Opinion ID: 6330205
Heading Depth: 4
Heading Rank: 1

Heading: Evidence of Hofstetter’s Embezzlement

Text: This standard applies where, as here, we review a district court’s determination that Federal Rule of Evidence 404(b) is inapplicable because the evidence is intrinsic. Id. at 779. In this circumstance, we “must also find that . . . the probative value of the evidence was not substantially outweighed by the danger of unfair prejudice pursuant to Federal Rule of Evidence 403.” Id. (quoting United States v. Joseph, 270 F. App’x 399, 406 (6th Cir. 2008) (per curiam)). At trial, the government introduced evidence that Hofstetter “embezzled very large amounts of money from other pill mill owners in this case (i.e., [the Florida partners])” multiple times in both Florida and Tennessee. (Resp. to Def.’s Mot. in Limine, R. 624, PageID 11350.) The government explained that Hofstetter’s alleged embezzlement was “part and parcel of [her] overall criminal conduct in this case” and reflected “the general illegitimacy of the Tennessee clinics.” (Id.) Moreover, the government argued that the Florida partners’ willingness to rehire Hofstetter after suspecting her of embezzlement showed that they accepted the “cost of doing illegal business[.]” (Id. at PageID 11350–51.) Hofstetter moved to exclude evidence about her unindicted embezzlement conduct. The district court denied Hofstetter’s motion orally at a pretrial conference. Hofstetter then filed a subsequent motion on the same issue, which the district court construed as a motion for reconsideration. Following a hearing, the district court again permitted the government to admit the evidence for three primary reasons. First, the district court found that the evidence of the alleged embezzlement was intrinsic because “the alleged thefts [had] a temporal and spatial connection to and arise from the same events as the charged conspiracies.” (Mem. Op. and Order, R. 718, PageID 14246.) Second, even if the evidence were not intrinsic, it would nevertheless be admissible because it “tend[ed] to show [Hofstetter’s] motive and intent in allegedly joining the alleged conspiracies.” (Id. at PageID 14250.) Third, the district court Nos. 20-6245/6426/6427/6428 United States v. Hofstetter, et al. Page 24 determined that the probative value of the evidence was not substantially outweighed by a danger of unfair prejudice. At trial, one of the Florida partners testified that the partners fired Hofstetter from the Hollywood clinic because they suspected that she embezzled clinic funds. Tipton testified that the Florida partners also suspected her of embezzling funds at the Gallaher View clinic but decided not to fire her again. The district court overruled Hofstetter’s objections at trial, but it instructed the jury to consider the evidence only as it related to Hofstetter’s intent and motive to join the conspiracy “and her knowledge that the clinics . . . were allegedly not legitimate pain clinics.” (Trial Tr., R. 901, PageID 61954–55.) Hofstetter does not dispute that the evidence is intrinsic, but instead argues that the district court “relied on clearly erroneous facts that [she] came to Tennessee to start up illegal pain clinics” when it determined that the testimony was relevant to her motive or intent. (Hofstetter Br. 35.) She also argues that the testimony should have been excluded because any relevance was “substantially outweighed by the danger of . . . unfair prejudice, confusing the issues, or misleading the jury[.]” (Id.)
Under Federal Rule of Evidence 404(b)(1), “[e]vidence of any other crime, wrong, or act is not admissible to prove a person’s character in order to show that on a particular occasion the person acted in accordance with the character.” Fed. R. Evid. 404(b)(1). The purpose of this rule is to prevent the jury from inferring that a defendant “probably committed the crime charged” because she committed other, unrelated crimes. Emmons, 8 F.4th at 473 (quoting United States v. Phillips, 599 F.2d 134, 136 (6th Cir. 1979)). Rule 404(b) is not implicated, however, when evidence of other crimes or wrongs “is part of a continuing pattern of illegal activity.” United States v. Adams, 722 F.3d 788, 822 (6th Cir. 2013) (quoting United States v. Barnes, 49 F.3d 1144, 1149 (6th Cir. 1995)). Such “intrinsic” acts “are those that are inextricably intertwined with the criminal act charged or a part of the criminal activity as opposed to extrinsic acts, which are those that occurred at different times and under different circumstances from the offense charged.” Churn, 800 F.3d at 779 (internal Nos. 20-6245/6426/6427/6428 United States v. Hofstetter, et al. Page 25 quotation omitted). “[E]vidence relating to the background of the charged offense, known as ‘res gestae evidence,’ is also considered ‘intrinsic . . . .’” United States v. Sumlin, 956 F.3d 879, 889–90 (6th Cir. 2020). “Typically, such evidence is a prelude to the charged offense, is directly probative of the charged offense, arises from the same events as the charged offense, forms an integral part of a witness’s testimony, or completes the story of the charged offense.” Id. at 890 (quoting United States v. Hardy, 228 F.3d 745, 748 (6th Cir. 2008)). Intrinsic evidence is an exception to Rule 404(b) because it “is probative of the crime charged,” so it is not subject to the general prohibition on evidence of prior bad acts. Sumlin, 956 F.3d at 889. We therefore allow district courts to admit intrinsic evidence. Churn, 800 F.3d at 779. Here, the district court found that the evidence of Hofstetter’s purported embezzlement was intrinsic to the charged offenses because it allegedly occurred during the same period of time and in the same place as Hofstetter’s conspiratorial conduct, it directly related to her involvement in the Florida and Tennessee clinics, and it arose from the same events as the embezzling offenses for which Hofstetter was indicted. In other words, the district court found that the evidence was a prelude to, inextricably intertwined with, and probative of the criminal activity for which Hofstetter was being tried. The district court did not abuse its discretion in reaching this conclusion because it correctly applied the appropriate legal standard and relied on accurate findings of fact. Likewise, the district court did not abuse its “substantial discretion in balancing probative value . . . and unfair prejudice” under Rule 403 when it determined that the embezzlement evidence was not unfairly prejudicial. United States v. Zipkin, 729 F.2d 384, 390 (6th Cir. 1984) (internal quotations omitted) (“The usual approach on the question of admissibility on appeal is to view both probative force and prejudice most favorable towards the proponent, that is to say, to give the evidence its maximum reasonable probative force and its minimum reasonable prejudicial value.”) (quoting 1 J. Weinstein & M. Berger, Weinstein’s Evidence ¶ 403[03] (1982)). The district court found that the thefts were “not collateral to the charged offenses,” so the danger of unfair prejudice did not substantially outweigh the probative value of the theft evidence. (Mem. Op. and Order, R. 718, PageID 14250); see also Churn, 800 F.3d at 779. Nos. 20-6245/6426/6427/6428 United States v. Hofstetter, et al. Page 26 Because Hofstetter’s alleged embezzlement arose from the same—not auxiliary—circumstances as the charged offenses, the district court did not err. See United States v. Lang, 717 F. App’x 523, 531 (6th Cir. 2017) (affirming the district court’s admission of evidence that the defendant skimmed cash from a pill mill because “any unfair prejudice that resulted from [its] admission [was] simply not enough” to overcome its “substantial probative force”).
Even if the embezzlement evidence were not intrinsic, Rule 404(b) would not bar its admission because relevant evidence of “other crimes, wrongs, or acts” is admissible for nonpropensity purposes, such as proving intent or knowledge. Fed. R. Evid. 404(b)(1)–(2); United States v. Clay, 667 F.3d 689, 693–94 (6th Cir. 2012). The district court may admit such evidence under Rule 404(b) if it determines that: (1) there is sufficient evidence the act occurred; (2) the act is admissible for a proper purpose; and (3) the probative value is not substantially outweighed by the danger of unfair prejudice. United States v. Hardy, 643 F.3d 143, 150 (6th Cir. 2011).5 Here, the embezzlement evidence was admissible under Rule 404(b). First, there was sufficient evidence that Hofstetter was fired from the Hollywood clinic for embezzlement and that the Florida partners believed she was embezzling funds again in Tennessee. Two of Hofstetter’s co-conspirators testified at length about her embezzlement, and Hofstetter did not dispute that she embezzled clinic funds. Second, the embezzlement evidence was offered for two non-propensity purposes: to support the charge that Hofstetter intended to conspire with the Florida partners, and to show that Hofstetter knew the clinics were being operated illegally. Both are permissible purposes under Rule 404(b). Fed. R. Evid. 404(b)(2). Third, the probative value of the evidence was not substantially outweighed by the danger of unfair prejudice. For all these reasons, we affirm the district court’s decision to admit the embezzlement evidence. 5Our precedent reflects an intra-circuit split about the appropriate standard of review when reviewing evidentiary rulings under Rule 404(b). Compare Clay, 667 F.3d at 694 (using de novo review because determining “whether the evidence was admitted for a proper 404(b) purpose . . . is a question of law”), with United States v. Jenkins, 345 F.3d 928, 936 (6th Cir. 2003) (reviewing for abuse of discretion). Because Hofstetter’s claim fails under the less deferential de novo review, we need nod decide which standard of review should apply to Rule 404(b) challenges. Nos. 20-6245/6426/6427/6428 United States v. Hofstetter, et al. Page 27