Court Opinion

ID: 2995005
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:17:52.043541+00
Date Added: 2024-06-11T13:22:57.965785
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

No. 98-3760

United States OF AMERICA,

Plaintiff-Appellee,

v.
Gregory Swan,

Defendant-Appellant.

Appeal from the United States District Court
for the Northern District of Illinois, Eastern
Division.
No. 97 CR 105-3--Charles R. Norgle, Sr., Judge.

Argued December 10, 1999--Decided August 10,
2000
Amended April 25, 2001

  Before Easterbrook, Rovner, and Diane P.
Wood, Circuit Judges.

  Diane P. Wood, Circuit Judge. From 1987
until 1994, Gregory Swan worked for the
City of Chicago. During the last two
years of that period, his specific job
was for 13th Ward Alderman John Madrzyk.
Unfortunately for the City, neither
Madrzyk nor Swan had its best interests
at heart. This case is Swan’s appeal from
his convictions for participating in a
racketeering conspiracy in violation of
the Racketeer Influenced and Corrupt
Organizations Act (RICO), mail fraud,
theft of funds, extortion, money
laundering, obstructing the IRS, failing
to file tax returns, and using a false
social security card. The district court
sentenced him to five years’ imprisonment
on counts 1 (racketeering), 2
(racketeering conspiracy), 5 and 6 (theft
of funds), 7 and 14 (extortion), and 8
(money laundering). He received 12 months
on counts 3 and 4 (mail fraud), 9
(obstructing the IRS), 10, 12, and 13
(failure to file tax returns), and 15 and
16 (use of a false Social Security card).
All counts were to run concurrently with
each other. In addition, the court
ordered three years of supervised release
and ordered Swan to pay $100,000 in
restitution.

  Swan’s appeal challenges the jury
instructions used to convict him on the
RICO count; the sufficiency of the
evidence against him for conviction on
the RICO charges and the mail fraud
charges; and the district court’s
admission of evidence of his gambling and
failure to complete work that others had
hired and paid him for. We affirm all but
Swan’s conviction on count 1.

I

  Swan and Madrzyk cheated the City in a
number of ways. The two of them created
four "ghost jobs" enabling Swan, his son
(Greg Swan), his girlfriend (Sharon
Nova), and another friend (David Sipich)
to receive paychecks and benefits from
the City of Chicago without doing any
actual work. Madrzyk received a kickback
from each of the ill-gotten paychecks.
Swan and Madrzyk also referred people and
companies who came to Madrzyk seeking
City assistance such as rezoning and
inspection help to Swan’s "consulting"
firm. These people then paid a
"consulting fee" to the firm,
notwithstanding the fact that neither
Swan, the firm, nor Madrzyk did anything
more for them than the Alderman was
required to do as part of his position.
Swan attempted to cover up these schemes
by failing to report his income from the
ghost jobs and the consulting fees to the
IRS. By 1994, as Swan became more
desperate, he lied to federal agents
about the sources of his income and began
to use false social security numbers for
various purposes. He also stopped using
bank accounts in a desperate effort to
eliminate the paper trail related to his
income, and he used other people as
intermediaries for his illegal gains.

II

  Eventually, of course, federal
authorities caught up with him and
brought the charges now before us. Swan,
Madrzyk, and two others were charged in a
superseding indictment with violations of
18 U.S.C. sec.sec. 1962(c) (RICO),
1962(d) (RICO conspiracy), 1341 (mail
fraud), 1951 (extortion), 1956 (money
laundering), 666 (theft of funds), and 2
(aiding and abetting various counts), as
well as 26 U.S.C. sec.sec. 7212
(obstructing the IRS) and 7203 (failure
to file tax returns) and 42 U.S.C. sec.
408 (use of a false Social Security
card). (Madrzyk eventually pleaded guilty
and testified against Swan under a grant
of immunity.) To violate RICO sec.
1962(c), a person employed by or
associated with an enterprise that is
engaged in, or that conducts activities
that affect interstate or foreign
commerce, must conduct or participate,
directly or indirectly, in the conduct of
that enterprise’s affairs through a
pattern of racketeering activity or
collection of unlawful debt. In order to
have conducted or participated in the
enterprise’s affairs under section
1962(c), the person charged must have had
"some part in directing those affairs."
Reves v. Ernst & Young, 507 U.S. 170, 179
(1993). In other words, she must have
participated in the operation or
management of the enterprise itself. See
id. at 183; Goren v. New Vision Int’l.
Inc., 156 F.3d 721, 727-28 (7th Cir.
1998). Reves also held that "[a]n
enterprise might be ’operated’ or
’managed’ by others ’associated with’ the
enterprise who exert control over it . .
. ." 507 U.S. at 184.

  Overlooking this requirement of control
(perhaps mistakenly relying on pre-Reves
jurisprudence), the government insisted
upon and the court permitted the
following jury instruction on count 1:

The terms "conduct" and "participate in
the conduct of the affairs of the
enterprise" include the performance of
acts, functions or duties which are
necessary to or helpful in the operation
of the enterprise.

There was no additional instruction
requiring a finding of operation or
management of the enterprise. The court
gave that instruction over Swan’s
objection. Swan both objected and asked
the court to instruct the jury that the
simple giving of directions and
performance of tasks necessary or helpful
to the organization, without more, was
insufficient. The court rejected his
position because it thought that Reves
applied only to civil RICO prosecutions
and thus that Swan’s proposed instruction
did not correctly state the law.

  We review the trial court’s jury
instructions with deference, analyzing
them as a whole to determine if
theyaccurately state the law. See United
States v. Kelly, 167 F.3d 1176, 1178 (7th
Cir. 1999). Even if we find that a jury
instruction was erroneous, we will
reverse only if we believe that the
instruction confused the jury and
therefore prejudiced the defendant. See
id. at 1179.

  In this case, it is plain that the RICO
jury instruction was deficient. We
reiterate: "simply performing services
for an enterprise, even with knowledge of
the enterprise’s illicit nature, is not
enough to subject an individual to RICO
liability under sec. 1962(c)." Goren, 156
F.3d at 728. The instruction the court
gave could not have given the jury any
idea that it needed to find that Swan
participated in the management or
operation of the enterprise.

  The government argues that any error in
the instruction was harmless and thus
does not justify reversal. While we have
no problem with the general proposition
that harmless error analysis applies to
jury instructions, see Neder v. United
States, 527 U.S. 1, 18 (1999), we do not
agree that this particular error could be
called harmless. To affirm the RICO
conviction here, we would have to find
that it was "clear beyond a reasonable
doubt that a rational jury would have
found the defendant guilty absent the
error." Id.; see also Lanier v. U.S., 205
F.3d 958, 964 (7th Cir. 2000). That we
find impossible to do on this record. It
is true that the jury found Swan guilty
of conspiring to violate sec. 1962(c)
when it convicted him on the charge in
count 2 of violating 18 U.S.C. sec.
1962(d). But this did not supply the
missing finding relating to participation
in the management or operation of the
enterprise--a finding that the jury had
no need to make under the court’s
instruction--for the simple reason that a
sec. 1962(d) conspiracy conviction does
not require the jury to find that the
defendant was an operator or manager of
the enterprise. See Brouwer v.
Raffensperger, 199 F.3d 961, 967 (7th
Cir. 2000). To convict Swan on count 2,
the jury needed only to find that he
knowingly agreed to facilitate the
activities of those operators or managers
to whom sec. 1962(c) can apply (such as
someone like Madrzyk). See id. And the
facts established by the record (that
Swan received a ghost payroll check, took
on clients referred to him by Alderman
Madrzyk, failed to file tax returns, and
used a false Social Security card) do not
prove that he managed or operated the
"enterprise" (which here was apparently
the City of Chicago itself). Because the
record does not contain overwhelming
evidence that Swan managed or operated
the enterprise, and because the jury was
not fully informed as to the elements of
a RICO violation, we reverse Swan’s
conviction on count 1.

  This conclusion, we note, however, will
have no effect on the amount of time Swan
spends in prison, even though it will
entitle him to a modest adjustment of the
special assessment he must pay. Count 1
was grouped, for sentencing purposes,
with counts 2, 5-6, and 8-16 under
U.S.S.G. sec. 3D1.2. The offense level
determined for the group depended not on
count 1, but on count 8, money
laundering, because U.S.S.G. sec. 3D1.3
provides that the offense level for the
group is derived from the count with the
highest offense level, which was money
laundering at an offense level of 25. The
total combined offense level is therefore
not affected by reversal of the RICO
charge.

III

  Swan argues next that there was
insufficient evidence to convict him of
violating either the racketeering or the
mail fraud counts. Because we are
reversing his sec. 1962(c) conviction on
other grounds, we address only the
sufficiency of the evidence to support
his mail fraud conviction. As we
constantly observe, the governing
standard of review makes success on such
a claim exceedingly hard. We must draw
all reasonable inferences in favor of the
government, and we affirm if any rational
fact finder could have determined that
Swan was guilty beyond a reasonable
doubt. See United States v. Yoon, 128
F.3d 515, 523 (7th Cir. 1997).

  A mail fraud violation occurs when
someone "for the purpose of executing [a]
scheme or artifice [to defraud] or
attempting . . . to do [so]," places in
the mails something to be delivered by a
mail carrier. 18 U.S.C. sec. 1341; see
United States v. Keane, 522 F.2d 534, 551
(7th Cir. 1975). Swan’s conviction rests
on his use of the mails to defraud the
Hinsdale Orthopedic Association. Around
December 13, 1994, Blue Cross/Blue Shield
mailed a check for $171 to Hinsdale
Orthopedics to reimburse it for the
medical services it rendered to Nova,
Swan’s girlfriend. Swan had a hand in
this mailing because he helped procure
the "ghost" job for Nova that provided
her with the Blue Cross/Blue Shield
insurance policy. Swan did not have to
mail the check himself to be guilty of
mail fraud. He only needed to cause it to
be mailed or to commit some act that
would cause the mailing of the check to
be reasonably foreseeable. See Keane, 522
F.2d at 551. When Swan got Nova the ghost
job, which came with pay and benefits, it
became reasonably foreseeable that Blue
Cross/Blue Shield would reimburse medical
institutions for her care.

  Swan claims that the check was not
mailed "for the purpose of executing [the
fraud]," as sec. 1341 requires. He points
out that United States v. Maze, 414 U.S.
395, 402 (1974) held that mail fraud
charges were not supported where the
evidence showed that reimbursement checks
had been mailed by banks to hotels after
the defendant had already used stolen
credit cards to obtain services from the
hotels. But the point of Maze was that
the defendant had already completed the
fraud when he left the hotels. Whether or
not the banks actually paid the hotel
bills did not affect the defendant. Here,
in contrast, the Blue Cross/Blue Shield
check served an important purpose in
furthering the fraud: without the check,
the fraud would have been frustrated,
because Hinsdale would simply have turned
to Nova for payment. Nova would not have
received fraudulently obtained medical
services for free. She remained
personally liable for the services she
had received until the bill was paid by
someone. The evidence of the Blue
Cross/Blue Shield mailing was sufficient
to form the basis for Swan’s mail fraud
conviction.

IV
  Swan’s final quarrel is with the
district court’s decision to allow the
government to present evidence of his
gambling and of his failure to perform
consulting services as promised. We
review the trial court’s evidentiary
decisions for abuse of discretion. See
United States v. Garcia, 986 F.2d 1135,
1139 (7th Cir. 1993).

  Normally, evidence of prior bad acts is
not admissible to show character traits
and conformity with those traits. See
Fed. R. Evid. 404(b). Such evidence is
nonetheless admissible where (1) it is
relevant to establish some matter in
issue other than the defendant’s
propensity to commit the crime, (2) it
shows that the defendant actually
committed the prior bad acts, and (3) its
probative value is not substantially out
weighed by the danger of unfair
prejudice. See Fed. R. Evid. Rules
404(b), 403; United States v. Asher, 178
F.3d 486, 492 (7th Cir. 1999). The
government argued that the evidence here
was necessary to fill out the witnesses’
stories so that they would make sense to
the jury (see, e.g., United States v.
Gill, 58 F.3d 334, 337 (7th Cir. 1995)),
and that the evidence helped to explain
Swan’s intent and motive to commit the
crimes. We do not find these grounds
persuasive. This is not a case like
United States v. Mobley, 193 F.3d 492
(7th Cir. 1999), in which the prosecution
was allowed to introduce evidence of
gambling because the defense made the
question of cash flow relevant. Here, the
references to Swan’s gambling were
gratuitous. None of Swan’s fraudulent
activity was inextricably related to his
gambling or failure to perform
contractual duties. Witnesses could have
explained their relationships with Swan
without mentioning that they met him
while gambling, and they could have
discussed their giving Swan money for
services without adding that in the end
he did not follow through. Moreover, the
fact that Swan gambled did little to
explain why he wanted to steal money.
Most people want money for a variety of
reasons, and the government did not
attempt to show any special circumstances
such as a large gambling debt hanging
over Swan’s head that would have provided
him with a particularly weighty motive to
steal. The fact that Swan did not perform
services for some clients may evidence
intent to extort, but his actual taking
of their money, also introduced into
evidence, proved that intent. The non-
performance of the services added little
or nothing.

  Even though the admission of the
evidence was probably error under Rules
404 and 403 of the Federal Rules of
Evidence, we think it clear on this
record that any error was harmless. See
Garcia, 986 F.2d at 1139. The victims of
Swan’s extortion testified against him;
several witnesses testified that Swan set
up the ghost jobs and paid Madrzyk
kickbacks; and Madrzyk himself took the
stand to testify against Swan. There was
overwhelming evidence that Swan was part
of a RICO conspiracy, and committed the
fraudulent acts with which he was
charged.

V

  In sum, we Affirm all of Swan’s
convictions with the single exception of
the conviction under Count 1, which we
Reverse. The case is Remanded to the
district court for correction of the
sentence and the special assessment
inaccordance with this opinion.