Court Opinion

ID: 71513
Source: CourtListenerOpinion
Date Created: 2010-04-26 07:19:24+00
Date Added: 2024-06-11T09:39:09.227342
License: Public Domain

United States Court of Appeals,

                            Eleventh Circuit.

                              No. 95-9035.

            UNITED STATES of America, Plaintiff-Appellee,

                                     v.

                   James M. TODD, Defendant-Appellant.

                             March 31, 1997.

Appeal from the United States District Court for the Northern
District of Georgia.      (No. 1:94-CV-147-01-WCO), William C.
O'Kelley, District Judge.

Before ANDERSON, Circuit Judge, and FAY and KRAVITCH, Senior
Circuit Judges.

     FAY, Senior Circuit Judge:

     Defendant James M. Todd ("Todd") was convicted on one count of

embezzlement from an employee benefit plan in violation of 18

U.S.C. § 664 (1994). Todd appeals his conviction, arguing that the

district court erred in excluding certain evidence. 1         Because we

agree that the district court's evidentiary rulings were erroneous,

we reverse the conviction and remand for a new trial.

                               BACKGROUND

     In    1980,   Todd   founded   Clinical   Medical   Equipment,   Inc.

("CME").   CME was in the business of selling and servicing medical

equipment.   Todd was the president and sole shareholder of CME.       At

its inception, CME consisted of three or four employees working out

of Todd's home.     The company lost approximately $80,000.00 during

its first year. During the eighties, CME expanded considerably and

     1
      On appeal, Todd also contends that the district court erred
in its jury instructions. Having concluded that Todd is entitled
to a new trial on the evidentiary issue, it is unnecessary that
we address Todd's appeal of the jury instructions.
enjoyed remarkable success. Towards the end of the eighties and at

the height of CME's success, the company employed eighty employees

and posted approximately seven million dollars in sales.

     In October of 1987, CME adopted a 401(K) pension plan ("the

Plan").     One reason that CME adopted the Plan was to attract

qualified employees.          Todd was the sole trustee of the Plan.

Pursuant to the terms of the Plan, CME employees, including Todd,

could contribute to the Plan through payroll withholdings.                 CME

would then match a percentage of the employees' contributions.

Thereafter, investments check would be drawn from the Plan's bank

account   and     sent   to    the   Plan's    administrator,   Consolidated

Planning, Inc. ("Consolidated").           Consolidated would in turn make

the requisite investments on behalf of the employees.             Initially,

the Plan went according to plan, CME made its required employer

payments and the employees' withdrawals were deposited in a bank

account established exclusively for the Plan.

     At some point in 1988, the Internal Revenue Service ("IRS")

contacted   CME    about      missing    940   ("Employer's   Annual   Federal

Unemployment Tax Return") and 941 ("Employer's Quarterly Federal

Tax Return") forms from the third and fourth quarters of 1985.

Apparently, Mary Rupert, a CME employee at the time had failed to

submit these forms to the IRS.             This oversight resulted in CME

owing approximately $680,000.002 to the IRS.           The IRS placed a lien

on CME and Todd personally.             Around the same time in 1988, Todd

stopped the transfer of employees' contributions from CME's payroll

     2
      The $680,000.00 figure is derived from adding interest and
a one hundred percent late-filing penalty increase to the
original $197,000.00 owed.
account to the Plan's account.              Moreover, the employees' Plan

contributions commingled with CME's payroll account were expended

on matters not connected with the funding of the Plan.

      Throughout    the     period   that   the    Plan's   funds    were   being

misused,      various   people   informed    Todd    that    using    employees'

contributions on expenses not affiliated with the Plan violated his

fiduciary responsibilities as trustee of the Plan.                 For instance,

Scott Wilson, CME's chief operating officer from April 1988 through

March 1989, aware that Todd was not forwarding the employees'

contributions to the Plan, advised Todd that he faced civil and

criminal penalties as a result of his failure to fund the Plan.

Consolidated, also aware of Todd's failure to fund the Plan, sent

Todd letters outlining his responsibilities as the trustee of the

Plan and advising him of potential criminal sanctions.

      In November of 1990, the Department of Labor initiated an

investigation of CME to determine if the Plan was in compliance

with the Employee Retirement Income Security Act of 1974, 29 U.S.C.

§§ 1001-1461 (1994). During this investigation, Todd admitted that

employees' contributions had been used to meet other expenses, such

as the payroll and the tax debt.                  Todd also stated that the

employees were aware that their contributions to the Plan had been

used in an attempt to pay off the amount owed the IRS.                       From

September 1989 to January 1992, a Department of Labor investigator

calculated that CME had withheld more than $100,000.00 from Plan

employees' paychecks which Todd had then failed to deposit with the

Plan.   Based on this information, Todd was eventually charged in a

one   count    indictment    with    embezzling     funds   from    the   Plan   in
violation of 18 U.S.C. § 664 (1994).

      In order to prove a violation of § 664, the government must

show that a defendant (1) embezzled (2) funds (3) from an employee

benefit plan, and (4) with the specific intent to deprive the plan

of its funds.   United States v. Busacca, 936 F.2d 232, 239-40 (6th

Cir.), cert. denied, 502 U.S. 985, 112 S. Ct. 595, 116 L. Ed. 2d 619

(1991).   From the outset, Todd attempted to establish as a defense

that he lacked the specific criminal intent to deprive the Plan of

its funds.   In support of this theory of defense, Todd argues that

CME employees were compensated and treated so well that they were

more concerned with the survival of the company than the illegal

use of their employees' contributions to the Plan.            To this end,

Todd contends that the employees implicitly authorized him to use

the Plan's funds in an attempt to save CME and consequently the

employees' jobs and salaries.

     Throughout the trial, Todd's counsel attempted to establish

this defense through the testimony of various employee witnesses.

For instance, Karl Suchanek, a CME employee testified outside the

presence of the jury that he thought he was paid well.          In response

to the question, "[w]ould it be fair to say that the employees

wanted him to do whatever it took to keep this good business

going,"   Suchanek,   again,    outside   the   presence   of   the    jury,

responded in the affirmative.     The government objected to the line

of questioning on the ground of irrelevancy and the district court

sustained the objection.       Consequently, the jury never had the

opportunity to hear this portion of Suchanek's testimony.

     Defense    efforts   to   elicit   similar   testimony     from   other
employee     witnesses   were   similarly   rejected.     R8-740   (Perry

McDaniel's testimony of whether Todd acted improperly in using

Plan's money not allowed).          The district court also rejected

testimony of employees witnesses' salaries and benefits.           R6-276

(testimony of Scott Wilson's salary and car allowance excluded);

R6-374-75 (testimony of Mary Ruperts' salary increases excluded);

R6-397 (testimony of Dean Lanford's present salary excluded);         R6-

419 (testimony of John Chiappetta's CME salary excluded);          R6-457

(testimony of Stephen Randall's salary increase and car allowance

not allowed);      R8-552 (testimony of Jody Winter's salary increase

excluded).

     Despite the court's exclusion of defense evidence relating to

employees' authorization, salaries and benefits, the government was

allowed to present evidence of employees' lack of authorization and

benefits and salaries given to Todd and his family. Utilizing this

evidence, the government argued in part that in order to maintain

the salaries and benefits for himself and family, Todd embezzled

funds from the Plan.        Notwithstanding the government's knowledge

that Todd was neither allowed to offer certain evidence to rebut

the government's theory of criminal intent nor introduce evidence

favorable     to   Todd's    "employee   authorization"   defense,    the

government made the following comments during its rebuttal:

     And think of it. Use your common sense, ladies and gentlemen.
     Would you have agreed to keep throwing in money into someone
     else's corporation? They had a stake perhaps to some extent
     in keeping their jobs.    [But i]t was his corporation, his
     money to lose, and it simply defies logic to think that the
     employees would authorize this.

R12-1017-18 (emphasis added).

     The jury found Todd guilty of violating 18 U.S.C. § 664
(1994). The district court sentenced Todd to five years probation,

with the following conditions:         that he be confined at home for a

period of thirty months, perform 300 hours of community service and

pay restitution.       Todd timely filed a notice of appeal from his

conviction.     Todd appeals from various evidentiary rulings made by

the district court, contending that these rulings were erroneous in

depriving Todd of evidence necessary to his defense and necessary

to rebut the government's theory of intent.3          We have jurisdiction

to consider Todd's appeal pursuant to 28 U.S.C. § 1291 (1994).

                             STANDARD OF REVIEW

          We review a district court's evidentiary rulings under the

abuse of discretion standard. United States v. Sheffield, 992 F.2d
1164, 1167 (11th Cir.1993);          United States v. Lankford, 955 F.2d
1545, 1548 (11th Cir.1992).         In particular, we similarly review a

trial court's ruling on the relevance of evidence under the abuse

of discretion standard.       United States v. Kelly, 888 F.2d 732, 743

(11th Cir.1989).       We also note that "[s]uch discretion does not,

however, extend to the exclusion of crucial relevant evidence

necessary to establish a valid defense."           United States v. Kelly,

888 F.2d 732,   743   (11th   Cir.1989)   (quoting   United   States   v.

Anderson, 872 F.2d 1508, 1515 (11th Cir.), cert. denied, 493 U.S.
3
      Todd also argues that the evidentiary rulings were in
violation of his constitutional rights. "A fundamental principle
of constitutional law dictates that a federal court should refuse
to decide a constitutional issue unless a constitutional decision
is strictly necessary." Cone Corp. v. Florida Dep't of Transp.,
921 F.2d 1190, 1210 (11th Cir.), cert. denied, 500 U.S. 942, 111
S. Ct. 2238, 114 L. Ed. 2d 479 (1991). In view of our disposition
of the appeal on the ground that the district court abused its
discretion, it is unnecessary to reach Todd's appeal of the
evidentiary rulings on constitutional grounds.
1004,    110 S. Ct. 566,    107 L. Ed. 2d 560     (1989))    (citations        and

internal quotation marks omitted). "When "proffered evidence is of

substantial probative value, and will not tend to prejudice or

confuse, all doubt should be resolved in favor of admissibility.'

"   United States v. Wasman, 641 F.2d 326 (5th Cir. Unit B April

1981) (quoting United States v. Holt, 342 F.2d 163, 166 (5th

Cir.1965)). Under the abuse of discretion standard, we believe the

district       court    erred    in     excluding       the    disputed        evidence.

Accordingly, we reverse Todd's conviction and remand for a new

trial.

                                      DISCUSSION

     The district court for the most part excluded defense evidence

relating to employees' salaries, benefits, and whether employee

authorization had been given to Todd to use the Plan's funds.4                         The

district court excluded this evidence on the ground that it was not

relevant.

     Todd      advances   at    least    two   reasons        why   he    believes     the

evidence excluded by the district court is relevant.                          First, Todd

claims the excluded evidence was crucial to his theory of defense.

Second,    Todd    asserts      the    evidence     was    needed        to    rebut   the

government's evidence and arguments.                    We will first determine

whether the district court excluded relevant evidence that was

     4
      In addition, the district court excluded evidence relating
to CME's assets and net worth. While our discussion will not
specifically refer to these items of evidence, our conclusion
concerning the admissibility of employees' salaries and benefits
applies equally to CME's assets and net worth. Although the
government correctly argues that evidence to suggest repayment is
legally irrelevant, the evidence of CME's assets and net worth
could have been used to rebut the government's theory of Todd's
criminal intent.
crucial     to    Todd's   defense.     However,    before   making   this

determination, we must decide whether Todd's proffered defense is

valid.     United States v. Anderson, 872 F.2d 1508, 1515 (11th

Cir.1989).

     Todd attempted to offer as a defense that he in good faith

believed the employees had authorized the use of the Plan's funds

to save the company.       In support of this defense, Todd directs our

attention to United States v. Dixon, 609 F.2d 827 (5th Cir.1980).

In Dixon, a union official was convicted of embezzling funds from

his union in violation of 29 U.S.C. § 501(c) of the Labor-

Management Reporting and Disclosure Act.           This Court found that

"[t]here are two types of offenses under § 501(c): those involving

the authorized use of funds and those involving the unauthorized

use of funds."       Id. at 829.      The Court added that "[i]n cases

involving authorized use, ... the government must also prove that

the defendant "lacked a good faith belief that the expenditure was

for the legitimate benefit of the union.' "              Id. (citations

omitted).        Both parties agree that union cases involving the

embezzlement of funds under § 501(c) are analogous to the case at

hand.     Relying on this case and the above quoted language, Todd

argues his authorization defense is a legally, valid one.

     Indeed, the government acknowledged the defense before the

district court:

     [T]here was a case in the Fifth Circuit, controlling Fifth
     Circuit case, which seems to suggest that if the defendant had
     a good faith belief that his actions were authorized, that
     that may be a defense.... there is language in a Fifth Circuit
     case which seems to suggest that evidence of what individual
     employees may have thought, what use the funds were being put
     to, could arguably support a good faith belief and
     authorization defense.
R4-17-18.          Despite this government "admission" in the trial court,

in its brief before this Court, the government now argues that the

law "appears to float somewhat."               According to the government,

"proof of fraudulent intent seems to be enough with regard to

whether the disputed expenditure was authorized."                       See United

States v. Durnin, 632 F.2d 1297, 1300 n. 5 (5th Cir. Unit A 1980)

("Since       the      government      thoroughly    established    appellant's

fraudulent intent to deprive the local of its funds, we find it

unnecessary to characterize this case as one of either authorized

or unauthorized use.").5            While proof of fraudulent intent may be

enough under union fund embezzlement cases, it is unnecessary for

us to decide whether such proof is sufficient in our case, a

pension fund embezzlement case.              We do not need to address this

issue because the government failed to raise the argument before

the district court.             See Caban-Wheeler v. Elsea, 904 F.2d 1549,

1557       (11th    Cir.1990)    (An   appellate    court   generally    will   not

consider a legal issue or theory unless it was presented to the

trial court.).          Instead of raising the Durnin argument before the

district court, the government orally recognized and acknowledged

the Dixon defense.          Accordingly, the government is precluded from

raising the issue for the first time on appeal.                     The issues

surrounding this defense were tried and argued.                    Under these

circumstances we must deal with the case as presented.

       5
      In Bonner v. City of Prichard, 661 F.2d 1206 (11th
Cir.1981) (en banc), this court adopted as binding precedent
decisions of the Fifth Circuit, including Unit A panel decisions
of that circuit, handed down prior to October 1, 1981. See
Limelight Productions, Inc., v. Limelite Studios, Inc., 60 F.3d
767, 769 n. 1 (11th Cir.1995).
      With the government having tried the case with a recognition

of the "consent" defense, we must now determine if the district

court abused its discretion in excluding evidence crucial to this

defense.   Todd's defense was based on the premise that since his

employees were compensated and treated so well they implicitly

authorized him to use the Plan's funds to save CME employees' jobs

and salaries.   Todd sought to introduce evidence of employees'

salaries and benefits to prove the employees were paid extremely

high salaries relative to others in the market place.        In our

opinion, evidence to illustrate this point is relevant to Todd's

good faith defense that employees would authorize the use of the

Plan's funds for the benefit of the company and its employees.

Contrary to the government's position, we believe it is plausible

that employees could and would authorize the use of Plan's funds to

save the company if evidence demonstrated that employees were paid

very large salaries and were more concerned with the survival of

their jobs than the survival of the Plan.        To the extent the

district court excluded this evidence, we believe the district

court abused its discretion and the evidence should have been

admitted to assist Todd in his defense.

     The government further argues that evidence of employees'

salaries was already admitted via the payroll records, thus other

evidence concerning employees' salaries would be cumulative and was

properly excluded.   See Fed.R.Evid. 403.   Yet, as the record shows

the district court only admitted the payroll records because no

objection had been raised.   The record thoroughly establishes that

defense questions concerning employees' salaries were not allowed
and the government candidly admitted that defense counsel was

restricted in arguing that large salaries related to employee

authorization.     From our review of the record, it seems doubtful

that Todd's counsel could have used the payroll records during its

case in chief and closing arguments.6

     In addition, we believe the evidence was also relevant to

combat the government's criminal intent argument that Todd was

motivated by greed and selfishness to fraudulently deprive the

employees    of   the   Plan's   funds.   Throughout    the      trial,    the

government   offered    evidence   portraying   Todd   as   an   individual

motivated by greed and the only one with an interest in saving the

company.     The government introduced evidence relating to the

salaries and benefits extended to Todd and his family, particularly

Todd's son-in-law.      We believe the excluded testimony was relevant

to Todd's intent. Evidence of employee salaries and benefits could

have been used to rebut the government's evidence and argument that

Todd was the only one with an interest to save the company.                 If

Todd were able to introduce evidence of large employees' salaries

and benefits, this evidence could be used to show that others had

a strong interest in and motivation to save the company.                  This

could have put quite a different spin on the question of Todd's

intent and actions.       By disallowing the disputed evidence, the

district court deprived Todd of a chance to rebut the government's

intent argument.

     Perhaps, the most convincing reason that the evidence is

     6
      We have considered the government's other arguments as to
why the evidence was not relevant and find them to be without
merit.
relevant are the comments made by the government in its rebuttal.

The government stated that it was Todd's "corporation, his money to

lose, and it simply defies logic to think that the employees would

authorize this."        The district court allowed the government to

present evidence to establish Todd's intent and motive, however,

the defense was prohibited from proffering rebuttal evidence on the

same   issue.     In    light     of    the   district    court's    rulings,     the

government still proceeded to argue "that it defies logic to think

that the employees would authorize this."                Because Todd was unable

to introduce evidence of employees' salaries and benefits, the

government's argument went unchallenged.                 We believe the evidence

should have been admitted in order to allow Todd to argue that the

employees could have authorized the use of Plan's funds.                   The jury

might have concluded that the employees would have and did agree to

the use of any and all funds to keep the company operating.

Accordingly, we hold that the exclusion of the disputed evidence

was erroneous.

       Having decided that the district court erred in excluding

testimony    of    employees'          salaries,    benefits,       and   potential

authorization,     we     must   next     determine    whether   the      error   was

"harmless beyond a reasonable doubt."               United States v. Lankford,

955 F.2d 1545, 1552 (11th Cir.1992).                This Court has previously

stated   that     where    "the    excluded        testimony    related     to    the

determinative issue of intent, we cannot say that the error was

harmless."      United States v. Gaskell, 985 F.2d 1056, 1063 (11th

Cir.1993).      In our case, the excluded evidence goes directly to

Todd's criminal intent.           The evidence excluded by the district
court was relevant to refute the government theory of Todd's

specific criminal intent and relevant to establish a defense.         The

disputed evidence might well have established that CME employees

authorized Todd to use the Plan's funds and that CME employees had

a strong interest in saving the company.          We cannot conclude that

the exclusion of the disputed evidence was harmless beyond a

reasonable doubt.

                                CONCLUSION

     For the foregoing reasons, we REVERSE Todd's conviction and

REMAND for a new trial.

     REVERSED and REMANDED.

     KRAVITCH, Senior Circuit Judge, dissenting:

     Because I do not believe that the district court's evidentiary

rulings   in   this   case    constituted    an   abuse   of   discretion,

respectfully, I dissent.

     Todd contends that the district court reversibly erred when it

excluded, as irrelevant, testimony that:            (1) Todd's employees

implicitly authorized his appropriation of their contributions to

a 401(k) pension plan ("the Plan");           and (2) Todd's employees

earned high salaries.        "Evidentiary rulings challenged on appeal

will not be overturned absent clear abuse of discretion."           United

States v. Veltmann, 6 F.3d 1483, 1491 (11th Cir.1993).          It is not

enough that we would have admitted this evidence had we presided

over the case. "[U]nder the abuse of discretion standard of review

there will be occasions in which we affirm the district court even

though we would have gone the other way had it been our call.         That

is how an abuse of discretion standard differs from a             de novo
standard of review."         In re Rasbury,       24 F.3d 159, 168 (11th

Cir.1994).

     Todd argues that the district court should have admitted this

evidence because it was relevant to support his defense that he

lacked   the    specific    intent   to    deprive     the   Plan     of    assets.

Specifically, Todd claims he believed in good faith that his

employees      implicitly    authorized     him   to     use       their     pension

contributions to keep the company afloat.                  Assuming that this
                                              1
theory constituted a valid defense,               the   proffered          testimony

regarding    ratification2    was    too   limited   and     too    equivocal    to

transform the district court's ruling into an abuse of discretion.

Todd had to show that he in good faith believed that all the Plan's

participants would ratify his actions. Evidence that certain, even

most, of Todd's workers earned excellent salaries would have had

little probative value in establishing that Todd in good faith

believed all participating employees would ratify his use of the

Plan's funds.

     1
      The parties cite several cases decided under the union fund
embezzlement statute, 29 U.S.C. § 501(c), in discussing this
purported defense. Given the dearth of caselaw on pension fund
embezzlement, courts previously have considered union fund
embezzlement decisions in ruling on pension fund cases. See,
e.g., United States v. Butler, 954 F.2d 114, 119 n. 2 (2d
Cir.1992). Because union funds legitimately may be used in a
number of ways, but pension funds generally only may be used for
investment or payment of benefits and administrative costs, I
question whether judge-made rules from the union cases regarding
authorization or ratification ought to apply to pension cases.
     2
      Because Todd began diverting pension funds before his
employees knew all of the facts about his actions or the
company's financial condition, the employees could not authorize,
even implicitly, Todd's tactics. As a result, at most, Todd
could have had a good faith belief that once the employees
learned of the situation, they would ratify his actions.
     The proffered opinions of employees regarding ratification are

of equally limited probative value. The majority notes that during

questioning out of the jury's presence, one witness answered

affirmatively when asked if "the employees wanted [Todd] to do

whatever it took to keep this good business going."          Majority

Opinion at 1203 (emphasis added).         It is not clear from this

proffer whether all, or simply the majority, of the participating

employees shared this belief, or that they knew exactly what they

were ratifying.   In another key passage cited by Todd, a witness

proposed to testify that he "felt everybody was pretty much pulling

for [Todd] to do whatever he [could] to get this company going...."

R6:227 (emphasis added).    These statements simply lack sufficient

scope and clarity to support a ruling that the district court had

to admit them.

     Moreover,    Todd     acknowledges    that   employee    pension

contributions steadily plummeted as word of his actions spread.

This fact shows that Todd's employees did not support his use of

their pension funds.     Todd's alleged belief that his employees

would ratify his actions proved so wrong that it appears manifestly

unreasonable, and thus, unlikely to have been held in good faith.

See United States v. Cheek, 498 U.S. 192, 203-04, 111 S. Ct. 604,

611-12, 112 L. Ed. 2d 617 (1991) (noting that where jury must find

specific intent "the more unreasonable the asserted beliefs or

misunderstandings are, the more likely the jury ... will find that

the Government has carried its burden of proving knowledge").3

     3
      Todd also asserts that the salary evidence was relevant to
rebut the government's claims that he diverted funds from the
Plan for selfish reasons. Evidence that Todd generally paid his
     In sum, the evidentiary restrictions imposed by the district

court in this case do not appear to be of the same character or

significance as those limitations enforced by the district court in

the main case cited by Todd, United States v. Sheffield, 992 F.2d
1164 (11th Cir.1993) (reversing conviction where district court

prevented defendant from impeaching key government witness with

prior inconsistent statement and from introducing evidence to

negate intent).    "As we have stated previously, the abuse of

discretion standard allows "a range of choice for the district

court, so long as the choice does not constitute a clear error of

judgment.'   [I] believe the district court's decision was within

its range of choice, although perhaps not by a wide margin, and

that no clear error of judgment has been demonstrated."   Rasbury,
24 F.3d at 168 (internal citation omitted).

     Accordingly, I would affirm Todd's conviction.

workers well would not show an absence of greed. To the
contrary, Todd acknowledged that he paid high employee salaries
so that he could recruit and retain quality workers; Todd,
therefore, paid high salaries not because he was generous, but
rather because he needed good employees in order to run a
profitable company.