U.S. v. Saybolt

• Decision Date: 18 August 2009
• Docket Number: No. 07-4392.,No. 07-4429.,07-4392.,07-4429.
• Citation: 577 F.3d 195
• Parties: UNITED STATES of America v. John SAYBOLT, Appellant in No. 07-4392. Kenneth Welch, Appellant in No. 07-4429.
• Court: U.S. Court of Appeals — Third Circuit

577 F.3d 195

UNITED STATES of America v. John SAYBOLT, Appellant in No. 07-4392 Kenneth Welch, Appellant in No. 07-4429.

No. 07-4392.

No. 07-4429.

United States Court of Appeals, Third Circuit.

Argued January 28, 2009.

Filed August 18, 2009.

Daniel I. Siegel, Esq. (Argued), Office of the Federal Public Defender, Wilmington, DE, for John Saybolt.

Andrew F. Erba, Esq. (Argued), Williams, Cuker & Berezofsky, Philadelphia, PA, for Kenneth Welch.

Pamela Foa (Argued), Office of the United States Attorney, Philadelphia, PA, for the United States of America.

Before: SCIRICA, Chief Judge, AMBRO, and SMITH, Circuit Judges.

OPINION

SMITH, Circuit Judge.

Appellants John Saybolt and Kenneth Welch were convicted of crimes stemming from their participation in a conspiracy to file multiple false, fictitious, or fraudulent claims with the Internal Revenue Service ("IRS"), in violation of 18 U.S.C. §§ 286, 287, and 2. On appeal, both challenge the District Court's failure to dismiss the Indictment on the grounds that it did not allege materiality, which they argue is an essential element of both Sections 286 and 287. Welch also asserts that the District Court committed reversible error by not instructing the jury on materiality. Based on our reading of the statutory language and the relevant case law, we hold that materiality is an essential element of the charged Section 286 offense, but is not required to show a Section 287 violation. Nevertheless, we will affirm Appellants' convictions and sentences because the Indictment sufficiently alleged facts that warrant an inference of materiality, and the deficiency in the jury instructions was harmless error.¹

I.

On October 25, 2005, a grand jury indicted Welch and Saybolt on one count each of conspiring to defraud the United States by obtaining and aiding others to obtain the payment of false, fictitious, and fraudulent tax refunds, in violation of 18 U.S.C. § 286, and thirty-five counts each of making and presenting, and aiding and abetting the making and presenting of, false, fictitious, and fraudulent tax returns to the IRS, in violation of 18 U.S.C. §§ 287 and 2. The Indictment alleged that, from 1997 to 2003, Welch and Saybolt filed tax returns that falsely claimed refunds for 1) excess federal wage withholdings and 2) excise taxes on gasoline use in fake farming and fishing businesses. Welch and Saybolt also allegedly solicited and obtained from third parties the identification information necessary to file the returns—which included names, addresses, dates of birth, and social security numbers—in exchange for some or all of the proceeds from the refund checks. All tolled, Welch and Saybolt allegedly claimed about $534,476 in undeserved refunds for individuals and entities from Pennsylvania, Ohio, Massachusetts, and New York, of which the IRS paid approximately $223,052.

Before trial, Saybolt filed a motion to dismiss the Indictment for failing to charge materiality as an element of the alleged violations of Sections 286 and 287. The District Court denied Saybolt's motion, holding that following Neder v. United States, 527 U.S. 1, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999), and United States v. Wells, 519 U.S. 482, 117 S.Ct. 921, 137 L.Ed.2d 107 (1997), Sections 286 and 287 neither explicitly nor implicitly included materiality as an element of the offense. Focusing its analysis on Section 287, the Court pointed out that while Neder and Wells "conclude[d] that fraud crimes include an implied element of materiality," the statute "prohibits making a claim `knowing such claim to be false, fictitious or fraudulent.'" The Court reasoned that the disjunctive connector gave the Government the option of charging prohibited acts that both included materiality—making or presenting fraudulent claims—and those that did not—making or presenting false and fictitious claims. Accordingly, the District Court concluded that materiality was not an essential element of either Sections 286 or 287.

On January 8, 2007, the Appellants' joint jury trial began. During the trial, the Government adduced evidence that in 1996 the Appellants met each other when they were both incarcerated in the same Pennsylvania prison. While in prison, Welch recruited other prisoners to participate in a scheme to file false tax returns. After he was released, Saybolt obtained names and identifying information from individuals by promising that he could get them money with that information. Welch then prepared the false tax returns using the information that Saybolt obtained. These returns either claimed that the individual was entitled to a refund for excess federal wage withholdings, or that the individual was a fisherman entitled to a credit for federal taxes paid on fuel used for business. When the IRS issued a refund check, Saybolt would split the proceeds into thirds: one-third to the individual providing the identifying information, one-third to Welch, and one-third for himself.

Before the end of the trial, the Court, upon the Government's motion, dismissed six of the thirty-five counts alleging violations of Sections 287 and 2 against Saybolt. The Court also denied the Appellants' request to instruct the jury that materiality was a required element of all the offenses charged.

The jury found the Appellants guilty of all remaining charges. After the jury's verdict, Welch filed a Motion for a New Trial and Motion to Arrest Judgment that, inter alia, joined, for the first time, in Saybolt's pretrial argument that the Indictment was insufficient in failing to allege materiality. The District Court denied Welch's motion, dismissing Welch's challenge to the Indictment for the same reasons it rejected Saybolt's.

The Court sentenced Saybolt to forty-eight months of imprisonment and three years of supervised release, and ordered him to pay a $3,000 special assessment, $1,000 fine, and $145,525 in restitution. The Court sentenced Welch to 120 months of imprisonment and 3 years of supervised release, and ordered him to pay a $3,600 special assessment and $145,525 in restitution. The Appellants filed timely appeals.

II.

The District Court had jurisdiction under 18 U.S.C. § 3231, and we have jurisdiction under 18 U.S.C. § 3742 and 28 U.S.C. § 1291. Our review of both the sufficiency of the Indictment and the District Court's failure to instruct the jury on materiality is plenary. United States v. Yusuf, 536 F.3d 178, 184 (3d Cir.2008) ("The `sufficiency of an indictment to charge an offense is a legal question subject to plenary review.'" (quoting United States v. Conley, 37 F.3d 970, 975 n. 9 (3d Cir.1994))); United States v. Tupone, 442 F.3d 145, 149 (3d Cir.2006) ("Because [the defendant's] challenge to the jury instructions turns on a matter of statutory interpretation, our review is plenary as to that issue.").

III.

The Appellants' challenge to the sufficiency of the Indictment and Welch's jury instruction claim share one common issue: whether violations of Sections 286 and 287 always require proof of materiality. Accordingly, we begin our analysis with a review of the two statutes.

A.

"[W]e first look to the text of the statutes at issue to discern whether they require a showing of materiality." Neder v. United States, 527 U.S. 1, 20, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999). All parties agree that neither Sections 286 nor 287 explicitly mentions materiality. But "`[w]here Congress uses terms that have accumulated settled meaning under ... the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms.'" Id. at 21, 119 S.Ct. 1827 (quoting Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992)). At this point in our analysis, two Supreme Court cases are of particular relevance: 1) in Neder, the Court held that "the common law could not have conceived of `fraud' without proof of materiality," id. at 22, 119 S.Ct. 1827; and 2) in United States v. Wells, 519 U.S. 482, 117 S.Ct. 921, 137 L.Ed.2d 107 (1997), the Court determined that the term "false statement" did not have a settled common law meaning that required proof of materiality, see id. at 491, 117 S.Ct. 921; see also Neder, 527 U.S. at 23 n. 7, 119 S.Ct. 1827 ("[T]he term `false statement' does not imply a materiality requirement ...." (citing Wells, 519 U.S. at 491, 117 S.Ct. 921)).

B.

Section 287 provides:

Whoever makes or presents to any person or officer in the civil, military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine in the amount provided in this title.

18 U.S.C. § 287. All parties agree that, following Neder and Wells, Section 287's inclusion of the term "fraudulent" suggests the incorporation of a materiality requirement. The parties disagree, however, on the extent of such an incorporation.

According to the Government, the use of the disjunctive connector "or" between the terms "false," "fictitious," and "fraudulent" compels one conclusion: proof of materiality is not always necessary to establish a Section 287 violation. We agree. "Canons of construction ordinarily suggest that terms connected by a disjunctive be given separate meanings unless the context dictates otherwise...." Reiter v. Sonotone Corp., 442 U.S. 330, 339, 99 S.Ct. 2326, 60 L.Ed.2d 931 (1979). Here, Section 287 connects the terms "false," "fictitious," and "fraudulent" with the disjunctive "or." Giving these terms separate meanings, we read Section 287 to demand a showing that the claim was known to be either "fraudulent," which would require proof of materiality, or "false" or "fictitious," which would not require proof of materiality. This means that proof of materiality is not always required...