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 c onvictions 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 argue s that the section 1001 conviction cannot stand because under the recen t Supreme Court decision, United States v. Gaudin , 115 S. Ct. 2310 (1995), the materiality of hi s 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 th e evidence to support both convictions. In light of Gaudin , we vacate Baumgardner's false statement conviction and remand for

a new tri al. We affirm his conviction under 42 U.S.C. § 408(a)(4) , however, and remand this case to the district court for resentencing o n that count.

I. BACKGROUND

Afte r 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 a n Administrative Law Judge reversed the denial and awarded him benefits in August 1979. Until 1 994, Baumgardner and his dependents received monthly disability payments, ranging from $600 to $1,393, totaling over $200,000.

In his benefits application, Baumgardner agre ed to notify the SSA if his medical condition improved, if he returned to work, or if he applie d for or r eceived benefits under any workers' compensation law. Th e occurrence of any one of these events could have affected his eligibility status. The SSA informed Baumgardner many times of his duty to repor t changes in his work s tatus and the possible consequences of failing to do

so.
Despite these instructions, Baumgardner did not report that fro m September 1981 until February 1985, he received nearly $76,342

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in wor kers' compensation benefits and $26,835 in medical payments fo r injuries that resulted from a trucking accident. Although the SSA kne w that Baum gardner had worked as a truck driver for nearly five months i n 1979, it was not info rmed that he received workers' compensation benefits or the medical payments.

In addit ion, 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 hi m in April 1992. Even when confronted by the SSA, Baumgardner maintaine d that his work with vacuums was merely a hobby, from which he did not deriv e any income. Specifically, in response to questi ons on a SSA work activity report com pleted by Baumgardner in 1992, he stated that there were n o 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 maki ng a false statement to a government agency in violation of 1 8 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 c oncealing the receipt of workers' compensation benefits with th e 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 wa s
conv icted of both offenses. He was sentenced to twenty-three month s 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 ever y other circuit but the Ninth--considered materiality under section 1001 to be a question of law for the district court. United States v. Johnson , 93 7 F.2d 392, 396 (8th Cir. 1991); see

### At trial, however, there seemed to be a question as to th e 1 

### de finition of materiality and what evidence would support tha t element of the offense. In response to one of defense counsel' s objections to the jury instructions, the court stated: "To tel l you the truth, I would hate to give you a definition of mate riality right now, and I don't think i t is an element, so I don't know why we have it." (Trial Tr. at 59 0-91). 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 s tatements in the evidence alleged to b e frau dulent or alleged not to have been made tha t shou ld have been made I find to be material , wh atever that is. No, seriously, I think ther e is n't really an issue here of materiality. Th e issues are pretty well defined by the way the case has been presented, which is well presented. (Trial Tr. at 591). In additi on, in the presentation of its case, the go vernment argued that the amount of disability payment s Baumgardner received during th e relevant time period not only went to his motive or intent in making the false statement but to th e issue of materiality. (Trial Tr. at 346). Essentially, th e government argued that because the SSA continued to make dis ability payments to Baumgardner, the f alse 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 cap ability of influencing, a governmental agency's decision or performance of an agency function. Gaudin , 1 15 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 , 11 5 S. Ct. 231 0 (1995). Accordingly, the district court decided that th e alleged false statement was material and did not instruct the jury on this element. After Baumgardner's conviction, the Supreme Court de cided United

1 States v. Gaudin , 115 S. Ct. 2310 (1995), in whi ch it held that failure to submit the issue of materiality of an alleged section 1001 violation to th e jury violated the def endant's Fifth Amendment right to due process of the law and his Sixth Ame ndment 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 m otion 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 Su preme Court instructed in United States v. Gaudin , th e district court's decision to remove the issue of materiality from the jury violated Baumgardner's Sixth Amendment right to have a jury determine guil t bey ond a reasonable doubt of every element of the crime charged. Se e 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 no t object to the court's decision at trial, however, we must review this issu e under the plain error standard of Rule 52(b) of the Federal Rules o f Crim inal Procedure. This court has the limited authority to correc t forfeit ed errors when (1) there was an error at trial, (2) the error i s 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 t he error results in a miscarriage of justice or "seriousl y affec t[s] the fairness, integrity, or public reputation of judicia l 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 o f materia lity to the jury deviates from the Supreme Court's decision i n Gaudin , the first prong of the Olano standard is met. We next conside r whether this error is "plain." In this case, the question turns on whethe r
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 decisio n constitutes clear error. Gaudin , 115 S. Ct. at 2320.

Th e Olano Court explicitly acknowledged, but left unanswered, thi s precise situation:
We need not consider the special case w here the error was unclear at t he time of trial but becomes clear on appeal becaus e the applicable law has been clarified. At a minim um, the Court of Appeals cannot correct an erro r pursua nt to Rule 52(b) unless the error is clear unde r current law.

Olano , 507 U.S. at 734. Most circuits that have addressed this ope n 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 determin ed 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 perspecti ve of law at the time of trial, but not specifically add ressing open question), cert. denied , 115 S. Ct. 1266 (1995); Unite d States v. Marder , 48 F.3d 564, 573 (1st Cir.), (question left unanswered) , cert. denied , 115 S. Ct. 1441 (1995); United Sta tes v. Washington , 12 F.3d 1128, 1139 (D.C. Cir.), (creating a special, sup ervening-decision doctrine to pro vide the defendant with the benefit of a change in law), cert
. denied , 115 S. Ct. 98 (1994).

With t he benefit of the varied analyses provided by our siste r circuits, we now hold that the plain error prong of the Olano standar d should be determined in accordance with the law at the

### We note tha t the Second Circuit reverses the burden-shifting 2 

### of Rule 52(b) when an intervening decision alters a settled law

. United Sta tes 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 shou ld not be penalized for failing to challenge entrenche d 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, w e leave the issue of burden-shifting for another day.
8 time of a ppeal. This approach is consistent with the practica l consid erations of judicial proceedings. Given this court's holding i n Johnson , an objection at trial would have been pointless. The mor e stringent prerequisit es imposed by Rule 52(b), as compared to Rule 52(a),
are designed to encourage a defendant to raise objections during th e procee ding where they might be corrected, rather than strategically t o withhold an objection as a basis of appeal. See Viola , 35 F.3d at 42. By contrast, to require a defendant to raise all po ssible objections at trial despite settled law to the contrary would encourage frivolous arguments, impeding the proceeding and wasting judicial res ources. Id. The time-ofappeal app roach also recognizes the principle that a new rule for th e conduc t of criminal prosecutions should be applied retroactively to al l
cases on direct appeal. See Griffith v. Kentucky , 479 U.S. 314, 32 8 (1987). Accordingly, the district court's failure to submit the issue of materiality to the jury constitutes a clear error under the current law an d thus meets the second prong of the Olano test.

Ha ving determined that the district court's decision constitute d plain error, we must now address whether it affected Baumgardner' s subs tantial rights. Generally this prong of the Rule 52(b) analysi s req uires a showing that the error was prejudicial--that it affected th e outcome of the trial. Olano , 507 U.S. at 734. The prejudice analysi s under Rule 52(b) is nearly identical to that und er 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 o nly evidence at trial that supported a finding of th e 3 

### materiality of Baumgardner's false statement was the testimony of SSA employees that explained the significance of the question o n the work activity report. As explained at trial, $75 or fiftee n hou rs per month is the guideline for determining whether someon e 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, 404.159 4 (governing trial work period a ssessments). The government did not introd uce evidence to explain specifically how or the extent t o which an accurate answer on the work activity report would hav e affected Baumgardner's disability payments. The district court's finding of materiality was similarl y 4 

### weak. In deciding the matter, the court indicated that it was not aware of the recognized defini tion of materiality or what evidence would support such a finding. See infra note 1.
9 Our c ircuit has recently held that Gaudin errors are trial error s subject to harmless error review. Raether , No. 95-3222, slip op. at 3 (reviewing the error under 52(a)); but see Unite d States v. Wells , 63 F.3d 745, 7 51 (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). Applyin g 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 els e the jur y 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 jur y did not make any findings that are so closely related to th e materialityissue that they are functionally equivalent to a materiality finding." Raether , No. 95-3222, slip op. at 4. In fact, the government pr esented such minimal evidence of materiality at trial that it i s 3 questionable whether the evidence even would hav e 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 jur y 5 

### instruction cases. In such cases, the appellate court can review the in structions as a whole to determine whether anothe r 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 on e instruction was harmless because other instructions essentiall y cured the court's defect. Id

. at 1535-36. The instructions, read togeth er, adequately apprised the jury that it must find inten t beyon d a reasonable doubt. Id . In addition, the questions th e jur yasked the court during deliberation indicated that the jur y 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 co urt did not properly instruct the jury on the offense charged, our cour t found the error to be harmless in light of the fact that the jury specificallymade the finding left out of the instructions. Th e property offense required a finding that the value of the stole n property was in excess of $1,000, and the jury found it to b e worth $12,00 0. Id. at 1363. Thus, in Redding we concluded that th e "ju ry's critical factfinding function was not thwarted." Id . a t 1364.
10 "No matter how overwhelming the evidence of materiality, the district cour t was not permitted to direct a finding for the Go vernment on this element." Raether , No. 95-3222, slip op. at 2 (citing Sullivan , 508 U.S. at 277).

Although we acknowledge that an affe cting-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 considere d harmless. Our court, in Wells , implicitly recognized the futility o f

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 a t 751 (holding Gaudin "dictates that we vacate defendants ' convictions"). Where the issue of materiality is completely removed from

### Th e court, in this case, removed any references t o 6 

### materi alityfrom the instructions on section 1001 because i t determined that they would confuse the jury. (Trial Tr. at 591). The on ly mention of materiality was in the indictment, whic h standing alone is insufficient to cure the court's defect.
11 the jury's deliberation and no othe r 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 meani ngless. 113 S. Ct. at 2082. Therefore, we hold that the error i n this case was not har mless and that Baumgardner's substantial rights were violated.
Finally, we will exercise our author ity to correct the error only if it "se riously affects the fairness, integrity or public reputation o f 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 righ t to due process of the law and his Sixth Amendment right to a jur y 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.3 d 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 o f materiality, see infra note 1, and the evidence of materialitywas slim, see infra note 3, we are concerned with the effect of the district court's error on the judicial proceeding. We mus t theref ore correct the district court's error. Accordingly, we vacat e Baum gardner's section 1001 conviction and reverse the district court' s denial of a new trial.

B. Sufficiency of the Evidence

Baumga rdner also challenges the sufficiency of the evidence t o
su pport both offenses. Because we have vacated the section 100 1 convicti on, we need only address his arguments with respect to hi s conviction under 42 U.S.C. § 408(a)(4).

### 13 In reviewing the sufficiency of the evidence, we determine whethe r any rational juror could have found the essential elements of the crim e beyond a reasonable d oubt, considering the evidence taken in a light most favorable to the verdict. United States v. Broyles , 37 F.3d 1314, 131 7 (8th Cir. 1994) (quoting United States v. Has No Horse , 11 F.3d 104, 106-0 7 (8th Cir. 1993)), cer t. denied , 115 S. Ct. 1441 (1995). For a conviction under 42 U.S.C. § 408(a)(4), the government must prove the following:
(1) t he defendant had knowledge of an event affectin g his right to receive or to continue to receive payments; (2) the defendant knowingly concealed or failed t o disclose this event to the Social Securit y Administration; and (3) t he defendant concealed or failed to disclose thi s event w ith the intent to fraudulently secure payment o f Social Secur ity disability benefits in an amount greater than was due him or when no payment to him wa s authorized.
United States v. Phil lips , 600 F.2d 535, 536 (5th Cir. 1979) (setting out elements under prior codification of 408(a)(4)).

Baumgardn er 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 t he two witnesses. Because the jury had reason to discredit Baumgardner's t estimony on this point, we do not upset its finding. See United States v. Schindler , 77 F.3d 245, 24 7 (credibility

### 14

de terminations best made by jury or trial judge who observed th e proceedings).

Baumg ardner also argues that the government did not prove that h e knowingly concealed the receipt of workers' comp ensation benefits with the frau dulent intent to receive disability benefits to which he was no t entitled. He claims that even if he did not tell SSA personnel, he though t the SSA knew of the w orkers' 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 daughter s regar ding his need to keep his money spread out, provided a sufficien t basis from which the jury could have reasonably inferred that Baumgardner' s omissi on was intentional and that he knew the workers' compensatio n benefits could affect his disability benefits. Therefore, we conclude tha t the evidence on this count was sufficient to support the conviction.

III. CONCLUSION

Ac cordingly, we vacate Baumgardner's section 1001 conviction an d remand to the district court for a new trial. Additionally, we affir m Baumgardner's conviction under 42 U.S.C. § 408(a)(4) and remand to th e 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.