employees witnesses' salaries and benefits. R6-276
(testimony of Scott Wilson's salary and car allowance excluded);
R6-374-75 (testimony of Mary Ruperts' salary increases excluded);
R6-397 (testimony of Dean Lanford's present salary excluded); R6-
419 (testimony of John Chiappetta's CME salary excluded); R6-457
(testimony of Stephen Randall's salary increase and car allowance
not allowed); R8-552 (testimony of Jody Winter's salary increase
excluded).
Despite the court's exclusion of defense evidence relating to
employees' authorization, salaries and benefits, the government was
allowed to present evidence of employees' lack of authorization and
benefits and salaries given to Todd and his family. Utilizing this
evidence, the government argued in part that in order to maintain
the salaries and benefits for himself and family, Todd embezzled
funds from the Plan. Notwithstanding the government's knowledge
that Todd was neither allowed to offer certain evidence to rebut
the government's theory of criminal intent nor introduce evidence
favorable to Todd's "employee authorization" defense, the
government made the following comments during its rebuttal:
And think of it. Use your common sense, ladies and gentlemen.
Would you have agreed to keep throwing in money into someone
else's corporation? They had a stake perhaps to some extent
in keeping their jobs. [But i]t was his corporation, his
money to lose, and it simply defies logic to think that the
employees would authorize this.
R12-1017-18 (emphasis added).
The jury found Todd guilty of violating 18 U.S.C. § 664
(1994). The district court sentenced Todd to five years probation,
with the following conditions: that he be confined at home for a
period of thirty months, perform 300 hours of community service and
pay restitution. Todd timely filed a notice of appeal from his
conviction. Todd appeals from various evidentiary rulings made by
the district court, contending that these rulings were erroneous in
depriving Todd of evidence necessary to his defense and necessary
to rebut the government's theory of intent.3 We have jurisdiction
to consider Todd's appeal pursuant to 28 U.S.C. § 1291 (1994).
STANDARD OF REVIEW
We review a district court's evidentiary rulings under the
abuse of discretion standard. United States v. Sheffield, 992 F.2d
1164, 1167 (11th Cir.1993); United States v. Lankford, 955 F.2d
1545, 1548 (11th Cir.1992). In particular, we similarly review a
trial court's ruling on the relevance of evidence under the abuse
of discretion standard. United States v. Kelly, 888 F.2d 732, 743
(11th Cir.1989). We also note that "[s]uch discretion does not,
however, extend to the exclusion of crucial relevant evidence
necessary to establish a valid defense." United States v. Kelly,
888 F.2d 732, 743 (11th Cir.1989) (quoting United States v.
Anderson, 872 F.2d 1508, 1515 (11th Cir.), cert. denied, 493 U.S.
3
Todd also argues that the evidentiary rulings were in
violation of his constitutional rights. "A fundamental principle
of constitutional law dictates that a federal court should refuse
to decide a constitutional issue unless a constitutional decision
is strictly necessary." Cone Corp. v. Florida Dep't of Transp.,
921 F.2d 1190, 1210 (11th Cir.), cert. denied, 500 U.S. 942, 111
S. Ct. 2238, 114 L. Ed. 2d 479 (1991). In view of our disposition
of the appeal on the ground that the district court abused its
discretion, it is unnecessary to reach Todd's appeal of the
evidentiary rulings on constitutional grounds.
1004, 110 S. Ct. 566, 107 L. Ed. 2d 560 (1989)) (citations and
internal quotation marks omitted). "When "proffered evidence is of
substantial probative value, and will not tend to prejudice or
confuse, all doubt should be resolved in favor of admissibility.'
" United States v. Wasman, 641 F.2d 326 (5th Cir. Unit B April
1981) (quoting United States v. Holt, 342 F.2d 163, 166 (5th
Cir.1965)). Under the abuse of discretion standard, we believe the
district court erred in excluding the disputed evidence.
Accordingly, we reverse Todd's conviction and remand for a new
trial.
DISCUSSION
The district court for the most part excluded defense evidence
relating to employees' salaries, benefits, and whether employee
authorization had been given to Todd to use the Plan's funds.4 The
district court excluded this evidence on the ground that it was not
relevant.
Todd advances at least two reasons why he believes the
evidence excluded by the district court is relevant. First, Todd
claims the excluded evidence was crucial to his theory of defense.
Second, Todd asserts the evidence was needed to rebut the
government's evidence and arguments. We will first determine
whether the district court excluded relevant evidence that was
4
In addition, the district court excluded evidence relating
to CME's assets and net worth. While our discussion will not
specifically refer to these items of evidence, our conclusion
concerning the admissibility of employees' salaries and benefits
applies equally to CME's assets and net worth. Although the
government correctly argues that evidence to suggest repayment is
legally irrelevant, the evidence of CME's assets and net worth
could have been used to rebut the government's theory of Todd's
criminal intent.
crucial to Todd's defense. However, before making this
determination, we must decide whether Todd's proffered defense is
valid. United States v. Anderson, 872 F.2d 1508, 1515 (11th
Cir.1989).
Todd attempted to offer as a defense that he in good faith
believed the employees had authorized the use of the Plan's funds
to save the company. In support of this defense, Todd directs our
attention to United States v. Dixon, 609 F.2d 827 (5th Cir.1980).
In Dixon, a union official was convicted of embezzling funds from
his union in violation of 29 U.S.C. § 501(c) of the Labor-
Management Reporting and Disclosure Act. This Court found that
"[t]here are two types of offenses under § 501(c): those involving
the authorized use of funds and those involving the unauthorized
use of funds." Id. at 829. The Court added that "[i]n cases
involving authorized use, ... the government must also prove that
the defendant "lacked a good faith belief that the expenditure was
for the legitimate benefit of the union.' " Id. (citations
omitted). Both parties agree that union cases involving the
embezzlement of funds under § 501(c) are analogous to the case at
hand. Relying on this case and the above quoted language, Todd
argues his authorization defense is a legally, valid one.
Indeed, the government acknowledged the defense before the
district court:
[T]here was a case in the Fifth Circuit, controlling Fifth
Circuit case, which seems to suggest that if the defendant had
a good faith belief that his actions were authorized, that
that may be a defense.... there is language in a Fifth Circuit
case which seems to suggest that evidence of what individual
employees may have thought, what use the funds were being put
to, could arguably support a good faith belief and
authorization defense.
R4-17-18. Despite this government "admission" in the trial court,
in its brief before this Court, the government now argues that the
law "appears to float somewhat." According to the government,
"proof of fraudulent intent seems to be enough with regard to
whether the disputed expenditure was authorized." See United
States v. Durnin, 632 F.2d 1297, 1300 n. 5 (5th Cir. Unit A 1980)
("Since the government thoroughly established appellant's
fraudulent intent to deprive the local of its funds, we find it
unnecessary to characterize this case as one of either authorized
or unauthorized use.").5 While proof of fraudulent intent may be
enough under union fund embezzlement cases, it is unnecessary for
us to decide whether such proof is sufficient in our case, a
pension fund embezzlement case. We do not need to address this
issue because the government failed to raise the argument before
the district court. See Caban-Wheeler v. Elsea, 904 F.2d 1549,
1557 (11th Cir.1990) (An appellate court generally will not
consider a legal issue or theory unless it was presented to the
trial court.). Instead of raising the Durnin argument before the
district court, the government orally recognized and acknowledged
the Dixon defense. Accordingly, the government is precluded from
raising the issue for the first time on appeal. The issues
surrounding this defense were tried and argued. Under these
circumstances we must deal with the case as presented.
5
In Bonner v. City of Prichard, 661 F.2d 1206 (11th
Cir.1981) (en banc), this court adopted as binding precedent
decisions of the Fifth Circuit, including Unit A panel decisions
of that circuit, handed down prior to October 1, 1981. See
Limelight Productions, Inc., v. Limelite Studios, Inc., 60 F.3d
767, 769 n. 1 (11th Cir.1995).
With the government having tried the case with a recognition
of the "consent" defense, we must now determine if the district
court abused its discretion in excluding evidence crucial to this
defense. Todd's defense was based on the premise that since his
employees were compensated and treated so well they implicitly
authorized him to use the Plan's funds to save CME employees' jobs
and salaries. Todd sought to introduce evidence of employees'
salaries and benefits to prove the employees were paid extremely
high salaries relative to others in the market place. In our
opinion, evidence to illustrate this point is relevant to Todd's
good faith defense that employees would authorize the use of the
Plan's funds for the benefit of the company and its employees.
Contrary to the government's position, we believe it is plausible
that employees could and would authorize the use of Plan's funds to
save the company if evidence demonstrated that employees were paid
very large salaries and were more concerned with the survival of
their jobs than the survival of the Plan. To the extent the
district court excluded this evidence, we believe the district
court abused its discretion and the evidence should have been
admitted to assist Todd in his defense.
The government further argues that evidence of employees'
salaries was already admitted via the payroll records, thus other
evidence concerning employees' salaries would be cumulative and was
properly excluded. See Fed.R.Evid. 403. Yet, as the record shows
the district court only admitted the payroll records because no
objection had been raised. The record thoroughly establishes that
defense questions concerning employees' salaries were not allowed
and the government candidly admitted that defense counsel was
restricted in arguing that large salaries related to employee
authorization. From our review of the record, it seems doubtful
that Todd's counsel could have used the payroll records during its
case in chief and closing arguments.6
In addition, we believe the evidence was also relevant to
combat the government's criminal intent argument that Todd was
motivated by greed and selfishness to fraudulently deprive the
employees of the Plan's funds. Throughout the trial, the
government offered evidence portraying Todd as an individual
motivated by greed and the only one with an interest in saving the
company. The government introduced evidence relating to the
salaries and benefits extended to Todd and his family, particularly
Todd's son-in-law. We believe the excluded testimony was relevant
to Todd's intent. Evidence of employee salaries and benefits could
have been used to rebut the government's evidence and argument that
Todd was the only one with an interest to save the company. If
Todd were able to introduce evidence of large employees' salaries
and benefits, this evidence could be used to show that others had
a strong interest in and motivation to save the company. This
could have put quite a different spin on the question of Todd's
intent and actions. By disallowing the disputed evidence, the
district court deprived Todd of a chance to rebut the government's
intent argument.
Perhaps, the most convincing reason that the evidence is
6
We have considered the government's other arguments as to
why the evidence was not relevant and find them to be without
merit.
relevant are the comments made by the government in its rebuttal.
The government stated that it was Todd's "corporation, his money to
lose, and it simply defies logic to think that the employees would
authorize this." The district court allowed the government to
present evidence to establish Todd's intent and motive, however,
the defense was prohibited from proffering rebuttal evidence on the
same issue. In light of the district court's rulings, the
government still proceeded to argue "that it defies logic to think
that the employees would authorize this." Because Todd was unable
to introduce evidence of employees' salaries and benefits, the
government's argument went unchallenged. We believe the evidence
should have been admitted in order to allow Todd to argue that the
employees could have authorized the use of Plan's funds. The jury
might have concluded that the employees would have and did agree to
the use of any and all funds to keep the company operating.
Accordingly, we hold that the exclusion of the disputed evidence
was erroneous.
Having decided that the district court erred in excluding
testimony of employees' salaries, benefits, and potential
authorization, we must next determine whether the error was
"harmless beyond a reasonable doubt." United States v. Lankford,
955 F.2d 1545, 1552 (11th Cir.1992). This Court has previously
stated that where "the excluded testimony related to the
determinative issue of intent, we cannot say that the error was
harmless." United States v. Gaskell, 985 F.2d 1056, 1063 (11th
Cir.1993). In our case, the excluded evidence goes directly to
Todd's criminal intent. The evidence excluded by the district
court was relevant to refute the government theory of Todd's
specific criminal intent and relevant to establish a defense. The
disputed evidence might well have established that CME employees
authorized Todd to use the Plan's funds and that CME employees had
a strong interest in saving the company. We cannot conclude that
the exclusion of the disputed evidence was harmless beyond a
reasonable doubt.
CONCLUSION
For the foregoing reasons, we REVERSE Todd's conviction and
REMAND for a new trial.
REVERSED and REMANDED.
KRAVITCH, Senior Circuit Judge, dissenting:
Because I do not believe that the district court's evidentiary
rulings in this case constituted an abuse of discretion,
respectfully, I dissent.
Todd contends that the district court reversibly erred when it
excluded, as irrelevant, testimony that: (1) Todd's employees
implicitly authorized his appropriation of their contributions to
a 401(k) pension plan ("the Plan"); and (2) Todd's employees
earned high salaries. "Evidentiary rulings challenged on appeal
will not be overturned absent clear abuse of discretion." United
States v. Veltmann, 6 F.3d 1483, 1491 (11th Cir.1993). It is not
enough that we would have admitted this evidence had we presided
over the case. "[U]nder the abuse of discretion standard of review
there will be occasions in which we affirm the district court even
though we would have gone the other way had it been our call. That
is how an abuse of discretion standard differs from a de novo
standard of review." In re Rasbury, 24 F.3d 159, 168 (11th
Cir.1994).
Todd argues that the district court should have admitted this
evidence because it was relevant to support his defense that he
lacked the specific intent to deprive the Plan of assets.
Specifically, Todd claims he believed in good faith that his
employees implicitly authorized him to use their pension
contributions to keep the company afloat. Assuming that this
1
theory constituted a valid defense, the proffered testimony
regarding ratification2 was too limited and too equivocal to
transform the district court's ruling into an abuse of discretion.
Todd had to show that he in good faith believed that all the Plan's
participants would ratify his actions. Evidence that certain, even
most, of Todd's workers earned excellent salaries would have had
little probative value in establishing that Todd in good faith
believed all participating employees would ratify his use of the
Plan's funds.
1
The parties cite several cases decided under the union fund
embezzlement statute, 29 U.S.C. § 501(c), in discussing this
purported defense. Given the dearth of caselaw on pension fund
embezzlement, courts previously have considered union fund
embezzlement decisions in ruling on pension fund cases. See,
e.g., United States v. Butler, 954 F.2d 114, 119 n. 2 (2d
Cir.1992). Because union funds legitimately may be used in a
number of ways, but pension funds generally only may be used for
investment or payment of benefits and administrative costs, I
question whether judge-made rules from the union cases regarding
authorization or ratification ought to apply to pension cases.
2
Because Todd began diverting pension funds before his
employees knew all of the facts about his actions or the
company's financial condition, the employees could not authorize,
even implicitly, Todd's tactics. As a result, at most, Todd
could have had a good faith belief that once the employees
learned of the situation, they would ratify his actions.
The proffered opinions of employees regarding ratification are
of equally limited probative value. The majority notes that during
questioning out of the jury's presence, one witness answered
affirmatively when asked if "the employees wanted [Todd] to do
whatever it took to keep this good business going." Majority
Opinion at 1203 (emphasis added). It is not clear from this
proffer whether all, or simply the majority, of the participating
employees shared this belief, or that they knew exactly what they
were ratifying. In another key passage cited by Todd, a witness
proposed to testify that he "felt everybody was pretty much pulling
for [Todd] to do whatever he [could] to get this company going...."
R6:227 (emphasis added). These statements simply lack sufficient
scope and clarity to support a ruling that the district court had
to admit them.
Moreover, Todd acknowledges that employee pension
contributions steadily plummeted as word of his actions spread.
This fact shows that Todd's employees did not support his use of
their pension funds. Todd's alleged belief that his employees
would ratify his actions proved so wrong that it appears manifestly
unreasonable, and thus, unlikely to have been held in good faith.
See United States v. Cheek, 498 U.S. 192, 203-04, 111 S. Ct. 604,
611-12, 112 L. Ed. 2d 617 (1991) (noting that where jury must find
specific intent "the more unreasonable the asserted beliefs or
misunderstandings are, the more likely the jury ... will find that
the Government has carried its burden of proving knowledge").3
3
Todd also asserts that the salary evidence was relevant to
rebut the government's claims that he diverted funds from the
Plan for selfish reasons. Evidence that Todd generally paid his
In sum, the evidentiary restrictions imposed by the district
court in this case do not appear to be of the same character or
significance as those limitations enforced by the district court in
the main case cited by Todd, United States v. Sheffield, 992 F.2d
1164 (11th Cir.1993) (reversing conviction where district court
prevented defendant from impeaching key government witness with
prior inconsistent statement and from introducing evidence to
negate intent). "As we have stated previously, the abuse of
discretion standard allows "a range of choice for the district
court, so long as the choice does not constitute a clear error of
judgment.' [I] believe the district court's decision was within
its range of choice, although perhaps not by a wide margin, and
that no clear error of judgment has been demonstrated." Rasbury,
24 F.3d at 168 (internal citation omitted).
Accordingly, I would affirm Todd's conviction.
workers well would not show an absence of greed. To the
contrary, Todd acknowledged that he paid high employee salaries
so that he could recruit and retain quality workers; Todd,
therefore, paid high salaries not because he was generous, but
rather because he needed good employees in order to run a
profitable company.