U.S. v. Phillips, 78-5114

• Decision Date: 09 August 1979
• Docket Number: No. 78-5114,78-5114
• Citation: 600 F.2d 535
• Parties: 4 Fed. R. Evid. Serv. 855 UNITED STATES of America, Plaintiff-Appellee, v. George PHILLIPS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 535

600 F.2d 535

4 Fed. R. Evid. Serv. 855

UNITED STATES of America, Plaintiff-Appellee, v. George PHILLIPS, Defendant-Appellant.

No. 78-5114.

United States Court of Appeals, Fifth Circuit.

Aug. 9, 1979.

Lester Makofka, Jacksonville, Fla. (Court-appointed), for defendant-appellant.

Gary L. Betz, U. S. Atty., Loretta Anderson, Asst. U. S. Atty., Jacksonville, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before GEWIN, COLEMAN and GOLDBERG, Circuit Judges.

GOLDBERG, Circuit Judge.

George Phillips drives a cement truck for a living. In July, 1972, he was hospitalized because of a condition called atriofibrillation a rapid, irregular heart beat accompanied by heart failure and lung congestion. These afflictions forced him to stop working for some months. In October of that year he applied for social security disability benefits. In March, 1973, the Social Security Administration (SSA) awarded him disability benefits, retroactive to January, 1973. In the meantime, Phillips had begun working again, although not at the pace he maintained before his illness; indeed during several weeks he did not work at all. But until March, 1974, about eighteen months after he resumed work, he did not tell the SSA that he was again working. In October, 1974, his benefits were terminated. Three years later he was charged with a misdemeanor for having failed to notify the SSA about his employment between November, 1972 and March, 1974. He was convicted by a jury and he now appeals. We reverse.

Phillips was convicted under 42 U.S.C. § 408(d), which provides:

Whoever . . . having knowledge of the occurrence of any event affecting (1) his initial or continued right to any payment under this subchapter . . . conceals or fails to disclose such event with an intent fraudulently to secure payment either in a greater amount than is due or when no payment is authorized . . . shall be guilty of a misdemeanor . . . .

Phillips does not deny that his employment was substantial and prolonged enough to affect his right to disability payments. Of course he does not deny that he knew he was employed; and he admits that he first told the Social Security Administration about his employment in March of 1974, even though he had been working, on and off, since November 1972. The only remaining question under § 408(d) is whether Phillips had "an intent fraudulently to secure payment." We hold that the government did not adduce enough evidence that Phillips had such a fraudulent intent.

" Fraudulent intent" under § 408(d) has never been authoritatively defined. Indeed § 408(d) is apparently the basis for few prosecutions and seems seldom to have been interpreted. In this case, however, the trial judge, the prosecution, and the defense all seem to agree on what constitutes fraudulent intent, and we believe their interpretation of the statute is correct. First, the government must show that the defendant knew that he was legally obligated to disclose certain information. Second, the government must prove that the defendant knew that by withholding the information he would receive greater payments than he was entitled to. In other words, a defendant is not guilty under § 408(d) unless he is aware both that he is deceiving the government and that the government will pay out more money because of his deception. Cf. Restatement of Torts, § 525 (1939) (to be guilty of deceit, defendant must have intended that plaintiff rely on defendant's misrepresentation).

The second element is apparent on the face of the statute; Congress required an intent "to secure payment . . . in a greater amount than is due," and a defendant cannot intend a consequence here, receiving a greater amount than is due ¹ unless he knows, or can reasonably be charged with knowing, that his action would have that consequence. The first element is almost equally apparent. Congress required a certain "intent," choosing not to punish careless failures to disclose; the nondisclosure must be deliberate. Congress also required an "intent Fraudulently to secure payment . . . in a greater amount than is due" (emphasis added). Congress must, therefore, have wanted to exempt recipients who deliberately failed to disclose certain information because they intended to increase their payments, but whose intention was nonetheless innocent. A recipient who thought he was entitled not to disclose would fall in this category. Finally, whatever else it involves, fraud is a matter of deliberate deception. But if a defendant does not know that the government expects him to reveal certain information, then he does not know that the government will be misled by not receiving it; so if he has deceived the government, he has not done so deliberately, and he cannot be said to have acted with a fraudulent intent. ²

Phillips's application for disability benefits specified that he was to notify the Social Security Administration if he became able to work or returned to work. Phillips, who has only a sixth-grade education, signed the application, but he testified that he did not read it; it was filled out by a Social Security representative to whom he supplied the necessary information. That representative testified that she could not remember Phillips specifically but that as a general practice she asked applicants, among other questions, whether they agreed to notify the SSA if they returned to work. Phillips testified that he did not remember that question.

On the basis of his October, 1972, application and some medical reports, Phillips was awarded disability benefits in March, 1973, retroactive to January, 1973. In January, 1974, the SSA sent Phillips a letter and a questionnaire, asking for the names of doctors he had consulted and asking if he had done any work. This was part of a routine reconsideration the SSA undertook because it thought Phillips had the kind of condition that was likely to improve. On February 7 the SSA, having received no reply, sent another letter. ³ When it still did not receive a reply, the SSA sent a representative, Michael J. Wolpert, to call on Phillips at his home. Agent Wolpert testified that Phillips told him he was working eight hours a day, two to five days a week, and that he did not remember exactly when he had begun working. Wolpert also reported that Phillips was earning more than $200 a month. Wolpert told Phillips that his payments would probably be terminated, but testified that had he been asked, which he was not, he would have advised Phillips to cash the checks he was receiving and not to return them, "because as far as I knew he was not found . . . rehabilitated, that or found un-disabled. As far as I knew at that point he was still disabled." Agent Wolpert was quite emphatic on this point. See R.Vol. 4 at 65-66.

As a result of Wolpert's interview report, the SSA inquired of Phillips's employer and learned that Phillips had been working irregularly since October, 1972. In October of 1974, the SSA decided that its original decision to award Phillips disability benefits was mistaken and it terminated his benefits.

For the next two years the SSA seems to have had no contact with Phillips. Then in October, 1976, another SSA representative, Ms. Eloise Mobley, interviewed Phillips at his home. Agent Mobley's testimony was the heart of the government's effort to show that Phillips acted fraudulently. Mobley's testimony is questionable for several reasons, ⁴ but these need not detain us. She testified:

He stated that he had been told at the initial interview that if he should return to work or if his condition improved, that he was supposed to report this to the Administration. He felt the reason why he did not report his return to work was because he felt that the check he was going to receive on disability, that he was receiving, was rightfully his, regardless of whether he worked or not.

Q Did Mr. Phillips indicate during the course of his interview that he understood the meaning of disability?

A Yes, he did.

Q Did he give a reason as to why he did not report the work activity to the Social Security Administration?

A Well, his reason was that, you know, he had worked and paid into the Social Security fund and disability had already been established for him so, you know, whether he worked or not, these checks were rightfully his.

Q Did you ask Mr. Phillips if he intended to refund the overpayment?

A Yes, I did ask him.

Q And what, how did he respond?

A Without hesitation he said no.

Q Did you ask Mr. Phillips if he reported that he had worked to the Social Security Administration?

A Yes, I did.

Q And what did he answer?

A He said no.

R.Vol. 4 at 96-97.

This evidence, taken together, can support a jury's conclusion that Phillips knew he had an obligation to report his resumed employment. The jury might have decided to discount Phillips's testimony on this point in the face of the application, the testimony of the agent who filled it out, and Agent Mobley's directly contradictory recollection.

But the evidence of the other element of fraudulent intent that Phillips knew he was not entitled to the payments he was receiving is far too threadbare. The government stresses Agent Mobley's testimony that Phillips "indicated" that he "understood the meaning of disability," but this alone cannot suffice. In the first place, this testimony may be inadmissible; arguably, it "amount(ed) to little more than choosing up sides" on an ultimate issue of fact, Fed.R.Evid. 701, Advisory Comm. Note, precisely what the Federal Evidence Rules' limitations on lay opinion are designed to exclude. ⁵ Whether or not it was inadmissible, however, Agent Mobley's observation, by itself, is insufficient to support a finding that Phillips acted with fraudulent intent. Agent Mobley did not reveal what Phillips had said, or done, to convince her that he understood "the meaning of disability." She did not quote,...