Court Opinion

ID: 24469
Source: CourtListenerOpinion
Date Created: 2010-04-25 08:22:59+00
Date Added: 2024-06-11T15:04:13.780491
License: Public Domain

UNITED STATES COURT OF APPEALS
                          For the Fifth Circuit

                         ___________________________

                                 No. 00-10337
                         ___________________________

                          UNITED STATES OF AMERICA,

                                                         Plaintiff-Appellee,

                                        VERSUS

              DAVID LADON CRADER and GERALD KENNETH ECKERT,

                                                       Defendants-Appellants.

          ___________________________________________________

            Appeals from the United States District Court
                  for the Northern District of Texas
                             (5:99-CR-92)
          ___________________________________________________

                           July 2, 2001
Before HIGGINBOTHAM, DAVIS, and BENAVIDES, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:*

      David Crader, Gerald Eckert, and Jeffrey Echols were indicted

on multiple charges of mail fraud, false claims, false statement to

a   federal    agency,    fraud    in    connection    with   Social    Security

payments, controlled substance offenses, money laundering, and

conspiracy, in violation of 18 U.S.C. §§ 287, 371, 1001, 1010,

1341, and 1956; 42 U.S.C. §§ 408(a)(4) and 1383a(a)(3); and 21

U.S.C. §§ 841(a)(1), 843(b), and 846.              The core charges in the

indictment     alleged    that    Crader,    Eckert,   and    Echols   defrauded

      *
      Pursuant to 5th Cir. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5th Cir. R. 47.5.4.
clients of the South Plains Aids Resource Center (“SPARC”) and

various federal and private entities that provided grants to SPARC.

Echols died five days before trial.           Crader and Eckert were tried

and convicted on more than seventy counts.            They now appeal these

convictions on multiple grounds.           For the reasons that follow, we

AFFIRM the judgment of the district court.

                                     I.

     The South Plains AIDS Resource Center of Lubbock, Texas, is a

non-profit, tax-exempt organization that was formed in 1989 to

provide direct services to persons afflicted with Acquired Immune

Deficiency   Syndrome    (“AIDS”)     or    Human    Immunodeficiency       Virus

(“HIV”), and to provide community education on those diseases.

SPARC   received   its   primary    funding    from    federal      grants,   and

additional funding from non-governmental charitable entities.

     Defendant-Appellant David Crader was Executive Director of

SPARC; Defendant-Appellant Gerald Eckert was the Care Coordinator

and generally considered the “number two” man. Jeffrey Echols, who

died five days before trial, was the Special Care Coordinator. The

multiple count     indictment   of    all    three    men   arose    from   their

activities in running SPARC.       In essence, the government presented

evidence designed to show that the defendants concocted and carried

out a scheme to create a “cash hoard” by overcharging their clients

and fraudulently obtaining funds from various grant programs.                 The

government’s evidence also tended to show that the defendants used

this “cash hoard” for two purposes:           to benefit themselves and to

secretly pay the salaries and expenses of favored SPARC clients

                                      2
whose social security benefits would have been terminated or

reduced    if    this   additional       income   had   been   disclosed.      The

government also charged the defendants with controlled substance

violations for stockpiling the medication of deceased clients and

unlawfully dispensing it to living clients without a doctor’s

prescription.

     At trial, the government presented specific evidence that the

defendants defrauded several federal programs providing help to

AIDS patients.      For example, the Housing Opportunities for Persons

with AIDS (“HOPWA”) program, a United States Department of Housing

and Urban Development (“HUD”) initiative, provided funds for rent

and utilities for individuals with AIDS or HIV. SPARC administered

this program in the Lubbock area beginning in 1993.                     The HOPWA

rules generally required aid recipients to contribute the greater

of ten percent of their gross income or thirty percent of their

adjusted gross income towards their rent, and the balance was

subsidized through HOPWA funds. SPARC collected more rent from the

clients than the regulations allowed, and then obtained grants on

the assumption that the clients had paid the smaller, correct

portion of the rent.             The government argued at trial that by

charging    and    collecting     excess      rent   from   clients    while   also

receiving federal assistance, defendants engaged in a “double-

dipping,”       resulting   in    both    SPARC      clients   and    the   federal

government being defrauded.1

     1
      The government produced evidence that the defendants also
defrauded several other organizations by either engaging in the

                                          3
     The evidence at trial showed that the defendants used a

portion of the funds they accumulated to secretly pay salaries of

favored SPARC clients. Because those favored SPARC clients’ social

security benefits would have been either reduced or terminated had

this extra income been reported, the defendants paid the monies

intended for these favored clients to third parties. SPARC labeled

some of the payments as payments to clients’ landlords, although

evidence at trial showed that SPARC officials knew that some of the

third parties to which the checks were made out were not the

clients’ landlords.      In other instances, the defendants delivered

“expense” checks made payable to third party payees directly to

favored clients.       By structuring the payments in this manner, the

defendants were able to circumvent the social security and tax

laws.

     Numerous witnesses at trial testified regarding both the over-

charging   of   rent    and   the   payment   scheme.   One   witness   who

discovered that he was being overcharged for rent confronted

Crader, and was told that the excess went for needs of those who

were “worse off.”      Crader suggested to certain employees of SPARC

that their salaries would be better paid to a third party so as not

to risk a reduction of the employees’ social security benefits.

Crader asked several of his employees for names of other persons to

same double-dipping scheme, or by using the program’s funds for
unauthorized purposes. These organizations include the following:
The Community Housing Resources Board of Lubbock; The Ryan White
Assistance Program; Catholic Family Services, Inc.; St. Mary’s
Hospital; Project HELP.

                                       4
whom he could make out their checks.                       At least one witness

testified that he received a W-2 form including these payments, but

that when he complained, Crader said that he would “take care of

it,” and the witness never saw the form again.

     Although much of the trial testimony focused on Crader, as the

head of the organization, the record is replete with evidence of

Eckert’s involvement in the scheme.                    Although Echols usually

collected     the     cash   rents    from     all    of   the    clients,   Eckert,

occasionally assumed these duties.                   The record also shows that

Eckert “cleaned up” the HOPWA files after a HUD audit of SPARC’s

offices, and falsified some of the records. Finally, twenty-one of

the forty-seven third party checks where signed by Eckert.                      Most

were signed by Crader as well, but four were executed by Eckert

alone.    The government’s case included testimony that Eckert was

extremely involved in the day-to-day management of the office, with

many responsibilities and a great deal of direct client contact.

Eckert was also Crader’s life partner, and as such, the two had

almost constant contact with each other, both at work and at home.

     On the drug counts, appellants’ argued that the lengthy

waiting periods many AIDS patients were required to endure before

receiving government assistance to purchase medication placed the

lives    of   these    patients      in   peril,     and   that    providing   these

medications immediately saved lives.                 Essentially, the defendants

argued that they were choosing between the “lesser of two evils.”

The defense requested a jury instruction on necessity directed at

this issue, but that request was denied by the trial court.

                                           5
       Crader was indicted on seventy-two counts, and convicted by

the jury on all seventy-two.          Eckert was charged with seventy-one

counts, and again, was convicted on all seventy-one counts.                  Both

defendants now appeal these convictions on the grounds discussed

below.

                                       II.

       The defendants argue first that the evidence is legally

insufficient to support their convictions on the money laundering

counts   (Counts    30-37,      39,   and    43-76).     When    reviewing     the

sufficiency of the evidence, this court views all evidence, whether

circumstantial or direct, in the light most favorable to the

verdict with all reasonable inferences to be made in support of the

jury’s verdict.     United States v. Salazar, 958 F.2d 1285, 1290-91

(5th   Cir.    1992).     The    evidence     is    sufficient   to   support    a

conviction if a rational trier of fact could have found the

essential elements of the crime beyond a reasonable doubt.               Id.    To

obtain a conviction for money laundering, the government must prove

that   the    defendant   (1)    conducted     or    attempted   to   conduct    a

financial transaction; (2) which the defendant knew involved the

proceeds of a specified unlawful activity; (3) with the intent

either to promote the specified unlawful activity (the “promotion

prong”), or to conceal or disguise the nature, location, source,

ownership, or control of the proceeds of unlawful activity (the

“concealment prong”), or to engage in conduct constituting a

violation of section 7201 or 7206 of the Internal Revenue Code (the

“tax avoidance prong”).          18 U.S.C. § 1956; see United States v.

                                        6
Wyly, 193 F.3d 289, 295 (5th Cir. 1999).       All forty-two money

laundering counts charged the defendants with violating the tax

avoidance and concealment prongs of the statute. Counts 65 through

76 also charged the defendants with violating the promotion prong.

     Specifically, the defendants allege that the government’s

proof on these counts fails in three distinct areas:

A.   The   money   laundering counts are   merged   into   the counts

     charging mail fraud and false statements because the unlawful

     activity underlying these counts is the same activity that

     comprises the factual basis for the financial transactions

     under the money laundering offenses;

B.   The government’s theory of the case is that the defendants

     were concealing income to avoid the loss of Social Security

     benefits for the agency’s clients. The government’s evidence,

     which proceeded under this theory, fails to establish an

     intention to violate the income tax laws to meet the tax

     avoidance prong of the money laundering offense; and

C.   The financial transactions that are the basis of the money

     laundering counts are innocent spending of proceeds, not

     illegal money laundering.

                                 A.

     On the defendants’ first point, they argue that because

“specified unlawful activity” relied on by the government under the

money laundering statute was the same activity the government

relied on to establish the statute’s “financial transaction,” the

                                 7
government    failed      to   prove   these      two   independent     statutory

elements.    The defendants obviously misapprehend the government’s

case.   Each money laundering count in the indictment alleges that

the defendants obtained the proceeds by means of the mail fraud

scheme outlined in Counts two through nine (the specified unlawful

activity).       To establish this element, the government produced

proof that SPARC fraudulently charged clients for rent, utilities

and other services, while at the same time sought and collected

reimbursement for those charges from federal and private grants.

To   establish    the    additional    element,      the   government    produced

evidence that the defendants then engaged in separate financial

transactions by disbursing         those fraudulently obtained funds to

favored SPARC clients via “rent” or “expense” checks made out to

third parties.      Because the charged “specified unlawful activity”

is independent from the charged “financial transactions,” the

defendants’ merger argument fails.

                                       B.

      The defendants argue next that the conduct alleged does not

satisfy the tax avoidance prong of the money laundering statute

because they had no intent to evade the income tax laws.                  Rather,

the third    party      payments   were       structured   for   the   purpose   of

preventing the true recipients of the payments from losing their

Social Security disability benefits.               The tax avoidance prong of

the money laundering statute prohibits financial transactions made

with the proceeds of an unlawful activity with the “intent to

engage in conduct constituting a violation of Sec. 7201 or 7206 of

                                          8
the   Internal   Revenue   Code    of   1986.”    18   U.S.C.   §   1956

(a)(1)(A)(ii). Section 7201 of the Internal Revenue Code prohibits

the evasion of income taxes.        Section 7206 prohibits willfully

aiding, assisting or counseling the preparation of any document

which is false or fraudulent and which relates to a matter arising

under the internal revenue laws.

      The government produced sufficient evidence to establish that

the defendants intended to violate both Sections 7201 and 7206.

The defendants aided the ultimate beneficiaries of the third party

checks in evading income taxes by issuing the checks in a third

party’s name, rather than in the name of the actual recipient, and

by characterizing the payments as rent or reimbursements, rather

than as salary or other income.      SPARC’s accountants counseled the

defendants not to engage in these practices.      The defendants also

failed to issue 1099's or W-2's to the ultimate beneficiaries of

the checks, which allowed them to evade income taxes due on those

funds.     In addition, the defendants’ actions clearly violated

Section 7206.    Following the issuance of the third party checks,

the defendants directed the preparation of Forms 1099 and W-2 which

reported taxable income under the names and tax identification

numbers of the third party recipients rather than the actual

recipients of the funds.          These documents were false as to a

material matter in connection with the internal revenue laws.        The

record shows that the defendants’ accountants also repeatedly

counseled against these practices.         Clearly the evidence of a

violation of the tax avoidance prong of the money laundering

                                    9
statute was factually and legally sufficient.

                                        C.

     The   defendants’     final     sufficiency       argument   is    that   the

financial transactions that are the basis of the money laundering

counts were consistent with legal, legitimate activities and based

on attorney/accountant advice; accordingly, they do not satisfy the

promotion prong of the money laundering statute.                  This argument

also fails.    The advice of counsel defense was presented to the

jury by testimony of Crader and SPARC employee Strange that they

had been advised that the third party payments they were making

were legitimate.      By finding the defendants guilty on all counts,

the jury obviously rejected this testimony, which is not surprising

in light of conflicting testimony by SPARC’s accountants that they

counseled defendants not to engage in these practices, and direct

evidence that the defendants acted deliberately to conceal the true

recipients of the payments.

     Only counts sixty to seventy-six allege a violation of the

promotion prong of the money laundering statute.             Those counts are

based on payments made to co-defendant Echols which were disguised

as payments to Mack Durran.           We need not consider whether those

payments satisfy the promotion prong of the money laundering

statute.      Those     counts   also        alleged   violations      under   the

concealment prong and tax avoidance prong. The tax avoidance prong

was discussed previously.            By establishing that the defendants

used fictitious       payees   and   disguised     the   nature   of    the    many

payments as reimbursements, the government also proved that the

                                        10
financial transactions were designed to conceal or disguise the

nature, ownership, or control of the proceeds of unlawful activity,

thus satisfying the concealment prong of the statute.

                                         III.

      Eckert also challenges his money laundering convictions on

grounds     that   the     evidence   failed     to   establish   a   knowing   or

intentional violation on his part.              He argues that the evidence is

insufficient to show his knowledge under all three prongs of the

money laundering statute (i.e., the concealment, promotion, and tax

evasion prongs discussed above).

      After reviewing the record, we are convinced that the evidence

is sufficient to show that Eckert possessed the required mental

state to satisfy all three varieties of money laundering charged.

As discussed above, the evidence showed that Eckert was the number

two   man    at    SPARC    and   also   Crader’s     life   partner.     Eckert

occasionally collected the illegal cash rents personally, “cleaned

up” files in the office after federal agency inspections, and

signed twenty-one of forty-seven third party checks, four without

Crader’s signature.         It was certainly reasonable for the jury to

infer from these and other facts presented at trial that Eckert

knew of the “double-dipping” scheme and knew exactly why the third

party checks were being issued, and knew that the use of this

payment method would result in tax fraud.               The jury was therefore

reasonable in finding that Eckert was guilty of all three types of

money laundering charged, and we will not disturb its verdict.

                                         IV.

                                          11
     Defendants   next    argue   that   the   district   court   erred   in

refusing to instruct the jury on the defense of necessity as to the

controlled substance violations.         We review the district court’s

failure   to   submit    the   requested    instruction    for    abuse   of

discretion.    United States v. Posado-Rios, 158 F.3d 832, 875 (5th

Cir. 1998).

     To raise the defense of necessity, the defense must present

evidence from which a reasonable jury could infer each of the

following:

     (1) That defendant was under an unlawful and present,
     imminent, and impending threat of such a nature as to
     induce a well-grounded apprehension of death or serious
     bodily injury;

     (2) That defendant had not recklessly or negligently
     placed himself in a situation in which it was probable
     that he would be forced to choose the criminal conduct;

     (3) That defendant had no reasonable, legal alternative
     to violating the law...; and

     (4) That a direct causal relationship may be reasonably
     anticipated between the criminal action taken and the
     avoidance of the threatened harm.

United States v. Gant, 691 F.2d 1159, 1162-63 (5th Cir. 1982).

                                    A.

     Because the defendants failed to submit evidence from which

the jury could have found the required elements of this defense,

the district court did not abuse its discretion in refusing to

submit the requested instruction.

     First, the defendants failed to identify a single situation in

which their clients were faced with an “imminent threat...of death

or serious bodily injury,” which is required to establish the

                                    12
defense of necessity. Although many SPARC patients ultimately died

as a result of complications arising from the AIDS virus, the

defendants could not pinpoint any particular episode in which one

of their clients was faced with an emergency condition that might

be alleviated through the use of the stockpiled medication. To the

contrary, the medical testimony at trial showed that “there is

rarely, if ever, an emergency to treating HIV/AIDS” and that “the

fact that there was a waiting period for [AZT] did not endanger

people’s health.”2        Additionally, the evidence adduced at trial

confirmed that some of the medications defendants dispensed merely

eased pain or alleviated annoying, though not life-threatening

symptoms of the AIDS virus.

      Second, the defendants’ evidence did not show that they had no

alternative but to stockpile and dispense the drugs.                     Although

there was a waiting period to obtain free prescriptions for many of

the   drugs   that    defendants      distributed,       the   defendants    never

established why they could not have taken gravely ill patients to

the   hospital,      or   used   SPARC    monies    to   purchase      the   needed

medications. Additionally, the record showed that numerous federal

and   state   programs       assist      HIV/AIDS    patients     in    obtaining

medication, sometimes in as little as two weeks, and pharmacies

sometimes assist patients by filling their prescriptions on credit

and waiting until a later date for payment.                The defendants must

show that they actually tried the alternative, had no time to try
2
Rawle at 6-1296; R. at 3-533-34.

                                         13
it, or that a history of futile attempts revealed the illusionary

benefit of the alternative.      Gant, 691 F.2d at 1164.      They made no

such showing.

      Finally, the defendants failed to produce adequate evidence of

a   direct   causal    relationship    between    their   distribution   of

stockpiled medication and the avoidance of a threatened harm.            As

discussed above, no specific instance was identified in which the

defendants’ conduct saved a patient from death or great bodily

harm.     On the contrary, the evidence at trial suggested that

distribution of medication in this manner could actually cause

greater harm, in the form of mutations in the AIDS virus due to

decreased potency of expired antibiotics and potentially fatal

heart attacks due to decreased potency of expired nitroglycerin.

                                      B.

      The district court was also correct in refusing to charge the

jury on necessity because the defendants failed to submit a jury

instruction     that   was   “substantially      correct.”3    Defendants’

proposed instruction read as follows:

      In order to excuse an act that would otherwise               be
      criminal,   however,   the   defendants  must,   by           a
      preponderance of the evidence, show the following:

      (1) That the defendants were faced with a choice of evils

      3
      This Court has developed a three-part test to determine
whether a jury instruction should be submitted: “(1) The
instruction is substantially correct; (2) The requested issue is
not substantially covered in the charge actually given to the jury;
and (3) The instruction concerns an important point in the trial so
that the failure to give it seriously impaired the defendant’s
ability to effectively present a defense.”       United States v.
                                     th
Correa-Ventura, 6 F.3d 1070, 1076 (5 Cir. 1993).

                                      14
     and chose the lesser evil;

     (2) That the defendants acted to prevent imminent harm;

     (3) That the defendants reasonably anticipated a causal
     relationship between their conduct and the harm to be
     avoided; and

     (4) That there were no other             reasonable   legal
     alternatives to violating the law.

     The requested instruction misstates the law of necessity in

omitting the requirement that they be operating under a “present,

imminent, and impending [threat] of such a nature as to induce a

well-grounded apprehension of death or serious bodily injury.”

Choosing the “lesser of two evils” is clearly not the equivalent,

nor is acting to prevent “imminent harm.”      Because the requested

instruction was not substantially correct, the district court did

not err in refusing to submit it to the jury.

                                  V.

     Finally, the defendants argue that the district court erred in

admitting SPARC American Express billing statements into evidence.

The government offered these records in an attempt to account for

the use of the illegally collected funds and to rebut defense

counsel’s opening statement that the defendants did not personally

benefit from these transactions.       Many of the purchases made by

defendants on the account are obviously for their personal use.4

Certainly, then, the government wanted these records in evidence to

     4
      For example, the defendants purchased items such as clothing,
art supplies, and tanning products.

                                  15
provide   the   jury   with   a   basis    to   infer   that   the   defendants

personally benefitted from their scheme.

     The defendants argue that these records should have been

excluded under Federal Rules of Evidence 401 (relevance) and 403

(probative value outweighed by unfair prejudice).               We review the

district court’s admission of the records for abuse of discretion.

United States v. Pena, 949 F.2d 751, 757 (5th Cir. 1991).

     Although the defendants objected to the admission of the

records on the grounds that the government failed to lay the proper

foundation for the introduction of the documents as business

records, they failed to object to the admission of the American

Express statements on either 401 or 403 grounds.5                We therefore

review the admission of the records for plain error. United States

v. Hernandez-Guevara, 162 F.3d 863, 873 (5th Cir. 1998).

     5
      The defendants did object on 403 grounds to an earlier
introduction of summaries of these billing statements.        These
summaries explained the charges made on the account and the
payments made against that account. The payments made were tracked
by their source - e.g., those funds that came from SPARC to pay off
a portion of the American Express account were labeled “SPARC” and
those coming from Crader himself were labeled as such. However,
the government was unable to determine the source of the funds used
to pay approximately $38,000 in receipts. The government therefore
labeled the source of these funds as “unknown.” The defendants
objected to the use of the term “unknown” as unfairly prejudicial.
The trial court admitted the summaries over defense objection.

     When the American Express records themselves were introduced,
defendants objected, as discussed above, on grounds that the
government did not lay a proper foundation to meet the business
records exception and “also for the reasons previously stated in
our motion outside the presence of the jury.” However, since the
previous objection was only to the use of the term “unknown” on the
billing summaries, this objection was certainly not sufficient to
preserve error as to the entire American Express statements on 401
and 403 grounds.

                                      16
     Before an appellate court can correct an error not raised at

trial, there must be (1) error, (2) that is plain, (3) that affects

substantial   rights,   and   (4)   seriously   affects   the   fairness,

integrity or public reputation of judicial proceedings.            United

States v. Olano, 507 U.S. 725, 732, 113 S. Ct. 1770, 1776 (1993).

The defendants have not demonstrated to us that the admission of

the records here meets any of the four prongs of this test.          Even

if there were error, which is doubtful, there was no plain error,

and the district judge did not abuse his discretion in admitting

the American Express records into evidence.

                                    VI.

     For the foregoing reasons, we AFFIRM the judgment of the

district court.

                                    17