U.S. v. Novak

• Decision Date: 03 April 2006
• Docket Number: Docket No. 05-0108-CR.
• Citation: 443 F.3d 150
• Parties: UNITED STATES of America, Appellee, v. Charles NOVAK, Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

Page 150

443 F.3d 150

UNITED STATES of America, Appellee, v. Charles NOVAK, Defendant-Appellant.

Docket No. 05-0108-CR.

United States Court of Appeals, Second Circuit.

Argued, November 18, 2005.

Decided: April 3, 2006.

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Diarmuid White, White & White, New York, NY, for Defendant-Appellant.

Charles S. Kleinberg (Roslynn R. Mauskopf, United States Attorney for the Eastern District of New York, on the brief; Peter A. Norling, of counsel), Brooklyn, NY, for Appellee.

Before: SOTOMAYOR and KATZMANN, Circuit Judges, and EATON, Judge.^*

EATON, Judge.

Defendant-Appellant Charles Novak ("Novak") appeals from a January 7, 2005 judgment of conviction entered in the United States District Court for the Eastern District of New York (Trager, J.) following a jury trial. Novak was found guilty of offenses related to his position as a union official, including the unlawful receipt of labor payments (29 U.S.C. § 186(b)(1) (2000)), making false statements under the Employee Retirement Income Security Act ("ERISA") (18 U.S.C. § 1027 (2000)), mail fraud (18 U.S.C. § 1341 (2000)), money laundering (18 U.S.C. § 1956(a) (2000)), racketeering (18 U.S.C. § 1962(c) (2000)), and conspiracy (18 U.S.C. §§ 371, 1956(h) and 1962(d) (2000)). He was sentenced principally to 108 months' imprisonment. Before us is Novak's appeal of the convictions for unlawful receipt of labor payments, mail fraud, making false ERISA statements, and, consequently, the conspiracy and Racketeering Influenced and Corrupt Organization Act ("RICO") charges. For the reasons set forth below, we affirm the convictions for unlawful receipt of labor payments and for the RICO conspiracy and substantive RICO violations, reverse the convictions for mail fraud and making false ERISA statements, and order supplemental briefing regarding Novak's remaining convictions.

I.

Novak was the vice-president and business manager of Local One of the International Union of Elevator Constructors ("Local One" or "the Union"). Among other things, the Union's members operate the temporary elevators used to carry workers at construction sites in New York City. Part of Novak's job was to ensure that employers (usually construction contractors) at the sites complied with the Union's collective bargaining agreement. Novak received his salary directly from Local One.

At each job site, a "lead operator" supervised the other Union operators and decided what hours they were to work. In addition, at the close of each work week, the lead operator filled out the employees' time sheets, submitted them to a representative of the employer, and often distributed the weekly paychecks to the elevator operators. The lead operator's salary was paid by the contractor, not the Union. Nevertheless, Novak determined which Union members would act as lead operators.

The evidence at trial demonstrated that the submitted time sheets regularly included hours not actually worked by Union members. For a variety of reasons, however, the contractors agreed to the submission of these "no-show" hours. For example, the discovery that a contractor was using non-union labor to operate the elevators might lead to the issuance of a check to a Local One operator for hours not actually worked. This payment would constitute a settlement for the contractor's violation of the collective bargaining agreement. On other occasions, advance agreements between the Union and a contractor would allow the use of non-union labor, or permit a contractor to employ Union elevator operators for fewer than the contractually agreed-upon hours. These agreements required the contractor to pay the Union operators as if they had worked those hours. In each case, a time sheet would be submitted for a Local One member claiming the hours, and the contractor would issue a check payable to that member. Novak's scheme took advantage of the contractors' payments by requiring the check's recipient to kick back a portion of the wages received for the no-show hours. These kickback payments to Novak were made without the contractors' knowledge.

In order to gain the cooperation of the Union members in his corrupt arrangement, Novak used his power to assign jobs. Local One maintained hiring lists, which contained the names of members who had been laid off or were between jobs. According to Union practice, a preference was to be accorded Union members who had been on the list for the longest period of time. In other words, those who had been out of work the longest were to be the first hired. Novak, however, with the assistance of his chosen lead operators, would often ignore the hiring lists and instead refer for work favored Union members whom he trusted to participate in his kickback plan without objection. By controlling the lead operators and the assigned Union workers, Novak assured his receipt of the kickback payments. This activity served as the foundation for Novak's indictment and subsequent convictions at trial.

II.

"It [is] unlawful for an officer of a labor organization to receive or accept anything of value from someone who employs members of that labor organization." United States v. Cody, 722 F.2d 1052, 1057 (2d Cir.1983); 29 U.S.C. § 186(b)(1). Likewise, it is also a crime for an employer to "pay, lend, or deliver" anything of value to any representative of his or her employees. 29 U.S.C. § 186(a)(1). "[A]ny person who willfully violates this section shall, upon conviction thereof, be guilty of a felony." 29 U.S.C. § 186(d)(2). Novak argues that his conviction under § 186(b)(1) should be overturned because the contractors were not aware that he was receiving any of the money paid to the operators. According to Novak, this absence of knowledge by the contractors is fatal to the Government's charge. It is the Government's position, and that of the district court, that Novak's receipt of a portion of the contractors' payments as kickbacks was alone sufficient to justify a conviction under the statute. This being the case, we must determine whether Novak's conviction for violating § 186(b)(1) can be sustained if the contractors were not aware that a portion of their payments to their employees was being received by a union representative.

We first note that not all payments from an employer to a labor representative are prohibited by § 186. For instance, the statute provides an exception for certain payments made by an employer for deposit in an employee trust fund. See 29 U.S.C. § 186(c).¹ Indeed, the Supreme Court in Arroyo v. United States, 359 U.S. 419, 79 S.Ct. 864, 3 L.Ed.2d 915 (1959), reversed the conviction of a union official who deposited, for his own account, checks from an employer intended for deposit into such a fund. While acknowledging that the actions of the union representative were not devoid of criminality, the Court found that the conduct did not amount to a violation of § 186. Justice Stewart explained, "[t]he checks were drawn by the employers and delivered to the petitioner as payment to a union welfare fund. Their receipt by [petitioner], therefore, was not a violation of the federal statute, whether his intent to misappropriate existed at the time of receipt or was formed later." Arroyo, 359 U.S. at 424, 79 S.Ct. 864. Thus, Arroyo stands for the proposition that a lawful payment, lawfully received, even if later converted, does not support a conviction under § 186.

Where employer payments received by a union representative are not within a statutory exception, however, the result has been different. See Cody, 722 F.2d at 1052. In Cody, a jury convicted the defendant, the leader of a local union, of "receiving illegal benefits from employers in violation of 29 U.S.C. § 186(b)(1)." Id. at 1055. The basis for the conviction was defendant's participation in an arrangement whereby members of his union were paid by their employers to perform construction-related work, but instead spent their working hours acting as his personal chauffeurs. Id. at 1056. On appeal, defendant maintained that the government failed to establish that the employers intended to provide him with the services and, thus, that his conviction should be reversed. In upholding the conviction, this Court held "that nothing [in § 186] `requires mutuality of guilt for the conviction of either the employer or the representative of employees.'" Id. at 1059 (quoting Arroyo, 359 U.S. at 423, 79 S.Ct. 864). To convict the defendant, "[i]t was enough to show that the employers paid, lent or delivered the chauffeurs and that [defendant] accepted their services." Id. Moreover, the Court rejected defendant's argument that his case was outside the scope of the statute because the services he received were from the employees as opposed to the employers, by stating that "[t]o hold that these services came from other than the employers . . . would allow § 186 to be circumvented almost at will." Id. at 1060. Thus, under Cody, even though the payment does not violate the statute, its receipt by a labor representative can provide the basis for a conviction under § 186(b)(1). For this to be the case, however, we understand the rule of Cody to be that such conviction requires a showing that the transfer from the employer to the employee and the transfer from that employee to the union official are so closely related as to constitute a single transaction.

Novak's central argument is that Cody implicitly recognizes that the employers knew that their employees were providing personal chauffeur services. Nothing in Cody, however, compels this reading. Rather, this Court's observation that mutuality of guilt is not a prerequisite for the conviction of either an employer or a labor representative suggests otherwise. Moreover, that observation is consistent with the statute's structure. While sections 186(a) and (b) state that the making and receiving of certain payments are illegal without imposing an intent requirement, ...