UNITED STATES OF AMERICA, Plaintiff-Appellee, v. JOHN J. LEAHY, WILLIAM E. STRATTON, JAMES M. DUFF, and TERRENCE DOLAN, Defendants-Appellants.
Nos. 05-2639, 05-2652, 05-2692 & 06-1485
United States Court of Appeals For the Seventh Circuit
ARGUED JUNE 9, 2006—DECIDED OCTOBER 4, 2006
Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 03 CR 922—Elaine E. Bucklo, Judge.
MANION, Circuit Judge. This appeal stems from James Duff‘s admitted, successful schemes to cheat the City of Chicago out of funds slotted for minority- and women-owned businesses and to swindle various workers compensation insurance providers out of proper premiums. Duff‘s expansive plots swept up many of his business associates and family members, and this appeal consolidates a broad range of challenges (by him and them) to pleas, jury convictions, and sentences. We affirm in part and reverse in part.
Two complex fraud schemes hatched by James Duff, a Chicago businessman, are at the heart of this case. Despite the significant overlap between the participants and companies that figure in the two plots, we will discuss the facts of each separately in the interest of clarity.
A. City Scheme
In 1990, the City Council of Chicago passed an ordinance to grant an advantage to select businesses owned by minorities (MBEs) and women (WBEs) in the award of city contract money. Specifically, Chicago‘s Purchasing Agent had to establish a goal of awarding not less than 25% of the annual dollar value of all Contracts to qualified M.B.E.s and 5% of the annual dollar value of all Contracts to qualified W.B.E.s. In addition to requiring the heads of departments and agencies to work with the Purchasing Agent to meet this goal, the ordinance also contained an explicit provision setting aside certain contracts for qualified MBEs and WBEs that met target market requirements. Companies that wished to obtain a contract with the city, but which were neither MBEs nor WBEs, had to commit to expend 25% of the value of the contract with MBEs and 5% with WBEs. The ordinance included subcontracting as one of the various ways to fulfill this requirement. Penalties for a contractor‘s failure to meet the appropriate percentages ranged from liquidated damages to termination.
While the ordinance provided substantial assistance to MBEs and WBEs, it imposed heavy restrictions on which companies qualified. In particular, it limited its application based both on owner involvement in the business and the level of success achieved by the business. For a business
There was an additional limitation. Chicago prohibited any Established Business from gaining this favored status. According to the ordinance, an established business was one which, by virtue of its size and capacity . . . does not need to be a participant in the Program in order to effectuate the purposes of the Program . . . . Giving further guidance, the ordinance presumed a business met this definition if it (and any affiliates) totaled $17 million in average annual gross receipts over a three-year period. This restriction indicates that Chicago was not interested in subsidizing entrenched, successful businesses, even if the businesses were owned by women or minorities. As a former city official put it at trial, it was a program to assist those companies to win contracts with the City in a competitive situation and become economically viable so that they, in fact, could compete as prime contractors. In other words, this was an affirmative action program whose fruits were reserved for fledgling minority and women businesses.
When Chicago passed the ordinance, James Duff, a white man, controlled numerous businesses in the city. For purposes of the present discussion, we focus our attention on two of those businesses. First, he controlled Windy City Maintenance (Windy Maintenance), a company providing janitorial services, which Duff incorporated in 1989. While
With Green Duff and Stratton in the ownership positions of these companies, Windy Maintenance and Remedial appeared, at least superficially, well-positioned to obtain WBE and MBE certification after the passage of the ordinance. Of course, for either to gain such a status, Duff would need to obscure his kingship over the companies.
Windy Maintenance was the first to try to take advantage of the ordinance. In 1991, it applied for certification as
Windy Maintenance‘s certification allowed it to win lucrative contracts with Chicago and subcontracts with City contractors specifically because of its WBE status. In particular, Windy Maintenance entered into subcontracts to provide janitorial services for a terminal at O‘Hare International Airport and the Harold Washington Library. Windy Maintenance also contracted directly with Chicago for similar services at the city‘s 911 Center and a district of the Chicago Police Department. In 1999, Windy Maintenance informed the city that it would no longer apply for WBE certification as it had reached the maximum dollar limits it could obtain under the program. Over the years in which Windy Maintenance was certified as a WBE, it obtained $37,512,279 from these contracts and subcontracts. Throughout this time, Duff was totally in charge at Windy Maintenance.
Remedial‘s big break came slightly later than that of its sister company. In approximately 1991, Duff was approached by James Barry, a long-time friend and business associate, to discuss providing the labor portion of a bid that Barry‘s company, Waste Management of Illinois (Waste Management), was submitting to Chicago. Chicago was looking for a company to provide construction, administration, and labor services for four new recycling centers as
Obtaining certification as an MBE turned out to be a much trickier proposition for Remedial than it had been for Windy Maintenance. In 1993, Remedial submitted its initial certification affidavit to the city‘s purchasing agent for approval. This application revealed that Ellen Niemeier was the sole minority shareholder and contained no references to Duff‘s mother, Green Duff. Duff‘s influence had not diminished, as Ellen Niemeier happened to be his wife. Nonetheless, the application raised a variety of concerns with the relevant Chicago officials. In particular, they had questions about the roles of Stratton and Niemeier, as well as Remedial‘s overall viability and independence, worries prompted by several allusions to Duff and his companies on the application. These concerns were heightened when the city contacted clients of Remedial who indicated that they only dealt with James Duff. Faced with a variety of red flags, the city issued a preliminary denial of MBE status in 1993.
During the 1990s, money often flowed through Windy Maintenance and Remedial (and other Duff-controlled companies) to American Management and Consulting (American). While American was supposedly a consulting company, in actuality Duff, its owner, basically used it as a payroll company. Duff would instruct his payroll specialist to transfer money from a company like Remedial to American, then make payments to family members and others out of that account. Moreover, Stratton and other employees would often receive and cash large checks, and, on Duff‘s instructions, would return the entirety of the proceeds to Duff for his use.
Duff‘s shenanigans eventually garnered media scrutiny, which led to a city investigation into the propriety of the certifications. In order to evade city investigators, Duff had office personnel spend weeks tutoring Green Duff so that she could give the impression that she actually ran Windy Maintenance. To complete the illusion, Duff
While the city could not pierce the conspiratorial curtain, federal investigators eventually did. As will be explained further in conjunction with the insurance scheme, in 2003, Duff, Stratton, Green Duff, and Dolan were each indicted for offenses arising out of their actions in the city scheme.
B. Insurance Scheme
We now shift our attention to Duff‘s endeavors to cheat his insurers, a fraud of even longer duration. This scheme introduces yet another company controlled by Duff: Windy City Labor Service (Windy Labor). Windy Labor provided temporary employees to various liquor warehouses and other clients.
Before detailing the scheme, a working knowledge of the mechanics of the Illinois workers compensation system is necessary. Illinois generally requires employers to have workers compensation insurance. Because some employers with high risk histories would be unable to obtain
Premiums for workers compensation insurance are calculated using three independent factors. First, the insurance company must determine the correct classifications for the various jobs performed by the insured‘s employees. Each type of job has an advisory rate set by the Insurance Council, which reflects the relative riskiness of that position. The second factor is the amount of payroll in each job classification. The premium‘s final element is the experience modifier, a number determined by the Insurance Council that compares an employer‘s past claim history to the past claim history of the average employer in that job classification. If a company has a claims history that is average in its field, the experience modifier will be one. As the number of claims increases, so does the modifier (and by extension, the premium). However, an extremely high modifier, for example one reflecting double or triple the average amount of claims, might instead indicate improper classification of employees. The insurance company calcu-
With this background, we now examine Duff‘s insurance fraud. Windy Labor first applied for placement in the assigned risk market through its insurance broker, John Leahy of Leahy & Associates, in 1982. In the initial application, Leahy described Windy Labor as a company that will provide various labor type jobs as they arise. The work will vary, will include janitorial work, truck helpers, warehousing, bottling. It is a temporary service for labor-type work. The initial classification codes submitted—warehousing, bottling, janitorial, and truck helper employees—were consistent with this information. A report from later in the year was even more blunt in its assessment of the Windy Labor work force: As mentioned, these are usually people out of work or skid row bums working for drinking money. The Insurance Council assigned Windy Labor to Casualty Insurance (Casualty) as its workers compensation insurance provider.
Casualty provided Windy Labor with insurance from the assigned risk pool until 1995. During this time, Windy Labor applied annually for renewal of this insurance, sending updated payroll and classification numbers. These renewals were largely automatic between Windy Labor and the insurance provider, but Casualty continued to send Leahy & Associates copies of policies and applications. For the first few years, the classifications remained constant, but in 1985, a drastic shift occurred. The application introduced a clerical workers category and, from the start, this new classification included the largest portion of payroll, dwarfing other more established categories such as warehousing and janitorial. Again, Leahy & Associates received a copy of the policy reflecting this change from Casualty.
To effectuate this scheme, Duff wove an intricate web of lies using employees and business associates. Duff met with auditors, giving fake figures regarding the business, and initiated his office manager in the ways of falsely representing the employees as clerical. Windy Labor provided client lists with false designation and engaged in delay and suppression of payroll records.
Red flags flew. Casualty obtained loss runs, which are summaries of the injury claims, and showed nearly all Windy Labor injuries coming from the warehousing class, even though clerical was dominant. Casualty also sent multiple notices of cancellation during the period of coverage because of Casualty‘s inability to complete audits. While the policy was never cancelled, Casualty transmitted these notices to Leahy & Associates. Casualty did not catch on to the fraud before it left the assigned risk pool in 1995.
When Casualty left the assigned risk pool in 1995, Windy Labor had to apply for a new assigned risk carrier. This became a familiar refrain, as Windy Labor was left searching for carriers in 1998, 1999, and 2000.1 The person at Leahy
Despite the frequent turnover in insurance companies, the scheme continued. Duff remained resolute in his belief that the premiums were too high and continued to have his office employees overstate the clerical portion of the workforce. Complicating matters for Windy Labor, the insurance companies expected to conduct routine audits to verify the information on the policies. Rather than giving the information, which would reveal the plot, Windy Labor employees stonewalled auditors, submitted false worker information and client lists, and even forged a letter supposedly from an outside accountant that confirmed the lies.
Windy Labor‘s actions did not go completely unnoticed. Both USF&G and Kemper threatened to cancel their policies for failure to submit to audits. Wisniewski was informed and often worked with Windy Labor employees to avert this possibility by revealing some information that would satisfy the insurer without endangering the scheme. This worked to some extent. For example, USF&G left the assigned risk pool in 1998 without ever completing its final audit. For its part, the Insurance Council tried to untangle the disconnect between the small number of warehouse workers and the huge number of claims emanating from
Circumstances surrounding Kemper‘s response to its unsatisfying audit cast some additional light on the fraud. Receiving a cancellation notice in 1999, Duff instructed his office manager, Cathy Martinez, to call Leahy to sort out the problem. Martinez and another Windy Labor employee, Heather Placek, had a conference call with Leahy and Wisniewski shortly thereafter. Without going into the details of the situation, Martinez told Leahy that Duff asked her to talk to him. According to Martinez, Leahy‘s response was you know, you got to do whatever you got to do to get this done or you‘re not going to have insurance. At this point, Placek, who had limited exposure to the insurance scheme, pointedly stated, Has this occurred to anyone that this is insurance fraud? According to Martinez, after a pause, Leahy again responded that Windy Labor had to do whatever it took to get this done, or they would not have insurance. Eventually, the plotting was rendered irrelevant when Illinois would not let Kemper terminate the insurance contract for procedural reasons. Still, Windy Labor‘s actions had significant repercussions. As Kemper had not been able to complete its audit, Windy Labor was barred from placement in the assigned risk pool. Moreover, Kemper referred Windy Labor to the Insurance Council, alerting that organization to its belief that Windy Labor was engaging in premium misrepresentation.
The failure to complete audits, however, was not the only red flag. Windy Labor had an extremely high experience modifier during this time because of its rampant misclassification of its work force. At one point, the experience modifier reached 3.23, which meant that Windy Labor
Leahy & Associates, uniformly in the person of Wisniewski, repeatedly learned of these red flags. At one point, USF&G contacted a Windy Labor client who actually spoke candidly (and truthfully) about what Windy Labor workers did at his company. Upon learning of this conversation, Wisniewski responded that the information was wrong and relayed the issue to Duff, who pressured the client into retracting. A few years later when Braband was attempting to find a voluntary carrier for Windy Labor, he inspected the file and spotted the small labor classification with an extremely high number of manual accidents. Together with the experience modification issue, Braband felt the clerical was grossly overestimated and told Wisniewski as much, explaining that he needed correct classifications for any possibility of placement. Faced with these objections, Wisniewski immediately submitted new numbers to Braband, flipping the clerical payroll from $1.2 million to $600,000, the warehousing amounts from $75,000
In 2000, after Amcorp declined to renew Windy Labor‘s voluntary policy because of the high rate of claims, Duff decided to combine Windy Labor with a different Duff company that had a good insurance track record, Remedial. Hoping to avoid revealing Windy Labor‘s experience modifier (and take advantage of Remedial‘s low modification factor), this transaction was styled as a purchase and not disclosed as required. Despite repeated requests by insurance providers for information about the combination, Wisniewski and Windy Labor/Remedial employees (including Stratton) stonewalled and responded that no such information was needed. On account of this tactic, Remedial had problems obtaining insurance for the Windy Labor portion of the business. Eventually, however, it contracted with Travelers, which forced Remedial/ Windy Labor to send, in 2001, a form acknowledging the merger after Travelers threatened cancellation of its policy. Travelers continues to provide workers compensation insurance to Remedial, though the Insurance Council adjusted the experience modifier based on the completed form.
Through this extensive scheme to hide the true nature of Windy Labor‘s business, the company paid approximately $1.09 million less in premiums than it should have.
C. Trial
In 2003, the federal government charged the major players in the Duff frauds in a thirty-three count indictment covering both schemes. Basically, the indictment charged the
The district court sentenced Duff to 118 months’ imprisonment and ordered restitution in the amount of $12,026,582.02. The district court sentenced Stratton to seventy months’ imprisonment and restitution in the amount of $7,370,739.00. The district court sentenced Dolan to twenty-one months’ imprisonment. The district court sentenced Leahy to forty-six months’ imprisonment and ordered restitution in the amount of $1,093,566.00. Wisniewski received a sentence of a year and a day and chose not to appeal.
II.
In this consolidated appeal, the defendants attack jury convictions, pleas, and sentences. For Duff, Dolan, and Stratton, the centerpiece of their appeals challenges the sufficiency of the indictment, alleging that the fraud on the city could not meet the requirements of mail or wire fraud. Building from this foundation, Stratton, joined by Duff, argues that, if the mail and wire fraud counts do not constitute crimes, the money laundering charges, which rely on them, necessarily falter. Stratton also challenges the prejudicial spillover effect of this allegedly improper city
In addition to the major argument concerning the wire and mail fraud counts, Duff raises a number of challenges to his sentence. He first contends that the district court should not have calculated his guidelines offense level using a $10 million loss to the city since, he claims, the city actually lost nothing on the contracts. Duff also asserts that the district court erred by not awarding him a full three-point reduction for acceptance of responsibility and by applying several improper enhancements. Finally, Duff argues that restitution to Chicago was improper, returning to his theme that the city suffered no loss.
Leahy, for his part, begins with a sufficiency of the evidence challenge and also contends that the district court erred by delivering an ostrich jury instruction. Leahy also faults the district court for a range of evidentiary decisions. He proceeds to argue that the district court erred by not severing the trial of the insurance fraud counts from the trial of those counts involving the city scheme. Leahy concludes his challenges by asserting that the district court improperly calculated the period of his involvement in the conspiracy, which redounded to his detriment at sentencing.
STRATTON, DUFF, AND DOLAN‘S TRIAL, PLEA, AND SENTENCING ISSUES
A.
We first consider Duff, Dolan, and Stratton‘s argument that the city scheme referenced in the indictment cannot support a conviction under the applicable mail and wire fraud statutes. Specifically, they contend that the only loss Chicago suffered was to its regulatory interests—an intangi-
We begin our evaluation of the indictment‘s validity by examining the words of the relevant statutes, the first being mail fraud.
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises . . . for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, . . . shall be fined under this title or imprisoned not more than 20 years, or both.
The elements of wire fraud under
The mail and wire fraud counts of the indictment dedicated to the city scheme (Counts 2-15) charged that Duff, Stratton, Dolan, and others hatched and executed a plan to obtain fraudulently over $100 million in contracts and subcontracts from the city of Chicago by lying about the Windy Maintenance and Remedial ownership structure. The indictment goes on to detail precisely how Duff and the others used or caused to be used the mails and wires in furtherance of this scheme.
The defendants, however, believe that, despite its express references to the money they obtained, the indictment did not allege a deprivation of money or property. They arrive at this interesting conclusion by positing that Windy Maintenance and Remedial fulfilled their obligations under the relevant contracts or subcontracts. The argument continues that because the city would ostensibly have paid the same for the provided services regardless, Chicago lost no money. According to the defendants, Chicago only lost a regulatory interest in controlling exactly where its money went. They conclude, therefore, that the mail and wire fraud
Despite the defendants’ contortions to squeeze this case into the intangible rights category, we cannot agree that it is such a case. The mail and wire fraud statutes require that the object of the fraud is money or property, rather than an intangible right.2 See Cleveland, 531 U.S. at 15 (stating that for purposes of the mail fraud statute, the thing obtained must be property in the hands of the victim); McNally, 483 U.S. at 360. In Cleveland, the scheme turned on defrauding the government out of a video poker license by making false statements on the licensing application. Id. at 15-17. The Supreme Court indicated that a violation of
We cannot agree with the defendants that previous cases from our court aid their quest to remove the present fraud from the reach of the federal mail and wire fraud statutes. In United States v. Ashman, 979 F.2d 469, 479 (7th Cir. 1992), we found that one aspect of a fraudulent trading scheme did not qualify as mail or wire fraud under the federal statutes because there was no possibility of a loss given the structure of the daily trading rules. Put another way, while fraud occurred, no money or property was possibly at issue, so these limited segments of Ashman‘s overarching fraud could not be punished under
Nor do we believe this case similar to United States v. Walters, 997 F.2d 1219 (7th Cir. 1993). In that case, a sports agent signed secret contracts to become the agent for a variety of athletes while they were still in college and receiving scholarship money. See id. at 1221. The government‘s theory was that Walters committed fraud by causing the universities to pay scholarship money to students who were ineligible, thus resulting in a loss of money to the universities. See id. We found the prosecution defective because the universities “were not out of pocket to Walters.” Id. at 1224 (emphasis in original). Walters did not obtain any money from the universities as part of his scheme to defraud. In this case, Duff and his cronies engaged in a fraud directly targeting the city and, unlike Walters, obtaining money from Chicago through the fraudulent scheme.
Looking at the requirements for mail and wire fraud, the indictment establishes each element. First, it alleges a scheme to defraud the city of money by obtaining contracts through false pretenses. Both the direct contracts with Chicago and the various subcontracts would not have been awarded in the absence of the MBE/WBE certifications obtained through fraud. Second, the indictment shows an intent to defraud Chicago out of its money by engaging in
We proceed to Duff‘s contention that the district court improperly calculated his offense level on the fraud convictions because Chicago suffered no loss. Both parties agree that
We agree with Duff that the district court incorrectly calculated the amount of loss, but this result will likely not mollify him because we further believe that the district court‘s figure was too low, not too high. Generally, loss under
The district court, however, erred when it did not calculate the loss under application note 8(d). Instead of computing the total “value of the benefits diverted from intended recipients or uses” in its analysis, it used the contract loss formula of “contract price minus the benefit provided.” Once the district court determined that this was a case involving diversion of government benefits, however, it was bound to follow the application note that governed this situation. See United States v. Sorensen, 58 F.3d 1154, 1158-59 (7th Cir. 1995). The correct amount under application note 8(d) is the value of the benefits diverted, which was over $100 million.5
C.
Turning to Duff‘s next challenge, he believes that he was entitled to a three-point reduction in his offense level because of his acceptance of responsibility. As this is a factual finding, we review the district court‘s decision not to award any points for clear error. See United States v. Gilbertson, 435 F.3d 790, 798 (7th Cir. 2006); United States v. McIntosh, 198 F.3d 995, 999 (7th Cir. 2000). The defendant bears the burden of proving that he deserves such a reward. See McIntosh, 198 F.3d at 999. We afford the district court large discretion in making this determination because the sentencing “judge is in a ‘unique position to evaluate a defendant‘s acceptance of responsibility.‘” Gilbertson, 435 F.3d at 799 (quoting
The district court did not clearly err when it refused to decrease Duff‘s offense level. Duff suggests that the district court did not attach enough weight to his factual basis, plea of guilty, and expressions of remorse, while emphasizing too greatly his less-than-forthcoming attitude at the plea hearing. Given the amount of latitude we afford to the district courts in this arena, we disagree.
First, the district court judged that Duff‘s plea did not reflect a true belief that he was culpable, but a calculated decision to gain the advantage of the reduction. Acceptance of responsibility usually will be awarded after a guilty plea, but such a plea does not transform this reduction into a matter of right. See United States v. Willis, 300 F.3d 803, 807 (7th Cir. 2002); United States v. Bothun, 424 F.3d 582, 586 (7th Cir. 2005). Looking at the factual basis and plea hearing,
Still, if Duff‘s conduct at the plea hearing constituted the district court‘s only justification for denying this reduction, we would be faced with a very close case. But here, the district court went further both at the sentencing hearing and in its sentencing memorandum and catalogued additional support for its conclusion that Duff did not really think he was not to blame, no matter his mouthed words of remorse. Specifically, the district court mentioned that Duff‘s contention that “no one else could have done the contracts” showed no appreciation for the harm he caused. The district court was also disturbed by Duff‘s failure to acknowledge a fact conclusively demonstrated at trial—that Duff used his companies to pay Stratton and family members even though they did no work. As application note 1(a)
Ultimately, however, even if we believed that the district court committed some error regarding acceptance of responsibility, it was harmless. In its sentencing memorandum, the district court stated “[s]ince this sentence, under Booker, is not limited to consideration of a narrow range following a strict determination of points under a particular Guidelines Manual, however, I considered the sentencing range that would be applicable with or without acceptance of responsibility.” The transcript from the sentencing hearing also shows the district court properly calculated guideline ranges both with and without the acceptance of responsibility points. The court then decided upon a sentence of 118 months and gave a lengthy explanation both at the hearing and in the memorandum regarding its decision. As the sentence would have been imposed no matter the ruling on acceptance of responsibility, Duff suffered no harm.6
Moving to his actual sentence, Duff mounts a reasonableness challenge. After Booker, a district court must “first consult a properly calculated advisory Guidelines range and then, by reference to the factors specified in
The district court adequately explained the reasons for its sentence, examining the various
In short, the district court had a thoughtful and meaningful analysis regarding why Duff‘s crimes merited 118 months of imprisonment. Our review is deferential, as the district court was in the best position to judge. See Walker, 447 F.3d at 1008. The district court‘s evaluation gave a mountain of reasons for a sentence outside the guidelines range, and we find the sentence reasonable.
E.
Duff finally argues that the district court‘s restitution order in the amount of $10,933,016.02 for Chicago was improper as Chicago did not lose any money under the contracts. Again, we reject Duff‘s contention. We review the amount of restitution for abuse of discretion. See United States v. Brierton, 165 F.3d 1133, 1139 (7th Cir. 1999).
Again, Duff misses the point. The contracts were not simply for cleaning and labor services but for rendering services by legitimate MBE/WBEs. While Duff‘s companies provided valuable cleaning services, they could not possibly return Chicago‘s property because they
The question then becomes whether the district court‘s restitution amount was a correct approximation of the difference between the services rendered and what the city anticipated from a contract with a proper MBE or WBE. We find some guidance from the Sapoznik case cited previously. Sapoznik was a suburban police chief who received $500 per month for four years from the Mafia to shield its gambling interest in his town. See Sapoznik, 161 F.3d at 1118. The district court ordered restitution to the town in the amount of one year‘s salary as police chief. See id. at 1121. We recognized that the town likely would have never hired Sapoznik had it known of his easy virtue, which would mean that it would not have paid him salary for any of his four years as chief. Id. However, we also understood that the town would not have saved the entire amount of his salary, as the government suggested, because “it would have hired an honest police chief and paid him the same.” Id. After noting that most of his work was exemplary, we found that the restitution order, which generously credited Sapoznik for providing value to his employer for three-quarters of his salary despite his infidelity was proper. Id. at 1122. “Given the difficulty of estimating the loss that he actually imposed on the city (as opposed to the gain that he conferred on the gambling dens and the
In the present case, we confront a similar situation in which the actual loss to Chicago from not enlisting a true MBE or WBE for these contracts is inherently difficult to quantify. Faced with this situation, we determine that the loss amount calculated by the district court, which effectively credits the Duff companies as being worth to Chicago approximately 90% of a proper MBE/WBE, is a generous credit in favor of Duff. Given the wide latitude we afford a district court in this situation, we conclude that the district court did not abuse its discretion when calculating the restitution amount.
LEAHY‘S TRIAL AND SENTENCING ISSUES
F.
We now address the issues arising from Leahy‘s trial and sentencing. First among these is his belief that the government did not produce sufficient evidence to convict him of mail and wire fraud in connection with the insurance scheme. Closely tied to this assertion is Leahy‘s theory that, given the paucity of the evidence against him, the district court should not have given an ostrich instruction, which allowed the jury to convict him despite the insufficient evidence.
Turning first to the sufficiency of the evidence, Leahy, like all such challengers, carries a heavy burden. We view the evidence in the light most favorable to the prosecution. See United States v. Tadros, 310 F.3d 999, 1005-06 (7th Cir. 2002). We find the evidence insufficient only if no rational trier of fact could have found guilt beyond a reasonable doubt. See id. at 1006. As Leahy was convicted of multiple counts of
Even looking at the evidence in the light most favorable to the government, this is a relatively close case. The 1999 telephone call about the Kemper notice of cancellation, together with the circumstances surrounding this call, were the strongest pieces of evidence tying Leahy to the scheme. As discussed previously, Windy Labor received a notice of cancellation from Kemper, its insurer, for failure to complete an audit. Martinez, the Windy Labor employee who worked most closely on the insurance fraud, turned to Duff. For his part, Duff commanded Martinez to call Leahy. During the conference call, Leahy exhibited knowledge that Kemper wanted to cancel the policy based on an inability to complete its audit. He did not react with surprise. Rather, he suggested that Windy Labor had to do whatever necessary to obtain insurance. When Placek expressed her feeling that they were perpetrating insurance fraud, Leahy did not disagree. There was simply silence, eventually broken by Leahy, who reiterated his feeling that the options were either do whatever needed to be done or have no insurance. Taking the evidence in the light most favorable to the government, it seems unlikely that Duff would involve Leahy in such a sensitive matter unless Leahy knew about the scheme. Moreover, the testimony about this phone call shows Leahy was aware of the problems with the audit and felt that anything, including insurance fraud, was authorized to defuse the potential bomb. This is strong evidence of Leahy‘s involvement.
However, this was not the only evidence suggesting Leahy‘s role in the insurance scheme. The Windy Labor
Taking the evidence in the light most favorable to the prosecution, these red flags are strong circumstantial evidence. While there is no direct evidence that Leahy looked at any of this information, he would have had to completely ignore this part of his business for the better part of a decade in order to miss it. Contradicting this possibility, Maribel Gomez, one of his employees, described Leahy at trial as hands-on boss who was aware of the happenings on the policies. The chance that he simply was not aware of the doings at his own company seems even more unlikely when one considers that it was Leahy, not
This brings us to the propriety of the ostrich instruction, which assumes additional significance given the relatively thin evidence here. The ostrich—or deliberate avoidance—instruction is used to inform the jury that the legal definition of knowledge includes deliberate avoidance of knowledge. United States v. Fallon, 348 F.3d 248, 253 (7th Cir. 2003). The district court instructed the jury:
Knowledge may be proved by the defendants’ conduct and by all the facts and circumstances surrounding the case. You may infer knowledge from a combination of suspicion and indifference to the truth. If you find that a person had a strong suspicion that things were not what they seemed or that someone had withheld some important facts yet shut his eyes for fear of what he would learn, you may conclude that he acted knowingly as I have used that word. You many not conclude that the defendant had knowledge if he was merely negligent in not discovering the truth.
This instruction was nearly identical to the pattern Seventh Circuit jury instruction on this subject, see United States v. Carrillo, 435 F.3d 767, 779 (7th Cir. 2006), and Leahy does not argue that the formulation of the instruction
The ostrich instruction is appropriate if a defendant claims a lack of guilty knowledge and the evidence supports an inference of deliberate avoidance. See, e.g., Fallon, 348 F.3d at 253. This second prong means that a defendant deliberately avoided acquiring knowledge of the crime being committed by cutting off his curiosity through an effort of the will. Id. Inherent in this instruction is the difficulty in distinguishing between the cutting off of one‘s curiosity and a simple lack of effort. See Carrillo, 435 F.3d at 780. The latter cannot be punished.
Leahy only attacks the second prong of the ostrich instruction requirements, contending that the evidence did not support an inference of deliberate avoidance but only showed a simple lack of effort. Taking the evidence in the light most favorable to the government, we cannot agree and do not believe that the district court abused its discretion when it gave this instruction. The evidence, while not overwhelming, offers several indications that Leahy hid his head in the sand regarding the insurance fraud. We briefly return to ground already ploughed in our sufficiency of the evidence discussion. During the Kemper cancellation discussion, Leahy asked no questions about the audit problems and did not even question the allegation that fraud might be involved. “[F]ailure to ask questions that would certainly arise from the circumstances . . . is evidence that could lead a jury to determine [the defendant] deliber-
G.
We next turn our attention to Leahy‘s various evidentiary challenges. We review such claims for abuse of discretion. See United States v. McGee, 408 F.3d 966, 981 (7th Cir. 2005); United States v. Anifowoshe, 307 F.3d 643, 646 (7th Cir. 2002).
Leahy first contends that the testimony of Hiegel (the assistant state‘s attorney who investigated the city scheme) constituted prohibited propensity evidence.
- the evidence is directed toward establishing a matter in issue other than the defendant‘s propensity to commit the crime charged,
- the evidence shows that the other act is similar enough and close enough in time to be relevant to the matter in issue,
- the evidence is sufficient to support a jury finding that the defendant committed the similar act, and
- the evidence has probative value that is not substantially outweighed by the danger of unfair prejudice.
Here, the district court properly admitted the evidence. Hiegel was investigating Windy Maintenance for fraud on the city relating to the WBE program when she discussed Green Duff‘s role with Leahy. Leahy falsely informed her that he exclusively met with Green Duff on insurance matters related to Windy Maintenance and he had nothing to do with Duff himself regarding Windy Maintenance. Leahy‘s description of the supposed structure of Windy Maintenance helped derail this investigation. Each of the
Leahy also second-guesses the district court‘s refusal to admit certain pieces of evidence. Leahy wanted the
Moreover, Leahy believes the court abused its discretion by excluding certain audits from evidence. These audits were conducted by Travelers from 2001-2003, after the discovery of the insurance fraud scheme. Leahy thinks that they exculpate him because they show that Windy Labor
Leahy finally contends that he was denied his Sixth Amendment right of cross-examination because the district court would not allow him to use the USF&G letter when questioning the government‘s insurance experts. While the Sixth Amendment guarantees the right to confront witnesses, trial judges have broad discretion to impose reasonable limitations. See United States v. McLee, 436 F.3d 751, 761 (7th Cir. 2006). In this instance, the district court used its power to limit a portion of an examination that would rely on hearsay material of marginal relevance. Again, we find no abuse of discretion.
H.
Having dealt with Leahy‘s complaints about the trial,9 we move to his sentencing and restitution objections.
Leahy‘s next challenge is to the district court‘s calculation of the offense level, which hinged on the district court‘s loss determination. Leahy contends that the district court should not have computed the amount of loss for the entire period from 1989 through the ending of the scheme. The definition of loss is a question of law subject to de novo review, while the amount of loss is a finding of fact reviewed for clear error. See Vivit, 214 F.3d at 914. According to
This conclusion also affects our last inquiry, the restitution amount. Leahy challenges both the method used to calculate the restitution amount, as well as the period covered. The first is rather easily disposed of. As stated previously, we review the amount of restitution for abuse of discretion. See Brierton, 165 F.3d at 1139. The district court concluded the appropriate amount of restitution to the Insurance Council was $1.09 million, the total amount of the underpaid premiums. Leahy argues that the Insurance Council does not merit restitution because it received more in premiums than it paid out in claims, so it sustained no loss for restitution purposes. We disagree. The insurance companies were
III.
Duff used his associates to satiate his greed, taking advantage of a city‘s attempt to help minorities and women and abusing the trust of his insurers. The government properly indicted Duff, Stratton, Dolan, and Leahy for various crimes, including wire and mail fraud, and the district court, by and large, conducted the trial of these complex and extensive matters admirably. We AFFIRM the convictions of all the defendants and the district court‘s evidentiary rulings. We REVERSE the district court‘s conclusion regarding the extent of Leahy‘s involvement with the insurance fraud and REMAND for re-calculation of the offense level and restitution amount consistent with this opinion.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of Appeals for the Seventh Circuit
USCA-02-C-0072—10-4-06