U.S. v. Stevens and McLaughlin

• Decision Date: 01 August 1999
• Docket Number: Docket Nos. 97-1260
• Parties: (2nd Cir. 2000) UNITED STATES OF AMERICA, Appellee, v. GLORIA STEVENS AND THOMAS M. MCLAUGHLIN, Defendants, JOSEPH GALL, Defendant-Appellant. (L), 97-1586(CON), 98-1348, 98-1496
• Court: U.S. Court of Appeals — Second Circuit

Page 1

211 F.3d 1 (2nd Cir. 2000)

UNITED STATES OF AMERICA, Appellee, v. GLORIA STEVENS AND THOMAS M. MCLAUGHLIN, Defendants, JOSEPH GALL, Defendant-Appellant.

Docket Nos. 97-1260(L), 97-1586(CON), 98-1348, 98-1496

August Term, 1999

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued: February 15, 2000

Decided: April 17, 2000

Appellant appealed from orders of the United States District Court for the District of Connecticut, Alan H. Nevas, Judge, directing restitution to victims of his insurance fraud and denying reconsideration of that order.

Affirmed.

THOMAS J. BUTTERS, Butters, Brazilian & Small, Boston, MA, for Appellant.

MICHAEL E. RUNOWICZ, DENISE DERBY, Assistant United States Attorneys (Stephen C. Robinson, United States Attorney for the District of Connecticut), for Appellee.

Before: KEARSE, CALABRESI, AND KATZMANN, Circuit Judges.

KATZMANN, Circuit Judge:

Joseph Gall, defendant-appellant, appeals from orders of the United States District Court for the District of Connecticut (Alan H. Nevas, Judge), directing him to make restitution in the amount of $13,717,630, pursuant to the Victim and Witness Protection Act of 1982 ("VWPA"), as amended, 18 U.S.C. 3663-3664 (1999), and denying reconsideration of that order. Gall contends that the restitution order is invalid because it was entered more than 90 days after his sentencing and because the district court failed to consider statutory factors governing restitution. For the reasons that follow, we affirm the restitution order of the district court. By a separate summary order, we have affirmed the judgment of the district court with respect to all other issues on appeal.

I. FACTUAL BACKGROUND

Gall was convicted on 24 counts arising out of insurance fraud and tax fraud. Only the facts necessary to an understanding of the restitution order that is a part of his sentence are recounted in this opinion. Gall was the president and chief executive officer of Employee Staffing of America, Inc. ("ESA"), a temporary employee agency that leased employees to client companies. For a fee, ESA assumed, on behalf of the client companies, an employer's fiduciary responsibilities for the leased employees, including the provision of workers' compensation insurance, unemployment insurance, and federal payroll tax withholding and reporting. A company obtains workers' compensation insurance protection by one of two methods. It can purchase insurance in the standard or voluntary market by submitting an application directly to an insurance carrier and paying the premium associated with that policy. Alternatively, if a business entity is unable to obtain insurance through the voluntary market, it can still do so through the "involuntary market" or assigned risk plan or pool created by State worker protection regulation. Under the latter system, an insurance application is assigned to a particular insurance company, which is required to accept the application at state-approved premium rates. In both markets, the insurance premium is calculated primarily on the basis of the size of the employer's payroll, the degree of risk associated with the jobs held by the covered employees, and the employees' injury history.

Beginning in the mid-1980s, Gall conceived of an elaborate scheme to defraud workers' compensation insurance providers. The heart of the scheme was the intentional under-reporting of the size of the ESA payroll and its job risk classifications. Unbeknownst to the insurers, Gall also caused unauthorized insurance certificates to be issued to his client companies, thus concealing their existence from the insurers who would otherwise have factored into ESA's premiums the potential exposure associated with these companies. As a result of these misrepresentations, Gall obtained coverage at artificially low initial premium rates. Although the initial rates were to have been revised as appropriate after end-of-policy audits, Gall repeatedly obstructed the insurers' efforts to conduct such audits.

In addition to fraud on the insurance providers, Gall engaged in a conspiracy to defraud the Internal Revenue Service (the "IRS") and the Social Security Administration (the "SSA") by impeding their efforts to calculate and collect payroll taxes for employees contracted by ESA and another temporary employee agency to client companies, as well as for employees who worked for Gall's companies. Losses resulting from this tax fraud were not a part of the restitution order.

II. PROCEDURAL HISTORY

In July 1995, a federal grand jury returned a superseding indictment against Gall, charging him with 24 counts arising from the insurance fraud and tax fraud. Gall was convicted after a jury trial on all counts: two counts of conspiracy, in violation of 18 U.S.C. 371; eight counts of mail fraud, in violation of 18 U.S.C. 1341; nine counts of wire fraud, in violation of 18 U.S.C. 1343; two counts of making false statements to federally insured financial institutions, in violation of 18 U.S.C. 1014; and three counts of willful failure to file income tax returns, in violation of 26 U.S.C. 7203.

On April 4, 1997, the district court held an extensive sentencing hearing and determined, among other things, that the insurance fraud caused in excess of $13 million in financial loss to the insurance companies. At the conclusion of this hearing, Gall was sentenced primarily to 110 months of incarceration, followed by five years of supervised release, and restitution. The court decided to postpone the order of restitution because it lacked adequate information about Gall's financial situation. See 18 U.S.C. 3663(a)(1)(B) (i).¹ It directed Gall to provide full financial disclosure to the probation department, including, but not limited to, "a complete disclosure of all interest that you have in any entity, whether it be . . . a limited partnership or any other form of ownership." Tr. 4/4/97 Sentencing Hr'g, at 252. Gall was further directed to meet with the Government's counsel and the probation department to attempt to agree on the amount of restitution. The judgment of conviction entered on that same day stated that a separate order of restitution would follow. On July 24, 1997, the court held a follow-up hearing on restitution. By order dated July 30, 1997, the court directed Gall to make restitution in the amount of $13,717,630. Subsequently, the district court denied the defendant's motion to vacate the order of restitution. See United States v. Gall, No. Crim. 3:95CR98, 1998 WL 387707 (D. Conn. June 1, 1998). This consolidated appeal followed. We consider only the appeal from the order of restitution in this opinion.

III. DISCUSSION

We review an order of restitution for abuse of discretion. See United States v. Kinlock, 174 F.3d 297, 299 (2d Cir. 1999). Section 3663 of title 18 of the United States Code authorizes a federal court, when sentencing a defendant convicted of an offense under title 18, to order restitution to a victim or, if the victim is deceased, to the victim's estate. See 18 U.S.C. 3663(a)(1) (A). In deciding whether to order restitution, the court shall consider the amount of loss caused by the offense of conviction, the defendant's financial resources, the financial needs and earning ability of the defendant and the defendant's dependents, and other factors which the court deems appropriate. See id. 3663(a)(1)(B)(i).

The procedures for issuing and enforcing restitution orders are set forth in 3664. This section requires, among other things, a sentencing court to direct the probation officer to prepare a presentence or other report detailing the losses sustained by each victim, any restitution stipulated by plea agreement, and the economic resources of each defendant. See id. 3664(a). This information is then disclosed to both the defendant and the prosecution. Seeid. 3664(b). The statute provides that if the amount of loss cannot be determined at least ten days before sentencing, "the court shall set a date for the final determination of the victim's losses, not to exceed 90 days after sentencing." Id. 3664(d)(5). A victim may "petition the court for an amended restitution order" if the victim thereafter discovers additional losses and shows good cause for not including those losses in the initial restitutionary request. Id.

A. The 90-Day Rule

Gall argues that the order of restitution in question must be vacated because it was not issued within 90 days after his sentence was imposed. Although 3664(d)(5) refers to a 90-day period for the "final determination of the victim's losses" rather than for the entry of a restitution order, at least two other circuits have construed "final determination" to mean the entry of the restitution order. SeeUnited States v. Grimes, 173 F.3d 634, 639 (7th Cir. 1999) ("[I]f the victims' losses are not ascertainable by 10 days before the defendant is sentenced, the judge shall defer the entry of the order of restitution till up to 90 days after imposing the rest of the sentence."); accord United States v. Vandeberg, 201 F.3d 805, 813 (6th Cir. 2000). We agree with the Sixth and Seventh Circuits that 3664(d)(5) contemplates the entry of the restitution order within the 90-day period; the provision that a victim may "petition the court for an amended restitution order" would have no meaning unless the order had been entered.

In this case, the restitution order was entered on July 30, 1997, 117 days after the rest of Gall's sentence was imposed by the judgment of conviction dated April 4, 1997. However, Gall himself caused the extended delay. The restitution order could not be issued at the April 4, 1997 sentencing hearing because, as the district court found, "[Gall] has been stonewalling from the beginning and [has continued] to stonewall right up until 3:45 on the day of sentencing" and has been "flouting the authority of the court" by concealing significant assets from the prosecutors, the probation department, and the...