Opinion ID: 217197
Heading Depth: 3
Heading Rank: 2

Heading: sufficiency of the evidence

Text: The jury convicted Defendants of two § 664 crimes: Counts 17 and 18. Count 17 concerned $1,192.40 of employee elective deferrals withheld in December 2002. Count 18 involved $1,000.40 in deferrals from March 2003. The district court gave the same jury instruction for both of these counts, requiring proof beyond a reasonable doubt that: First, the Lunde Electric Company 401(k) Plan was established or maintained as an employee pension benefit plan subject to Title I of the [ERISA]; and Second, the defendant either: (a) embezzled or stole funds of the plan; or (b) unlawfully and willfully abstracted or converted funds of the plan to his own use or the use of another[.] The district court defined embezzled, stole, converted, and abstracted. Defendants contend that there was insufficient evidence to support these elements. Evidence is sufficient for conviction if, viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt. United States v. Bush, 626 F.3d 527, 533 (9th Cir.2010) (internal quotation marks omitted). In a mid-trial motion for a directed verdict, Defendants asserted that the government had not established the existence of the Plan and thus claimed that any deferrals withheld were actually discretionary employer contributions. This argument was not renewed in Defendants' post-trial Fed.R.Crim.P. 29 motion. Defendants also assert that the failure to remit elective deferrals within the time frame established by the DOL's Plan Asset Regulation, 29 C.F.R. § 2510.3-102(b)(1), is not tantamount to embezzlement or conversion and that the government's references to the Plan Asset Regulation were prejudicial. Because Defendants' Rule 29 motion regarding Counts 17 and 18 was limited to an argument about mens rea, our review is for plain error. United States v. Alvarez-Valenzuela, 231 F.3d 1198, 1200-01 (9th Cir.2000) ([W]e interpret Rule 29(a) to suggest that failure to renew the motion at the end of trial does not mean that it has been waived, but only that a higher standard of review is to be imposed. [We] may review an unrenewed motion for judgment of acquittal, but only to prevent a manifest miscarriage of justice, or for plain error.).
Defendants assert that there was insufficient proof that the Plan contained a 401(k) feature. They argue that all ERISA plans contain an amendment procedure and that [t]hese . . . procedures, once set forth in a benefit plan, constrain the employer from amending the plan by other means. Winterrowd v. Am. Gen. Annuity Ins. Co., 321 F.3d 933, 937 (9th Cir.2003) (citing Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 85, 115 S.Ct. 1223, 131 L.Ed.2d 94 (1995)). According to Defendants' theory, the government had to introduce a properly executed version of the 1995 Amendment. Because the government does not have such a document, Defendants argue, the elective deferrals were actually discretionary employer contributions that do not become Plan Assets until they are remitted to the Plan. Defendants' argument regarding the validity of the 1995 Amendment is a red herring. Defendants were convicted only for their failure to remit deferrals after the 2002 Restatement. Even though the Form 5500s submitted to the IRS by Lunde Electric, the testimony of Brad Sommerfeld, and the email by attorney Braley all indicated that the 401(k) Plan existed before 2002, because Counts 17 and 18 concerned conduct that occurred after the 2002 Plan Restatement, we need only consider that document. The Eriksens do not dispute that the 1991 Plan was governed by Title I of ERISA, but contend that the evidence did not allow the conclusion that the Plan was thereafter amended or restated. Generally, whether a plan is subject to Title I of ERISA is an issue of fact to be decided by the jury, guided by applicable legal principles. United States v. Wofford, 560 F.3d 341, 347 (5th Cir.2009) (citing United States v. Helbling, 209 F.3d 226, 239 (3d Cir.2000)). The amendment procedures for any ERISA benefit plan must be specified by the employer and identify the persons with the authority to amend. Winterrowd, 321 F.3d at 937 (citing 29 U.S.C. § 1102(b)(3)). Here, the 1991 Plan, at Section 10.6, specified that amending the Plan shall only be by the written action of each and every Participating Employer and with the consent of the Trustee where such consent is necessary. To show such an amendment occurred by at least 2002, the government introduced a written copy of the 2002 Restatement, which included a 401(k) provision and was signed by Raymond as Employer and Trustee and by Sigmund as Trustee. The government also introduced addenda referring to the effective date of the Restatement as January 1, 2002, as well as a Consent to Corporate Action by Lunde Electric that approved the amended 401(k) Profit Sharing Plan. . . effective January 1, 2002. Any of these documents alone was competent evidence to allow the jury to conclude that the Plan had been restated in 2002 with a 401(k) plan. Accordingly, there was sufficient evidence for the jury to conclude that the 1991 Plan had been restated before the Eriksens retained their employees' elective deferrals in the Company's general account.
The second element of § 664 requires the jury to find that a defendant willfully embezzled, converted, or misappropriated the funds of a pension plan. Andreen, 628 F.2d at 1241. Defendants concede that the funds were not remitted to the Plan Account before the DOL investigation. However, they contend that their keeping elective deferrals for longer than fifteen daysa deadline specified in the Plan Asset Regulationis not tantamount to embezzlement or conversion. According to Defendants, the government, by referencing the Plan Asset Regulation, misled the jury into concluding otherwise. In support of their argument, Defendants ask us to consider the holdings of United States v. Christo, 614 F.2d 486 (5th Cir.1980), and United States v. Wolf, 820 F.2d 1499 (9th Cir.1987). Although both Christo and Wolf address the dangers of bootstrapping a civil violation into a criminal one, neither case concerns § 664 crimes, nor do their holdings apply here. Both Christo and Wolf concerned prosecutions against bank executives for misapplication of bank funds, in violation of 18 U.S.C. § 656. Wolf, 820 F.2d at 1501; Christo, 614 F.2d at 489. In Christo, the misapplication charge was based on a bank officer's repeatedly overdrawing his checking account. At the time, 12 U.S.C. § 375a prohibited a bank from extending a loan of more than $5,000 to one of its officers. Christo, 614 F.2d at 488 n. 2, 490. The trial court quoted § 375a to the jury and further instructed the jury that it could consider violations of § 375a in connection with the criminal misapplication charges. Id. at 491. The Fifth Circuit reversed the defendant's misapplication conviction, observing: A conviction, resulting from the government's attempt to bootstrap a series of checking account overdrafts, a civil regulatory violation, into an equal amount of misapplication felonies, cannot be allowed to stand. The government's evidence and argument concerning violations of § 375a impermissibly infected the very purpose for which the trial was being conducted. . . . Id. at 492. In Wolf, we relied on Christo to reverse convictions against a bank executive for misapplying bank funds and making false entries in a bank record. The executive had, among other acts, failed to disclose required information about the beneficiaries of his bank loans. Wolf, 820 F.2d at 1503. We faulted the government for basing its misapplication charges on a civil banking regulation that imposes a duty on bank employees to inform the bank's board of directors about the purpose of a loan. During Wolf's trial, the government's expert witness testified that the defendant's failure to disclose he was a beneficiary of some of the loans he disbursed violated Federal Reserve Regulation O (12 C.F.R. § 215). We held that the references to the Regulation were impermissible: Unlike references to [other civil violations which occurred during the trial], the references to Regulation O cannot be dismissed as being simply background information. The references were a key part of the government's case on the misapplication and false entry counts. . . . To supply the missing element of the false entry and misapplication charges, the government turned to Regulation O. Through its expert witness the government established that Regulation O imposed a duty on [the defendant] to inform the bank's directors that he had an interest in the loans. . . . In sum, the government used Regulation O to supply a crucial element of the misapplication and false entry charges. Id. at 1505 (emphasis added). Thus, under the logic of Christo and Wolf, it is impermissible to use the violation of a civil statute to ipso facto supply a crucial element of a criminal offense. Contrary to Christo and Wolf, the Plan Asset Regulation played an inconsequential or, more likely, no role in Defendants' convictions. Importantly, the Plan Asset Regulation does not create a reporting or other affirmative obligation on an employer nor does it prohibit certain behaviors under threat of civil sanction; rather, the regulation simply defines plan asset: the assets of the plan include amounts. . . that a participant or beneficiary pays to an employer. 29 C.F.R. § 2510.3-102(a)(1) (emphasis added). While one could selectively excerpt and rewrite portions of the regulation to create the appearance that it requires employers to remit their elective deferrals, the regulation does not create any such obligation. Indeed, the obligation not to use other people's money for purposes they have not authorized is traceable more fairly to antiquity than to the Plan Asset Regulation. Thus, contrary to the facts in Wolf, none of the elements of Counts 17 or 18 was established at trial, or could be established, by bootstrapping a violation of the regulation. Unlike in Christo, the regulation did not mislead the jury in its deliberations, as it was not even a factor for the jurors' consideration. The government did not contend that it was Defendants' failure to remit deferrals within fifteen days that constituted their crime. Rather, it was the fact that employee contributions were never remitted from January 1, 2002, until the DOL became involved, but were, instead, used to pay business expenses, as recounted by Brad Sommerfeld and others, that formed the factual and legal basis for the government's case. Conversion is a simple offense that encompasses the use of property, placed in one's custody for a limited purpose, in an unauthorized manner or to an unauthorized extent. Andreen, 628 F.2d at 1241. When Defendants commingled their employees' contributions with the Company's assets to prop up their failing business, they intentionally used their employee's assets for an unauthorized purpose. Moreover, they sent Participants account statements showing 401(k) balances which were, in fact, non-existent. Defendants' acts were substantially inconsistent with the fiduciary purposes and objectives of the union funds or pension plan, as set forth by statutes, bylaws, charters, or trust documents which govern uses of the funds in question. Id. As fiduciaries of the money given to them by their employees, Defendants were entrusted with custody of their employees' money for the sole purpose of remitting it to the 401(k) Plan; the Defendants' decision to deviate, be it to bet on horse races or pay other bills, is the wilful criminal misappropriation punished by § 664. Finally, Defendants' argument regarding the absence of intent is undercut by the evidence that both Defendants were alerted repeatedly about their obligation to remit the deferrals. Moreover, the government showed that Defendants hid their actions from employees by, for instance, withholding Statements of Net Assets in yearly investor reports. Accordingly, there was sufficient evidence to support Defendants' convictions on Counts 17 and 18.