Court Opinion

ID: 2962051
Source: CourtListenerOpinion
Date Created: 2015-09-21 20:51:51.730672+00
Date Added: 2024-06-11T11:42:25.261377
License: Public Domain

USCA1 Opinion

	

          August 18, 1993   UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 92-1959                                    UNITED STATES,                                      Appellee,                                          v.                                   RICHARD L. ROWE,                                Defendant, Appellant.                                 ____________________                                     ERRATA SHEET               The  opinion of  this  Court issued  on  July 22,  1993,  is          amended as follows:               On  page  2, footnote  1, lines  4-5,  replace "29  U.S.C.            1131;" with "29 U.S.C.    1023, 1024, and 1131;".          July 30, 1993                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                        _____          No. 92-1959                                   UNITED STATES,                                       Appellee,                                          v.                                   RICHARD L. ROWE,                                Defendant, Appellant.                                     ___________                                     ERRATA SHEET               The  opinion of  this  Court issued  on  July 22,  1993,  is          amended as follows:               On page 4, line 7 from the bottom:  strike "Fed. R.  Civ. P.          52(a)."               On page 4, last line:  change "q" in "quideline" to "g"                             UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                                 ____________________        No. 92-1959                                    UNITED STATES,                                      Appellee,                                          v.                                   RICHARD L. ROWE,                                Defendant, Appellant.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. William G. Young, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                                Boudin, Circuit Judge,                                         _____________                           Campbell, Senior Circuit Judge,                                     ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            Susan E. Silver with whom Jack F. St.  Clair and Joseph, St. Clair            _______________           __________________     _________________        & Cava were on brief for appellant.        ______            Victor  A. Wild,  Assistant United  States Attorney,  with whom A.            _______________                                                 __        John Pappalardo was on brief for appellee.        _______________                                 ____________________                                    July 22, 1993                                 ____________________                 BOUDIN, Circuit  Judge.   Pursuant to a  plea agreement,                         ______________            Richard  Rowe  pled  guilty  to  numerous   criminal  charges            stemming  from  his role  in  a  fraudulent health  insurance            scheme whose victims  were a number  of small businesses  and            their employees.1   Rowe developed and  administered a multi-            employer  health insurance  plan  which offered  below-market            rates  for  coverage comparable  to  that  provided by  other            insurance  companies,  and which  was falsely  represented as            being a tax-exempt ERISA plan "approved" by the United States            Department  of Labor.  Rowe and others involved in the scheme            mismanaged  the operation and converted plan assets and, as a            result, many  subscribers to the  plan were left  with unpaid            medical bills.                   Rowe  was sentenced  to  an aggregate  six-year term  of            imprisonment,  to  three  years  of supervised  release,  and            ordered  to  pay up  to $1,903,386  in  restitution.   He now            appeals,  challenging the following  sentencing calculations:            a  two-level increase  in his  base offense level  for victim            vulnerability,  U.S.S.G.    3A1.1; a  two-level  increase for            obstruction  of justice,  U.S.S.G.    3C1.1; and  a one-level                                            ____________________                 1Rowe  pled  guilty  to  all counts  against  him  which            included  conspiracy, 18 U.S.C.   371;  mail fraud, 18 U.S.C.                1341;  ERISA  theft,  18  U.S.C.     664;    ERISA  false            statements, 18 U.S.C.    1027; failure to  file certain ERISA            statements,  29  U.S.C.       1023,  1024,  1131;  and  ERISA            kickback, 18 U.S.C.    1954.   ERISA is the  acronym for  the            Employment Retirement Income Security  Act of 1974, 29 U.S.C.              1001 et seq.                   ______                                         -2-                                         -2-            upward departure for  causing the  loss of  confidence in  an            important institution,  U.S.S.G.    2F1.1,  application  note            10(e).  We set aside the enhancement for victim vulnerability            and otherwise affirm.                 Victim Vulnerability.  Section  3A1.1 of the  Sentencing                 ____________________            Guidelines  directs  the  sentencing   court  to  increase  a            defendant's base offense level by two levels:                 If the defendant knew or  should have known that  a                 victim of  the offense was unusually vulnerable due                 to  age, physical  or mental  condition, or  that a                 victim  was  otherwise particularly  susceptible to                 the criminal conduct . . . .            The commentary  to the  guideline states that  the adjustment            applies  "where  an unusually  vulnerable  victim  is made  a            target of criminal  activity by the  defendant."  U.S.S.G.               3A1.1, application  note 1.  The  commentary further explains            that  an  adjustment for  victim  vulnerability  is warranted            where,  for  example,  a  defendant  fraudulently markets  an            ineffective cancer  cure or targets a  handicapped person for            robbery, but not where a fraud is aimed at the general public            and "one of the victims happened to be senile."  Id.                                                             __                 The government made two  arguments in the district court            in support of  the enhancement.   First, it  said that  small            businesses such  as those  solicited  by Rowe  are unable  to            obtain  affordable  health  insurance  for  their  employees,            making them  particularly susceptible to  offers of  low-cost            health   insurance.    Second,  the  government  argued  that                                         -3-                                         -3-            individual  employees  were  rendered  vulnerable  once  they            developed medical problems because they then faced the choice            of either  continuing their payments to  Rowe's plan, despite            its nonpayment or delayed payment of their medical bills,  or            else possibly  losing their health insurance.   Rowe contends            that the district court erred in accepting these arguments as            a  basis for imposing an enhancement under section 3A1.1.  He            says  that  the  district  court  should  have  required  the            government  to  produce  evidence  that  the   employers  and            employees were in fact unusually vulnerable instead of taking                           _______            the government's assertions at face value.  We agree.                 In our  view, it may  be fair to  assume as a  matter of            reasonable inference that a number of the small businesses to            whom the insurance was sold were motivated by need as well as            by  the prospect  of savings.   It is  even more  likely that            those subscribers who were already ill when the plan faltered            would be inclined to remain longer with  the plan for lack of            alternatives.   The district  court in sentencing  matters is            not restricted  to formal  evidence, and the  court's factual            inferences,  as well  as  direct findings,  are normally  set            aside  only if "clearly erroneous."   See 9  Wright & Miller,                                                  ___            Federal Practice and Procedure   2573, at 689,   2587 (1971 &            ______________________________            1993 Supp.).                 Nevertheless, we think as  a matter of interpretation of            the guideline, cf.  United States v.  Sabatino, 943 F.2d  94,                           __   _____________     ________                                         -4-                                         -4-            102 (1st Cir. 1991),  that the enhancement does not  apply in            this  case.  In construing this guideline, the circuit courts            have been rather  quick to reverse enhancements  based on the            victims'  class membership,  without a showing  of individual            circumstances; and, in addition,  the case law has emphasized            the  need for  "unusual[]"  vulnerability and  "particular[]"            susceptibility.   U.S.S.G.    3A1.1.2   In Wilson, the  court                                                       ______            reversed the enhancement  for one who fraudulently  solicited            for "relief" funds in a town stricken by a tornado, saying:                 [I]f we  were to adopt  the government's  position,                 virtually  every  defendant  convicted of  a  crime                 involving fraudulent solicitation would  be subject                 to  an upward adjustment under    3A1.1.  Those who                 engage  in this  criminal  activity usually  target                 their solicitations at those they think most likely                 to  respond to the requests  for money.   We do not                 think,  however,  that  the  Sentencing  Commission                 intended  on  that  account  to  impose  an  upward                 adjustment on virtually all defendants convicted of                 fraudulent solicitation.            913 F.2d at 138.                 We  think  that  even  if  we  accept  the  government's            assumption that  small businesses are often  limited in their            sources  for securing  insurance, this  does not  itself show            that  measure of  "unusual"  or  "peculiar" vulnerability  or            susceptibility  of victims  needed to  invoke the  guideline.                                            ____________________                 2See, e.g., Sabatino, 943 F.2d at 103; United States  v.                  _________  ________                   _____________            Paige, 923 F.2d 112,  113-114 (8th Cir. 1991); United  States            _____                                          ______________            v. Creech, 913  F.2d 780,  781-82 (10th Cir.  1990);   United               ______                                              ______            States v. Wilson, 913 F.2d 136, 138 (4th Cir. 1990).  Compare            ______    ______                                      _______            United  States  v. Pavao,  948 F.2d  74,  78 (1st  Cir. 1991)            ______________     _____            (enhancement upheld  where district court  heard evidence  of            drug user's actual vulnerability to crime).                                         -5-                                         -5-            Apart  from directing his offers to the group "most likely to            respond,"  Wilson, 913 F.2d at  138, there is  nothing in the                       ______            record  to suggest  that  Rowe focused  special attention  on            precariously  placed  victims--conduct  evincing  the  "extra            measure of criminal  depravity which   3A1.1  intends to more            severely punish."   United States  v. Moree,  897 F.2d  1329,                                _____________     _____            1335 (5th Cir. 1990).                 We  do   not  say  that  under   the  guideline  special            vulnerability may never be  derived from class membership; as            the  commentary  states, "market[ing]  an  ineffective cancer            cure"  would  qualify for  enhancement.    U.S.S.G.    3A1.1,            application  note 1.   But  where there  is only  an ordinary            measure of  increased likeliness to respond  in the solicited            group, and no evidence that the defendant selected individual            victims  based  on  special  susceptibility,   we  think  the            enhancement does not  apply.  It is hard to articulate a more            precise standard where so much turns on degree.  The emerging            case law will pick out the pattern.                 As  for  the  individual employees  who  later developed            medical conditions, we  agree with the government that  it is            probably safe to assume that  these individuals had more than            the usual incentive to continue paying their premiums.  There            may  well  be  among  this group  some  who  were  especially            stricken  and unusually  vulnerable, just  as there  may have            been  some  small   businesses  truly  desperate   to  obtain                                         -6-                                         -6-            insurance.   Although  individuals who  became ill  after the            insurance was  sold were  hardly a special  target of  Rowe's            initial  solicitations,  it  may  be  that  their  subsequent            inability to  switch plans contributed in some  manner to his            profits.                 But in this case the thrust of the wrongdoing with which            Rowe was charged was the initial fraudulent solicitations and            the  mismanagement or looting of the plan's assets.  The near            certainty that some of the subscribers would be more enmeshed            than others appears to  have been a collateral aspect  of the            wrongdoing.   Indeed, the  situation is rather  close to  the            case in which a fraud is aimed at the general public and some            of the victims are senile or otherwise unusually susceptible.            Yet  in  that  instance the  guideline  commentary  expressly            precludes an enhancement, U.S.S.G. 3A1.1, application note 1,            presumably  because there  is  no special  targeting of  such            victims and the  added impact  is incidental.   We think  the            same result follows in this case.3                 Obstruction of Justice.  Rowe's guilty plea  encompassed                 ______________________            related charges that  were brought in Atlanta and  Boston and            that were later consolidated.   After Rowe's arrest in Boston                                            ____________________                 3At  oral  argument before  this  court,  the government            implied that  Rowe's company told individual subscribers with            medical  problems  that  they  had  no  choice,  given  their            existing conditions, other than to stay with its plan despite            late payment of their  claims.  However, no evidence  to this            effect was presented to the district court.                                         -7-                                         -7-            on  January  23,  1990,  he  was  released  on  bond  on  the            condition,  among others,  that  he appear  for all  judicial            proceedings as required.   Two days later  Rowe was arraigned            in the Atlanta case in the Northern District of Georgia.                 Shortly thereafter Rowe fled  the country, and a warrant            for  his  arrest was  issued  on April  13, 1990.    Rowe was            arrested  in Denmark by Danish  authorities on June 16, 1990,            and returned the next  month to Atlanta where he  remained in            federal  custody without  bail.   While Rowe  was out  of the            country, the district court  in Georgia heard motions  in the            case in Rowe's absence.  Rowe's action in fleeing the country            resulted  in  a  two-level  enhancement  for  obstruction  of            justice, U.S.S.G.   3C1.1, which Rowe now appeals.                 The government argues that Rowe has waived any objection            to  the enhancement  for obstruction  of justice  because his            written  objection  to the  enhancement  as  proposed in  the            presentence  report  was  not  repeated  at  the   sentencing            hearing.   At the outset  of the hearing,  the district judge            asked  Rowe's  counsel  whether  he  had  any  "additions  or            corrections"  to  make  to   the  presentence  report,  which            incorporated  an  enhancement  for  obstruction  of  justice.            Rowe's  lawyer  replied that  the  only  correction concerned            Rowe's assets and liabilities, and the discussion then turned            to the defendant's assets and to other issues.                                         -8-                                         -8-                 Notably, the government,  when asked the same  question,            said  that it had no  additions or corrections  to make, even            though  it  had  filed  its own  written  objections  to  the            presentence report.   When  the district court  then inquired            into one of  those objections, the prosecutor  told the judge            that  he had "understood the Court to be asking whether there            were any  additional matters the government  wanted to submit                      __________            to  the Court  as opposed  to argue  to the  Court."   Rowe's            lawyer  might  have reached  the  same  conclusion since  the            matter  of Rowe's assets was  a newly-raised issue.   We need            not   pursue   the  matter   because   the  enhancement   was            appropriate.                   Rowe argues  that the  obstruction enhancement  does not            apply to  flights from  arrest that  do not  endanger others.            U.S.S.G.   3C1.1, application  note 4(d), and   3C1.2.   This            is  a generally correct statement of the law but an erroneous            description  of  the reason  for  Rowe's  enhancement.   Rowe            received  the  enhancement  for  his failure  to  appear  for            judicial proceedings.  This was made clear in the presentence            report.    The commentary  to  the  obstruction guideline  in            effect at the time  of Rowe's sentencing provides for  a two-            point  increase  for  a  defendant's  "willfully  failing  to            appear, as  ordered,  for a  judicial  proceeding."  U.S.S.G.             3C1.1, application note 3(e) (1990).                                         -9-                                         -9-                 Although  this commentary  was not  in effect  when Rowe            fled to  Denmark, no ex post facto problem is presented.  The                                 _____________            1989  version of  the  guidelines were  in  effect when  Rowe            disappeared in early  1990.  The  courts have uniformly  held            that   flight  from   judicial  proceedings   constitutes  an            obstruction  of  justice  under   the  1989  version  of  the            Guidelines.   United States  v. Monroe,  990 F.2d 1370,  1375                          _____________     ______            (D.C.  Cir.  1993)  (canvassing  cases);   United  States  v.                                                       ______________            McCarthy, 961 F.2d 972, 979-80 (1st Cir. 1992).            ________                 Rowe's  only  response  to  the  actual  basis  for  the            enhancement is  that he was unaware  of probation proceedings            to obtain his passport.  It was during these proceedings that            authorities learned  of Rowe's absence from the  country.  In            his response  to the presentence report,  Rowe explained that            he had  already left for  Denmark when  the probation  office            began its efforts to secure his passport.  However, as Rowe's            counsel conceded at oral  argument in this court, one  of the            conditions  of  Rowe's  release was  that  he  turn  over his            passport.    The obvious  purpose of  the requirement  was to            prevent  Rowe  from  avoiding   prosecution  by  leaving  the            country.  We find  no error in the district  court's decision            to enhance Rowe's sentence for obstruction of justice.                   Loss of Confidence in an Important Institution.  We also                 ______________________________________________            affirm  the district  court's decision  to depart  upward one            level for loss  of confidence in  an important institution.                                           -10-                                         -10-            The commentary to  the fraud  guideline says  that an  upward            departure may be warranted if the amount of the loss involved            does  not  fully  capture  the harm  or  seriousness  of  the            conduct, and then gives several examples of when a  departure            may be appropriate.   U.S.S.G.   2F1.1,  application note 10.            One of the  examples is where "the  offense caused a loss  of            confidence in  an important  institution."   Id., application                                                         ___            note 10(e).                 In  its  presentence  memorandum, the  government  cited            articles and congressional  testimony describing the  growing            threat to the health insurance industry, and in particular to            multi-employer arrangements  for small businesses,  caused by            fraudulent  operators posing  as legitimate  insurers.   Rowe            argues  that  there was  no  evidence  that his  own  conduct            occasioned a loss of  confidence in the health industry.   In            our view no such evidence was required.                 We  think  it  obvious  that  the  many  businesses  and            employees defrauded by Rowe must have had their confidence in            health insurers shaken as  a result of their experience.   It            cannot be seriously  doubted that they and others  made aware            of the scheme are now likely to be more wary of insurers, and            especially of legitimate but relatively  unknown insurers who            cater to small businesses.   The district court did  not need            to hear evidence to reach this conclusion.  See United States                                                        ___ _____________            v.  Fousek, 912 F.2d 979,  981 (8th Cir.  1990) (evidence not                ______                                         -11-                                         -11-            necessary to show  that bankruptcy trustee's embezzlement  of            funds caused  a  loss of  confidence  in the  institution  of            bankruptcy trustees).                 We  conclude that  the vulnerability  enhancement cannot            stand but  that the  other challenges  to the  sentence fail.            The  sentence is  vacated and  the case  is remanded  for re-                              _______                   ________            sentencing consistent with this opinion.                 It is so ordered.                 ________________                                         -12-                                         -12-