U.S. v. Pimental
| Decision Date | 19 December 2002 |
| Docket Number | Crim. No. 99-10310-NG. |
| Citation | 236 F.Supp.2d 99 |
| Parties | UNITED STATES of America v. Arthur L. PIMENTAL, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Harvey R. Peters, Peters & Moscardelli, Boston, MA, James Rehnquist, Goodwin Procter, LLP, Boston, MA, for Defendants.
Mark J. Balthazard, U.S. Attorney's Office, Boston, MA, for Plaintiff.
This case arises from one of several prosecutions brought in this district by the United States Attorney's Office at the behest of the Insurance Fraud Board of Massachusetts ("IFB"), a state-chartered but privately maintained organization created to investigate and police insurance fraud.
In this instance the IFB and U.S. Attorneys have focused on husband and wife Arthur and Loretta Pimental, who own and maintain a small, some might say a "mom-and-pop" construction business, for mail fraud. The indictment alleges that the Pimentals conspired to and did make use of the mails to misrepresent the nature of their construction work, and its amount of payroll, in order to obtain lower premiums for workers' compensation insurance. The IFB investigation that culminated in these charges was substantially assisted by the local ironworkers' union, which arranged and housed meetings between IFB investigators and former employees of Pimental who had since joined the union. Indeed, there is some suggestion in the evidence that the union facilitated the investigation in retaliation for the fact that Pimental ran a nonunion shop.
Significantly, the Pimentals were charged with a federal crime, even though remedies for conduct of this nature are amply available in the state courts — including civil remedies. Somehow the IFB, an organization representing private insurers acting under the aegis of the state, has enlisted United States Attorneys to address issues through the criminal law that they could well resolve themselves through less drastic means and with private funds. In fact, the IFB, by making case referrals to the Federal Bureau of Investigation, even selects the exemplar defendants. Moreover, the selection of a federal forum seems particularly inappropriate here. The workers' compensation system is an instrument of state law subject to the administration of state agencies.
A jury trial was held in September 2000, and the jury rejected outright the indictment's allegation of conspiracy against both defendants, all eleven of its counts of mail fraud against Loretta Pimental, and nine of the eleven counts brought against her husband. The remaining two mail fraud counts centered on mailings from an independent loss control inspector to the Pimentals' insurers. These mailings, however, had nothing to do with the determination of premiums and played no role in perpetuating the charged scheme to defraud.
Accordingly, Arthur Pimental moves under Rule 29 for entry of acquittal on both counts, notwithstanding the verdict. Pimental's Rule 29 motion is GRANTED, due to the government's failure to establish the jurisdictional requirement of "use of the mails" on the counts convicted. Pimental also moves to dismiss based on the court's earlier finding that the government's sharing of secret grand jury materials violated Federal Rule of Criminal Procedure 6(e). United States v. Pimental, 199 F.R.D. 28, 31 (D.Mass.2001) ("Pimental I"). I later found the violation to be harmless error, United States v. Pimental, 204 F.R.D. 223, 228 (D.Mass.2001) ("Pimental III"), but based on evidence at trial that for the first time reveals the full effect of the violation on the grand jury proceedings, the Pimentals renew their motion to dismiss the indictment outright. For the reasons set forth below, Pimental's Rule 6(e) motion is MOOT.
During the period of time covered in the indictment, i.e., April 1993 to April 1999 Arthur Pimental owned and operated a small construction outfit, variously named Pimental Steel Erectors, A. Pimental Steel Erectors, Inc., and A.P.S. Products, Inc. The company employed a handful of nonunion ironworkers on a seasonal basis and erected steel structures, mostly one- or two-story buildings. The erection process entailed the placement of girders, columns, and joints to support the structure, then laying corrugated-metal "decking" — the ceiling and floors of the building — and welding it into place. Though there was some suggestion in the openings that Pimental's business originally did foundation work, which involved steel-reinforced concrete, the evidence is uncontested that during the charged period, Pimental's company did not do this type of work.
To obtain workers' compensation insurance, as state law requires, see Mass. Gen. Laws c. 152, § 25A, Pimental had to provide his insurance companies, Hartford Fire Insurance Companies, Wausau, A Mutual Company, and, Savers Property & Casualty Insurance Company, with information relating to the type of work performed by his employees and the amount of pay they earned in a given period. Specifically, Pimental was required to enter a four-digit "job classification code" into forms that he would submit to his insurers. The state Workers' Compensation Rating and Inspection Bureau delineates job classifications and designates insurance rates for each classification based on the risk of injury associated with that trade. For example, the insurance rate for steel erection in 1993 was $99.35 per hundred dollars in payroll for buildings over two stories in height, and $69.22 for smaller structures. Foundation work involving steel-reinforced concrete, classified as "concrete construction," was less dangerous and thus, less expensive to insure. The rate for that work was $41.22, and for decking $19.82 or $24.66, depending upon the weight of the materials. These rates fluctuated from year to year, but the rates for welding and decking were consistently less than half the rate of concrete foundation work in a given year, which was in turn consistently less than half the rate for steel erection.
Where, as in Pimental's case, employees perform a range of tasks that fall under different classifications, an employer may list more than one classification code and parse out the tasks accordingly. In fact, in May 1999, six months before the government issued its indictment, the state Workers' Compensation Rating and Inspection Bureau issued a report describing Pimental's entitlement to do just that. The Bureau report described its review of Pimental's operations and informed Pimental of the appropriate job classifications for the various tasks his workers performed at construction sites.
The Bureau concluded that welding of steel decking inside buildings, miscellaneous welding, installation of sheet metal to building exteriors, installation of concrete foundations, and erection of steel frames all fell under different classification codes, with different insurance rates. The Bureau stated that, under the state workers' compensation regime, Pimental was entitled to allocate payroll among the various job classifications as appropriate. Though it is clear that Pimental's classification of his company's work as "concrete construction" was inaccurate, the fact that he did some steel erection work did not mean he was obligated to insure his entire operation under this category.
On September 29, 1999, a federal grand jury indicted the Pimentals on one count of conspiracy, in violation of 18 U.S.C. § 371, and fourteen counts of mail fraud, in violation of 18 U.S.C. § 1341. The indictment alleged that, where a portion of Pimental's work involved steel erection, he falsely characterized his work entirely as "concrete construction," so that he could take advantage of a lower insurance rate and pay lower premiums. The indictment did not address Pimental's entitlement to break down his operations into different tasks and insure them at different rates; thus, it did not take account of the fact that the insurance rate for concrete construction was in fact much higher than the rates for welding and decking, which represented significant components of Pimental's operations. The government also charged that Pimental understated the amount of his payroll to insurers.
The indictment was the culmination of a joint investigation conducted by the Federal Bureau of Investigation and the Insurance Fraud Bureau of Massachusetts ("IFB"). The IFB is, in the government's words, "a state-chartered, privately funded investigative entity, established by the Automobile Insurance Bureau of Massachusetts and the Workers' Compensation Bureau of Massachusetts pursuant to a grant of authority from the Massachusetts Legislature." The IFB's statutory charter assigns it the role of "prevention and investigation of fraudulent insurance transactions." Mass. St.1996, ch. 427, § 13. The IFB is a hybrid of public and private interests. Though fully funded by private insurance companies, the board of fifteen members that oversees the activity of the IFB includes five public officials.1 Id. The IFB did the preliminary inquiry into the Pimentals' practices and referred the case to the United States Attorney's Office ("USAO") for prosecution.
The relationship between prosecutors and the IFB is a cozy one. It has become the practice of the USAO to move ex parte under Rule 6(e) of the Federal Rules of Criminal Procedure for disclosure of grand jury materials to the IFB. The Rule authorizes disclosure to "any government personnel — including those of a state ... — that an attorney for the government considers necessary to assist in performing that attorney's duty to enforce federal criminal law." Fed.R.Crim.P. 6(e)(3)(A)(ii). Courts have summarily granted these motions, and the emergency judge in this case did the same.
The Pimentals challenged the delivery of grand jury materials to the IFB, and in a February 20, 2001, opinion, I held that the...
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