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.
2

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
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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 twoyear 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
 At trial, however, there seemed to be a question as to the

1

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

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. After Baumgardner's conviction, the Supreme Court decided United 1

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,
5

Baumgardner filed a motion for a new trial with the district court, which

was denied. This appeal follows.
6

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
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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
 We note that the Second Circuit reverses the burden-shifting 2

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.

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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-ofappeal 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. Id.

2
 The only evidence at trial that supported a finding of the

3

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.

 The district court's finding of materiality was similarly

4

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

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 trial that it is

3

questionable whether the evidence even would have supported a jury finding

on that issue. It is not our role to speculate as to what the jury would 4

have decided if the district court had properly instructed them. Sullivan

v. Louisiana, 508 U.S. 275, 281 (1993). 
 Gaudin errors are readily distinguishable from faulty jury

5

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.

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"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. Our court, in Wells, implicitly recognized the futility of

5

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
 The court, in this case, removed any references to

6

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

the jury's deliberation and no other element of the offense is so similar 6

to
12

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). 
13

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
14

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.