U.S. v. Pimental, 03-1093.

• Decision Date: 30 August 2004
• Docket Number: No. 03-1093.,No. 03-1153.,03-1093.,03-1153.
• Parties: UNITED STATES of America, Appellant/Cross-Appellee, v. Arthur L. PIMENTAL, Defendant, Appellee/Cross-Appellant.
• Court: U.S. Court of Appeals — First Circuit

380 F.3d 575

UNITED STATES of America, Appellant/Cross-Appellee, v. Arthur L. PIMENTAL, Defendant, Appellee/Cross-Appellant.

No. 03-1093.

No. 03-1153.

United States Court of Appeals, First Circuit.

Heard June 9, 2004.

Decided August 30, 2004.

Appeal from the United States District Court for the District of Massachusetts, Nancy Gertner, J.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Mark J. Balthazard, Assistant U.S. Attorney, with whom Michael J. Sullivan, U.S. Attorney, was on brief, for appellant.

James C. Rehnquist, with whom Sarah E. Walters, Miriam Kim, and Goodwin Procter LLP were on brief, for appellee.

Before LYNCH, Circuit Judge, ROSENN, Senior Circuit Judge,^* and LIPEZ, Circuit Judge.

LYNCH, Circuit Judge.

This workers' compensation insurance fraud criminal case produced an appeal from both sides. The government appeals the district court's dismissal of two counts on which a jury had convicted, while the defendant cross-appeals on the ground that the entire case should have been dismissed because of an alleged violation of the grand jury secrecy rule, embodied in Fed.R.Crim.P. 6(e). We conclude, despite the able representation of Pimental, that (1) the district court erred in dismissing the two counts and we reinstate the jury convictions and conclude that (2) there was no violation by the prosecution here of Rule 6(e) at all. This second point is a matter of first impression.

After a jury convicted Arthur Pimental of two counts of mail fraud, the district court dismissed the convictions because it found that the two underlying mailings were not "in furtherance" of Pimental's fraudulent scheme. United States v. Pimental, 236 F.Supp.2d 99 (D.Mass.2002). Pimental's scheme involved lying to various workers' compensation insurance company representatives about the nature and scope of his company's work; his false statements tended to reduce the premium payments he owed for workers' compensation insurance. The government appeals the district court's decision, arguing that the two mailings furthered Pimental's scheme by helping to ensure that the insurance company did not discover his earlier misrepresentations.

Pimental cross-appeals, arguing that his indictment should be dismissed because the prosecuting attorney disclosed secret grand jury materials to an investigator for the Massachusetts Insurance Fraud Bureau (IFB). Pimental argues that the rule allowing disclosure of grand jury materials to "government personnel" in certain circumstances, Fed.R.Crim.P. 6(e)(3)(a)(ii), was inapplicable because the IFB investigator was a private actor. The IFB, which investigates potential cases of insurance fraud, is authorized and structured by Massachusetts statute, but partially run and entirely funded by insurers.

We reverse the district court's dismissal of Pimental's convictions, finding that the mailings by insurance company representatives that formed the basis of the two counts of conviction were indeed in furtherance of Pimental's fraudulent scheme. Additionally, we reject Pimental's cross-appeal because we conclude that the first district court (not the trial court) did not err when it found the IFB investigators here are "government personnel" within the meaning of Fed.R.Crim.P. 6(e)(3)(A)(ii) and so authorized the prosecutor to reveal grand jury materials to them.

I. Factual Background

The facts are described in the light most favorable to the jury's guilty verdict.

Arthur Pimental and his wife, Loretta Pimental (for ease of reference we refer to her as Loretta and to Arthur as Pimental), owned and operated Pimental Steel Erectors ("Pimental Steel") starting sometime in the early 1980's. In late 1989, Pimental Steel allowed its workers' compensation insurance to lapse; this violated Massachusetts law. Massachusetts requires all employers to maintain workers' compensation insurance which covers their employees in the case of an on-the-job injury or job-related illness. Mass. Gen. L. ch. 152, § 25A. Over three years later, in April 1993, Arthur Pimental mailed a written application to the Massachusetts Workers' Compensation Rating and Inspection Bureau (MWCRIB) to resume Pimental Steel's workers' compensation coverage. MWCRIB, a private non-profit association of insurers that is licensed under Massachusetts law, Mass. Gen. L. ch. 152. § 52C, uses a risk pool to assign insurance companies to provide workers' compensation insurance on pre-set terms to applicant-employers. The fraud charges started here.

On the MWCRIB application form, Pimental described the operations of his business as involving "concrete construction incl[uding] foundations" and added that it "puts in foundations." Concrete foundation work involves laying concrete and reinforcing it with steel rods and is also known as "rebar." MWCRIB processed the application, assigned it to the Hartford Fire Insurance Company ("Hartford Insurance"), and notified Pimental via the mail that the estimated premium for the year, based on his application, was $12,425.

Despite what was said in the MWCRIB application, Pimental Steel had never at any point been involved in concrete foundation work. Rather, throughout the relevant period, its business performed mainly steel erection and related work, such as welding and decking. Steel erection involves the placement of girders, columns, and joints to support a structure, then laying corrugated-metal decking for the ceiling and floors of the building and welding it into place. Steel erection work carries a significantly higher risk of injury than does concrete foundation work.

Because workers' compensation premiums are set based upon the kind of work performed and the amount of a business's payroll, Pimental's incorrect description on the MWCRIB application affected the premium payments Pimental Steel owed. In 1993, the premium payment for steel erection of structures over two stories was $99.35 per every hundred dollars of payroll¹ (reduced to $69.22 for structures under two stories), while the rate was $41.22 for concrete foundation work. Some of the work that Pimental Steel actually performed, however, had lower premium rates than concrete foundation work: the rate for decking was $24.66 or $19.82, depending on the type of metal used, while the rate for welding was $23.56. Where, as in the case of Pimental Steel, employees perform tasks that have different premium rates, the total premium cost can be calculated by parsing out the hours that employees spent on each different task, so long as appropriate documentation is maintained. One witness testified that 80% of the work Pimental Steel did for him was steel erection and decking and that the remaining 20% was "miscellaneous."

In September of 1993, Joseph F. Brugman, an auditor for Hartford Insurance, met with Loretta Pimental to perform an initial audit on Pimental Steel's insurance application. In addition to such initial audits, which are conducted at the start of an insurer's relationship with an insured, insurers normally perform audits once a year at the conclusion of each annual policy period. The auditors determine the insurance classification for the work that the insured's employees performed and the total amount of salary paid to them. Using this information, the insurance companies calculate the final amount that the employer owes for the year.

During the initial audit meeting, Loretta told Brugman that Pimental Steel was, as the MWCRIB application had represented, involved in concrete foundation work. She did not tell Brugman that Pimental Steel was involved in any way in steel erection, welding, or decking, even though Brugman explained to her that Pimental Steel's operations could be split into different classifications for insurance purposes. At the later year-end audit in July 1994, also conducted by Brugman, Loretta repeated this description of Pimental Steel's business operations.

Several months after Brugman conducted his year-end audit, William Brooks, a loss-control inspector for Hartford Insurance, met with Arthur Pimental. In contrast to auditors, the purpose of loss-control inspectors is not to verify the accuracy of the information given by policyholders, but instead to "assist[] policyholders in their efforts to control costly accidents and/or injuries." During that meeting Pimental once again represented, wrongly, that his business involved rebar. Pimental also told Brooks that he did not currently have any employees and that there were not any ongoing projects that Brooks could observe. This was also not true: Pimental paid an employee wages three days after his meeting with Brugman.

On October 5, 1994, Brooks mailed an "Account Data Report" to Hartford Insurance that summarized his meeting with Pimental. The letter began by stating that "[t]he insured describes his business [ ]as that of the installation of reenforcing bars and rods for floors and walls." Brooks's standard practice is to inform insureds that he will turn over a copy of his loss-control report to the insurance company, and that the company will inform the employer of any recommendations to improve worker safety. However, Brooks testified that he had no specific recollection of whether he had informed Pimental of this procedure during their meeting.

The Pimentals renewed their workers' compensation insurance coverage with Hartford Insurance in May 1995. Hartford sent them a letter detailing the terms of coverage; under the heading "Business of Named Insured," the letter read "concrete construction." In July 1995, Hartford auditor Mark Lawrence met with Loretta Pimental to conduct an audit of the May 1994 to May 1995 policy period. During that meeting, Lawrence asked Loretta if the company did any steel erection work, given that the company's name is "Pimental Steel Erectors." Loretta responded that the company only did concrete rebar work, and did not work on steel erection, despite its name.

Lawrence also asked Loretta for...