U.S. v. Rybicki

• Decision Date: 23 April 2002
• Docket Number: Docket No. 00-1044(CON).,Docket No. 00-1052(XAP).,Docket No. 00-1043(L).,Docket No. 00-1055(CON).
• Citation: 287 F.3d 257
• Parties: UNITED STATES of America, Appellee-Cross-Appellant, v. Thomas RYBICKI, Fredric Grae, Grae, Rybicki & Partners, P.C., Defendants-Appellants-Cross-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

287 F.3d 257

UNITED STATES of America, Appellee-Cross-Appellant, v. Thomas RYBICKI, Fredric Grae, Grae, Rybicki & Partners, P.C., Defendants-Appellants-Cross-Appellees.

Docket No. 00-1044(CON).

Docket No. 00-1043(L).

Docket No. 00-1052(XAP).

Docket No. 00-1055(CON).

United States Court of Appeals, Second Circuit.

Argued December 4, 2000.

Decided April 23, 2002.

COPYRIGHT MATERIAL OMITTED

Barry E. Schulman, Law Office of Barry E. Schulman, (Deborah A. Santelmo on the brief), Brooklyn, NY, for Defendant-Appellant-Cross-Appellee Rybicki.

Ephraim Savitt, New York, NY, for Defendant-Appellant-Cross-Appellee Grae.

Herald Price Fahringer, Lipsitz, Green, Fahringer, Roll, Salisbury & Cambria LLP (Erica T. Dubno on the brief), New York, NY, for Defendant-Appellant-Cross-Appellee Grae, Rybicki & Partners, P.C.

Daniel R. Alonso and Karen R. Sage, Assistant United States Attorneys (Loretta E. Lynch, United States Attorney for the Eastern District of New York, Peter A. Norling and David C. James, Assistant United States Attorneys, on the brief), Brooklyn, NY, for Appellee-Cross-Appellant.

Before: WALKER, Chief Judge, CABRANES and STRAUB, Circuit Judges.

JOHN M. WALKER, JR., Chief Judge.

Defendants-appellants Thomas Rybicki, Fredric Grae, and the law firm of Grae, Rybicki & Partners, P.C. appeal from the January 27, 2000 judgments of the district court, following a jury trial, convicting them of mail and wire fraud and conspiracy to commit mail fraud, in violation of 18 U.S.C. §§ 1341, 1343, and 371, based on their practice of making payments through middlemen or expediters to insurance company adjusters in return for more favorable settlements in personal injury lawsuits.

Following an eight-week trial, the jury returned a verdict of guilty against each defendant on twenty counts of mail fraud, in violation of 18 U.S.C. § 1341, two counts of wire fraud, in violation of 18 U.S.C. § 1343, and one count of conspiracy to commit mail fraud, in violation of 18 U.S.C. § 371. Appellants Grae and Rybicki were each sentenced by the district court to terms of imprisonment of one year and one day, three years of supervised release, a $20,000 fine, and a $1,150 special assessment. The district court stayed appellants' surrender pending appeal. Appellant Grae, Rybicki & Partners, P.C. was sentenced to three years' probation, an $80,000 fine, and a $4,600 special assessment.

On appeal, appellants raise a host of legal and factual challenges to their convictions. Most of these claims are disposed of by a summary order issued simultaneously with this opinion. We write here only to address appellants' argument that because the government failed to prove that the appellants intended to cause or actually caused economic or pecuniary harm to the victim insurance companies, there was insufficient evidence to establish that their practice of using an intermediary to expedite the settlement of personal injury claims through an insurance company adjuster with whom the intermediary shared his fee constituted a "scheme or artifice to defraud" within the meaning of 18 U.S.C. §§ 1341 and 1346.

We hold that in order to convict a defendant based upon a scheme to defraud another of the intangible right of honest services, as contemplated by 18 U.S.C. § 1346, it is unnecessary to prove that the defendant intended economic or pecuniary harm or that any such harm actually resulted from the fraud. All that is required is proof (1) that the defendant engaged in a scheme to defraud; (2) with the intent to deprive another of the intangible right of honest services; (3) that it was reasonably foreseeable to the defendant that the scheme could result in some economic or pecuniary harm to the victim that is more than de minimis; and (4) that the mails or wires were used in furtherance of the scheme. The evidence in this case supported such a finding by the jury, and, therefore, appellants' convictions are affirmed.

BACKGROUND

Because appellants challenge the sufficiency of the evidence to support their convictions, "we review all of the evidence presented at trial in the light most favorable to the government, crediting every inference that the jury might have drawn in favor of the government." United States v. Walker, 191 F.3d 326, 333 (2d Cir.1999) (internal quotation marks omitted). Viewed in this light, the evidence at trial established the following.

Appellants are two Staten Island personal injury attorneys and their law firm. In order to obtain favorable results, either as to timing or amount, in settling the personal injury claims of their clients with the opposing insurance companies, appellants would offer a kickback to a middleman or intermediary who would approach the adjuster of the pertinent insurance company and arrange the settlement. It was understood by all concerned that the payments made to the middlemen, generally a percentage of the total settlement amount, would be shared equally between the middlemen and the adjusters. Although each of the insurance companies that employed the adjusters had written policies that prohibited the adjusters from accepting any gifts or fees and required them to report the offer of any gifts or fees, the payments offered to the adjusters were accepted by them but were not reported to their employers. Moreover, the participants of the conspiracy, including Grae and Rybicki, took considerable steps to disguise and conceal the payments made to the middlemen and the adjusters. Appellants were shown to have made payments to adjusters in at least twenty cases that settled for an aggregate of $3,000,000 between 1991 and 1994.

At the outset of trial, the government acknowledged that it would not seek to prove that the amount of any of the settlements had been inflated above what would have been a reasonable range for that settlement. It maintained, however, that the settlements were necessarily inflated above the amount that the appellants' clients, personal injury plaintiffs (the "PI Plaintiffs"), would have been willing to accept by at least the amount paid to the middlemen and adjusters, since these amounts did not go to the PI Plaintiffs. The government also established the jurisdictional requisite of use of the mails and wires through evidence of phone calls made by the appellants to implement the settlements, settlement statements mailed by the appellants to the insurance companies, settlement checks (the fruits of the scheme) that the insurance companies mailed to the appellants, several payments that were invoiced and paid by mail, and mandatory filings, adulterated to conceal the payments, that were mailed to the New York State Office of Court Administration ("OCA").

The government's proof at trial included testimony from three of the middlemen involved in the scheme, including one who had formerly been an insurance company adjuster and had dealt with Grae in that capacity as well, and an insurance company adjuster who had accepted payments to settle cases involving the Grae & Rybicki firm. Victim insurance company representatives testified that the payments accepted by their adjusters violated internal company policies. The government also introduced wiretap evidence of Grae and Rybicki arranging the settlements of personal injury cases, together with ledgers and records kept by three middlemen that reflected the pay-offs.

DISCUSSION

The mail and wire fraud statutes criminalize the use of the mails and wires in furtherance of "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses." 18 U.S.C. § 1341 (mail fraud statute); see also 18 U.S.C. § 1343 (wire fraud statute). Appellants' convictions were grounded on 18 U.S.C. § 1346, which provides as follows:

Definition of "scheme or artifice to defraud"

For the purposes of this chapter, the term "scheme or artifice to defraud" includes a scheme or artifice to deprive another of the intangible right of honest services.

Congress enacted this provision in 1988 to expand the definition of "scheme or artifice to defraud" in response to McNally v. United States, in which the Supreme Court held that the mail fraud provision and, by necessary implication, the wire fraud provision were "limited in scope to the protection of property rights." 483 U.S. 350, 360, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987); see United States v. Covino, 837 F.2d 65, 71 (2d Cir.1988) (noting that because mail and wire fraud provisions are construed identically, McNally applies to wire fraud as well). In so doing, the Court reversed a conviction involving the deprivation of honest services of a public official on the ground that there had been no allegation that the scheme at issue involved the deprivation of money or property. Id. at 360-61, 107 S.Ct. 2875.

Prior to McNally, most circuits had recognized the applicability of § 1341 to frauds involving "intangible rights," including honest services frauds: "In the private sector, purchasing agents, brokers, union leaders, and others with clear fiduciary duties to their employers or unions [were] found guilty of defrauding their employers or unions by accepting kickbacks or selling confidential information." McNally, 483 U.S. at 363, 107 S.Ct. 2875 (Stevens, J., dissenting). Congress enacted § 1346 in response to McNally and reinstated the "intangible rights" doctrine. See United States v. Schwartz, 924 F.2d 410, 416-17 & n. 2, 418-19 (2d Cir.1991) (discussing purpose of § 1346 and its impact on McNally and pre-McNally law); see also United States v. Frost, 125 F.3d 346, 364 (6th Cir.1997) (noting that every circuit to have addressed the question has held that § 1346 overruled McNally).

Notwithstanding the passage of § 1346, appellants argue that a conviction for honest services fraud under §§ 1341 and 1343 still requires proof of actual or intended economic or pecuniary harm to the victim — proof, they assert, was lacking in this case. We reject this effort to impose the...