United States v. Hammond

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 98-20821
_____________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
RICHARD ALLISON HAMMOND,
Defendant-Appellant.
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
_________________________________________________________________
December 8, 1999
Before KING, Chief Judge, and REYNALDO G. GARZA and EMILIO M.
GARZA, Circuit Judges.
PER CURIAM:
Defendant-Appellant Richard Allison Hammond appeals his
conviction for one count of embezzling union funds in violation
of 29 U.S.C. § 501(c) and the district court’s sentencing
determinations under seven counts of embezzling union funds in
violation of 29 U.S.C. § 501(c). We affirm his conviction, but
we vacate his sentence and remand for resentencing.
I.
Hammond was formerly the president and business manager of
Local Union 988 (the “Local”) of the International Brotherhood of
Teamsters (the “Teamsters”). In 1994, the Teamsters heard
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complaints of possible misuse of union funds at the Local and
began an audit of various accounts. The forensic accountant who
performed the audit tendered his results, and a hearing was
conducted pursuant to Article 19 of the Teamsters’ constitution
to determine whether certain officers, trustees and business
agents of the Local had violated their duties. Hammond was found
guilty of embezzling union funds. The Teamsters found that
Hammond had charged personal expenses to the Local on his union
American Express card and that he had misused funds from the
Local’s Health and Welfare account as well as its Democrat,
Republican, Independent Voter Education (“DRIVE”) account.
Hammond’s fellow executive board member, Lewis Stewart, and the
Local's business agent, Gerald Doerr, were also found guilty of
embezzling due to personal charges on their union credit cards.
In addition, seven officers and trustees, including Stewart, were
found to have breached their fiduciary duty to the Local
membership by failing to examine Hammond’s credit card charges in
their monthly audits of the Local. A fifteen-count indictment
against Hammond followed.
At trial, Hammond was convicted on fourteen of the fifteen
counts: Count One, for embezzling employee welfare benefit plans
in violation of 18 U.S.C. § 664; Counts Two through Ten, for
embezzling union funds in violation of 29 U.S.C. § 501(c)
(“Section 501(c)”); Count Eleven, for making false statements to
a bank in violation of 18 U.S.C. § 1014; and Counts Thirteen
through Fifteen, for tax evasion in violation of 26 U.S.C. §
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7201. In its presentence report (“PSR”), the probation office
recommended that eleven points be added to Hammond’s base level
pursuant to U.S.S.G. § 2B1.1(b)(1)(L) because the amount of loss
attributable to him was $407,752.49. Hammond filed objections,
contesting, in relevant part, the loss calculations on seven
counts of violating Section 501(c).
At Hammond’s sentencing hearing, the district judge
recalculated the total loss, in accordance with several
objections not at issue here, to be $369,122.49. The
recalculation did not affect Hammond’s base level. In all other
respects, the district judge overruled Hammond’s objections and
adopted the PSR. Hammond was sentenced to 51 months of
imprisonment and five years of supervised release. He was also
ordered to pay $369,000 in restitution and a $25,000 fine.
On appeal, Hammond raises issues only with respect to Counts
Two through Nine, for embezzling union funds in violation of
Section 501(c). He contests the district court’s loss
calculations under Counts Two through Eight, which involve his
personal charges on the union American Express card. In
addition, he challenges the sufficiency of evidence for his
conviction for Count Nine, which involves his misuse of lobbying
funds in the Local’s DRIVE account.
A. Sufficiency of evidence
Hammond contends that the evidence is insufficient to
support his conviction for misusing the Local’s DRIVE funds in
violation of Section 501(c). Viewing the evidence in the light
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most favorable to the verdict, we inquire whether a rational
trier of fact could have found from the evidence and inferences
therefrom that the defendant was guilty beyond a reasonable
doubt. See United States v. Lokey, 945 F.2d 825, 836 (5th Cir.
1991).
To establish a Section 501(c) violation,1 the government
must prove that Hammond lacked authorization to convert union
funds to his own use and that his misuse of the money was
“coupled with a fraudulent intent to deprive the union of its
funds.” United States v. Durnin, 632 F.2d 1297, 1300 (5th Cir.
1980); see United States v. Dixon, 609 F.2d 827, 829 (5th Cir.
1980); United States v. Nell, 526 F.2d 1223, 1232 (5th Cir.
1976). Fraudulent intent requires actual knowledge that the use
was unauthorized. See Dixon, 609 F.2d at 829; United States v.
Rubin, 591 F.2d 278, 282 (5TH Cir. 1979). Intent will generally
be established circumstantially and may be established by proving
the lack of benefit to the union from the use of the funds. See
United States v. Belt, 574 F.2d 1234, 1238 n.17 (5th Cir. 1978).
Once the government demonstrates that the use of funds was
unauthorized, however, it need not prove a lack of benefit to the
1
Section 501(c) of the Labor-Management Reporting and
Disclosure Act provides:
Any person who embezzles, steals, or unlawfully and
willfully abstracts or converts to his own use, or the
use of another, any of the moneys, funds, securities,
property, or other assets of a labor organization of
which he is an officer, or by which he is employed,
directly or indirectly, shall be fined not more than
$10,000 or imprisoned not more than five years, or
both.
29 U.S.C. § 501(c).
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union as part of its case. See Nell, 526 F.2d at 1232.
We find that the record contains sufficient evidence of
Hammond’s lack of authorization and fraudulent intent to uphold
his conviction. Hammond spent $19,300 to lease land on which to
hunt deer, and he paid for these leases from DRIVE funds. DRIVE
funds are generally spent on contributions to local political
campaigns, membership education and grassroots political
activity. DRIVE fund guidelines state that the money “cannot be
used for general purposes or entertainment unrelated to
communication to members.” The fund is maintained at the
Teamsters’ national office and, upon request from a local union,
the national office distributes the money. The local union’s
executive board then determines how the money will be spent. A
former Local trustee testified that the executive board never
approved Hammond’s use of the money or even discussed the DRIVE
fund at all. In addition, an official from the Teamsters’
national office testified that the Teamsters’ guidelines provide
a narrow scope of acceptable uses for DRIVE funds and that the
purchase of deer leases would not fall within these guidelines.
Hammond argues that the guidelines are merely suggestions and
that he did not break any law or union rule in purchasing the
leases. A rational juror could nevertheless conclude that a
union president of twenty-five years would be aware of the
strictures of the DRIVE fund guidelines and recognize that an
expenditure for deer leases was unauthorized.
Furthermore, Hammond requested the funds from the national
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office by letter, stating that the money would be used for “area
politics” and to “advance the membership, voter registration and
voter information.” He stated at trial that he had purchased the
deer leases in order to entertain political figures. He conceded
that he had never taken a political figure to the deer leases and
had taken only five to seven other Local members there. The
seller of the deer leases testified that Hammond had rarely used
the leased land and that the only people he had seen Hammond
bring there were his son and some of Hammond’s friends. Although
certain Local members may have benefitted from the deer leases by
using them with Hammond, the lack of benefit to the Local as a
whole coupled with the apparent deception regarding the stated
uses to which the DRIVE funds would be put were sufficient to
establish that Hammond fraudulently intended to deprive the Local
of the use of its funds.
B. Sentencing
The district court, adopting the PSR’s calculations, found
that the total loss attributable to Hammond for misuse of his
union American Express Card was $231,502.49: Hammond himself was
responsible for charging personal expenses worth $189,790, while
third-party charges attributable to Hammond totaled $41,712.49.
Hammond contends that the district court improperly included
certain charges in calculating the total loss, which affected the
determination of his offense level at sentencing. We review the
district court’s application and interpretation of the sentencing
guidelines de novo and its factual findings for clear error. See
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United States v. Torres, 114 F.3d 520, 526 (5th Cir. 1997).
1. Loss Calculation
Hammond contends that the district court erred in
attributing to him a $189,790 loss from his credit card
expenditures. This court reviews a district court’s loss
determination for clear error. See United States v. Sutton, 77
F.3d 91, 95 (5th Cir. 1996). “For the purposes of subsection
(b)(1) [of U.S.S.G. § 2B1.1], the loss need not be determined
with precision. The court need only make a reasonable estimate
of the loss, given the available information.” United States
Sentencing Commission, Guidelines Manual, § 2B1.1, comment. (n.3)
(Nov. 1998).
The district court based its loss calculation on the results
of the Teamsters’ forensic audit ordered prior to the Article 19
hearing. The forensic accountant discovered $189,790 in
questionable charges on Hammond’s credit card which the district
court concluded were “reasonable to count as related conduct...in
the case of Mr. Hammond, since he was not only sworn but paid to
keep track of these things for the benefit of the union members.”
Hammond argues that the district court should have lowered the
$189,790 loss figure because (1) at the Article 19 hearing, the
Teamsters found only $60,000 of loss due Hammond’s misuse of his
credit card, (2) in its investigation, the FBI excluded certain
categories of expenditures the district court’s calculation
includes, and (3) at trial, Hammond was convicted of embezzling
$101,200, only $59,450 of which was related to American Express
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charges.
The district court properly noted that the government and
the Teamsters attributed lower loss totals to Hammond because
their investigations required a higher standard of proof. That
is, they were unable to definitively prove that Hammond’s
American Express charges were not legitimate Local expenses. The
Teamsters, for example, noted that Hammond had been charged with
embezzling over $189,000, but they found him guilty of embezzling
$60,000 for “plainly personal items.” For sentencing purposes,
however, the government need only prove facts by a preponderance
of the evidence. See United States v. Hull, 160 F.3d 265, 269
(5th Cir. 1998); United States v. Jackson, 978 F.2d 903, 913 (5th
Cir. 1992).
The Teamsters’ forensic accountant testified at trial and
detailed the method he used to investigate Hammond’s American
Express charges. The accountant stated that, because Local
officials were not required to turn in receipts specifying what
their expenses were for, it was impossible to determine whether
their charges were personal or business-related. He therefore
traced many of the charges through the records of specific
vendors listed in the Local’s itemized American Express bill. He
found monthly charges for thousands of dollars worth of guns,
clothing in particular sizes, luggage bearing Hammond’ initials,
and other “items which did not appear to relate to union
business.” Hammond testified that the bulk of these charges were
business-related. The rest, he alleged, were mistakenly charged
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on the union’s American Express, rather than on his own. Given
the paucity of evidence supporting Hammond’s claims, it is
plausible in light of the record as a whole that the accountant’s
findings provided a reasonable estimate of the total loss
attributable to Hammond from his American Express charges.
Therefore, the district court’s reliance on the forensic audit
for its finding of loss was not clearly erroneous.
2. Third-party misconduct
Hammond also argues that the district court erred by
attributing to him losses due to embezzlement by third parties
and that the inclusion of these losses in his total loss
increased his base offense level at sentencing by one level. We
review the district court’s application of the Sentencing
Guidelines de novo. See United States v. Dean, 59 F.3d 1479,
1494 (5th Cir. 1995).
Under section 2B1.1(b) of the Sentencing Guidelines, the
base offense level for embezzlement is calculated based on the
dollar amount of the loss caused by the embezzlement. In
calculating this base offense level, the sentencing judge holds
the defendant accountable for losses due to the defendant’s own
conduct as well as for those due to the defendant’s “relevant
conduct.” U.S.S.G. § 1B1.3. A defendant’s relevant conduct
includes “all reasonably foreseeable acts and omissions of others
in furtherance of jointly undertaken criminal activity.” Id. §
1B1.3(a)(1)(B). Application Note Two to section 1B1.3 explains
that “a defendant is accountable for the conduct...of others that
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was both: (1) in furtherance of the jointly undertaken criminal
activity; and (2) reasonably foreseeable in connection with that
criminal activity.” Id. § 1B1.3, comment. (n.2). The Note
explains further that, in applying this test, a “court must first
determine the scope of the criminal activity the particular
defendant agreed to jointly undertake.” Id. Thus, in order for
Hammond to be accountable under section 1B1.3 for the losses
incurred by third parties, the district court must have made
findings establishing that: (1) Hammond agreed to undertake
criminal activities jointly with third parties, (2) the losses
caused by the third parties were within the scope of that
agreement, and (3) the third parties’ misconduct was reasonably
foreseeable to Hammond. See United States v. Evbuomwan, 992 F.2d
70, 74 (5th Cir. 1993). These findings need not be expressly
made, but the meaning of the court’s findings must be clear. See
United States v. Lghodaro, 967 F.2d 1028, 1030 (5th Cir. 1992).
The PSR attributed to Hammond the personal expenses of two
employees that were charged to union American Express cards. The
PSR stated starkly that “[t]he total loss from the American
Express credit card account, including personal expenses by two
employees, is $231,502.49.” The PSR did not identify the
employees, nor did it specify the exact amount of loss they
caused. The original PSR, however, had not included these third-
party charges in its loss calculations. It was revised after
consideration of the government’s objection that Hammond should
be held accountable for such losses. Relying on the Teamsters’
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findings in the Article 19 hearing, the government argued that
the loss attributable to Hammond should include $41,712.49 in
personal charges made by Louis Stewart, the Local’s former board
member, and Gerald Doerr, the Local’s former business agent. The
revised PSR reflected these charges but contained no finding that
Hammond had agreed to a joint undertaking of criminal activity.
Hammond filed an objection to the revised PSR, arguing that
his employees’ charges should not be included in his loss
calculations “[a]bsent proof of an agreement between Hammond and
other Union members to defraud the Union.” The district court
overruled Hammond’s objection and adopted the PSR’s calculations,
stating:
One of the arguments is you shouldn’t be charged for
some of these expenditures by others because the
argument goes you couldn’t have reasonably known what
they were doing. You were paid a huge salary to know
what they were doing and to double check it. Unlike
the nice man in the bank fraud conspiracy I pointed to,
you were their leader, you ran things, you knew what
they were doing and you knew why they were being
allowed to get along. It is perfectly reasonable to
charge you with the $41,000 defalcation of the others.
The district court’s statement clarifies that Hammond should
have reasonably foreseen the misconduct of Local employees. The
statement does not, however, constitute a particularized finding
that Hammond agreed to participate in an embezzling scheme with
Stewart and Doerr. Nor does it explain how Stewart’s and Doerr’s
American Express charges furthered any joint undertaking of
criminal activity with Hammond or were within the scope of any
such agreement with him. We made it clear in United States v.
Evbuomwan that such findings were “absolute prerequisites” to a
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sentence adjustment based on third-party misconduct. 992 F.2d at
74 (holding that foreseeability of third-party misconduct was
irrelevant absent concurrent findings that defendant agreed to
undertake criminal activity jointly with third parties and that
third-party misconduct was within scope of that agreement).
The district court’s reference to the “$41,000 defalcation
of the others” appears to rely on the Teamsters’ findings that
Stewart and Doerr embezzled over $41,000 of Local funds.
Although the court made references to the Teamsters’ Article 19
decision during sentencing, it never stated that it was relying
on any of the Teamsters’ findings. Furthermore, the court never
specifically identified Stewart and Doerr when discussing the
$41,000 loss, much less an agreement to undertake criminal
activity with Hammond. The district court’s observation that
Hammond was the “leader” who “ran things, [] knew what they were
doing, and [] knew why they were being allowed to get along”
suggests that there may have been an atmosphere of complicity
among officials at the Local. While an atmosphere of complicity
may be some evidence of jointly undertaken criminal activity, we
ask for a specific finding of jointly undertaken activity because
“the mere knowledge that criminal activity is taking place is not
enough for sentence enhancement under § 1B1.3.” Evbuomwan, 992
F.2d at 74. Therefore, we must vacate the sentence and remand
the case so that the district court can comply with the
requirements of the Sentencing Guidelines when resentencing
Hammond.
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III.
For the foregoing reasons, we AFFIRM Hammond’s conviction,
VACATE his sentence and REMAND this case to the district court
for resentencing consistent with this opinion. On remand, the
district court may reimpose the same sentence if it is able to
rule explicitly that Hammond agreed to a joint undertaking of
criminal activity with Louis Stewart and Gerald Doerr, and that
Stewart’s and Doerr’s American Express charges were within the
scope of that agreement. Otherwise, the district court must
determine the correct loss attributable to Hammond and impose a
sentence consistent therewith.
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