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. e du/thir dc ir c uit_1999/47Filed February 19, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 97-1888 and 98-1004

UNITED STATES OF AMERICA,

Appellant in No. 97-1888

v.

GERSON COHEN,

Appellant in No. 98-1004

On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Crim. No. 97-124) District Judge: Honorable Clarence C. Newcomer

Argued June 8, 1998 Reargued January 12, 1999

Before: SCIRICA, NYGAARD, and ROTH,* Circuit Judges

(Opinion filed February 19, 1999)

___________________________________________________ ______________

* Judge Seitz was a member of the original panel. H owever, he died before the matter was decided. Judge Roth has been designated a member of the panel in his stead.Michael R. Stiles

Walter S. Batty, Jr. Amy L. Kurland (Argued) Office of the United States Attorney

Suite 1250

615 Chestnut Street Philadelphia, PA 19106

Counsel for Appellant/Cross- Appellee United States of America

Catherine M. Recker (Argued) Aeryn S. Fenton Welsh & Recker, P.C.
Suite 3402

1818 Market Street Philadelphia, PA 19103

Counsel for Appellee/Cross- Appellant Gerson Cohen

OPINION OF THE COURT

NYGAARD, Circuit Judge.

A jury convicted Gerson Cohen of mail fraud for pay ing kickbacks to a grocery store's purchasing agents. C ohen challenges his conviction, claiming that the eviden ce was insufficient; that the Court improperly admitted ev idence that his co-conspirators had pleaded guilty; and th at the Court wrongfully denied judicial immunity to a defe nse witness. We will affirm his conviction. The Governm ent appeals Cohen's sentence, claiming that the Distric t Court erred in calculating the enhancement by using the d ollar
value of the bribes rather than the benefit conferr ed by the bribe, and by granting a reduction for accepting responsibility. We will vacate Cohen's sentence and remand for resentencing.

I.

Butler Foods, a wholesale meat distribution company
, sells meat to supermarket chains, individual grocer y stores,

2and restaurants. Butler Foods' salesmen made illega l cash

payments to customers' meat managers to induce them to purchase from Butler Foods. The payments usually amounted to one penny per pound of meat purchased, provided that the customer bought at least 10,000 p ounds a week. After customers made qualifying purchases, Larry Lipoff, part owner of Butler Foods, gave the kickba ck money to his salesmen, who then delivered the cash to the meat managers.

Gerson Cohen, a meat salesman for Butler Foods, participated in this illegal payment scheme. From 1 992 through 1995, Cohen paid kickbacks totaling $111,54 8.21 to five meat managers for Thriftway Food Stores. In addition to Cohen's regular salary by corporate che ck, Butler Foods paid Cohen $500 per week in cash. He f ailed to report this income on his tax returns for three years, resulting in a tax deficiency of $23,939. He was ch arged with twenty-five counts of mail fraud, in violation of 18 U.S.C. S 1341, and three counts of subscribing a fa lse tax return, in violation of 26 U.S.C. S 7206. The Distr ict Court severed the charges and convened a jury trial on ma il

fraud.

The jury convicted Cohen on all twenty-five counts of mail fraud. He then pleaded guilty to the three cou nts of income tax fraud. Applying U.S.S.G. S 2B4.1 to Cohe n's participation in the kickback scheme, the District Court initially assigned a base offense level of 8, then enhanced it 6 levels by using the actual dollar amount of the k ickbacks. It granted Cohen a decrease of 2 levels under U.S.S .G. S 3B1.2(b) for his minor role in the offense. The C ourt then considered Cohen's tax offenses and assigned a comb ined offense level of 14 under U.S.S.G. S 3D1.4. Finally , the Court granted Cohen a reduction of 2 levels for acc epting responsibility under U.S.S.G. S 3E1.1. The District Court sentenced Cohen to twenty-eight concurrent terms of five months in prison, five months home confinement, thr ee years supervised release, a $7500 fine, and a $1400 special

assessment.

3II.

A.

Cohen first argues that the Government's evidence w as insufficient to prove that he used the U.S. mail. W e disagree. An essential element of mail fraud is "th e use of
the United States mails in furtherance of the fraud ulent scheme." United States v. Hannigan, 27 F.3d 890, 89 2 (3d Cir. 1994). This element requires some competent ev idence that, as a routine business practice or office cust om, the type of document at issue in the case was sent thro ugh the
U.S. mail. See id. at 893-94. As we indicated in Ha nnigan, "the prosecution need not affirmatively disprove ev ery conceivable alternative theory as to how the specif ic correspondence was delivered," but "some reference to the correspondence in question is required." Id. at 892 -93.

Cohen himself need not have placed the particular documents into the U.S. mail. A mailing is knowingl y caused within the terms of the statute "[w]here one does an act with knowledge that the use of the mails will f ollow in the ordinary course of business." Pereira v. United States, 347 U.S. 1, 8-9, 74 S. Ct. 358, 363 (1954).1 Here, the bookkeeper for Butler Foods, who supervised the cle rical workers who were responsible for generating and mai ling invoices, testified extensively about the company's standard business practice for billing its customers. She te stified that after the meat invoices were prepared, they we re placed in envelopes, run through the postal meter, and put in a U.S. mail bin which Lipoff took to the post of fice in his car. She testified that Butler Foods never used any delivery method other than the U.S. mail for any of its invo ices, and that the Thriftway invoices at issue in this case w ere handled in the normal manner.

A manager at the company testified that it was stan dard practice to pick up the invoices in the U.S. mail b in and

___________________________________________________ ______________

1. In a factually similar case, the Ninth Circuit C ourt of Appeals held that a meat buyer for a supermarket chain was subje ct to the statute even though he did not personally participate in th e relevant mailings. See United States v. Lea, 618 F.2d 426, 430 (9th Ci r. 1980).

4drop them off at the post office, and that he himse lf did this

on occasion. Finally, an accountant for the Thriftw ay stores testified that it was normal business practice for his company to receive Butler Foods' invoices through t he U.S. mail. This testimony provides sufficient evidence t hat Butler routinely delivered its invoices through the U.S. m ails.

B.

Next, Cohen argues that the District Court erred by admitting evidence that the three Thriftway meat ma nagers whom the Government called as witnesses had pleaded guilty to receiving kickbacks from Cohen. Cohen con tends
that this evidence was inadmissible under Federal R ule of Evidence 403 because the risk that the jury would c onvict him based on his co-conspirators' guilty pleas subs tantially outweighed their probative value. We review the adm ission of such evidence only for abuse of discretion. See United States v. Gaev, 24 F.3d 473, 476 (3d Cir. 1994).

Although the plea agreements of co-conspirators are not admissible to prove the defendant's guilt, they are admissible for some purposes: to rebut the inferenc e that the defendant was unfairly singled out for prosecut ion, to dampen attacks on credibility, to foreclose an infe rence that the prosecution is hiding evidence, to explain the witness's firsthand knowledge of the defendant's misdeeds, an d to elicit facts bearing on the witness's credibility. In Gaev, we held that the general principle applicable to the a dmission of such testimony is this: "If a co-conspirator who appears as a witness has pleaded guilty, the trier of fact should know about the plea agreement in order properly to evaluate the witness's testimony, unless that would unduly prejudice the defendant." Id.

Cohen argues that admitting the guilty pleas of the three Thriftway meat managers was an abuse of discretion because he promised not to attack their credibility on that basis. However, "[w]hile plea agreements have often been admitted in response to actual or anticipated attac ks on a witness's credibility, an attack is not always nece ssary to justify their introduction." Id. at 477-78. Even ab sent any suggestion by Cohen, it would have been natural for the

5jury to wonder why Cohen was prosecuted but the mea t

managers were not. Moreover, the guilty pleas were admissible to impeach the credibility of the manage rs, whose testimony supported Cohen's claim that paying kickbacks was a common practice in the wholesale me at industry, and therefore, not criminal. That these s ame managers had entered guilty pleas for accepting the payments contradicted this testimony. The District Court concluded that admitting the guilty pleas was prope r for
one or all of the reasons cited in Gaev and would n ot be unduly prejudicial to defendant Cohen.

In any case, a proper limiting instruction will nor mally cure a potentially prejudicial admission of plea ag reements. The District Court instructed the jury not to draw conclusions or inferences about Cohen's guilt from the fact that prosecution witnesses had pleaded guilty to si milar charges. Because the Government proffered the evide nce for valid purposes, and the District Court gave a suffi cient limiting instruction, admitting the guilty pleas wa s well
within the Court's discretion.

C.

Cohen also claims that the District Court erred by refusing to confer judicial immunity on a witness c rucial to his defense. According to Cohen's proffer, Larry Li poff, part owner of Butler Foods, would have testified that Ha rold Friedland, owner of several Thriftway stores, admit ted knowing of Cohen's kickbacks to two Thriftway meat managers. That knowledge, the defense contends, wou ld have prevented Cohen from being found guilty under the fraud statute. When Cohen attempted to call him as a defense witness, Lipoff invoked his Fifth Amendment privilege against self-incrimination. The Governmen t refused to immunize Lipoff, who was under investiga tion for his role in the kickback scheme, and the District C ourt refused Cohen's request to confer judicial immunity on Lipoff.

A judge may confer immunity on a defense witness wh o otherwise refuses to testify if five conditions are met: the immunity is properly sought in the district court, the

6witness is available to testify, the proffered test imony is

clearly exculpatory, the proffered testimony is ess ential to the defense, and there is no strong governmental in terest against the immunity. See Government of V.I. v. Smi th, 615 F.2d 964, 972-73 (3d Cir. 1980). A potential prosec ution of the prospective witness is a sufficient governmenta l interest to countervail a grant of judicial immunity. See Un ited States v. Lowell, 649 F.2d 950, 965 (3d Cir. 1981). Here, the Government suspected that Lipoff, as the owner of Butler Foods and Cohen's employer, was the architec t of the kickback scheme. Lipoff was under investigation at the

time of Cohen's trial and has since been indicted f or his role. Therefore, because the Government had a stron g interest in not immunizing Lipoff, the District Cou rt correctly denied judicial immunity.

D.

Finally, Cohen argues that the Government is impermissibly using his post-conviction immunized testimony. After Cohen's conviction, the Government granted him use immunity and compelled him to testi fy before a grand jury. Shortly thereafter, the Govern ment appealed Cohen's sentence, and the same prosecutor who questioned him before the grand jury filed the Government's appellate brief. Based on this fact, C ohen claims that the Government is exploiting his immuni zed testimony in this appeal.

It is true, of course, that the Government may not use a witness's compelled immunized testimony as evidence against him in a subsequent criminal prosecution. S ee 18 U.S.C. S 6002. Thus, Cohen's immunized testimony ma y have tainted a subsequent trial, were we ordering o ne. Moreover, the decision of the U.S. Attorney here co uld potentially have infected this appeal if Cohen coul d point to some information given in the immunized testimony t hat the Government is using against him. Cohen, however , has not alleged any specific manner in which the Govern ment used the information learned during his immunized testimony to gain an unfair advantage in this appea l. The Government supported all factual assertions in its brief

with citations to the District Court record and mad e no

7reference to Cohen's immunized testimony. Cohen,

therefore, has not shown any prejudice to him from this dual role of the prosecutor.

III.

The Government appeals Cohen's sentence, arguing th at the District Court misapplied two sections of the U nited States Sentencing Guidelines. We review the Distric t Court's factual findings for clear error. Questions regarding the District Court's interpretations of the sentenc ing guidelines are "purely legal," and thus require ple nary review. United States v. Frierson, 945 F.2d 650, 65 5 (3d Cir. 1991).

A.

First, the Government argues that the District Cour t misinterpreted U.S.S.G. S 2B4.1 by enhancing Cohen' s sentence with reference to the actual dollar amount of the
kickbacks rather than to the net value Butler Foods gained as a result of those kickbacks. Section 2B4.1(a) as signs an

initial base offense level of 8 to conduct involvin g commercial bribery and kickbacks. Subsection (b)(1) then provides an enhancement based on the greater of two dollar amounts: "the value of the bribe or the improper be nefit to be conferred." The commentary to this section state s that if the latter figure cannot be estimated, then the cou rt must use the former. See U.S.S.G. S 2B4.1 application no te 6.

At sentencing, the parties disagreed over the corre ct interpretation of "improper benefit." The Governmen t argued that the phrase referred to the net value Bu tler Foods gained as a result of Cohen's payment of the kickbacks. Cohen argued that it referred to the mon ey he himself pocketed as a result of his kickbacks. In a colloquy with Cohen's attorney, the District Court appeared to agree that "improper benefit" meant the money accruing to Cohen
as an individual. The Court then found it "extremel y difficult, if not impossible, to measure the benefi t to the briber in this case." Therefore, it instead used th e actual dollar amount of the kickbacks, $111,548.21, to enh ance

8Cohen's base offense by 6 levels. See U.S.S.G.

SS 2B4.1(b)(1), 2F1.1(b)(1)(G).

The District Court misinterpreted "improper benefit ." "Improper benefit" is "the value of the action to b e taken or
effected in return for the bribe." U.S.S.G. S 2B4.1 application note 2. The commentary to section 2B4.1 crossreferences section 2C1.1, the comments to which sta te:

The value of "the benefit received or to be received" means the net value of such benefit. Example s: . .. A $150,000 contract on which $20,000 profit wa s made was awarded in return for a bribe; the value of the benefit received is $20,000. Do not deduct t he value of the bribe itself in computing the value of t he benefit

received or to be received. In the above exa mples, therefore, the value of the benefit received would be the same regardless of the value of the bribe.

U.S.S.G. S 2C1.1 application note 2 (emphasis added ). In addition, the comments to section 2B4.1 state:

As with non-commercial bribery, this guideli ne considers not only the amount of the bribe b ut also the
value of the action received in return. Thus , for example, if a bank officer agreed to the off er of a $25,000 bribe to approve a $250,000 loan und er terms for which the applicant would not otherwise qualify, the court, in increasing the offense level, would use the greater of the $25,000 bribe, and the saving s in interest over the life of the loan compared with alternative loan terms. If a gambler paid a player $5,000 to shave points in a nationally telev ised basketball game, the value of the action to the gambler
would be the amount that he and his confeder ates won or stood to gain. If that amount could not b e estimated,

the amount of the bribe would be used to det ermine the appropriate increase in offense level.

U.S.S.G. S 2B4.1 application note 6 (emphasis added ).

Thus, "improper benefit" refers to the net value ac cruing to the entity on whose behalf the individual paid t he bribe. Other courts agree. See, e.g., United States v. Lan ders, 68 F.3d 882, 884 (5th Cir. 1995) (sales representative who

9paid bribes is subject to enhancement based on the net

value his employer derived from contracts obtained as a result of the bribes); United States v. Ziglin, 964 F.2d 756, 758 (8th Cir. 1992) (defendant subject to enhanceme nt for the total amount of improper benefit that resulted from bribery scheme, not merely for his individual share ); United States v. Kant, 946 F.2d 267, 269 (4th Cir. 1991)
(defendant's sentence must be enhanced based on net value of improper benefit accruing to him and his t wo coconspirators).

Cohen's attorney conceded at oral argument that thi s understanding of "improper benefit" is correct. She acknowledged that the net value of the contracts ga ined by Butler Foods as a result of the Thriftway kickback scheme would be the appropriate basis for calculating Cohe n's sentence, if the Government's evidence accurately r eflected

the net value of these contracts.

At sentencing, the Government adduced evidence of t he "improper benefit" that accrued to Butler Foods. Co hen's kickbacks induced Thriftway to purchase $10,000,000 worth of meat from Butler Foods, whose seven percen t margin yielded a profit of $700,000. On remand, the District Court must specifically address the eviden ce produced by the Government and any contrary evidenc e put forth by Cohen and state its reasons for accept ing or rejecting the evidence. A $700,000 "improper benefi t," if sufficiently proved, mandates an enhancement of 10 levels to Cohen's base offense. See U.S.S.G. SS 2B4.1(b)(1 ), 2F1.1(b)(1)(K).

Cohen offers two other arguments to support the Dis trict Court's enhancement calculation. First, he claims t hat section 2B4.1(b)(1) permits enhancement based on "improper benefit" only if that benefit would not h ave been realized "but for" the kickback. We do not interpre t section 2B4.1 to be so rigid. The text requires the court t o estimate the value of the "improper benefit to be conferred. " "To be conferred" is tentative language that requires some thing less than actual causation; it could include any be nefit that the briber expected to receive at the time he paid the bribe, even if he did not ultimately receive it. If Cohen' s reading were correct, the language would read "improper ben efit

10actually conferred" rather than "to be conferred." Moreover,

even if Cohen's claim that most distributors paid k ickbacks to customers is accurate, his "but for" argument fa ils. If paying kickbacks to potential customers was as commonplace as Cohen claims, then it follows that t he contracts secured by Butler Foods as a result of it s acquiescence in this illegal practice would not hav e been conferred if Cohen had not made these payments.

Second, Cohen argues that the Government should be estopped from claiming that the actual dollar amoun t of the

bribe was the correct measure under section 2B4.1. In prosecuting the three Thriftway meat managers for t heir roles in accepting Cohen's bribes, the Government e ntered into plea agreements stating that "the value of the improper benefit to Butler Foods to be conferred by the bribery/kickback payments is not readily provable a s of the date of this agreement." In these earlier plea agre ements, the Government simply acknowledged that, at that ti me, it did not have enough information to calculate the im proper benefit to Butler Foods. By the time of Cohen's con viction,

the Government had learned the relevant facts--the total value of meat Thriftway purchased and Butler's prof it margin--that permitted the proper determination. He nce, Cohen's estoppel theory fails entirely.

We conclude that the District Court misinterpreted section 2B4.1 and, as a result, may have applied an

incorrect enhancement to Cohen's base offense level . 2 We will therefore vacate and remand for resentencing. Of course, it remains for the District Court to find w hether the Government has proven its claims of resulting value by a preponderance of the evidence. See United States v. McDowell, 888 F.2d 285, 291 (3d Cir. 1989).

___________________________________________________ ______________

2. Judge Scirica notes that where the improper bene fit conferred on a principal is grossly disproportionate to the bribe paid and to the amount received by the agent, and the disproportion is "pr esent to an exceptional degree," a downward departure under S 5K2.0 might b e appropriate. Koon v. United States, 518 U.S. 81, 96 (1996).

11B.

The Government also argues that the District Court erred by granting Cohen a 2-level reduction under section 3E1.1. The District Court must reduce the base offense by 2 levels "[i]f the defendant clearly demonstrates acceptance of responsibility for his offense." U.S.S.G. S 3E1.1. The determination of the sentencing judge as to whether such acceptance of responsibility has been shown "is ent itled to great deference on review." U.S.S.G. S 3E1.1 applic ation

note 5.

At sentencing, Cohen stated to the Court: "If I wou ld have known when this started that it was going to be lik e this, your Honor, I would have lost the job and I would h ave gladly lost it. I'm sorry." The District Court foun d that Cohen "has accepted responsibility for his offenses , borne out by his statements here in court," and granted C ohen
the reduction.

The Government argues that Cohen should not have be en granted this reduction because he went to trial on the mail fraud counts. This argument is supported by an appl ication note to section 3E1.1 which states: "This adjustmen t is not intended to apply to a defendant who puts the Gover nment to its burden of proof at trial by denying the esse ntial factual elements of guilt, is convicted, and only t hen admits guilt and expresses remorse." U.S.S.G. S 3E1.1 appl ication note 2. While the note admits to some rare exceptio ns (for example, a defendant may go to trial to "assert and preserve issues" unrelated to factual guilt), none of those appear to be applicable to Cohen. See id. In additi on, "in each [rare exception], . . . a determination that a defendant has accepted responsibility will be based primarily upon pre-trial statements and conduct." Id.

Cohen argues that the effect of application note 2 is to

create an unconstitutional burden on defendants in Cohen's position by effectively penalizing them for asserting their constitutional right to trial. Our holding in Frierson, 945 F.2d at 650, offers some support for this posit ion. In Frierson, we held that the denial of a reduction un der section 3E1.1 is a penalty which cannot properly be imposed solely for the defendant's assertion of his Fifth Amendment privilege. See id. at 658-59.

12The characterization of 3E1.1 reductions has been t he

subject of some dispute. Even within circuits, the approach has occasionally been erratic. Compare United State s v. Parker, 903 F.2d 91, 105 (2d Cir. 1990) ("We, like the Eleventh Circuit, `are unprepared to equate the pos sibility of leniency with impermissible punishment.' "), wit h United States v. Oliveras, 905 F.2d 623, 626 (2d Cir. 1990 ) ("So long as the defendant's statements are not immunize d against use in subsequent criminal prosecutions, th e effect of requiring a defendant to accept responsibility f or crimes other than those to which he has pled guilty or of which he has been found guilty is to penalize him."). A majo rity of the

other courts construe denied 3E1.1 reductions as"de nied benefits" rather than "penalties." See, e.g., Unite d States v. Frazier, 971 F.2d 1076, 1086 (4th Cir. 1992) ("we f ail to see how withholding the leniency offered in U.S.S.G.S 3 E1.1 from those who refuse to waive their right to remai n silent can be thought punitive"); United States v. White, 869 F.2d 822, 826 (5th Cir. 1989) ("The fact that a more len ient sentence is imposed upon a contrite defendant does not establish a corollary that those who elect to stand trial are penalized."); United States v. Henry, 883 F.2d 1010 , 1011 (11th Cir. 1989) ("Section 3E1.1 may add to the dil emmas facing criminal defendants, but . . . [w]e are unpr epared to equate the possibility of leniency with impermissib le punishment."). These decisions often rely on Corbit t v. New Jersey, 439 U.S. 212, 99 S. Ct. 492 (1978).

We believe that Corbitt controls our decision. In C orbitt, the Supreme Court held that a New Jersey murder sta tute that provided the potential for a shorter sentence to defendants who pleaded non vult was constitutional and did not violate the defendant's Sixth Amendment right t o trial. See Corbitt, 439 U.S. at 218, 99 S. Ct. at 497. In doing so, the Court noted that "not every burden on the exerc ise of a constitutional right, and not every pressure or encouragement to waive such a right, is invalid. Specifically, there is no per se rule against encou raging guilty pleas." Id. at 218-19, 99 S. Ct. at 497. To the extent
that Corbitt is in tension with our decision in Fri erson, we must follow the Supreme Court. Sentencing Guideline 3E1.1 creates an analogous incentive for defendants to

13plead guilty, and under Corbitt, this incentive is

constitutional.

Were this simply a matter of determining a defendan t's credibility, we would defer entirely to the Distric t Court because we cannot claim to have an equal ability to perceive and judge the defendant's demeanor. That i s to say, the words "I am sorry," uttered by a defiant d efendant, mean nothing. The same words from a contrite defend ant mean everything. Here, however, because the sentenc ing guidelines need to be consistently interpreted to s erve their purpose, and because the comments to the various se ctions provide an avenue to consistent interpretation, we must see that they are applied by a sentencing court. We wil l vacate
and remand for further consideration.

We recognize that this case presents the unusual situation in which the defendant has pleaded guilty to some of the charges against him (the tax counts) while g oing to trial on others. The sentencing guidelines do not s pecifically address this situation, noting only that "truthfull y admitting the conduct comprising the offense(s) of conviction" is a factor for the judge to consider. U.S.S.G. S 3E1.1 application note 1(a). In cases such as thi s, the trial judge "has the obligation to assess the total ity of the situation in determining whether the defendant acce pted responsibility." McDowell, 888 F.2d at 293 n.2. Wer e the District Court able to grant a credit for Cohen's g uilty plea to the three tax charges separately, then we would see no error. However, the guidelines do not allow for thi s because multiple counts of conviction must be grouped befor e an adjustment can be made for acceptance of responsibi lity under Part E of Chapter 3 of the guidelines. See U. S.S.G. S 1B1.1. As a result, the "totality" assessment mus t include the fact that Cohen originally pleaded not guilty t o all the counts and put the Government to its proof on the m ajority of the charges, pleading guilty to the tax counts o nly after being convicted on the bribery charges.

IV.

Because we conclude that the District Court misinterpreted sections 2B4.1 and 3E1.1 of the sent encing

14guidelines, and that it must make findings of fact with

respect to whether the Government has proved the be nefit to be conferred upon Butler Foods, we will vacate C ohen's sentence and remand for resentencing in accordance with this opinion. We reject all other allegations of er ror.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

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