603 F.2d 387 (2nd Cir. 1979), 1202, United States v. Huber

Docket Nº:1202, Docket 79-1132.
Citation:603 F.2d 387
Party Name:UNITED STATES of America, Appellee, v. Karl R. HUBER, Defendant-Appellant.
Case Date:July 20, 1979
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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603 F.2d 387 (2nd Cir. 1979)

UNITED STATES of America, Appellee,


Karl R. HUBER, Defendant-Appellant.

No. 1202, Docket 79-1132.

United States Court of Appeals, Second Circuit

July 20, 1979

Argued June 21, 1979.

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Jeffrey D. Ullman, New York City (Bohrer, Ullman & Taikeff, New York City, Barry A. Bohrer, New York City, of counsel), for defendant-appellant.

George E. Wilson, Asst. U. S. Atty., New York City (Robert B. Fiske, Jr., U. S. Atty., S.D. New York, Howard W. Goldstein, Asst. U. S. Atty., New York City, of counsel), for appellee.

Before WATERMAN, FEINBERG and TIMBERS, Circuit Judges.

FEINBERG, Circuit Judge:

Karl R. Huber appeals from a judgment of conviction following a lengthy jury trial on a multi-count indictment before Judge Charles H. Tenney in the United States District Court for the Southern District of New York. Appellant was charged in Count One with conspiring, among other things, to defraud the United States in connection with its administration of the Medicaid, Medicare and Hill-Burton programs, to make and cause to be made false statements to a government agency in a matter within its jurisdiction, and to use the mails in furtherance of a scheme to defraud in violation of 18 U.S.C. § 371. Counts Two through 24 charged appellant with making, and causing to be made, false, fictitious and fraudulent statements to the United States Department of Health, Education and Welfare in violation of 18 U.S.C. §§ 1001, 2. Counts 25-33 charged using the mails in furtherance of a scheme to defraud certain insurance companies, hospitals, the United States, and the States of New York and New Jersey in violation of 18 U.S.C. §§ 1341, 2. In addition, appellant was charged with six counts of transporting stolen money in interstate commerce, in violation of 18 U.S.C. §§ 2314, 2 (Counts 34-39), one count of making false material declarations before a grand jury in violation of 18 U.S.C. § 1623 (Count 40), and one count of conducting the affairs of an enterprise through a pattern of racketeering activity in violation of 18 U.S.C. §§ 1961, 1962(c), 1963, 2 (Count 42). 1

During the course of the trial, the district court entered judgments of acquittal on Counts 14-16, 20, 27, and 34-39. The jury convicted appellant on all of the remaining counts, and returned a special verdict in which it found that the enterprise concerned in Count 42 consisted of the following entities also found to be wholly owned by appellant: Tudor, Inc. (Tudor), Boden, Inc. (Boden), Atlantic Medical Corporation (Atlantic), Hospital Equipment Company (HEC), Debs Hospital Supplies, Inc. (Debs), Medical Facilities, and Hospital Furniture/Medical Facilities (HF/MF). Judge Tenney sentenced appellant to a three-year prison term on the conspiracy and false statement counts and a two-year term on the mail fraud counts to run concurrently with each other, and to a one-year term on the perjury count to be consecutive to the other prison terms, a total of four consecutive

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years. Appellant was fined $5,000 on the conspiracy count and on each of the false statement counts, and $1,000 on each of the mail fraud counts, a total of $108,000. The judge directed conditional forfeiture of appellant's enterprise in accordance with the special verdict on the racketeering count. The condition gave appellant the option to redeem his corporations by payment within six months of cash or other property satisfactory to the Attorney General having a value of $100,000. Appellant was also required to bear the costs of prosecution, which amounted to $19,412.72. He remains free on $50,000 bail pending appeal.

Appellant makes numerous arguments to us, variously seeking either a new trial or the striking of some of the counts and a resentencing. For the reasons set forth below, we affirm the judgment of conviction in all respects.


A number of appellant's arguments concern the legal sufficiency of the evidence. At this juncture, we briefly summarize the activities for which appellant was convicted viewing the evidence most favorably to the government. Detailed review of the evidence will be added later where necessary.

Appellant Karl R. Huber, an honors graduate of Princeton University, a 1965 graduate of Harvard Law School and a member of the New Jersey bar, joined his father, Karl Huber, in the latter's allegedly troubled business ventures instead of working for a law firm in Newark as planned. In October 1971, appellant and his father obtained control of HEC, an established New Jersey hospital supply house. HEC, through its contract division, Medical Facilities, and a series of corporate successors, entered into a number of cost-plus contracts with hospitals in New York and New Jersey for the sale of hospital and surgical supplies, furniture and equipment. The price consisted of the manufacturers' invoiced costs to HEC plus a specified mark-up (usually between five and eight percent) and the net cost of any freight. The evidence showed that the Hubers knew about and understood the nature of the cost-plus contracts from the time they took over HEC, were involved in and managed the hospital supply business on a day-to-day basis, and were kept apprised in detail about new contracts as they were made.

Shortly after the Hubers acquired HEC, and at their specific direction, HEC employees Conroy and Eckert, see note 1 supra, began to inflate the manufacturers' costs quoted to the hospitals. At appellant's suggestion, invoices were falsified where necessary. The hospitals were also charged for freight not actually incurred. The term "phantom freight," apparently coined by appellant's father, was in general usage at the office. As a result of these fraudulent practices, HEC and Medical Facilities received an effective mark-up of roughly between 18 percent and 29 percent rather than the five to eight percent specified in the contracts. There was evidence that the mails were used in connection with the scheme to defraud the hospitals. The fraudulent overcharges totalled nearly $471,000, most of which was subject to reimbursement by either the federal or state government. 2 Further, each hospital capitalized the costs incurred in outfitting it, and a depreciation expense was annually claimed as part of each hospital's operating expenses. These expenses were reported to insurance companies, which served as fiscal intermediaries for the Medicare and Medicaid Programs. The cost reports formed the basis for reimbursement by the federal and state governments, and the fraud resulted in inflated depreciation claims of nearly $105,000. The nature of the federal and state hospital funding programs was made clear to the Hubers from the outset of their involvement in the hospital supply operation,

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and they understood that those programs would stimulate hospital expansion.

In July 1977, appellant appeared before a grand jury that was investigating whether fraud had been committed by HEC or its successors. Appellant denied to the grand jury that he exercised close control over the hospital business and that he knew of the cost-plus nature of the contracts or the meaning of the term "phantom freight." The proof at trial overwhelmingly showed otherwise.

In defense, appellant contended that he and his father had been cheated by Conroy and Eckert and that if appellant was directly involved in the fraudulent scheme, because of the peculiar relationship between him and his domineering father, appellant lacked the independence of will necessary to form the intent needed to sustain the convictions. Numerous witnesses, expert and otherwise, testified on this latter point. Appellant also testified in his own defense.


Appellant makes several challenges to his conviction on Count 42 of the indictment, which charged that he conducted the affairs of an enterprise through a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c), and which resulted in the forfeiture of the enterprise pursuant to 18 U.S.C. § 1963. Those provisions are part of Title IX of the Organized Crime Control Act of 1970 (Act), Pub.L. No. 91-452, 84 Stat. 922, reprinted in (1970) U.S.Code Cong. & Admin.News p. 1073, which was enacted in response to what Congress perceived as the threat to the American economy from the unchecked growth of organized crime. United States v. Parness, 503 F.2d 430, 439 (2d Cir. 1974), cert. denied, 419 U.S. 1105, 95 S.Ct. 775, 42 L.Ed.2d 801 (1975). The Act was intended in part to remedy

defects in the evidence-gathering process of the law inhibiting the development of the legally admissible evidence necessary to bring criminal and other sanctions or remedies to bear on the unlawful activities of those engaged in organized crime and because the sanctions and remedies available to the Government are unnecessarily limited in scope and impact. 3

Title IX of the Act added a new Chapter 96 to Title 18 of the United States Code, entitled "Racketeer Influenced and Corrupt Organizations" (RICO). The purpose of RICO is to enable law enforcement authorities not only to punish individual criminals, but to separate the corrupt interstate enterprises in which they were involved from their criminal organizations so that prosecutions will do more than merely impose a "compulsory retirement and promotion system as new people step forward to take the place of those convicted." S.Rep. 91-617, 91st Cong., 1st Sess. 78 (1969) (Senate Report). Thus, in order to "deal not only with individuals, but also with the economic base through which those individuals constitute such a serious threat to the economic well-being of the Nation," id. at 79, RICO, in 18 U.S.C. § 1963, imposes the sanction of forfeiture of an "enterprise" involved in violations of 18 U.S.C. § 1962.

That section specifies the kinds of corrupt infiltration into...

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