U.S. v. Williams, 93-1661

• Decision Date: 06 August 1993
• Docket Number: No. 93-1661,93-1661
• Parties: UNITED STATES of America, Plaintiff, Appellee, v. Stephen E. WILLIAMS, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 910

10 F.3d 910

UNITED STATES of America, Plaintiff, Appellee, v. Stephen E. WILLIAMS, Defendant, Appellant.

No. 93-1661.

United States Court of Appeals, First Circuit.

Heard Aug. 6, 1993.

Decided Dec. 3, 1993.

William J. Genego, for defendant, appellant.

Roberta T. Brown, Asst. U.S. Atty., with whom A. John Pappalardo, U.S. Atty., and Michael K. Loucks, Asst. U.S. Atty., were on brief, for plaintiff, appellee.

Before TORRUELLA, Circuit Judge, BOWNES, Senior Circuit Judge, and CYR, Circuit Judge.

CYR, Circuit Judge.

Pursuant to a plea agreement, appellant Stephen Williams pled guilty to fourteen counts of mail fraud, whereupon other charges were dismissed and Williams was sentenced to seven months' imprisonment. On appeal, Williams challenges, among other things, the district court's denial of his request for an evidentiary hearing and its determination that certain criminal acts alleged in the dismissed counts constituted "relevant conduct" under the counts of conviction. Finding no error, we affirm.

I FACTS

In 1980, Williams and codefendant Bruce Kotek founded S.E.R.V.E.S.S., Inc. (SERVESS), a Massachusetts not-for-profit corporation which operated homes for the handicapped. SERVESS entered into at-cost contracts with the Commonwealth of Massachusetts (Commonwealth) for the placement of mentally handicapped persons in SERVESS group homes. These contracts entitled SERVESS to reimbursement for its expenses but prohibited it from realizing a profit. In 1984, while serving on the SERVESS board of directors, Williams and Kotek established Community Services, Inc. (CSI), a for-profit corporation which would contract with companies like SERVESS to operate their group homes in return for a management fee. In July 1984, Williams and Kotek, in their capacity as SERVESS directors: (1) voted to enter into a management contract with CSI; (2) promoted a SERVESS employee, William Polis, to serve as SERVESS's new executive director; and (3) resigned from the SERVESS Board effective August 31, 1984. On September 1, 1984, the day after the Williams and Kotek resignations became effective, the SERVESS-CSI management contract was executed by Polis on behalf of SERVESS. In 1985, during Polis's tenure, at the instance of Williams and Kotek SERVESS entered into several long-term leases of property owned by real estate trusts controlled In January 1986, Williams and Kotek founded another not-for-profit corporation called D.A.R.S.O., Inc. (DARSO), which operated day-care centers for mentally handicapped persons. Like SERVESS, DARSO contracted directly with the Commonwealth for reimbursement of its at-cost expenses, and leased several parcels of real property from the same real estate trusts. DARSO also purchased furniture from a company in which Williams held an interest. Williams served as a director of DARSO from its inception.

by the third codefendant, Robert Alexander. Although only Alexander received income from these properties, Kotek, Williams and Alexander were all residual beneficiaries under the real estate trusts.

Massachusetts law requires that any not-for-profit corporation submitting expense reimbursement requests to the Commonwealth disclose whether the expense was incurred with a "related person," defined as "[a] person or organization which is associated or affiliated with or has control of or is controlled by the [not-for-profit corporation] or is related to the [not-for-profit corporation] or any director, stockholder, trustee, partner or administrator of the [not-for-profit corporation] by common ownership or control or in a manner specified in [I.R.C. Sec. 267(b), (c).]" See 114.5 Mass.Reg. 3.02 (emphasis added).

In November 1990, Williams, Kotek, Alexander, and the various corporate entities were indicted for RICO violations, 18 U.S.C. Sec. 1962(c), RICO conspiracy, 18 U.S.C. Sec. 1962(d), and multiple counts of mail fraud, 18 U.S.C. Sec. 1341, in connection with the alleged SERVESS and DARSO schemes to defraud the Commonwealth. The indictment was based on Williams's failure to disclose: (1) that he and Kotek, through executive director Polis, "controlled" SERVESS at the time CSI and SERVESS entered into their management contract; and (2) that both corporations leased property from real estate trusts whose beneficiaries were "related parties." The government charged that the SERVESS and DARSO reimbursement requests exceeded their costs, and that Williams and Kotek defrauded the Commonwealth by using these "hidden profits" to improve, and acquire equity in, the real estate leased to SERVESS and DARSO by the real estate trusts.

At sentencing, the government characterized the dismissed SERVESS counts as "relevant conduct" under U.S.S.G. Sec. 1B1.3 and introduced a transcript of the grand jury testimony of William Polis, to the effect that he was acting under Williams's "control" when he signed the SERVESS-CSI management contract in September 1984. ¹ Williams argued that the SERVESS scheme was too remote in time and context to constitute "relevant conduct" under the DARSO counts, and requested an evidentiary hearing for the purpose of cross-examining Polis on his grand jury testimony concerning the issue of "control." The district court denied the request for an evidentiary hearing and found the loss occasioned by the SERVESS counts to be "relevant conduct." Williams appeals the resulting seven-month prison sentence. ²

II DISCUSSION

The crux of Williams's grievance is that his plea agreement with the government, which led to the dismissal of the SERVESS counts, resulted in no lower sentence since the Commonwealth loss relating to the SERVESS counts was considered "relevant conduct" for purposes of sentencing on the DARSO counts. Our cases, see, e.g., United States v. Wright, 873 F.2d 437, 440-42 (1st Cir.1989), long since have recognized the appropriateness of just such "relevant conduct" adjustments as these. Moreover, unlike "relevant conduct" adjustments that may appear to erode the intended benefit of a defendant's plea bargain, see United States v. Fox, 889 F.2d 357, 362-63 (1st Cir.1989); see also Kinder v. United States, --- U.S. ----, ---- - ----, 112 S.Ct. 2290, 2292-93, 119 L.Ed.2d 214 (1992) (White, J., dissenting from a denial of certiorari) (collecting cases and noting circuit split), in this case Williams plainly was on notice that the government would request the court to treat the SERVESS-related loss as "relevant conduct" under the DARSO counts. ³ Finally, while the government reserved its right to recommend a "relevant conduct" adjustment, the plea agreement afforded Williams significant benefit. The government agreed, inter alia, to move to dismiss all RICO and RICO-conspiracy counts, and to recommend a sentence at the low-end of the applicable guideline sentencing range. The government also left the door open to a downward departure for substantial assistance. Ultimately, of course, the district court granted a downward departure for substantial assistance, see supra note 2, on the government's recommendation. See U.S.S.G. Sec. 5K1.1.

Thus, our review discloses that both the letter and spirit of the plea agreement was observed, resulting in substantial benefit to Williams. The fact that the district court, in scrupulous observance of the Sentencing Guidelines and our caselaw, did not grant appellant all he had hoped does not warrant appellate relief.

1. "Relevant Conduct"

Absent a mistake of law, we review "relevant conduct" findings for clear error. United States v. Wood, 924 F.2d 399, 403 (1st Cir.1991). Only after the government has met its burden of establishing, by a preponderance of the evidence, "a sufficient nexus between the [extraneous] conduct and the offense of conviction," may the sentencing court, in its sound discretion, make a "relevant conduct" adjustment. United States v. Sklar, 920 F.2d 107, 110 (1st Cir.1990) (emphasis added). The district court supportably found the required nexus in this case.

The principal argument advanced by Williams on appeal is that the conduct allegedly involved in the SERVESS scheme was too dissimilar to be considered "relevant" to the conduct of conviction involved in the DARSO counts. ⁴ This supposed dissimilarity springs from the fact that Williams's alleged criminal liability under the dismissed SERVESS counts was predicated on a determination that Williams controlled Polis, thereby causing SERVESS to violate its obligation to disclose "related parties," whereas criminal liability for the DARSO scheme rested directly on the conduct of Williams and his codefendants.

The SERVESS and DARSO schemes shared a great deal in common: (1) the same victim, i.e., the Commonwealth; (2) the same method of operation, i.e., SERVESS's improper requests for Commonwealth reimbursement of the management fees paid CSI, or the rental fees paid for the real estate trusts; (3) the same three principals, i.e., Williams and Kotek as influential "insiders," Alexander as the "outsider" recipient; and (4) the same underlying substantive offense i.e., the fraudulent failure to identify the defendant's "related party" status in accordance with 114.5 Mass.Reg. 3.02. Thus, the district court reasonably could conclude that the DARSO and SERVESS schemes, while not one and the same, were nonetheless sufficiently comparable in character, cast and plot, to warrant similar billing under U.S.S.G. Sec. 1B1.3.

2. Sufficiency of the Evidence

The second argument Williams makes is that the evidence was insufficient to link him to the SERVESS scheme. The eight-level adjustment under U.S.S.G. Sec. 1B1.3 was based exclusively on the government's contention that Williams controlled Polis's approval of the CSI management contract, and the long-term leases with the real estate trusts, on behalf of SERVESS. The only "control" evidence introduced at sentencing was Polis's grand jury testimony, which Williams correctly characterizes as hearsay. Williams insists that...