U.S. v. Hausmann

• Decision Date: 22 September 2003
• Docket Number: No. 02-3945.,No. 02-3946.,02-3945.,02-3946.
• Citation: 345 F.3d 952
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Charles J. HAUSMANN and Scott P. Rise, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 952

345 F.3d 952

UNITED STATES of America, Plaintiff-Appellee, v. Charles J. HAUSMANN and Scott P. Rise, Defendants-Appellants.

No. 02-3945.

No. 02-3946.

United States Court of Appeals, Seventh Circuit.

Argued April 17, 2003.

Decided September 22, 2003.

Rehearing and Suggestion for Rehearing En Banc Denied October 28, 2003^*.

Steven M. Biskupic (argued), Office of the United States Attorney, Milwaukee, WI, for Plaintiff-Appellee.

Charles J. Hausmann (argued), Hausmann & McNally, Milwaukee, WI, Stephen M. Glynn, Craig W. Albee (argued), Glynn, Fitzgerald & Albee, Milwaukee, WI, for Defendant-Appellant.

Before BAUER, MANION, and WILLIAMS, Circuit Judges.

BAUER, Circuit Judge.

Charles P. Hausmann pleaded guilty to a charge of conspiracy to commit mail and wire fraud. A jury convicted Scott J. Rise of the same offense. Each defendant appeals from the district court's denial of his pretrial motion for dismissal of the indictment. Rise also challenges the district court's jury instructions and Hausmann appeals from his sentence based on his challenge to the district court's calculation of the loss amount attributable to the fraud. For the reasons set forth herein, we affirm the decisions of the district court and, consequently, Hausmann's sentence and Rise's conviction.

BACKGROUND

Hausmann, a Milwaukee, Wisconsin, personal injury lawyer, referred certain of his clients to Rise, a chiropractor, for chiropractic services paid from insurance settlement proceeds, in return for which Rise made corresponding payments, equal to twenty percent of the fees he collected for those services, to third-party recipients at Hausmann's direction. Recipients included (i) individuals who had provided miscellaneous personal services to Hausmann or his relatives, (ii) a marketing firm providing services at Hausmann's direction, (iii) business entities (or their agents) in which Hausmann held some interest, and (iv) charities that Hausmann supported.¹ Between October 1999 and June 2001, these payments totaled $77,062.87. Hausmann did not disclose this kickback arrangement to his clients, ordinarily victims of automobile accidents. The typical client signed a retainer agreement providing that, in exchange for the services of Hausmann's law firm, Hausmann-McNally, S.C., he or she would pay the firm one third of "whatever total sum is collected." The standard agreement also provided as follows:

The client further authorizes his attorney to pay medical and other bills incurred as a result of this accident directly to the doctors and hospitals. It is further understood and agreed that said money to pay these bills shall come from the client's portion of the settlement.

(Emphasis in original).

In January 2002, Hausmann and Rise were indicted on charges of conspiracy to commit mail and wire fraud, in violation of 18 U.S.C. § 371.² Both defendants moved for pretrial dismissal of the indictment, which they argued failed to allege a criminal offense or the essential elements thereof. The motions were heard by a magistrate judge, upon whose recommendation the district court denied them. Hausmann then entered a conditional plea of guilty on the conspiracy charge, preserving his right to appeal the denial of his motion to dismiss.

A jury convicted Rise of the conspiracy charge. At Rise's trial, his former employee testified that Rise used the term "kickback" to describe the payments. Rise filed unavailing motions for a judgment of acquittal and for arrest of judgment. The district court sentenced Hausmann and Rise each to sixty-day terms of imprisonment (stayed pending the disposition of this appeal) and twelve-month terms of supervised release, and ordered them to pay restitution in the joint and several amount of $77,062.87.

This appeal ensued.

ANALYSIS

I. Sufficiency of the Indictment and Evidence of Rise's Guilt

Appellants challenge the sufficiency of the indictment, asserting that it fails adequately to allege the elements of the underlying mail and wire fraud offense. Rise further argues that the government failed to prove the aforementioned elements and that, consequently, the district court improperly denied his motion for judgment of acquittal pursuant to Rule 29 of the Federal Rules of Criminal Procedure.

We review de novo both the sufficiency of a criminal indictment, see, e.g., United States v. Irorere, 228 F.3d 816, 830 (7th Cir.2000), and the denial of a motion for judgment of acquittal, see, e.g., United States v. Jones, 222 F.3d 349, 351 (7th Cir.2000). A valid indictment must (i) state each element of the alleged offense, (ii) provide the defendant with information adequate for the preparation of his defense, and (iii) provide sufficient basis for a judgment that would bar any subsequent prosecution for the same offense. See FED. R. CRIM. P. 7(c); United States v. Allender, 62 F.3d 909, 914 (7th Cir.1995). "The test for validity is not whether the indictment could have been framed in a more satisfactory manner, but whether it conforms to minimal constitutional standards." Allender, 62 F.3d at 914. Denial of a motion for judgment of acquittal is appropriate unless "the evidence is insufficient to sustain a conviction," FED. R. CRIM. P. 29(a). "In considering the sufficiency of the evidence, we review it in the light most favorable to the prosecution, and as long as any rational jury could have returned a guilty verdict, the verdict must stand." Jones, 222 F.3d at 352 (internal citations omitted).

Rise's appeal from the denial of his motion for judgment of acquittal is duplicative of Appellants' challenge to the sufficiency of the indictment. Both theories allege that the government failed to allege or prove, respectively, the following purported elements of the mail and wire fraud offenses underlying the conspiracy charge: (i) actual or foreseeable harm to Hausmann's clients; (ii) Hausmann's fiduciary duty in excess of that memorialized in the retainer agreements; (iii) that Hausmann's conflict of interest adversely affected his clients; (iv) intent to defraud; (v) the materiality of the nondisclosure to clients of the scheme; and (vi) the scheme's interstate jurisdictional nexus.

Where "two or more persons conspire ... to commit any offense" under Title XVIII of the United States Code "one or more of such persons [who commit] any act to effect the object of the conspiracy" may be held criminally liable therefor under 18 U.S.C. § 371. It is a violation of 18 U.S.C. §§ 1341, 1543, and 1346 to use the United States Postal Service, a private interstate courier, or an interstate wire communications service in order to implement a "scheme or artifice to defraud [by depriving] another of the intangible right of honest services." 18 U.S.C. § 1346. Despite our doubts as to the applicability of these "intangible-rights theory" provisions of the mail and wire fraud statutes to cases of breach of fiduciary duty with nothing more, this Court has suggested that liability under this theory may nonetheless result where a defendant misuses his fiduciary relationship (or information acquired therefrom) for personal gain. See United States v. Bloom, 149 F.3d 649, 655-56 (7th Cir.1998). We have held, moreover, that an employee's undisclosed derivation of profits from business he transacted on his employer's behalf amounted to a deprivation of the employer's intangible right to honest services in violation of 18 U.S.C. §§ 1341 and 1346. United States v. Montani, 204 F.3d 761, 768-69 (7th Cir.2000). Accordingly, under the intangible-rights theory of federal mail or wire fraud liability, a valid indictment need only allege, and a finder of fact need only believe, that a defendant used the interstate mails or wire communications system in furtherance of a scheme to misuse his fiduciary relationship for gain at the expense of the party to whom the fiduciary duty was owed.

Here, the indictment clearly and correctly stated the fiduciary relationship between Hausmann and his clients:

During the time period of the scheme, Hausmann-McNally, S.C., including defendant Hausmann and other agents and employees under his direction, owed a fiduciary duty to the clients of the law firm, ... [including] the obligation of Haussman-McNally to disclose to the client any financial interest that the law firm may have involving the representation; to advise the client in a conflict-free manner; ... to negotiate in the best interest of the client[; and] to provide accurate and complete information to the clients regarding the financial terms of personal injury case settlements, as well as the amount of compensation taken by the lawyers involved in the case.

(Emphasis added). Furthermore, at Rise's trial, the government presented the testimony of Hausmann's law partner, John McNally, describing the clients' dependence upon legal representation by the firm in order to settle their claims, as well as testimony from several clients describing Hausmann's written representations regarding their settlements and the firm's compensation and the reliance they placed thereupon.

The Wisconsin Supreme Court Rules of Professional Conduct for Attorneys provide that "[a] lawyer may not allow related business interests to affect representation, for example, by referring clients to an enterprise in which the lawyer has an undisclosed interest." Comment to WIS. SUP. CT. R. 20:1.7(b). Thus, the indictment's statement that "[t]he kickback arrangement was concealed from the clients of Hausmann-McNally in violation of the fiduciary duty described above" clearly alleges Hausmann's misuse of the fiduciary relationship. Testimony of clients that were unaware of the kickback scheme served as evidence at Rise's trial of the misuse of the fiduciary relationship.

The indictment also clearly alleged, and the government demonstrated at Rise's trial, that Hausmann gained over $70,000 in kickback payments made to third parties for his personal benefit or entities in which he had...