U.S.A. v. Swan

• Decision Date: 25 April 2001
• Docket Number: No. 98-3760,98-3760
• Parties: (7th Cir. 2001) UNITED STATES OF AMERICA, Plaintiff-Appellee, v. GREGORY SWAN, Defendant-Appellant
• Court: U.S. Court of Appeals — Seventh Circuit

Page 495

250 F.3d 495 (7th Cir. 2001)

UNITED STATES OF AMERICA, Plaintiff-Appellee, v. GREGORY SWAN, Defendant-Appellant.

No. 98-3760

In the United States Court of Appeals For the Seventh Circuit

Argued December 10, 1999

Decided August 10, 2000

Amended April 25, 2001

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 97 CR 105-3--Charles R. Norgle, Judge. [Copyrighted Material Omitted] Before Easterbrook, Rovner, and Diane P. Wood, Circuit Judges.

Diane P. Wood, Circuit Judge.

From 1987 until 1994, Gregory Swan worked for the City of Chicago. During the last two years of that period, his specific job was for 13th Ward Alderman John Madrzyk. Unfortunately for the City, neither Madrzyk nor Swan had its best interests at heart. This case is Swan's appeal from his convictions for participating in a racketeering conspiracy in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), mail fraud, theft of funds, extortion, money laundering, obstructing the IRS, failing to file tax returns, and using a false social security card. The district court sentenced him to five years' imprisonment on Counts 1 (racketeering), 2 (racketeering conspiracy), 5 and 6 (theft of funds), 7 and 14 (extortion), and 8 (money laundering). He received 12 months on counts 3 and 4 (mail fraud), 9 (obstructing the IRS), 10, 12, and 13 (failure to file tax returns), and 15 and 16 (use of a false social security card). All counts were to run concurrently with each other. In addition, the court ordered three years of supervised release and ordered Swan to pay $100,000 in restitution.

Swan's appeal challenges the jury instructions used to convict him on the RICO count; the sufficiency of the evidence against him for conviction on the RICO charges and the mail fraud charges; and the district court's admission of evidence of his gambling and failure to complete work that others had hired and paid him for. We affirm all but Swan's conviction on Count 1.

I

Swan and Madrzyk cheated the City in a number of ways. The two of them created four "ghost jobs" enabling Swan, his son (Greg Swan), his girlfriend (Sharon Nova), and another friend (David Sipich) to receive paychecks and benefits from the City of Chicago, without doing any actual work. Madrzyk received a kickback from each of the ill-gotten paychecks. Swan and Madrzyk also referred people and companies who came to Madrzyk seeking City assistance such as rezoning and inspection help to Swan's "consulting" firm. These people then paid a "consulting fee" to the firm, notwithstanding the fact that neither Swan, the firm, nor Madrzyk did anything more for them than the Alderman was required to do as part of his position. Swan attempted to cover up these schemes by failing to report his income from the ghost jobs and the consulting fees to the IRS. By 1994, as Swan became more desperate, he lied to federal agents about the sources of his income and began to use false social security numbers for various purposes. He also stopped using bank accounts in a desperate effort to eliminate the paper trail related to his income, and he used other people as intermediaries for his illegal gains.

II

Eventually, of course, federal authorities caught up with him and brought the charges now before us. Swan, Madrzyk, and two others were charged in a superseding indictment with violations of 18 U.S.C. sec.sec. 1962(c) (RICO), 1962(d) (RICO conspiracy), 1341 (mail fraud), 1951 (extortion), 1956 (money laundering), 666 (theft of funds), and 2 (aiding and abetting various counts), as well as 26 U.S.C. sec.sec. 7212 (obstructing the IRS) and 7203 (failure to file tax returns) and 42 U.S.C. sec. 408 (use of a false Social Security card). (Madrzyk eventually pleaded guilty and testified against Swan under a grant of immunity.) To violate RICO sec. 1962(c), a person employed by or associated with an enterprise that is engaged in, or that conducts activities that affect interstate or foreign commerce, must conduct or participate, directly or indirectly, in the conduct of that enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt. In order to have conducted or participated in the enterprise's affairs under section 1962(c), the person charged must have had "some part in directing those affairs." Reves v. Ernst & Young, 507 U.S. 170, 179 (1993). In other words, she must have participated in the operation or management of the enterprise itself, and she must have asserted some control over the enterprise. See id. at 183; Goren v. New Vision Int'l. Inc., 156 F.3d 721, 727-28 (7th Cir. 1998). Reves also held that "[a]n enterprise might be 'operated' or 'managed' by others 'associated with' the enterprise who exert control over it...." 507 U.S. at 184, 113 S.Ct. 1163.

Overlooking this requirement of control (perhaps mistakenly relying on pre-Reves jurisprudence), the government insisted upon and the court permitted the following jury instruction on Count1:

The terms "conduct" and "participate in the conduct of the affairs of the enterprise" include the performance of acts, functions or duties which are necessary to or helpful in the operation of the enterprise.

There was no additional instruction requiring a finding of operation or management of the enterprise. The court gave that instruction over Swan's objection. Swan both objected and asked the court to instruct the jury that the simple giving of directions and performance of tasks necessary or helpful to the organization, without more, was insufficient. The court rejected his position because it thought that Reves applied only to civil RICO prosecutions and thus that Swan's proposed instruction did not correctly state the law.

We review the trial court's jury instructions with deference, analyzing them as a whole to determine if they accurately state the law. See United States v. Kelly, 167 F.3d 1176, 1178 (7th Cir. 1999). Even if we find that a jury instruction was erroneous, we will reverse only if we believe that the instruction confused the jury and therefore prejudiced the defendant. See id. at 1179.

In this case, it is plain that the RICO jury instruction was deficient. We reiterate: "simply performing services for an enterprise, even with knowledge of the enterprise's illicit nature, is not enough to subject an individual to RICO liability under sec. 1962(c)." Goren, 156 F.3d at 728. The instruction the court gave could not have given the jury any idea that it needed to find that Swan participated in the management and operation of the enterprise.

The government argues that any error in the instruction was harmless and thus does not justify reversal. While we have no problem with the general proposition that harmless error analysis applies to jury instructions, see Neder v. United States, 527 U.S. 1, 18 (1999), we do not agree that this particular error could be called harmless. To affirm the RICO conviction here, we would have to find that it was "clear beyond a reasonable doubt that a rational jury would have found the defendant guilty absent the error." Id.; see also Lanier v. United States, 205 F.3d 958, 964 (7th Cir. 2000). That we find impossible to do on this record. It is true that the jury found Swan guilty of conspiring to violate sec. 1962(c), when it convicted him on the charge in Count 2 of violating 18 U.S.C. sec. 1962(d). But this did not supply the missing finding relating to participation in the management and control of the enterprise--a finding that the jury had no need to make under the court's instruction--for the simple reason that a sec. 1962(d) conspiracy conviction does not require the jury to find that the defendant was an operator or manager of the enterprise. See Brouwer v. Raffensperger, 199 F.3d 961, 967 (7th Cir. 2000). To convict Swan on Count 2, the jury needed only to find that he knowingly agreed to facilitate the activities of those operators or managers to whom sec. 1962(c) can apply (such as someone like Madrzyk). See id. And the facts established by the record (that Swan received a ghost payroll check, took on clients referred to him by Alderman Madrzyk, failed to file tax returns, and used a false social security card) do not prove that he managed or operated the "enterprise" (which here was apparently the City of Chicago itself). Because the record does not contain overwhelming evidence that Swan managed or controlled the enterprise, and because the jury was not fully informed as to the elements of a RICO violation, we reverse Swan's conviction on Count 1.

This conclusion, we note, however, will have no effect on the amount of time Swan spends in prison, even though it will entitle him to a modest adjustment of the special assessment he must pay. Count 1 was grouped, for sentencing purposes, with Counts 2, 5-6, and 8-16 under U.S.S.G. sec. 3D1.2. The offense level determined for the group depended not on Count 1, but on Count 8, money laundering, because U.S.S.G. sec. 3D1.3 provides that the offense level for the group is derived from the count with the highest offense level, which was money laundering at an offense level of 25. The total combined offense level is therefore not affected by reversal of the RICO charge.

III

Swan argues next that there was insufficient evidence to convict him of violating either the racketeering or the mail fraud counts. Because we are reversing his sec. 1962(c) conviction on other grounds, we address only the sufficiency of the evidence to support his mail fraud conviction. As we constantly observe, the governing...