Court Opinion

ID: 770157
Source: CourtListenerOpinion
Date Created: 2012-04-18 10:31:08+00
Date Added: 2024-06-11T17:55:48.263448
License: Public Domain

224 F.3d 632 (7th Cir. 2000)
UNITED STATES OF AMERICA, Plaintiff-Appellee,v.GREGORY SWAN, Defendant-Appellant.
No. 98-3760
In the  United States Court of Appeals  For the Seventh Circuit
Argued December 10, 1999Decided August 10, 2000

Appeal from the United States District Court  for the Northern District of Illinois, Eastern Division.  No. 97 CR 105-3--Charles R. Norgle, Judge.[Copyrighted Material Omitted]
Before Easterbrook, Rovner, and Diane P. Wood, Circuit  Judges.
Diane P. Wood, Circuit Judge.

1
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.

2
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.

3
* 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

4
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,  and she must have asserted some control over the  enterprise. 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, 113 S.Ct. 1163.

5
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 Count1:

6
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.

7
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.

8
We review the trial court's jury instructions  with deference, analyzing them as a whole to  determine if they accurately 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.

9
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 and  operation of the enterprise.

10
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. United States,  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 and control 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 controlled 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.

11
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

12
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).

13
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.

14
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

15
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).

16
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  outweighed 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.

17
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

18
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 in accordance with  this opinion.