USA. v. Wiseman

• Decision Date: 19 December 2001
• Docket Number: Nos. 00-10325,DEFENDANT-APPELLANT,PLAINTIFF-APPELLEE,00-10341,s. 00-10325
• Citation: 274 F.3d 1235
• Parties: (9th Cir. 2001) UNITED STATES OF AMERICA,, v. MARVIN L. WISEMAN, UNITED STATES OF AMERICA,, v. WILLIAM D. METT,
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1235

274 F.3d 1235 (9th Cir. 2001)

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE, v. MARVIN L. WISEMAN, DEFENDANT-APPELLANT.

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE, v. WILLIAM D. METT, DEFENDANT-APPELLANT.

Nos. 00-10325, 00-10341

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted July 11, 2001

Filed December 19, 2001

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Arthur K. Wachtel, San Francisco, California, for defendant-appellant Wiseman.

Dennis P. Riordan and Donald M. Horgan, San Francisco, California, for defendant-appellant Mett.

Lawrence L. Tong, Assistant United States Attorney, Honolulu, Hawaii, for the plaintiff-appellee.

Appeal from the United States District Court for the District of Hawaii Edward Rafeedie, District Judge, Presiding. D.C. No. CR-96-00607-ER, D.C. No. CR-96-00607-1-ER

Before: Cynthia Holcomb Hall, Kim McLane Wardlaw, and Marsha S. Berzon, Circuit Judges.

CYNTHIA HOLCOMP Hall, Circuit Judge

Marvin L. Wiseman and William D. Mett ("Defendants") were convicted in 1997 of embezzling money from a pension benefit plan governed by the Employee Retirement Income Security Act (ERISA). This court reversed their convictions on appeal and remanded for a new trial. United States v. Mett, 178 F.3d 1058 (9th Cir. 1999). After the district court rejected Defendants' proposed jury instructions, Defendants waived a trial by jury and agreed to a bench trial on the transcripts and exhibits of the first trial. Defendants were again convicted on all counts. They now appeal their convictions and sentences. We affirm in part, reverse in part, and remand for resentencing.

FACTUAL BACKGROUND

The following facts are taken from this court's opinion in Defendants' appeal from their first trial:

These criminal prosecutions stem from certain transactions involving ERISA¹ pension benefit plans administered by Center Art Galleries ("CAG") for its employees. Mett founded CAG, a retail art gallery, in 1973 and served as its president and sole shareholder. Wiseman served as a vice-president, responsible for staff training and art acquisition. Both defendants also served on the CAG board of directors. In 1977, CAG established two pension benefit plans for its employees. Both plans were funded solely by CAG contributions, and both were covered by ERISA. At all relevant times, Mett and Wiseman served as trustees for both plans, while CAG served as the plan administrator.

CAG fell on hard times in the early 1990s. In 1990, as a result of a federal investigation into CAG's sales practices, Mett, Wiseman, and CAG were indicted tried and convicted of felony art fraud. The prosecution, coupled with a general downturn in the Hawaiian economy, proved devastating to CAG's financial health. Between March 1990 and November 1991, in order to meet CAG's financial obligations, Mett and Wiseman withdrew approximately $1.6 million from the pension plans and deposited the funds into CAG's general operating accounts. At no time during 1990 and 1991 did the defendants inform their employees of these transactions. CAG also did not disclose the withdrawal transactions on the 1990 Form 5500 that it filed with the IRS in connection with one of the benefit plans. ²

On June 27, 1996, a federal grand jury returned a 16 count indictment against the defendants in connection with the pension plan withdrawals. At trial, the defense turned on whether the defendants possessed the requisite specific intent when they arranged the withdrawals. While admitting that they withdrew funds from the pension plans, the defendants characterized the withdrawals as "loans " necessary to carry CAG through rough financial times. According to the defendants, their actions were intended to benefit their employees, who would otherwise have been laid off and faced with unemployment. The defendants further argued that the employees implicitly authorized, or would have authorized the withdrawals had they known of them. On June 25, 1997, the jury convicted the defendants on 15 counts,³ finding them guilty of embezzling from a pension benefit plan, in violation of 18 U.S.C. §§ 664, conspiring to misappropriate the assets of a pension benefit plan, in violation of 18 U.S.C. §§ 371, unlawfully serving as a trustee of a pension benefit plan after being convicted of a felony, in violation of 29 U.S.C. §§ 1111, and filing a false annual report relating to a pension benefit plan, in violation of 18 U.S.C. §§ 1027.⁴

United States v. Mett, 178 F.3d at 1060-61 (footnotes in original).

Finding that the admission of certain documents and testimony violated Defendants' attorney-client privilege, this court reversed their convictions and remanded for a new trial. Id. at 1067. The court also rejected Defendants' "authorization" and "participant benefit" defenses to the pension fund embezzlement charges. Id. at 1067-68.

Prior to the retrial, Defendants submitted two proposed jury instructions to the district court and requested a pretrial ruling on whether the court would give the instructions. Defendants explained that if the court refused the proffered instructions, Defendants would waive a jury trial and submit the case to the court on the transcripts and exhibits from the first trial. Defendants further explained that although they would waive a jury for the retrial, they would appeal the court's denial of their proposed instructions.

The district court rejected the proposed instructions, and Defendants waived a jury trial. The waiver stated:

All parties and the court agreed that, should the defendants be convicted at a court trial, they would retain the right to challenge those convictions on appeal by raising the claim that the court erred in denying them these proposed instructions. It is on the basis of that understanding that the defendants now waive their right to a jury trial.

The court retried Defendants based on the transcripts and exhibits of the first trial, minus the testimony and documents this court found protected by the attorney-client privilege. The court found the defendants guilty on all counts and sentenced each to sixty-three months imprisonment and three years supervised release. Defendants appeal their convictions and sentences, arguing that the proposed jury instructions should have been accepted, that there was insufficient evidence to sustain their convictions, that evidence was admitted in violation of the attorney-client privilege, and that the district court erred in failing to apply offset principles to calculate the amount of loss for the purpose of determining Defendants' sentences. We have jurisdiction pursuant to 28 U.S.C. §§1291.

DISCUSSION

I. Jury Instructions

We review de novo a denial of a defendant's jury instruction based on a question of law. United States v. Eshkol, 108 F.3d 1025, 1028 (9th Cir. 1997).

A. Knowledge of Illegality

Before their retrial and before agreeing to a bench trial, Defendants proposed a jury instruction that would have required the government to "prove beyond a reasonable doubt that the defendants took money from the funds knowing that it was illegal to do so" to convict Defendants of violating 18 U.S.C. §§ 664. The district court correctly rejected Defendants' proposed instruction.

A person violates §§ 664 if he "embezzles, steals, or unlawfully and willfully abstracts or converts to his own use or to the use of another" assets belonging to an employee pension benefit plan subject to ERISA. 18 U.S.C. §§ 664. In Defendants' prior appeal in this case, we explained that "the essence [of a §§ 664 offense] is theft and in the context of . . . pension funds the offense includes a taking or appropriation that is unauthorized, if accomplished with specific criminal intent." Mett, 178 F.3d at 1067 (alteration in original) (quoting United States v. Andreen, 628 F.2d 1236, 1243 (9th Cir. 1980)). "The act to be criminal must be willful, which means an act done with a fraudulent intent or a bad purpose or an evil motive." Andreen, 628 F.2d at 1241. While the defendant must "knowingly act[ ] wrongfully to deprive another of property," there is no requirement that the defendant also know his conduct was illegal. United States v. Ford, 632 F.2d 1354, 1362 (9th Cir. 1980), overruled on other grounds by United States v. DeBright, 730 F.2d 1255, 1259 (9th Cir. 1984) (en banc).

Ratzlaf v. United States, 510 U.S. 135 (1994), and United States v. Lizarraga-Lizarraga, 541 F.2d 826, 828 (9th Cir. 1976), do not require a different result. Unlike in those cases, there is no risk in this §§ 664 case that Defendants would be convicted for otherwise seemingly innocent conduct, because they must know that they are "acting wrongfully and contrary to the trust placed in them by the pension trust beneficiaries." Ford, 632 F.2d at 1362; see also United States v. Henderson, 243 F.3d 1168, 1172 (9th Cir. 2001) ("[P]roof of knowledge of unlawfulness is required when the criminal conduct is contained in a regulation instead of in a statute, and when the conduct punished is not obviously unlawful, creating a `danger of ensnaring individuals engaged in apparently innocent conduct.' " (quoting Bryan v. United States, 524 U.S. 184, 191 (1998))). Indeed, to require more would mean that to prove embezzlement in ERISA cases would require proof of a higher mens rea than in other embezzlement cases. This court has determined, however, that "embezzlement," as used in §§ 664, is to be given its "accepted definition[ ]," which does not include a requirement that the defendant know his conduct is illegal. Andreen , 628 F.2d at 1241; see also United States v. Thordarson, 646 F.2d 1323, 1335 n.22 (9th Cir. 1981) (listing elements of embezzlement offense). The district court correctly rejected Defendants' proposed instruction.

B. Intent to Borrow

Defendants also requested that the district court instruct the jury, "Since [the defendants] are accused of stealing the plan funds rather than...