Court Erroneously Excluded Character Evidence & Calculated Restitution to Include Loss Outside Alleged Time Period

United States v. De Leon, No. 12-40244 (Aug. 29, 2013) (Stewart, Davis, Wiener)

De Leon was convicted at trial of five counts of health-care fraud.  His attorney called his mother as a character witness.  After some background questions, the attorney asked whether De Leon was a law-abiding citizen.  The Government objected citing Federal Rule of Evidence 608(a).  The Court sustained the objection and instructed De Leon that his second character witness would be limited to testifying as to De Leon’s reputation for truthfulness.  The defense attorney did not call the second witness and then rested. 

The district court erred in excluding evidence of De Leon’s law-abiding character.  “‘[E]vidence of the defendant’s pertinent trait’ is admissible.  [Fed. R. Evid. 404(a)(2)(A).] And evidence of the defendant’s ‘character as a law-abiding citizen . . . is always relevant.’” Rule 608(a) applies only to a witness’s credibility, and De Leon was not a witness.  This erroneous ruling, however, did not affect De Leon’s substantial rights since there was “overwhelming evidence of De Leon’s knowing submission of fraudulent claims.”  The panel affirms the conviction.

The district court also plainly erred in calculating the restitution award.  The PSR calculated the loss as the $2.9 million paid by Medicare and Medicaid to De Leon, on any and all claims, from 2005 through 2011.  The temporal scope of the conduct charged in the indictment was June or July 2008 through April 2010.  “Restitution is limited to the loss actually caused by the offense of conviction . . . [and] cannot be awarded for ‘losses’ attributable to conduct outside the temporal scope of the scheme charged . . . [or] for conduct not charged as part of the scheme.”  Thus, payments to De Leon in 2005, 2006, 2007, and 2011 cannot be counted among the actual losses incurred.

The district court conducted several hearings to try to discern which of the payments were fraudulent.  Ultimately, the court concluded that “it was ‘difficult, if not impossible, to ascertain with precision the actual loss,” so the court estimated that the total loss totaled $750,000 split evenly between Medicare and Medicaid.  The panel vacates the restitution reward and remands for recalculation even though the district court did not award the full $2.9 million since the record does not suggest that the district court excluded the sums outside of the temporal scope of the Indictment.  “By calculating restitution on the basis of the PSR’s exaggerated ‘ceiling,’ the district court indisputably awarded restitution for claims outside the scope of the charged conspiracy.

The panel notes, though, that on remand the district court can assign De Leon the burden of demonstrating the amount of credit he is due if the court concludes that justice requires this burden shift:

“Even though the MVRA puts the burden on the government to demonstrate the amount of a victim’s loss, a sentencing court may shift ‘the burden of demonstrating such other matters as the court deems appropriate . . . [to] the party designated by the court as justice requires.’ . . . ‘[W]e have approved the transfer of at least a portion of the burden to a defendant to establish his entitlement to a restitution credit.’ 

United States v. Sharma, 703 F.3d 318, 325 (5th Cir. 2012).

Admission of Gang Membership Harmful Error

United States v. Hamilton, No. 12-20250 (July 11, 2013) (Stewart, Higginbotham, Jones)

Hamilton was on trial for unlawful possession of a firearm as a convicted felon. The evidence of possession was circumstantial: an agent saw him move his arm outside of his parked car and later found a gun under the tire of an SUV next to where Hamilton parked. When he was stopped for a traffic violation, a record check revealed that he was affiliated with the Black Disciples gang ("BD"), and Hamilton admitted to an agent that he "was" a BD.

The court permitted testimony regarding Hamilton’s gang membership over his objection. An agent testified that Hamilton had been affiliated with the BD since 1998, that Hamilton stated that he "was" a BD, and that the agent had never known a gang member who really left a gang. The agent proceeded to testify that he had made numerous arrests of gang members who possessed guns. The case then went to the jury without a limiting instruction, and the jury convicted Hamilton.
The panel determined that the agent’s gang-related testimony was extrinsic and that it did not pass the Beechum test, which allows extrinsic evidence to be admitted that (1) is relevant to an issue other than the defendant’s character, and (2) has a probative value not substantially outweighed by its undue prejudice. 

Because the evidence of guilt was sparse, and the prejudice that comes with gang membership may be great, ‘there is a reasonable possibility that the improperly admitted evidence contributed to [Hamilton’s] conviction.’ United States v. Williams, 957 F.2d 1238, 1242 (5th Cir. 1992) (internal citation marks omitted).

The panel reversed and remanded. It noted, however, that testimony related solely to the record check and to Hamilton’s comment was intrinsic to the offense - as part of the on-scene investigation - and not subject to Beechum. The agents testimony went far beyond that int rinsic evidence, however.

Pharmacies' Pseudoephedrine Purchase Logs Are Business Records & Are Not Subject to the Confrontation Clause

United States v. Towns, No. 11-50948 (Apr. 30, 2013) (Jolly, Jones, Graves)

A divided panel held that the pseudoephedrine purchase logs from various retailers were business records under Federal Rule of Evidence 803(6) and not subject to the Confrontation Clause. These logs were the primary evidence against Towns to support his convictions for conspiracy to manufacture methamphetamine and conspiracy to possess and distribute pseudoephedrine. The pharmacies kept the logs to comply with state regulations, did not use the logs for any other business purpose, and did not necessarily require the purchaser’s photo identification when making a log entry. The pharmacies provided affidavits that tracked the language of Rule 803(6), and the Government introduced the logs through a law enforcement officer who had no personal knowledge of the pharmacies’ record-keeping systems. Towns tried to exclude the logs through a motion in limine but, according to the majority, did not specifically object to authentication or foundation.

The majority reasoned that the logs were maintained during the ordinary course of business and therefore business records pursuant to Rule 803(6). It did not matter that the pharmacies did not actually rely upon or use the logs in any way and that the logs only served law enforcement purposes. The majority found that the custodian affidavits provided by the pharmacies were sufficient, and that the Confrontation Clause was inapplicable because the logs were not prepared solely with an eye toward trial but rather in order to comply with state regulatory measures.

The dissent, authored by Circuit Judge Graves, sharply disagreed. Judge Graves provided the factual background highlighting the lack of evidence—other than the logs—that linked Towns to the alleged conspiracies. Judge Graves concluded that the logs were not business records pursuant to Rule 803(6) and Fifth Circuit precedent because they lacked accuracy, reliability, and trustworthiness since the pharmacies did not rely on the logs for their own business matters. He also found that the officer witness was not a qualified witness to introduce the logs since he could not explain the pharmacies’ record-keeping systems, and that the pharmacies’ affidavits were insufficient for proper authentication. Judge Graves determined that the logs were testimonial and subject to the Confrontation Clause because they were created for law enforcement purposes, were used to establish or prove some fact at trial, and were not created to administer the pharmacies’ affairs.

The district court found that Towns did not qualify for safety valve because he continued to profess his innocence even after found guilty at trial. The majority affirms this finding, noting that a defendant does not have to profess guilt in order to qualify for safety valve, but that the district court determined that Towns was not completely truthful and, for this reason, denied safety valve. Judge Graves would reverse on this point as well, as he interprets the district court’s comments as erroneously reading into the safety valve provision a requirement to admit guilt.

In the end, the panel affirms Towns’ conviction and ten-year sentence almost entirely based on the evidence of pseudoephedrine purchases logged by clerks at Walgreens, Wal-Mart, Target, and CVS under Towns’ name without any corroboration such as photo identification verification and similar signatures. These logs and the testimony at trial never established that Towns was actually the person buying the pseudoephedrine on each of those occasions, just that his name was entered in the logs. While Towns admitted to purchasing some pseudoephedrine, he maintained through sentencing—much to his detriment—that he did not participate in the alleged conspiracies.

Child Pornography Distribution Conviction Reversed, On Plain Error Review, Because Key Evidence Was Admitted Without Foundation

United States v. Baker, No. 06-40757 (5th Cir. July 30, 2008) (Jolly, Clement, Owen)

It's not often that you see a conviction reversed because of evidentiary error, much less on plain error review. But that's exactly what happened to one of the four child pornography counts of which Baker was convicted, all because the Government failed to lay the proper predicate for admission of the evidence it relied on to prove a distribution charge.

The story began when Yahoo notified authorities that someone had posted forty-six images of child pornography on a group web site hosted by Yahoo. The ensuing investigation revealed that the images were posted from e-mail and IP addresses belonging to Baker. Subsequent searches of computers and diskettes seized from Baker's home and office turned up hundreds of images of child pornography. All of this led, of course, to Baker's indictment "on federal charges based on 18 U.S.C. §§ 2252 and 2252A for (1) distributing in interstate commerce forty-six images of minors engaging in sexual conduct, (2) receiving by means of a computer forty-six images of minors engaging in sexual conduct that had been transported in interstate commerce, (3) receiving by means of a computer more than 600 images of minors engaging in sexual conduct that had been transported in interstate commerce, and (4) possessing more than 600 images of child pornography that had been transported in interstate commerce."

At trial, the Government introduced a couple of exhibits relevant to the appeal: 1) a report from the National Center for Missing and Exploited Children containing file names of the forty-six images found on the website (and presumably identifying them as pictures of actual children, although the opinion doesn't say), but not the images themselves, and 2) "a three-ring binder containing printouts of forty-six images identified by filename in the full NCMEC report and stored in electronic format on a disc that accompanied that report." Baker objected to admission of the report, on the ground that the Government had not laid the proper predicate for its admission. He did not make the same objection to the admission of the binder. The district court admitted both exhibits, and Baker was convicted of all four charges.

On appeal, Baker argued that his conviction on all four counts should be reversed because the district court erred in admitting the NCMEC report and binder, for several reasons. The court only addressed one of those reasons: the lack of foundation for the exhibits. Reviewing Baker's objection to the report for abuse of discretion, and his objection to the binder for plain error, the court agreed that his conviction for distribution must be reversed.

The Government introduced both exhibits through an investigator from the Texas Attorney General's office. There was no evidence that the investigator had any personsal knowledge of how the report was prepared, and "[n]o other witness or document in evidence vouches for the source, accuracy, or circumstances surrounding preparation of [the report] or of the disc from which [the binder] was derived." Also, the Government did not brief, or even mention, the applicability of Rules 901 and 902 (concerning authentication) to the NCMEC report. Thus,

[i]n light of the record as a whole, we conclude that the district court erred by admitting [the report] over Baker’s objection that no foundation or predicate was offered. Although the issue is a close one, we cannot confidently say that this error was harmless. [The report] contains two lists of file names corresponding to images that Baker allegedly uploaded to Yahoo; it also states that the listed images “appear to contain child pornography.” The jury could have inferred from [the report] that Baker uploaded child pornography to Yahoo. In fact, [the report] was the only evidence showing that Baker uploaded child pornography to the Internet; [the binder] contained photographs of child pornography, but the photographs alone, taken out of context from the full NCMEC report, presented no evidence that Baker distributed pornographic files.

The court then concluded that admission of the binder was plain error:

The only source in the record of the child pornography images Baker purportedly uploaded was [the binder]. The sole authenticator and sponsor of that exhibit was [the AG's investigator]. Although [he] testified without objection at trial that the images in [the binder] were the ones uploaded to the Yahoo Web site, it is clear from reading the record in its entirety that the witness had no personal knowledge of this fact. At other junctures during the trial, it was apparent that he obtained the images from other state law enforcement officers, and that his only basis for testifying that these images were the ones uploaded to the Yahoo Web site and sent by Yahoo to NCMEC was statements to that effect in the NCMEC report. Because the Government offered no witness competent to sponsor [the binder], the admission of that exhibit was error.

Moreover, that error is plain. The sponsoring witness clearly had no firsthand knowledge of the exhibit’s chain of custody. The Government offered no independent evidence sufficient to show that Baker uploaded to Yahoo the images in [the binder].

That error affected the outcome of the proceedings, and thus Baker's substantial rights, because "[t]he only source of the images that Baker purportedly uploaded to Yahoo was [the binder], so this exhibit was essential to Baker’s Count 1 conviction for distributing child pornography." Even though those images were also found on Baker's home computer, "without [the binder], no evidence shows that Baker uploaded these images to the Yahoo Web site as opposed to downloading them from that or some other Internet source."

As for the final prong of the plain error analysis, the court drew a parallel to a case reversing an order erroneously granting a suppression motion: "If the erroneous exclusion of essential inculpatory evidence has a 'serious effect on the fairness, integrity, or public reputation of judicial proceedings,' we have no trouble concluding that the erroneous inclusion of such evidence does as well."

But this only led the court to reverse Baker's distribution conviction. Baker argued that the erroneous admission of the NCMEC exhibits "prejudiced him with regard to the other three counts on which he was found guilty because this evidence undermined his contention at trial that he did not know that any of the images at issue in Counts 2, 3, or 4 were on his home or work computers." Unlike the thorough analysis it devoted to the challenged exhibits and and their effect on Count 1, the court didn't address Baker's prejudice argument in any depth. Instead, the court simply held that "erroneous admission of [the challenged exhibits] does not require reversal of these [other] counts" because "[t]he Government presented evidence of many images of child pornography on Baker’s home computer and evidence of over 600 images of child pornography on the computer he used at work and on diskettes that were in his office." (As you can see, that's not really responsive to Baker's argument.)

As a final note, be aware that the court did not decide whether the NCMEC report and binder would have been admissible under the business record or public record exceptions to the hearsay rule, because it was unnecessary to do so in light of the court's holding that the Government failed to lay the necessary foundation. So this doesn't mean that such evidence is necessarily admissible, even with the proper predicate. The court also did "not reach Baker’s contention that admitting the NCMEC report without a witness who had personal knowledge of its content or preparation violated his Sixth Amendment right to confrontation." The Supreme Court will likely shed some light on that question when it decides Melendez-Diaz v. Massachusetts next term.