Court Opinion

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Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

10-20-2004

USA v. McLaughlin
Precedential or Non-Precedential: Precedential

Docket No. 00-2550

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Recommended Citation
"USA v. McLaughlin" (2004). 2004 Decisions. Paper 167.
http://digitalcommons.law.villanova.edu/thirdcircuit_2004/167

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                     PRECEDENTIAL            Patrick L. Meehan
                                                    United States Attorney
   UNITED STATES COURT OF                    Laurie Magid
APPEALS FOR THE THIRD CIRCUIT                       Deputy United States Attorney
                                                    for Policy and Appeals
                                             Robert A. Zauzmer
                                                    Assistant United States Attorney
              No. 00-2550                           Senior Appellate Counsel
                                             Bea L. Witzleben
                                                    Assistant United States Attorney
                                             Kathy A. Stark
  UNITED STATES OF AMERICA                   Philadelphia, PA 19106

                    v.                              Attorneys for Appellee

      STEVEN McLAUGHLIN,
                   Appellant                        OPINION OF THE COURT

                                             SLOVITER, Circuit Judge.
  On Appeal from the United States
District Court for the Eastern District of           This is an appeal by Steven
              Pennsylvania                   McLaughlin from his conviction and
        (D.C. No. 98-cr-00545-1)             sentence following a jury trial on a
 District Judge: Hon. Jan E. DuBois          superceding indictment charging him with
                                             conspiracy in violation of 18 U.S.C. § 371,
                                             multiple counts of stealing and embezzling
  Submitted Under Third Circuit LAR          union funds in violation of 29 U.S.C. §
       34.1(a) October 7, 2004               501(c) and 18 U.S.C. § 2, one count of
                                             failing to disclose material facts in a report
    Before: SLOVITER, VAN                    filed with the Secretary of the Department
 ANTWERPEN and COW EN, Circuit               of Labor (“DOL”) in violation of 29
             Judges                          U.S.C. §§ 431, 439(b), and perjury in
                                             violation of 18 U.S.C. § 1623.
       (Filed: October 20, 2004)
                                                    The principal issue presented is
                                             whether the District Court erred by
                                             instructing the jury that materiality was a
Stephen James Binhak                         question of law, rather than fact, for
Key Biscayne, FL 33149                       purposes of 18 U.S.C. § 1623 and 29
                                             U.S.C. § 439(b) and, if so, whether such
      Attorney for Appellant
error was harmless.1                             by union funds on a charge card issued to
                                                 M c L a u g h l i n a n d E M C A L . T he
                    I.                           Government argued that these purchases
                                                 were for M cLaughlin’s personal benefit
         McLaughlin served as President of       and hence not authorized under EMCAL’s
the Eastern Montgomery County Area               constitution. In addition, the Government
Local No. 2233 (“EMCAL”), an affiliate           attempted to prove that McLaughlin had
of the American Postal Worker’s Union            embezzled from EMCAL by causing
(“APWU”), from January 1992 until                unauthorized payroll checks to be issued in
December 1994. APWU, a national labor            his name and by causing EMCAL to
union whose membership consists of               overpay him for health insurance, life
various United States Postal Service             insurance, and retirement benefits.
employees, has five regional offices,            Finally, the Government also sought to
w h i c h a re further divided i n to            prove that McLaughlin had filed a report,
approximately 1,300 geographically-based         known in labor parlance as an “LM2
sections called “Locals.” EMCAL is the           report,” with the DOL in 1993 in which he
Local for postal employees operating in          had failed to disclose his receipt of certain
E astern M on tgom ery Co unty,                  benefits and reimbu rsem ents from
Pennsylvania.2                                   EMCAL as required by law.

      The Go vern men t presented                        In his defense, McLaughlin testified
evidence of McLaughlin’s expenditures            that other individuals affiliated with
for car repairs, local hotel stays, and          EMCAL had also used the charge card,
purchases of electronic equipment paid for       and introduced as Defense Exhibit 2 the
                                                 customer’s carbon copy of a receipt on
   1
                                                 EMCAL’s charge card for a purchase at a
       The District Court had jurisdiction       Staples Office Supplies store with a
pursuant to 18 U.S.C. § 3231; this court         signature purporting to be that of James
has jurisdiction pursuant to 28 U.S.C. §         Ma r te llo, a n E M CA L ex ecuti v e.
1291.                                            McLaughlin testified Martello had used
   2                                             the card and then had given him the
        The indictment also charged
                                                 receipt.
Nancy Zemo, the former
Secretary/Treasurer of EM CAL, with
                                                         On     c ross-ex amin ation, th e
conspiracy to steal and embezzle funds
                                                 Government produced the merchant’s copy
from the union and multiple counts of
                                                 of the receipt, identical except that it bore
stealing and embezzling union funds.
                                                 McLaughlin’s signature rather than
She was acquitted of four of the
                                                 Martello’s.       On cross-exam ination,
substantive counts and convicted of all
                                                 McLaughlin conceded that, apart from the
the other charges. Her convictions are
                                                 disparate signatures, the two documents
not at issue on this appeal.

                                             2
appeared identical.                                        a reasonable doubt, that the
                                                           L M 2 report for 1993
       The jury was unable to reach a                      contained false statements
unanimous verdict, the District Court                      o r r e p r e se n ta t i o n s o f
declared a mistrial, and the grand jury                    material facts or []omitted
returned a superceding indictment                          material facts.
charging the same offenses as the original
indictment with the addition of a perjury                  I instruct you, as a matter of
count based on McLaughlin’s testimony                      law, that statements on the
regarding Martello’s use of the charge card                1993 LM2 rep ort o f
at Staples.                                                expenses, including
                                                           reimbursed expenses, which
       On the retrial, McLaughlin’s                        must be set forth on
counsel informed the Court that he was                     Schedule 9 of the report are
unable to locate the Staples receipt                       material facts under the
previously admitted as Defense Exhibit 2.                  statute. I instruct you on
The Court informed the parties that it had                 that as a matter of law. So
made and retained photocopies of all the                   you need not concern
exhibits, including Defense Exhibit 2, and                 yourself with the issue of
McLaughlin’s defense counsel stated that                   materiality.
he would not object to the use of such a
copy at the trial.                                  Supp. App. at 1030. Similarly, with
                                                    respect to the 18 U.S.C. § 1623 charge, the
       Before instructing the jury, the             District Court instructed:
District Court advised the parties it
intended to instruct the jury that the issues              The question whether the
of materiality with respect to the perjury                 alleged false testimony was
and false reporting charges were questions                 material is a question of law
of law that it had decided in the United                   for me to decide. It is not a
States’ favor. Defense counsel objected,                   question of fact for you, the
arguing that materiality was a question of                 jury, to determine.
fact for the jury. The District Court
overruled this objection. With respect to                  And I instruct you that the
the charge that McLaughlin had failed to                   matters as to which it is
disclose a material fact to the DOL, the                   charged that defendant,
District Court instructed the jury that:                   Steven McLaughlin made
                                                           false statements . . . were
       The second element of the                           material to the proceedings
       crime . . . requires that the                       before the court. Thus, you
       Government prove, beyond                            need not decide the question

                                                3
       of materiality.                            statement”), and thus, under the Fifth and
                                                  Sixth Amendments, materiality is a
Supp. App. at 1037. Thereafter, the jury          question that must be determined by a jury
convicted McLaughlin on all charged               rather than a judge in an 18 U.S.C. § 1001
counts.                                           proceeding. Two years later, relying on its
                                                  decision in Gaudin, the Court in Johnson
        Following the sentencing hearing,         v. United States, 520 U.S. 461 (1997), held
the Court sentenced McLaughlin to serve           that materiality is an element of 18 U.S.C.
a total period of incarceration of twenty-        § 1623 (“knowingly makes any false
four months. In addition, the District            material declaration”), and therefore, it is
Court imposed a total of three years              a question for the jury. Based on these
supervised release, restitution in the            precedents, we conclude that the District
amount of $18,000, and a special                  Court’s instruction removing from the jury
assessment of $1,050.3                            the issue of materiality in its consideration
                                                  of McLaughlin’s violation of 18 U.S.C. §
       This appeal followed.                      1623 was an error of law.

                    II.                                   In contrast to 18 U.S.C. § 1623,
                                                  neither the Supreme Court nor this court
        W e generally review jury                 has decided whether materiality is an
instructions under the abuse of discretion        element of 29 U.S.C. § 439(b). That
standard. Appellate review, however, is           statute provides:
plenary when the question is whether a
district court’s instructions misstated the              Any person . . . who
law. Walden v. Georgia-Pacific Corp.,                    knowingly fails to disclose a
126 F.3d 506, 513 (3d Cir. 1997).                        material fact, in any
                                                         document [or] report . . .
                    A.                                   required under . . . this
                                                         subchapter shall be fined not
       In United States v. Gaudin, 515                   more than $10,000 or
U.S. 506 (1995), the Supreme Court of the                imprisoned for not more
United States held that “materiality” is an              than one year, or both.
element of 18 U.S.C. § 1001 (“makes any
materially false, fictitious, or fraudulent       29 U.S.C. § 439(b) (emphasis added). As
                                                  is true respecting 18 U.S.C. § 1623 and 18
                                                  U.S.C. § 1001, the statutory text of 29
   3                                              U.S.C. § 439(b) expressly requires that the
       McLaughlin has completed his
                                                  fact allegedly withheld be “material.”
service of the period of incarceration,
                                                  Compare Johnson, 520 U.S. at 465 (“The
and is currently serving his period of
                                                  statutory text expressly requires that the
supervised release.

                                              4
false declaration be ‘material.’ Gaudin             terms, applies to all errors where a proper
therefore dictates that materiality be              objection is made at trial, the Supreme
decided by the jury, not the court.”), with         Court has recognized a limited class of
United States v. Wells, 519 U.S. 482, 489-          fundamental constitutional errors that
91 (1997) (holding that “materiality” is not        “defy analysis by ‘harmless error’
element of 18 U.S.C. § 1014, a statute that         standards.” Arizona v. Fulminante, 499
does not contain materiality requirement in         U.S. 279, 309 (1991). Errors of that type
text). In other words, the logic of Gaudin          are so intrinsically harmful as to require
and Johnson compels a finding that                  automatic reversal without regard to their
materiality is an element of 29 U.S.C. §            effect on the outcome. For all other
439(b). See United States v. W. Indies              constitutional errors, the Supreme Court
Transp., Inc., 127 F.3d 299, 305 (3d Cir.           teaches that reviewing courts must apply
1997) (“Failure to submit the issue of              Rule 52(a)’s harmless-error analysis and
materiality to the jury was error. . . . That       must disregard errors that are harmless
Gaudin involved perjury under 18 U.S.C.             “beyond a reasonable doubt.” Chapman v.
§ 1001 rather than 18 U.S.C. § 1546, the            California, 386 U.S. 18, 24 (1967).
relevant statute here, is not significant
given the identical character of the                       In Neder v. United States, 527 U.S.
materiality element in both perjury                 1 (1999), the Court, relying on Gaudin,
statutes.”) (emphasis added).                       held that materiality is an element of the
                                                    federal tax fraud, mail fraud, wire fraud,
       In sum, “materiality” is an element          and bank fraud statutes under which the
of both 29 U.S.C. § 439(b) and 18 U.S.C.            appellant had been convicted. Thus, the
§ 1623. Thus, the District Court’s decision         Court held that the district court’s jury
to resolve the issue as a matter of law,            instructions, which had resolved as a
rather than submitting it to the jury as a          matter of law the materiality elements of
question of fact, violated McLaughlin’s             those charges, were in error.
rights under the Fifth and Sixth
Amendments. The instructions, therefore,                    Although the defendant there (as
were in error.                                      here) had lodged a timely objection to the
                                                    erroneous instruc tions re gard ing
                     B.                             materiality, the Court distinguished the
                                                    error at issue – a jury instruction that
        Rule 52(a) of the Federal Rules of          omitted materiality as an element of the
Criminal Procedure, which governs direct            offense – from the constitutional violations
appeals from judgments of conviction in             it had previously found were not subject to
the federal system, provides that “[a]ny            harmless-error review. See, e.g., Gideon
error, defect, irregularity or variance that        v. Wainwright, 372 U.S. 335 (1963);
does not affect substantial rights must be          Tumey v. Ohio, 273 U.S. 510 (1927).
disregarded.” Although Rule 52(a), by its           Those cases contained a “‘defect affecting

                                                5
the framework within which the trial                       Turning first to McLaughlin’s
proceeds, rather than simply an error in the       conviction under 29 U.S.C. § 439(b), we
trial process itself.’” Neder, 527 U.S. at 8       note that the United States must prove that
(quoting Arizona v. Fulminante, 499 U.S.           the defendant submitted a required
279, 310 (1991)). Such errors “‘infect the         document or report in which he
entire trial process,’” Neder, 527 U.S. at 8       “‘knowingly fail[ed] to disclose a material
(quoting Brecht v. Abrahamson, 507 U.S.            fact.’” A fact is “material” if it has “‘a
619, 630 (1993)), and “‘necessarily render         natural tendency to influence, or [is]
a trial fundamentally unfair.’” Neder, 527         capable of influencing, the decision of the
U.S. at 8 (quoting Rose v. Clark, 478 U.S.         decisionmaking body to which it was
570, 577 (1986)).                                  addressed.’” Gaudin, 515 U.S. at 509
                                                   (quoting Kungys v. United States, 485
        By contrast, Neder held that an            U.S. 759, 770 (1988)). Moreover, the
instruction that omits an element of the           issue is whether an omission was capable
offense does not necessarily render a              of influencing and not whether the
criminal trial fundamentally unfair or an          omission actually exerted any influence on
unreliable vehicle for determining guilt or        the factfinder. Thus, an omission can be
innocence. The Neder Court therefore               material even if no one actually relied on
held that the harmless error review                it. In re Cohn, 54 F.3d 1108, 1114 (3d Cir.
codified at Rule 52(a) applies when a trial        1995).
court erroneously instructs a jury that
materiality is a question of law to be                        McLaughlin was charged under 29
resolved by the court rather than a question       U.S.C. § 439(b) with failing to disclose
of fact to be resolved by the jury.                certain items on a required annual public
                                                   disclosure report, known as an “LM2
       Under the test set forth in Chapman         report,” which he had prepared and filed
v. California, 386 U.S. 18 (1967), to              on EMCAL’s behalf with the DOL. Such
determine whether a constitutional error is        reports are the means by which the DOL,
harmless, a reviewing court must decide            union members, and the general public
whether the record shows “beyond a                 obtain financial information about a
reasonable doubt that the error complained         particular union. In an LM2 report, a
of did not contribute to the verdict               union must disclose, among other things,
obtained.” Id. at 24. In other words, an           disbursements it has made to its officers –
“otherwise valid conviction should not be          including salaries, reimbursed expenses,
set aside if the reviewing court may               and direct or indirect payments. Here, the
confidently say, on the whole record, that         Government alleged that McLaughlin had
the constitutional error was harmless              omitted $11,099.04 on the 1993 LM2
beyond a reasonable doubt.” Delaware v.            r e p o r t – $ 6 , 5 4 7 . 6 2 i n a l l eg e d
Van Arsdall, 475 U.S. 673, 681 (1986).             reimbursements McLaughlin received
                                                   from EMCAL for meals, mileage, parking

                                               6
and tolls, and $4,551.42 in alleged life,          other crime at issue).
health, and retirement benefits.
                                                          More fundamentally, even if we
        McLaughlin notes that the verdict          were to conclude that McLaughlin’s 90%
form that was eventually submitted to the          figure was correct, there can be no
jury with respect to the 29 U.S.C. § 439(b)        conclusion but that th e om itted
count did not subdivide or otherwise break         information in the LM2 report was
down the various alleged reimbursements            material. McLaughlin argues that the total
and benefits that he had purportedly failed        monetary value of the omitted information
to report in the 1993 LM2 report. Rather,          was small in comparison with his total
the verdict form simply asked for a                salary and EMCAL’s total expenditures
decision of guilty or not guilty. He points        for 1993. This however, is irrelevant. As
out that at sentencing the District Court,         noted by the United States Court of
for purposes of calculating a loss amount          Appeals for the Sixth Circuit:
as to the embezzled funds, gave him
“credit” for several expected pay increases               The fact that the misstated
that he had foregone as President by                      amounts are relatively small
offsetting his foregone salary increases                  when compared with total
against the extra benefits and remuneration               union expenditures is not
McLaughlin had fraudulently received.                     particularly relevant to the
McLaughlin argues that in light of the                    issue of materiality. Instead,
District Court’s crediting at sentencing,                 the relevant inquiry is
this court should find that he had disclosed              whether the false
approximately 90% of his earnings and                     information is of the type
reimbursements, and thus that the jury,                   t h a t i s c a p a b le o f
properly instructed, may not have found                   influencing a decision of an
that the omitted informatio n was                         agency, as opposed to an
“material.”                                               e x a m i n a t io n o f t h e
                                                          magnitude of the falsehood.
        McLaughlin’s argument is flawed.
First, his 90% calculation is dubious. In          Hughes v. United States, 899 F.2d 1495,
arriving at this figure, McLaughlin makes          1499 (6th Cir. 1990); see also United
multiple unwarranted inferences and                States v. Norris, 749 F.2d 1116, 1122 (4th
conclusions. Second, it is unclear how the         Cir. 1984) (stating, in context of 18 U.S.C.
District Court’s calculation of loss amount        § 1001, “it is not the size of the payments
as to the embezzled funds (the subject of          but it is the act of making a false statement
one of the crimes) is in any way related to        about the payments that is material”).
the monetary value of the reimbursements           Certainly, the undisclosed information in
and benefits McLaughlin failed to disclose         the LM2 report was capable of influencing
in the 1993 LM2 report (the subject of the         the decision of the decisionmaking body to

                                               7
which it was addressed. Gaudin, 515 U.S.             testimony respecting Martello and the
at 509. Under 29 U.S.C. § 431(b)(3),                 receipt, which directly contradicted
McLaughlin was required to disclose all of           Martello’s trial testimony that he had been
the reimbursements and benefits he                   unaware of the existence of the charge
received from EMCAL. His omissions                   card, was plainly capable of influencing
were therefore material.                             the jury.

        We reach the same conclusion with                   We also find McLaughlin’s
respect to McLaughlin’s conviction for               argument regarding the March 1999
perjury under 18 U.S.C. § 1623, based on             mistrial unpersuasive. The fact that the
his testimony during the first trial that            March 1999 jury was unable to return a
Martello had used the charge card to make            verdict is not germane to the issue of
a legitimate union purchase at Staples. On           whether the jury in the second trial would
appeal, McLaughlin argues that his                   have found materiality if given the
primary defense at that trial to the 29              opportunity to have done so.
U.S.C. § 501(c) charges was that every
expenditure made with the charge card                        In sum, it is patent that
was a legitimate EMCAL expense. Thus,                McLaughlin’s false testimony respecting
he continues, his testimony that other               Martello’s use of the charge card had a
union officials used the charge card was             natural tendency to influence and was
tangential to his theory of the case.                capable of influencing the decision of the
Because this defense revolved around the             decisionmaking body to which it was
legitimacy of the charged expenditures, not          addressed, Gaudin, 515 U.S. at 509. We
the identity of the charge card’s user,              are satisfied that a properly instructed jury
McLaughlin argues that his statements                could not have found otherwise. Thus,
regarding Martello’s purported use of the            although the District Court incorrectly
charge card were immaterial. He also                 instructed the jury, we conclude that the
suggests that the jury’s inability to return a       record shows “beyond a reasonable doubt
verdict after the M arch trial calls into            that th[is] error . . . did not contribute to
question the materiality of his lies.                the verdict obtained.” Chapman, 386 U.S.
                                                     at 24.
       We do not find McLaughlin’s
arguments convincing. Whether or not                                     III.
union officials other than McLaughlin had
used the charge card was an important                       McLaughlin also argues that his
issue at the March 1999 trial. Testimony             counsel provided ineffective assistance by
suggesting that other individuals had used           losing a critical piece of evidence and in
the charge card was capable of raising               turn by stipulating to damaging facts
doubts in jurors’ minds as to whether                regarding the evidence.
McLaughlin was guilty. McLaughlin’s

                                                 8
        It is well settled in this court that       counsel’s stipulation that the photocopy of
Sixth Amendment ineffective assistance of           Defense Exhibit 2 (introduced as
counsel claims under Strickland v.                  Government’s Exhibit 282 at retrial) and
Washington, 466 U.S. 668 (1984), are                the merchant’s copy of a receipt received
generally not entertained on a direct               from Staples’ corporate headquarters
appeal.      See, e.g., United States v.            (Government’s Exhibit 265-A at the
Headley, 923 F.2d 1079, 1083 (3d Cir.               retrial) were, in fact, part of the same
1991). This refusal to entertain Strickland         multi-page receipt. Where a claim of
claims on direct review stems from the              ineffective assistance of counsel is based
reality that “such claims frequently involve        on attorney incompetence, the lack of a
questions regarding conduct that occurred           fully developed record often precludes a
outside the purview of the district court           comprehensive inquiry into the elements
and therefore can be resolved only after a          of strategy or tactics that may have entered
factual development at an appropriate               into defense counsel’s challenged decision.
hearing.” Gov’t of Virgin Islands v. Zepp,          Zepp, 748 F.2d at133.
748 F.2d 125, 133 (3d Cir. 1984) (internal
quotations and citations omitted); see also                Neither aspect of McLaughlin’s
United States v. Theodoropoulos, 866 F.2d           Strickland claim fits into that narrow class
587, 598 (3d Cir.1989) (“[T]he proper               of ineffectiveness claims amenable to
avenue for pursuing such a claim is                 review on direct appeal. McLaughlin’s
through a collateral proceeding.”).                 ineffective assistance of counsel claim is
                                                    thus premature.
        We have, however, recognized a
narrow exception to the rule that a                                     IV.
defendant cannot argue on direct appeal
that counse l’s perfo rman ce fa iled                      For the reasons set forth, we will
constitutional standards. As we stated in           affirm the District Court’s judgment of
Headley, “[W]here the record is sufficient          conviction and sentence and dismiss
to allow determination of ineffective               without prejudice the appeal to the extent
assistance of counsel, an evidentiary               that it claims ineffective assistance of
hearing to develop the facts is not needed.”        counsel.
923 F.2d at 1083. This case does not fit
into this narrow exception.

       The record must be developed as to
the facts surrounding counsel’s possession
and storage of Defense Exhibit 2, as well
as the cause or causes of its loss.
Similarly, on the record before us, we
cannot determine the reasonableness of

                                                9