Opinion ID: 3014083
Heading Depth: 3
Heading Rank: 1

Heading: Rela tio n s h i p B e t w e en

Text: jurisdiction over the appeal pursuant to 28 A p p e l l a n t s ’ U.S.C. § 1291 and 18 U.S.C. § 3742. We Misrepresentation of Stock review the District Court’s factual findings Values and World Life’s for clear error. United States v. Weaver, Continued Paymen t of 267 F.3d 231, 235 (3d Cir. 2001). We Premiums review the District Court’s decision to admit or deny evidence for abuse of Appellants contend that the victim, discretion. United States v. Serafini, 233 World Life, did not rely on their F.3d 758, 768 n.14 (3d Cir. 2000). misrepresentations of stock assets as valua ble a n d t h e r e fo r e t h eir
misrepresentations did not cause the fraud Appellants assert two primary loss. Moreover, they contend that it was challenges to the District Court’s finding World Life’s own obstruction of the that their conspiracy caused approximately investigation by the Pennsylvania $3.2 million in fraud loss. First, all Department of Insurance – not their Appellants argue that the District Court misrepresentations – that prevented the erroneously found that their Department from discovering the fraud misrepresentations of stock values actually and immediately halting the flow of caused Teale to continue receiving premiums to Teale. Appellants thus argue premiums from World Life policyholders that the District Court committed clear b y p r e v e n t in g t h e P e n n s yl v a n ia error. The Government responds that Department of Insurance from discovering World Life and its policyholders paid the fraud and halting the flow of Teale millions of dollars for reinsurance in premiums. This is one of the issues we reliance on the Appellants’ fraudulent directed the District Court to consider on representations that their stocks were remand. Second, Rennert contends that valuable and redeemable as assets, as they even if the District Court were correct that purported. the Pennsylvania Department of Insurance We have addressed the issue of would have stopped the flow of insurance 6 fraud loss causation in connection with the policies had not been issued, Teale conspiracy in Yeaman, where we th e em p lo ye rs w ho stated, “[w]ithout the assets of the purchased the policies from defendants and the resulting appearance of World Life would have solvency, the most reasonable inference is obtained group medical that World Life would have ceased paying coverage from another premiums to Teale long before it source and all claims of the eventually did.” Yeaman, 194 F.3d at 458. beneficiaries would have We explained the causality analysis as been paid in full. In either follows: event . . . there would have been a causal nexus between Teale could not have the fraud and all unpaid entered and remained in the claims. business of reinsuring World Life but for its Id. at 459. In short, we found that the f r a u d u l e n t most reasonable inference is that World m i s r e p re s e n t a ti o n s. L i f e relie d on the A ppella nts ’ Although the District Court misrepresentations about the value of their made no finding on the issue stock assets when it paid Teale additional [before], the record would premiums. also appear to us to support On remand, the District Court the proposition that World concluded that there was “a causal Life was not capable of connection between the misrepresentations insuring any of the four of the Defendants and the continued group medical policies payment of premiums to World Life, and without having received a . . . Teale and the Defendants.” App. at commitment for 100% 12, 34. In particular, the District Court reinsurance. It follows that made the following findings: if the Teale fraudulent reinsurance contracts had -Had the true value of the not been available, World Defendants’ stocks been Life would either have known, at the very least, the secured other reinsurance or Pennsylvania Department of would not have issued the Insurance would have group policies involved. If stopped the payment of reinsurance from a solvent premiums to the Teale reinsurer had been obtained, Network. all claims under the policies would have been paid to the reinsurer; if the group -In addition, because World 7 Life was insolvent, Appellants next challenge the had the reinsurance sufficiency of the evidence supporting the contracts been District Court’s finding that the flow of termin ated, the insurance premiums would have been company would have halted but for their misrepresentations. At been liquidated much the Appellants’ re-sentencing hearing, two sooner than it was, Government witnesses testified that but for and the policyholders Appellants’ misrepresentations about the would have never value of the stock assets Teale claimed as made those premium collateral, World Life would not have payments at all. continued paying its policyholders’ premiums to Teale – that is, the App. at 13, 35. Department of Insurance or various Although Appellants argue that the policyholders would have halted the flow District Court’s findings do not answer the of premiums if they had known the true question of whether their value of Appellants’ stocks. One witness, misrepresentations caused the fraud loss, it the Director of Liquidations and is apparent that the Department of Rehabilitation for the Pennsylvania Insurance did not intercede because it did Department of Insurance, testified that the not know “the true value of the Department could have halted the flow of [Appellants’] stocks.” App. at 13. That insurance payments had it known that lack of knowledge was the result of Appellants’ assets were worthless.3 Appellants’ misrepresentations of the value of those stocks. This, in turn, caused the Department of Insurance to permit because their reinsurance contract did not World Life’s continued operation and provide for termination based on Teale’s caused World Life to continue providing insolvency. We do not accept this Teale insurance premiums in reliance on argument. If Teale were insolvent, it no A p p e l l a n t s ’ m i s r e p re s e n t a ti o n s. longer could meet its contractual Appellants’ attempt to sever the obligations to provide reinsurance to connection between their World Life. Because Appellants have misrepresentations and the Department of identified no contract provision requiring Insurance’s delayed intervention is World Life to continue providing unpersuasive.2 premiums after Teale has materially breached their contract, we have no reason to assume that World Life would be bound to continue honoring a contract that Teale 2 Ap pella nts suggest that Teale’s had breached. insolvency would not have provided 3 World Life with automatic grounds to Appellants emphasize that the terminate its relationship with Teale Insurance Director stated that the 8 B e c a u s e A p p e l l a n t s f raud ulentl y testified that he recommended that World misrepresented their assets’ value and Life partner with Teale based, in part, on made it appear that Teale was solvent, Appellants’ misrepresentations of the however, the Department was not value of their assets based on the authorized to intervene.4 manipulated market prices. The general counsel analyzed the A ppella nts’ Similarly, the general counsel to a fraudulent market valuations of their assets third-p arty insura nce a dm inistrato r and inferred that the Teale Network was a legitimate, solvent business based on those representations. He further testified that if Department “could . . . have acted months he had known that the stocks backing sooner . . . to stop the flow of premiums,” Teale were worthless, he would have App. at 386-87, but did not state that it removed his company’s group policies and would have done so. The District Court reinvested them with a solvent carrier. did not clearly err in concluding that the Department would have acted if it had We come then to Appellants’ known the true value of the assets argument that it was World Life’s failure Appellants misrepresented, given its later to cooperate with the Pennsylvania investigation and liquidation of World Department of Insurance – not Appellants’ Life. We also reject Appellants’ argument misrepresentations – that delayed the that the Department could not have discovery of Teale’s fraud. But the fraud stopped World Life from continuing to victim’s negligence or lack of diligence in provide Teale with premiums “months uncovering the fraud is not a defense. sooner” based on administrative hurdles to United States v. Coyle, 63 F.3d 1239, 1244 the investigatory and liquidation processes. (3d Cir. 1995) (“The negligence of the The District Court did not err in crediting victim in failing to discover a fraudulent the Director’s statement that it could have scheme is not a defense to criminal mobilized its administration to act quickly. conduct.”) (citations omitted); see also United States v. Bennett, 9 F.Supp. 2d 4 Appellants suggest that the 513, 523 (E.D. Pa. 1998) (“Taking Department of Insurance did not begin advantage of a victim’s self-interest does investigating World Life until January not mitigate the seriousness of fraudulent 1 9 9 1 a n d t h er e f o r e Ap pellan ts’ conduct.”) (quotations and citations misrepresentations had no effect prior to omitted). Nor do the Appellants cite any that date. This argument assumes that the case law suggesting that courts may not Department would not have begun find fraud loss causation where the victim investigating World Life if it were known has not immed iately assisted the that its reinsurer, Teale, lacked collateral authorities in investigating the fraud. assets as of 1990. This argument is In addition, the Government without support and is directly contrary to properly notes that even assuming that the Director’s testimony. 9 World Life could be held to be In his separate appeal, Miller contributorily negligent, such an argument asserts that the District Court erroneously ignores our prior finding that the fraud conflated the jury’s “general” conspiracy victims also included Wo rld Life conviction with the court’s conclusion that policyholders, wh o cou ld not be Miller should be held liable for all losses reimbursed for their medical costs until the related to the conspiracy under the relevant Commonwealth’s bail-out. Yeaman, 194 conduct provision of the United States F.3d at 458. Nothing in the record Sentencing Guidelines, U.S.S.G. § 1B1.3. suggests that the policyholders acted Miller contends that even if a defendant negligently or that they should have been has been convicted of a conspiracy charge, expected to be suspicious of the true value the trial court must make particularized of its reinsurance agent’s assets. findings as to the scope of each conspirator’s involvement in order to In light of the evidence from the increase the conspirator’s sentence under trial as well as the re-sentencing hearing, Section 1B1.3. the District Court did not clearly err in finding a causal connection between the Under the Sentencing Guidelines, a Appellants’ misrepresentations and the defendant’s offense level is subject to losses incurred by World Life and its increase depending on the amount of loss policyholders. caused by the fraud. Section 1B1.3(a) provides that the district court should