United States v. Frank Baumgardner

No. 95-2860
United States of America, *
*
Appellee, *
*
v. *
*
Frank Baumgardner, *
*
Appellant. *
Appeals from the United States
District Court for the
Southern District of Iowa.
No. 95-3866
United States of America, *
*
Appellee, *
*
v. *
*
Frank Baumgardner, *
*
Appellant. *
Submitted: March 12, 1996
Filed: June 5, 1996
Before MAGILL, FLOYD R. GIBSON, and HEANEY, Circuit Judges.
HEANEY, Circuit Judge.
Frank Baumgardner appeals from his convictions for making a material
false statement to the Social Security Administration (SSA) in violation
of 18 U.S.C. § 1001 and for fraudulently concealing his receipt of workers'
compensation benefits in violation of 42 U.S.C. § 408(a)(4). He argues
that the section 1001 conviction cannot stand because under the recent
Supreme Court decision, United States v. Gaudin, 115 S. Ct. 2310 (1995),
the materiality of his false statements is an element of the offense that
must be found by the jury beyond a reasonable doubt. He also challenges
the sufficiency of the evidence to support both convictions. In light of
Gaudin, we vacate Baumgardner's false statement conviction and remand for
a new trial. We affirm his conviction under 42 U.S.C. § 408(a)(4),
however, and remand this case to the district court for resentencing on
that count.
I. BACKGROUND
After sustaining serious injuries from a work-related fall,
Baumgardner applied for disability benefits from the SSA in 1978. The SSA
denied Baumgardner's application both initially and on appeal, but an
Administrative Law Judge reversed the denial and awarded him benefits in
August 1979. Until 1994, Baumgardner and his dependents received monthly
disability payments, ranging from $600 to $1,393, totaling over $200,000.
In his benefits application, Baumgardner agreed to notify the SSA
if his medical condition improved, if he returned to work, or if he applied
for or received benefits under any workers' compensation law. The
occurrence of any one of these events could have affected his eligibility
status. The SSA informed Baumgardner many times of his duty to report
changes in his work status and the possible consequences of failing to do
so.
Despite these instructions, Baumgardner did not report that from
September 1981 until February 1985, he received nearly $76,342
2
in workers' compensation benefits and $26,835 in medical payments for
injuries that resulted from a trucking accident. Although the SSA knew
that Baumgardner had worked as a truck driver for nearly five months in
1979, it was not informed that he received workers' compensation benefits
or the medical payments.
In addition, Baumgardner failed to report that he began to repair,
clean, and sell new and used Rainbow vacuums out of his home. Baumgardner
did not report any self-employment income to the SSA until it contacted him
in April 1992. Even when confronted by the SSA, Baumgardner maintained
that his work with vacuums was merely a hobby, from which he did not derive
any income. Specifically, in response to questions on a SSA work activity
report completed by Baumgardner in 1992, he stated that there were no
months from January 1979 until April 1992 in which he had made more than
$75 or worked more than fifteen hours.
Baumgardner's responses on the work activity report sparked a two-
year investigation of Baumgardner's self-employment, which culminated in
the underlying two-count indictment. The government charged Baumgardner
with making a false statement to a government agency in violation of 18
U.S.C. § 1001 for reporting that there were no months in which he earned
more than $75.00 or worked more than fifteen hours. He was also charged
with concealing the receipt of workers' compensation benefits with the
fraudulent intent to secure payment in a greater amount than was due him
in violation of 42 U.S.C. § 408(a)(4). After a jury trial, he was
convicted of both offenses. He was sentenced to twenty-three months
imprisonment and three years supervised release. He was also ordered to
pay over $200,000 in restitution.
At the time of Baumgardner's trial, the Eighth Circuit--and every
other circuit but the Ninth--considered materiality under section 1001 to
be a question of law for the district court. United States v. Johnson, 937
F.2d 392, 396 (8th Cir. 1991); see
3
also, United States v. Gaudin, 28 F.3d 943, 955 (9th Cir. 1994) (en banc)
(Kozinski, J., dissenting) (citing authority from each circuit), aff'd, 115
S. Ct. 2310 (1995). Accordingly, the district court decided that the
alleged false statement was material and did not instruct the jury on this
element.1 After Baumgardner's conviction, the Supreme Court decided United
States v. Gaudin, 115 S. Ct. 2310 (1995), in which it held that failure to
submit the issue of materiality of an alleged section 1001 violation to the
jury violated the defendant's Fifth Amendment right to due process of the
law and his Sixth Amendment right to have a jury determine guilt of every
element of the crime charged. Id. at 2320. In light of Gaudin,
1
At trial, however, there seemed to be a question as to the
definition of materiality and what evidence would support that
element of the offense. In response to one of defense counsel's
objections to the jury instructions, the court stated: "To tell
you the truth, I would hate to give you a definition of materiality
right now, and I don't think it is an element, so I don't know why
we have it." (Trial Tr. at 590-91). The government then informed
the court that Eighth Circuit law "recommends" that it make a
finding of materiality on the record before the case is submitted
to the jury, to which the court responded:
The statements in the evidence alleged to be
fraudulent or alleged not to have been made that
should have been made I find to be material,
whatever that is. No, seriously, I think there
isn't really an issue here of materiality. The
issues are pretty well defined by the way the case
has been presented, which is well presented.
(Trial Tr. at 591). In addition, in the presentation of its case,
the government argued that the amount of disability payments
Baumgardner received during the relevant time period not only went
to his motive or intent in making the false statement but to the
issue of materiality. (Trial Tr. at 346). Essentially, the
government argued that because the SSA continued to make disability
payments to Baumgardner, the false statement was material. Such a
position does not reflect the definition of materiality recognized
by the Supreme Court. For a statement to be material under section
1001, it must have the natural tendency to influence, or capability
of influencing, a governmental agency's decision or performance of
an agency function. Gaudin, 115 S. Ct. at 2313 (quoting Kungys v.
United States, 485 U.S. 759, 770 (1988)); Johnson, 937 F.2d at 396.
4
Baumgardner filed a motion for a new trial with the district court, which
was denied. This appeal follows.
5
II. DISCUSSION
On appeal, Baumgardner challenges both the district court's failure
to instruct the jury on the element of materiality and the sufficiency of
the evidence to support either conviction.
A. Gaudin Error
As the Supreme Court instructed in United States v. Gaudin, the
district court's decision to remove the issue of materiality from the jury
violated Baumgardner's Sixth Amendment right to have a jury determine guilt
beyond a reasonable doubt of every element of the crime charged. See
Gaudin, 115 S. Ct. at 2320; United States v. Raether, No. 95-3222, slip op.
at 2 (8th Cir. April 22, 1996). Because Baumgardner's counsel did not
object to the court's decision at trial, however, we must review this issue
under the plain error standard of Rule 52(b) of the Federal Rules of
Criminal Procedure. This court has the limited authority to correct
forfeited errors when (1) there was an error at trial, (2) the error is
plain, and (3) the error affected the defendant's substantial rights.
United States v. Olano, 507 U.S. 725, 732 (1993); United States v. Ryan,
41 F.3d 361, 366 (8th Cir. 1994) (en banc), cert. denied, 115 S. Ct. 1793
(1995). In addition, we should not exercise our authority under 52(b)
unless the error results in a miscarriage of justice or "seriously
affect[s] the fairness, integrity, or public reputation of judicial
proceedings." Olano, 507 U.S. at 732 (quoting United States v. Atkinson,
297 U.S. 157, 160 (1936)).
Because the district court's failure to submit the question of
materiality to the jury deviates from the Supreme Court's decision in
Gaudin, the first prong of the Olano standard is met. We next consider
whether this error is "plain." In this case, the question turns on whether
we look to the law at the time of the trial or on appeal. At trial, the
district court's decision was in accord with
6
our circuit's firmly established law--materiality in a section 1001 case
was a matter of law decided by the court. Johnson, 937 F.2d at 396. On
appeal, with the benefit of hindsight, the district court's decision
constitutes clear error. Gaudin, 115 S. Ct. at 2320.
The Olano Court explicitly acknowledged, but left unanswered, this
precise situation:
We need not consider the special case where the error was
unclear at the time of trial but becomes clear on appeal
because the applicable law has been clarified. At a
minimum, the Court of Appeals cannot correct an error
pursuant to Rule 52(b) unless the error is clear under
current law.
Olano, 507 U.S. at 734. Most circuits that have addressed this open
question have permitted discretionary review of errors that become plain
on appeal because of a change in settled law. United States v. Viola, 35
F.3d 37, 42 (2d Cir. 1994) (plain error determined according to the law at
the time of appeal), cert. denied, 115 S. Ct. 1270 (1995); United States
v. Retos, 25 F.3d 1220, 1230 (3d Cir. 1994) (same); United States v. Jones,
21 F.3d 165, 173 & n.10 (7th Cir. 1994) (same); but see United States v.
Calverly, 37 F.3d 160, 162-63 & n. 18 (5th Cir. 1994) (en banc) (plainness
viewed from perspective of law at the time of trial, but not specifically
addressing open question), cert. denied, 115 S. Ct. 1266 (1995); United
States v. Marder, 48 F.3d 564, 573 (1st Cir.), (question left unanswered),
cert. denied, 115 S. Ct. 1441 (1995); United States v. Washington, 12 F.3d
1128, 1139 (D.C. Cir.), (creating a special, supervening-decision doctrine
to provide the defendant with the benefit of a change in law), cert.
denied, 115 S. Ct. 98 (1994).
With the benefit of the varied analyses provided by our sister
circuits, we now hold that the plain error prong of the Olano standard
should be determined in accordance with the law at the
7
time of appeal. This approach is consistent with the practical
considerations of judicial proceedings. Given this court's holding in
Johnson, an objection at trial would have been pointless. The more
stringent prerequisites imposed by Rule 52(b), as compared to Rule 52(a),
are designed to encourage a defendant to raise objections during the
proceeding where they might be corrected, rather than strategically to
withhold an objection as a basis of appeal. See Viola, 35 F.3d at 42. By
contrast, to require a defendant to raise all possible objections at trial
despite settled law to the contrary would encourage frivolous arguments,
impeding the proceeding and wasting judicial resources. Id. The time-of-
appeal approach also recognizes the principle that a new rule for the
conduct of criminal prosecutions should be applied retroactively to all
cases on direct appeal. See Griffith v. Kentucky, 479 U.S. 314, 328
(1987). Accordingly, the district court's failure to submit the issue of
materiality to the jury constitutes a clear error under the current law and
thus meets the second prong of the Olano test.
Having determined that the district court's decision constituted
plain error, we must now address whether it affected Baumgardner's
substantial rights. Generally this prong of the Rule 52(b) analysis
requires a showing that the error was prejudicial--that it affected the
outcome of the trial. Olano, 507 U.S. at 734. The prejudice analysis
under Rule 52(b) is nearly identical to that under Rule 52(a), or harmless
error, with the crucial distinction that under Rule 52(b), the defendant
bears the burden of persuasion.2 Id.
2
We note that the Second Circuit reverses the burden-shifting
of Rule 52(b) when an intervening decision alters a settled law.
United States v. Viola, 35 F.3d 37, 42 (2d. Cir. 1994), cert.
denied, 115 S. Ct. 1270 (1995). It shifts the burden back to the
government to demonstrate prejudice, recognizing that a defendant
should not be penalized for failing to challenge entrenched
precedent. Id. Our analysis today focuses on the absence of any
jury instruction closely analogous to the materiality issue.
Therefore, although we find the Viola analysis persuasive, we leave
the issue of burden-shifting for another day.
8
Our circuit has recently held that Gaudin errors are trial errors
subject to harmless error review. Raether, No. 95-3222, slip op. at 3
(reviewing the error under 52(a)); but see United States v. Wells, 63 F.3d
745, 751 (8th Cir. 1995) (vacating, without harmless error discussion,
convictions in which the element of materiality was removed from the jury),
cert. granted, 64 U.S.L.W. 3703 (1996). Applying the analysis of Raether,
we conclude that the Gaudin error in this case was not harmless. For an
error to be harmless, it must be unimportant in relation to everything else
the jury considered on the issue in question. Yates v. Evatt, 500 U.S.
391, 406 (1991). The record in this case does not reflect that the jury
made an independent determination on the issue of materiality. To be sure,
"the jury did not make any findings that are so closely related to the
materiality issue that they are functionally equivalent to a materiality
finding." Raether, No. 95-3222, slip op. at 4. In fact, the government
presented such minimal evidence of materiality at trial3 that it is
questionable whether the evidence even would have supported a jury finding
on that issue.4 It is not our role to speculate as to what the jury would
have decided if the district court had properly instructed them. Sullivan
v. Louisiana, 508 U.S. 275, 281 (1993).
3
The only evidence at trial that supported a finding of the
materiality of Baumgardner's false statement was the testimony of
SSA employees that explained the significance of the question on
the work activity report. As explained at trial, $75 or fifteen
hours per month is the guideline for determining whether someone
has used a trial work period month. (Trial Tr. at 78, 114). See
42 U.S.C. §§ 422(c), 423(e)(1); 20 C.F.R. §§ 404.1592a, 404.1594
(governing trial work period assessments). The government did not
introduce evidence to explain specifically how or the extent to
which an accurate answer on the work activity report would have
affected Baumgardner's disability payments.
4
The district court's finding of materiality was similarly
weak. In deciding the matter, the court indicated that it was not
aware of the recognized definition of materiality or what evidence
would support such a finding. See infra note 1.
9
"No matter how overwhelming the evidence of materiality, the district court
was not permitted to direct a finding for the Government on this element."
Raether, No. 95-3222, slip op. at 2 (citing Sullivan, 508 U.S. at 277).
Although we acknowledge that an affecting-substantial-rights inquiry
is governed by a harmless error analysis, see Raether, No. 95-3222, slip
op. at 3, we question whether a Gaudin error could ever be considered
harmless.5 Our court, in Wells, implicitly recognized the futility of
applying the harmless error inquiry to a Gaudin error when it vacated a
defendant's convictions without discussion of harmless error. Wells, 63
F.3d at 751 (holding Gaudin "dictates that we vacate defendants'
convictions"). Where the issue of materiality is completely removed from
5
Gaudin errors are readily distinguishable from faulty jury
instruction cases. In such cases, the appellate court can review
the instructions as a whole to determine whether another
instruction cured the faulty instruction. For example, in United
States v. Williams, 935 F.2d 1531 (8th Cir. 1991), cert. denied,
502 U.S. 1101 (1992), our court held that failure to include intent
to defraud as an essential element of the offense in one
instruction was harmless because other instructions essentially
cured the court's defect. Id. at 1535-36. The instructions, read
together, adequately apprised the jury that it must find intent
beyond a reasonable doubt. Id. In addition, the questions the
jury asked the court during deliberation indicated that the jury
understood intent to defraud was an essential element. Id.
Similarly, in Redding v. Benson, 739 F.2d 1360 (8th Cir. 1984),
cert. denied, 469 U.S. 1222 (1985), although the district court did
not properly instruct the jury on the offense charged, our court
found the error to be harmless in light of the fact that the jury
specifically made the finding left out of the instructions. The
property offense required a finding that the value of the stolen
property was in excess of $1,000, and the jury found it to be worth
$12,000. Id. at 1363. Thus, in Redding we concluded that the
"jury's critical factfinding function was not thwarted." Id. at
1364.
10
the jury's deliberation6 and no other element of the offense is so similar
to
6
The court, in this case, removed any references to
materiality from the instructions on section 1001 because it
determined that they would confuse the jury. (Trial Tr. at 591).
The only mention of materiality was in the indictment, which
standing alone is
insufficient to cure the court's defect.
11
that of materiality that the jury would make factually equivalent findings,
it is unlikely that it could ever be argued that, had it been instructed
properly, the jury would have found materiality beyond a reasonable doubt.
As the Supreme Court explained in Sullivan, where "there is no object, so
to speak, upon which harmless-error scrutiny can operate," the inquiry is
meaningless. 113 S. Ct. at 2082. Therefore, we hold that the error in
this case was not harmless and that Baumgardner's substantial rights were
violated.
Finally, we will exercise our authority to correct the error only if
it "seriously affects the fairness, integrity or public reputation of
judicial proceedings." Olano, 507 U.S. at 736 (quoting Atkinson, 297 U.S.
at 160). Here, where a defendant has been denied his Fifth Amendment right
to due process of the law and his Sixth Amendment right to a jury
determination of an important element of the crime, the integrity of the
judicial proceeding is jeopardized. Gaudin, 28 F.3d at 952; Retos, 25 F.3d
at 1232; Jones, 21 F.2d at 173; but see Marder, 48 F.3d at 575.
Particularly in this case, where we cannot be certain that the court even
knew the definition of materiality, see infra note 1, and the evidence of
materiality was slim, see infra note 3, we are concerned with the effect
of the district court's error on the judicial proceeding. We must
therefore correct the district court's error. Accordingly, we vacate
Baumgardner's section 1001 conviction and reverse the district court's
denial of a new trial.
B. Sufficiency of the Evidence
Baumgardner also challenges the sufficiency of the evidence to
support both offenses. Because we have vacated the section 1001
conviction, we need only address his arguments with respect to his
conviction under 42 U.S.C. § 408(a)(4).
12
In reviewing the sufficiency of the evidence, we determine whether
any rational juror could have found the essential elements of the crime
beyond a reasonable doubt, considering the evidence taken in a light most
favorable to the verdict. United States v. Broyles, 37 F.3d 1314, 1317
(8th Cir. 1994) (quoting United States v. Has No Horse, 11 F.3d 104, 106-07
(8th Cir. 1993)), cert. denied, 115 S. Ct. 1441 (1995). For a conviction
under 42 U.S.C. § 408(a)(4), the government must prove the following:
(1) the defendant had knowledge of an event affecting
his right to receive or to continue to receive payments;
(2) the defendant knowingly concealed or failed to
disclose this event to the Social Security
Administration; and
(3) the defendant concealed or failed to disclose this
event with the intent to fraudulently secure payment of
Social Security disability benefits in an amount greater
than was due him or when no payment to him was
authorized.
United States v. Phillips, 600 F.2d 535, 536 (5th Cir. 1979) (setting out
elements under prior codification of 408(a)(4)).
Baumgardner argues that the government did not prove that he failed
to report his receipt of the workers' compensation benefits to the SSA.
At trial, he testified that he had reported the benefits to the SSA in a
phone conversation with SSA claims representative, Carolyn Hoard, during
which they discussed his employment as a truck driver. (Trial Tr. at 357).
Hoard, however, testified that Baumgardner did not mention the workers'
compensation benefits and that, if he had, she would have so indicated on
her report of contact with him. (Trial Tr. at 112). This issue required
the jury to assess the relative credibility of the two witnesses. Because
the jury had reason to discredit Baumgardner's testimony on this point, we
do not upset its finding. See United States v. Schindler, 77 F.3d 245, 247
(credibility
13
determinations best made by jury or trial judge who observed the
proceedings).
Baumgardner also argues that the government did not prove that he
knowingly concealed the receipt of workers' compensation benefits with the
fraudulent intent to receive disability benefits to which he was not
entitled. He claims that even if he did not tell SSA personnel, he thought
the SSA knew of the workers' compensation benefits, thereby relieving him
of his reporting obligations. Testimony at trial, including a detailing
of Baumgardner's numerous bank accounts and his statements to his daughters
regarding his need to keep his money spread out, provided a sufficient
basis from which the jury could have reasonably inferred that Baumgardner's
omission was intentional and that he knew the workers' compensation
benefits could affect his disability benefits. Therefore, we conclude that
the evidence on this count was sufficient to support the conviction.
III. CONCLUSION
Accordingly, we vacate Baumgardner's section 1001 conviction and
remand to the district court for a new trial. Additionally, we affirm
Baumgardner's conviction under 42 U.S.C. § 408(a)(4) and remand to the
district court for resentencing and a new computation of restitution for
that count.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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