Court Opinion

ID: 2999629
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:56:09.914681+00
Date Added: 2024-06-11T11:45:38.866131
License: Public Domain

In the
    United States Court of Appeals
                For the Seventh Circuit
                          ____________

No. 05-3807
UNITED STATES OF AMERICA,
                                               Plaintiff-Appellee,
                                 v.

DARYL HARPER,
                                           Defendant-Appellant.
                          ____________
             Appeal from the United States District Court
       for the Northern District of Indiana, Hammond Division.
          No. 03 CR 28—Robert L. Miller, Jr., Chief Judge.
                          ____________
     ARGUED MAY 30, 2006—DECIDED SEPTEMBER 11, 2006
                      ____________

    Before POSNER, KANNE, and WOOD, Circuit Judges.
  KANNE, Circuit Judge. In early 2002, steep taxes imposed
by various levels of government in Illinois resulted in a levy
of 92 cents per pack for consumer purchases of cigarettes in
Chicago. At the same time, cigarettes sold in Indiana were
taxed at a mere 15.5 cents per pack. An entrepreneur with
a car and a willing buyer in Chicago could make a pretty
penny, especially if coupons could be used to keep a lid on
operating expenses.1 But arbitrage in this context is called

1
  In a two-part episode of Seinfeld, Kramer and Newman devised
a similar scheme to capitalize on Michigan’s higher deposit for
                                                  (continued...)
2                                                  No. 05-3807

tobacco diversion, and it is illegal. Daryl Harper appeals his
convictions and sentence for taking part in such a scheme.
We affirm.

                        I. HISTORY
   Harper was a manager at a corporate BP Amoco gas
station located in Hammond, Indiana, about a mile from the
Illinois border. With its proximity to Chicago, the station
sold a high volume of cigarettes. The station had 10-12
employees. Harper was responsible for setting work sched-
ules, ordering inventory (including cigarettes), counting
money, and balancing the cash register. Each morning,
Harper would verify cash and coupon receipts and make the
appropriate accounting entries. Harper reported to Vince
Gonzalez, who considered Harper to be a stellar manager
and consequently spent little time supervising him.
  Coupons accepted by the store were mailed weekly to a
document processing service in Houston, Texas, by Harper
or the assistant manager, Sheri Day. BP had no written
policy regarding the acceptance of coupons, but BP did
expect them to be honored according to the terms printed on
them. Cigarette coupons usually imposed a limit of one
coupon per carton and could be redeemed only for a particu-
lar brand of cigarette or cigarettes made by a certain
manufacturer. No coupon ever allowed a customer to “buy”
cigarettes solely with coupons.

1
  (...continued)
soda bottles and cans by using a postal truck to transport
recyclables gathered in New York for return in Michigan. Alas,
the plan was foiled by a fanatical auto mechanic in possession of
Jerry’s car and JFK’s golf clubs. Seinfeld: The Bottle Deposit:
Parts 1 & 2 (NBC television broadcast May 2, 1996).
No. 05-3807                                                 3

   In the summer of 2001, a customer named Abdelhakim
Al-Najjar (known as “Abdul”) began to frequent Harper’s
store and present coupons to purchase cigarettes. Harper
told Abdul that he would accept coupons to cover up to half
the purchase price. At first, Abdul bought cigarettes only for
his own consumption, but he then developed connections in
Illinois who wanted to buy cheap cigarettes from Indiana
for resale in Illinois. Abdul scoured newspapers for cigarette
coupons and began to buy large quantities of cigarettes,
paying for them half in coupons, and half in cash. Harper
and Abdul soon exchanged cell phone numbers.
  Abdul looked for ways to increase his volume. In July
2001, Harper told Abdul that he knew a woman named
Carol who worked for a newspaper and sold coupon inserts
for 40% of their face value. Harper gave Abdul’s number
to Carol for her to call him. Abdul bought coupons from
Carol and redeemed all of them at Harper’s store to buy
cigarettes for resale in Illinois. Carol ran out of coupons
in August, so Harper referred Abdul to a man named
Richard. Richard gave Abdul a steeper discount than Carol
did, and the coupons he sold were even precut.
  In January 2002, Abdul began redeeming coupons which
were supposed to be used to give discounts ($1.50 per pack
and $7.50 per carton) for Jade and Eve cigarettes to pur-
chase a different brand, Newport. Around March 2002,
Carol and Richard ran low on these coupons, so Abdul
asked Harper if he had any other sources. Harper said he
would send a man named “T” to Abdul. “T” came to Abdul’s
place of employment, a liquor store in Rock Island, Illinois.
“T” showed Abdul some coupons and sought to negotiate
a price, but Abdul thought they looked fake and called
Harper. Harper said he would accept the coupons anyway,
but Abdul remained reluctant. Harper met with Abdul and
pressed him to use “T”’s coupons, saying he would accept
any coupon no matter how bad it looked. Abdul said if
4                                               No. 05-3807

Harper was willing to take fakes, Abdul could make more
convincing ones himself.
  Abdul found a commercial printer who agreed to produce
copies of the Jade and Eve coupons. The coupons were
printed on bond paper rather than supercalendared newspa-
per. Abdul showed the fakes to Harper, and Harper agreed
to take the coupons, along with $400 and a bottle of cognac.
Abdul and Harper agreed Abdul would pay Harper between
$100 and $150 per store visit. Abdul passed approximately
12,000 fake strips (each with a stated value of $18) of Jade
and Eve coupons. Eventually Abdul was making at least
two pickups a day and bought up to 20 cases per trip.
  At some point, Harper told Abdul he could only accept
coupons which matched the brand purchased. Abdul found
a Newport coupon valued at $6 and told Harper he would
copy it to continue to buy Newports. Harper agreed, and
Abdul passed between 3,000 and 5,000 of these fakes.
  Abdul became the biggest customer at Harper’s store by a
wide margin. Abdul would call ahead to let employees know
how many cigarettes he planned to buy. Harper told his
cashiers to apply any coupons Abdul provided to any
purchases he made. (Harper did not give other customers
this benefit.) Because Abdul’s purchases were so large,
either Harper or Day would oversee the transactions and
count the money while cashiers rang up the sales at
Harper’s direction. Day would group the coupons into $100
increments and enter them into the cash register in batches
to save time. Harper sometimes rang up the sale before
Abdul arrived and other times after Abdul left with the
cigarettes. Abdul was submitting so many coupons they
could not fit in the cash register. Although Abdul testified
to the contrary, the register tapes showed Abdul at times
paid for entire transactions (including the Indiana cigarette
tax) with nothing but coupons.
No. 05-3807                                                5

   The copied coupons were of poor quality. Some were
illegible. Two employees questioned Day about whether it
was appropriate to accept them. Day asked Harper, who
responded by joking that even if they were counterfeits,
they should be accepted.
  Abdul’s purchases began putting a strain on the inventory
of Harper’s store, at times depleting it. In March 2002,
Harper introduced Abdul to Sharon McKinney, the manager
of another BP station nearby. Abdul began buying about
$12,000 worth of cigarettes per week from McKinney’s
store.
  The operation grew rapidly to an impressive scale. Prior
to the scheme, Harper’s store was receiving between $5,000
and $8,000 per month in coupons. Harper reported coupon
sales in March 2002 in excess of $70,000. On one day alone,
April 1, 2002, Abdul bought 1,710 cartons of cigarettes,
presenting over $25,000 in coupons. The next day, the store
accepted $34,347.17 in coupons when, by comparison, total
non-fuel sales (including cigarettes) were under $57,000.
Harper signed off on the accounting reconciliations for these
days. Harper’s coupon sales for the month of April totaled
almost $244,000.
  Before the scheme, Harper and his wife were in a finan-
cial pinch: behind on the mortgage, owing three years’
worth of back taxes, and regularly bouncing checks.
Harper’s wife had withdrawn from her 401(k) plan. But
in the Spring of 2002, Harper’s fortunes changed. From
March 13, 2002, through the end of May, $24,000 of non-
payroll income was deposited into the couple’s bank ac-
counts. Of this amount, $19,000 was deposited in April.
That month, Harper began to get his financial house in
order. He filed his 1999 and 2000 tax returns and paid off
$4,900 in back taxes. He caught up on his mortgage, had
some roofing work done, made a car loan payment, and
bought some furniture. The plan was successful by all
measures.
6                                              No. 05-3807

  But this activity did not go undiscovered in the Houston
processing center, where many types of documents received
from BP Amoco stores were sorted and coupons were
forwarded to a clearinghouse. A file clerk began to notice
huge stacks of identical cigarette coupons coming from
Indiana. She notified her superiors, who told her to hold on
to the coupons while they investigated. In May 2002, the
clearinghouse had rejected 75.7 pounds of fraudulent
cigarette coupons purporting to offer discounts for Jade,
Eve, or Newport cigarettes. BP’s investigation led them to
McKinney’s and Harper’s stores. Harper was indicted on
March 6, 2003.
   On August 11, 2003, the government mailed a letter to
Harper’s counsel at the time, Howard Towles. The letter
contained a draft analysis and report by a forensic auditor
with the Bureau of Alcohol, Tobacco, Firearms and Explo-
sives. The report tentatively concluded that Harper had
deposited $23,535 in unexplained cash into his accounts
between July 2001 and May 2002. On August 19, Harper
filed his 2001 tax return on which Harper reported, in
addition to his BP salary, $7,000 in self-employment income
as a musician and $9,000 in casino winnings. Five months
later, Harper filed his 2002 tax return, reporting another
$5,500 in musician income and $1,800 in casino winnings.
The non-salary income Harper reported on his 2001 and
2002 tax returns totaled $23,300.
  Harper submitted a W-2G form for the $1,800 casino
winnings in 2002 but provided no other evidence to the IRS
to substantiate the earnings he claimed. A W-2 from the
American Federation of Musicians showed Harper earned
$213 as a musician in 2001. Harper did not report any
income from gambling or self-employment in either 1999 or
2000.
  On December 16, 2004, the grand jury returned a 13-
count superceding indictment against Harper, Abdul, and
No. 05-3807                                                 7

Abdul’s wife.2 Count 1 charged them with conspiracy in
violation of 18 U.S.C. § 371. Counts 2 through 13 alleged
committing and abetting mail fraud in violation of 18 U.S.C.
§ 1341 and 18 U.S.C. § 2. On February 15, 2005, a jury
found Harper guilty on all counts. On September 9, 2005,
the district court held a sentencing hearing.
  Applying the 2004 version of the Guidelines, the court
determined the offense level—after accounting for the loss
amount and Harper’s position of trust—was 22. The court
then applied sentence Guideline enhancements for role in
the offense (U.S.S.G. § 3B1.1(b)) and obstruction of justice
(U.S.S.G. § 3C1.1) to increase the offense level to 27. With
a criminal history of I, the court calculated a Guidelines
range of 70 to 87 months, and then imposed a sentence at
the bottom of that range. The court ordered Harper to pay
restitution in the amount of $798,383.60 ($500,000 to BP
and $298,383.60 to the Illinois Department of Revenue) and
a $1,300 mandatory special assessment.

                      II. ANALYSIS
  Harper seeks to overturn his convictions, arguing it was
error for the district court to admit into evidence the letter
of August 11, 2003, sent by the government to Harper’s
previous attorney. Harper claims the letter should have
been excluded because it is hearsay, and it does not meet
the requirements of Federal Rule of Evidence 403. We
review with deference the trial court’s evidentiary ruling,
and will uphold it if there was no abuse of discretion. See
United States v. White, 443 F.3d 582, 591 (7th Cir. 2006)
(citation and quotation omitted); United States v. Serrano,
434 F.3d 1003, 1004 (7th Cir. 2006) (citation omitted).

2
  Abdul and his wife pled guilty, and Abdul testified against
Harper. Abdul was sentenced to 21 months’ imprisonment and his
wife received two years’ probation.
8                                               No. 05-3807

  “ ‘Hearsay’ is a statement, other than one made by the
declarant while testifying . . . offered in evidence to prove
the truth of the matter asserted.” Fed. R. Evid. 801(c). To
constitute hearsay, the August 11 letter must have been
offered to prove Harper had $23,535 in unreported income.
It was not. The letter contained the government’s prelimi-
nary estimation of Harper’s unexplained income. At trial a
revised report was used, alleging a greater amount of
unexplained income. “The inquiry is whether evidence,
while not introduced for the truth of the matter asserted,
nonetheless is probative of some element the government
must prove.” Serrano, 434 F.3d at 1005 n.2. Sudden,
unexplained cash receipts are relevant to prove a conspiracy
in which pecuniary gain is the usual motive. See United
States v. Towers, 775 F.2d 184, 187-88 (7th Cir. 1985)
(citing United States v. Chagra, 669 F.2d 241, 256 (5th Cir.
1982), overruled on other grounds by Garrett v. United
States, 471 U.S. 773 (1985).
   According to the government, after depositing $23,535
of fraudulently obtained cash into his bank accounts,
Harper had some income explaining to do, and did so by
filing two false income tax returns. Harper was already
running a couple years late in that regard, but a mere eight
days after the letter was sent, Harper filed one of his
overdue tax returns, which reported income from new,
unverifiable sources—gambling and self-employment as a
musician. A few months later, Harper filed his second
overdue tax return reporting income from the same sources.
The sum of Harper’s newfound income on these returns was
almost identical to the amount in the letter. The letter was
properly admitted to prove its effect on Harper—that its
receipt spurred him to cover his tracks— and was strong
circumstantial evidence of his guilty conscience. See Fed. R.
Evid. 801(c), 404(b); United States v. Levine, 5 F.3d 1100,
1107 (7th Cir. 1993); United States v. Norwood, 798 F.2d
1094, 1097 (7th Cir. 1986).
No. 05-3807                                                   9

  Nevertheless, Harper denies receiving the letter. Harper
points out that because the government addressed the letter
to Harper’s attorney, it is necessary to infer Harper’s
attorney gave the letter to Harper. Harper argues the
admission of the letter, and allowing that inference to be
made, violates Rule 403, which provides that relevant
evidence should be excluded if its prejudicial effect substan-
tially outweighs its probative value.
   Lawyers are expected to confer with their clients, see, e.g.,
Ill. Rules of Prof’l Conduct R. 1.4(a), and it is not unreason-
able to infer they do so. Harper testified he did not receive
the letter and points out that this lawyer’s license was
suspended shortly thereafter. But Harper’s argument points
to circumstances which merely tend to weaken the infer-
ence, not to negate it. The prejudicial effects Harper alleges
to have suffered, such as taking the stand in his own
defense, involve strategic decisions which are not within the
realm of Rule 403. The only prejudicial effect which would
have been apparent to the factfinder was the letter’s strong
probative value—the prejudice was not unfair and did not
outweigh the probative value—as such there is no basis for
exclusion under Rule 403. See Cook v. Hoppin, 783 F.2d
684, 689 (7th Cir. 1986) (citations omitted).
  Harper has not shown that the district court’s admission
of the letter into evidence was not “within the range of
options from which one could expect a reasonable trial judge
to select.” McGeshick v. Choucair, 9 F.3d 1229, 1236 (7th
Cir. 1993) (citation and quotations omitted). Therefore, we
conclude the district court did not abuse its discretion, and
Harper’s convictions should be affirmed.
  Harper also challenges his sentence, claiming the three-
level sentencing enhancement under U.S.S.G. § 3B1.1(b) for
his role in the conspiracy was erroneously applied. We
review the district court’s findings regarding role in the
offense for clear error. United States v. Sheikh, 367 F.3d
10                                              No. 05-3807

683, 687 (7th Cir. 2004) (citation omitted). We will not
reverse unless, after reviewing all evidence, we are “left
with the definite and firm conviction that a mistake has
been committed.” United States v. Carrera, 259 F.3d 818,
826 (7th Cir. 2001) (citations and quotations omitted).
Section 3B1.1(b) states, “If the defendant was a manager or
supervisor (but not an organizer or leader) and the criminal
activity involved five or more participants or was otherwise
extensive, increase by 3 levels.” As Harper sees it, he was
not a manager or supervisor and there were fewer than five
participants.
  Harper argues his role was not as a supervisor under
§ 3B1.1 but was akin to that of a broker because he did not
exercise decision-making authority over any participants.
To distinguish among aggravating roles, the Guidelines
do not draw bright lines; rather, Application Note 4 to
U.S.S.G. § 3B1.1 suggests following a functional approach
by evaluating factors relevant to the circumstances. See
Sheikh, 367 F.3d at 687-88. Management functions of a
business may overlap with the management of a criminal
enterprise where the fraud is intimately tied to the busi-
ness. Id. at 688. In this case, the defining feature of the
conspiracy was Harper’s misuse of his authority as a
manager of a business to perpetuate the fraud. Therefore,
the district court’s finding that Harper was a manager for
§ 3B1.1 purposes, although its reasoning focused on
Harper’s management of store employees, was not clearly
erroneous.
  As for Harper’s claim that there were not five participants
in the conspiracy, Application Note 1 to § 3B1.1 defines a
“participant” to be “a person who is criminally responsible
for the commission of the offense, but need not have been
convicted.” Harper admits Abdul, Abdul’s wife, and Harper
himself were participants but argues that is the end of it.
The district court found two other individuals were crimi-
nally involved, namely Said Kaisi and “T”.
No. 05-3807                                               11

  Kaisi was named in the original indictment and pled
guilty and admitted that his role in the conspiracy was to
buy cigarettes from Abdul for resale in Chicago. Harper
argues that Kaisi does not count because the original
indictment alleged the conspiracy operated during a
different time frame (July 1, 2001, through July 14, 2002)
than the evidence adduced at Harper’s trial under the
superceding indictment which alleged a shorter time
frame (January 26, 2002, through June 14, 2002). The
superceding indictment did not allege a wholly different
time frame than the original. The government merely
narrowed the time frame, which did not have the effect of
excluding Kaisi from the conspiracy. Harper makes no
attempt to explain how this could result in a clearly errone-
ous finding that Kaisi was a participant, because it was not.
  Harper argues “T” was not criminally responsible,
pointing out that he testified he did not know an individual
by the name of “T”. The district court found there was
enough evidence to find that there existed a fifth partici-
pant, referred to by Abdul as “T”, regardless of the actual
name. Participants need not be identified by actual name in
order for a supervisory enhancement to apply. See United
States v. Mansoori, 304 F.3d 635, 668-69 (7th Cir. 2002).
Abdul testified that “T”—at Harper’s direction— presented
Abdul with a sample counterfeit coupon. After Abdul told
“T” he could not use the coupons because they looked fake,
“T” offered to reduce the price. The district court deter-
mined it was more likely than not that “T” was criminally
responsible for the conspiracy, and Harper’s self-serving
testimony to the contrary does not cause this finding to be
clearly erroneous. The district court stopped counting the
criminal participants when it reached five, although it could
easily have gone higher.
  Harper does not otherwise challenge the Guidelines
calculations, or the reasonableness of his sentence at the
bottom of that range. Harper’s sentence is presumptively
12                                           No. 05-3807

reasonable, United States v. Mykytiuk, 415 F.3d 606, 608
(7th Cir. 2005), and it should be affirmed.

                 III. CONCLUSION
  For the foregoing reasons, Harper’s convictions and
sentence are AFFIRMED.

A true Copy:
      Teste:

                       ________________________________
                       Clerk of the United States Court of
                         Appeals for the Seventh Circuit

                  USCA-02-C-0072—9-11-06