United States v. De Castro , 113 F.3d 176 ( 1997 )

United States Court of Appeals,
Eleventh Circuit.
No. 95-4648.
UNITED STATES of America, Plaintiff-Appellee,
v.
Maria J. DE CASTRO, a.k.a. Fifi, Defendant-Appellant.
Feb. 5, 1997.
Appeal from the United States District Court for the Southern
District of Florida. (No. 94-320-CR-EBD), Edward B. Davis, Judge.
Before TJOFLAT and BLACK, Circuit Judges, and REAVLEY*, Senior
Circuit Judge.
REAVLEY, Senior Circuit Judge:
Appellant Maria De Castro complains that the district court
erred in failing to let the jury decide the element of materiality
in her trial for making false statements in violation of 18 U.S.C.
§ 1010. We conclude that materiality is an element of this crime,
but that failing to submit this element to the jury was harmless
error. We also conclude that the admission of evidence regarding
a government investigation was not plain error. Accordingly we
affirm.
BACKGROUND
De Castro was charged with conspiracy to make and making false
statements to the Department of Housing and Urban Development
(HUD), for the purpose of obtaining federally insured mortgages, in
violation of 18 U.S.C. §§ 371 and 1010. She was convicted of
conspiracy and five of the six substantive counts.
*
Honorable Thomas M. Reavley, Senior U.S. Circuit Judge for
the Fifth Circuit, sitting by designation.
The government's proof showed that De Castro and others
submitted applications for mortgages insured by the Federal Housing
Administration (FHA), an agency within HUD, on behalf of low income
applicants. The applications contained false employment
information regarding the applicants. De Castro was a mortgage
broker who acted as an authorized underwriter for the loans. De
Castro, two real estate brokers, and several putative "employers"
participated in the scheme to obtain the government-backed
mortgages. The "employers" were business owners paid to submit
false employment verifications that were part of the loan
documentation. De Castro decided the amount of income used, so as
to meet the qualification requirement of the FHA for each
applicant. She signed a certification form for each of the
mortgages, stating that she had reviewed the case file and found
that it met HUD's requirements. The real estate brokers, Virginia
and Osvaldo Labrador, as well as several of the loan applicants and
false employers, testified for the government. One of the brokers
testified that "with [De Castro's] signature, the cases could be
approved" by the FHA.
The district court instructed the jury that materiality was an
element of the offense. The court further instructed that
materiality was a question of law for the court to decide and that
the court had already determined that the alleged false statements
were material. The defendant objected to the instruction and moved
for a mistrial. Because it was then well-established in this
circuit that materiality was a question of law,1 the district court
overruled the objection and denied the motion.
After the Supreme Court's decision in United States v. Gaudin,
however, we now know that the Constitution requires the jury to
determine whether a false statement is material if materiality is
an element of the offense.2 The rule in Gaudin applies
retroactively to this direct appeal, which was pending when Gaudin
was decided.3
ANALYSIS
We first determine whether materiality is an element of 18
U.S.C. § 1010, and, if it is, whether it was harmless error for the
district court to direct a verdict against defendant on that
element.
1. Materiality is an Element of 18 U.S.C. § 1010
Whether materiality is an element of 18 U.S.C. § 1010 is an
issue of law reviewed de novo.4 Section 1010 reads, in pertinent
1
See United States v. Kramer, 73 F.3d 1067, 1074 (11th
Cir.1996) (noting that it was well-established that materiality
was a question of law before Gaudin).
2
United States v. Gaudin, --- U.S. ----, ----, 115 S. Ct.
2310, 2320, 132 L. Ed. 2d 444 (1995) (materiality under 18 U.S.C. §
1001 is a question for the jury); Kramer, 73 F.3d at 1074
(applying Gaudin to 18 U.S.C. § 1623).
3
Griffith v. Kentucky, 479 U.S. 314, 328, 107 S. Ct. 708,
716, 93 L. Ed. 2d 649 (1987) ("[A] new rule for the conduct of
criminal prosecutions is to be applied retroactively to all
cases, state or federal, pending on direct review or not yet
final, with no exception for cases in which the new rule
constitutes a "clear break' with the past."); Kramer, 73 F.3d at
1074 (applying Gaudin retroactively).
4
See United States v. Hooshmand, 931 F.2d 725, 737 (11th
Cir.1991) (statutory interpretation is a question of law reviewed
de novo).
part:
Whoever, for the purpose of obtaining any loan ... from any
person ... with the intent that such loan ... shall be offered
to or accepted by the Department of Housing and Urban
Development for insurance, ... or for the purpose of
influencing in any way the action of such Department, makes,
passes, utters, or publishes any statement, knowing the same
to be false ... shall be fined not more than $5,000 or
imprisoned not more than two years, or both.
Although the word "material" does not appear in the statute,
we believe that precedent and logic dictate that a materiality
requirement be read into it. In Gevinson v. United States, we
upheld an indictment charging violations of § 1010 because
"[m]ateriality, while not alleged in haec verba, is alleged in
substance and this is sufficient."5 We stated that the evidence at
trial was sufficient to make out a case "of knowingly and wilfully
uttering and passing a false material statement with the intent to
influence FHA in a transaction pending before FHA." 6 Relying on
Gevinson, we stated in United States v. Black that in order to
obtain a valid conviction under § 1010, "it was necessary for the
government to prove beyond a reasonable doubt that [the defendant]
knowingly made a false statement concerning a material fact to HUD
as charged in the indictment...."7
We do not believe that Gevinson's and Black's use of the term
"material" was careless or accidental. We have implied a
materiality element into analogous false statement statutes. For
5
358 F.2d 761, 763 (5th Cir.), cert. denied, 385 U.S. 823,
87 S. Ct. 51, 17 L. Ed. 2d 60 (1966).
6
Id. at 765 (emphasis added).
7
644 F.2d 445, 447 (5th Cir.), modified on other grounds,
651 F.2d 392 (5th Cir.1981) (emphasis added).
example, in United States v. Swearingen, we held that materiality
was an element of 18 U.S.C. § 1344(a)(2),8 and in United States v.
Rapp, we listed materiality as an element of 18 U.S.C. §§ 1005 and
1014.9 Requiring a false statement to be material excludes trivial
falsifications from prosecution. If materiality is not an element,
then the statute reaches statements that are incapable of
influencing HUD. We do not believe that Congress intended this
result.
In United States v. Hoag, the Seventh Circuit held that
materiality is not an element of § 1010, reasoning that the word
8
858 F.2d 1555, 1556, 1558 (11th Cir.1988), cert. denied,
489 U.S. 1083, 109 S. Ct. 1540, 103 L. Ed. 2d 844 (1989). At the
time, 18 U.S.C. § 1344 stated:
(a) Whoever knowingly executes, or attempts to execute,
a scheme or artifice—(1) to defraud a federally
chartered or insured financial institution; or (2) to
obtain any of the moneys, funds, credits, assets,
securities, or other property owned by or under the
custody or control of a financial institution by means
of false or fraudulent pretenses, representations, or
promises shall be fined not more than $10,000 or
imprisoned not more than five years, or both.
9
871 F.2d 957, 963-64 (11th Cir.), cert. denied, 493 U.S.
890, 110 S. Ct. 233, 107 L. Ed. 2d 184 (1989). 18 U.S.C. § 1005
reads in pertinent part:
Whoever makes any false entry in any book, report,
or statement of [any Federal Reserve bank, member bank,
national bank or insured bank] with intent to injure or
defraud such bank [or various government actors] shall
be fined not more than $5,000 or imprisoned not more
than five years, or both.
18 U.S.C. § 1014 reads in pertinent part:
Whoever knowingly makes any false statement or
report, or willfully overvalues any land, property or
security, for the purpose of influencing in any way the
action of ... any [FDIC-insured bank] upon any ... loan
shall be fined $5,000 or imprisoned not more than two
years, or both.
"material" does not appear in its wording. 10 Hoag was criticized
in United States v. Staniforth, which noted that Hoag created
tension with decisions that had implied a materiality element into
other false statement statutes.11 Staniforth refused to extend
Hoag, adopting instead the "better view" that materiality is an
element of 18 U.S.C. § 1014.12 We agree that following Hoag would
create a tension with our circuit's treatment of § 1010 and other
false statement statutes.
Aside from repeating Hoag's argument that the word "material"
does not appear in § 1010, the government argues that the statute's
intent requirement obviates the need for a materiality element.
The government asserts that § 1010's intent requirement, which
limits prosecution to those who make false statements "for the
purpose of influencing" HUD, already meets the objective of
excluding trivial false statements from prosecution. The
government also argues that the intent requirement brings
materiality in "by the back door," because juries will generally
determine a defendant's purpose in making a false statement by
considering the statement's ability to influence HUD's actions—that
is, by considering whether the statement is material.13
These arguments are not without some force, but we are not
writing on a blank slate. The intent requirement of § 1010 does
10
823 F.2d 1123, 1125-26 (7th Cir.1987).
11
971 F.2d 1355, 1358 (7th Cir.1992).
12
Id.
13
See id. at 1357-58 (noting that materiality often plays a
role in determining whether the intent requirement of false
statement statutes is met).
not differ in any meaningful way from the intent requirements in §§
1344, 1005, and 1014, yet Swearingen and Rapp read materiality into
those statutes. Further, while in most cases an individual is
unlikely to provide information actually immaterial to the
recipient, intending to influence it, this need not always be so.
Thus reading materiality into false statement statutes serves a
useful function in preventing trivial prosecutions.
While Gevinson, Black, Swearingen, and Rapp favor including
materiality as an element of § 1010, the government points to no
precedent indicating otherwise. We hold that materiality is an
element of 18 U.S.C. § 1010.
2. Harmless Error
Although the district court erred in failing to allow the jury
to decide the element of materiality, the question remains whether
the error is reversible. The courts are divided on whether a
Gaudin error is reversible per se, or is instead susceptible to
plain error review or harmless error review.14 Gaudin itself did
14
See United States v. Jobe, 90 F.3d 920, 925 (5th Cir.1996)
(Gaudin error subject to plain error review); United States v.
McGhee, 87 F.3d 184, 186-87 (6th Cir.) (same), petition for
rehearing en banc granted, 95 F.3d 1335 (6th Cir.1996); United
States v. David, 83 F.3d 638, 646-47 (4th Cir.1996) (Gaudin error
subject to plain error review, but error always "affects
substantial rights" under plain error test); United States v.
Raether, 82 F.3d 192, 194 (8th Cir.1996) (Gaudin error subject to
harmless error review); United States v. DiRico, 78 F.3d 732,
736-38 (1st Cir.1996) (Gaudin error is a "structural defect" not
subject to harmless error analysis); United States v. Pettigrew,
77 F.3d 1500, 1511 (5th Cir.1996) (Gaudin error not subject to
harmless error analysis); United States v. Lopez, 71 F.3d 954,
960 (1st Cir.1995), cert. denied, --- U.S. ----, 116 S. Ct. 2529,
135 L. Ed. 2d 1053 (1996) ("[O]ur best guess is that the Supreme
Court would regard [Gaudin error as] reversible per se if there
were a timely objection—although not automatically "plain error'
if no objection occurred....").
not resolve this question.15
In Chapman v. California,16 the Court held that a
constitutional error does not render a conviction reversible per
se; instead such an error can be held harmless if the reviewing
court is "able to declare a belief that it was harmless beyond a
reasonable doubt."17 Although Chapman recognized that "there are
some constitutional rights so basic to a fair trial that their
infraction can never be treated as harmless error,"18 the Court has
since recognized that such errors, sometimes referred to as
"structural" errors or defects,19 "are the exception and not the
rule," and that there is a "strong presumption" that harmless error
analysis is applicable to a trial error of constitutional
dimension.20
Although constitutional errors are presumptively subject to
review for harmless error, other courts have struggled with whether
Sullivan v. Louisiana21 forecloses such review. In Sullivan, the
Court held that harmless error analysis cannot be applied to a
15
Gaudin, --- U.S. at ---- - ----, 115 S. Ct. at 2321-22
(Rehnquist, C.J., concurring).
16
386 U.S. 18, 87 S. Ct. 824, 17 L. Ed. 2d 705 (1967).
17
Id. at 24, 87 S.Ct. at 828.
18
Id. at 23, 87 S.Ct. at 827-28.
19
E.g., Sullivan, 508 U.S. at 280-83, 113 S.Ct. at 2082-83;
Arizona v. Fulminante, 499 U.S. 279, 308-11, 111 S. Ct. 1246,
1264-65, 113 L. Ed. 2d 302 (1991) (opinion of Rehnquist, C.J., for
the Court).
20
Rose v. Clark, 478 U.S. 570, 577-79, 106 S. Ct. 3101, 3106,
92 L. Ed. 2d 460 (1986).
21
508 U.S. 275, 113 S. Ct. 2078, 124 L. Ed. 2d 182 (1993).
defective reasonable doubt instruction. The Court reasoned that
where there is a defective reasonable doubt instruction, there is
no jury verdict within the meaning of the Sixth Amendment upon
which a harmless error scrutiny can operate.22 In an alternative
analysis, the Court held that the error was a "structural error,"
that is, a serious and basic error that infected the entire trial,
"with consequences that are necessarily unquantifiable and
indeterminate," and hence one where harmless error analysis in
inapplicable.23
In three recent cases, our court has addressed whether the
failure to allow the jury to decide the materiality element is
reversible. In United States v. Kramer,24 the defendant urged that
the error was reversible per se. We rejected this argument, and
concluded that even though the error was plain, the defendant did
not meet requirement of showing that his substantial rights were
affected, i.e. that the outcome of the trial was affected by the
error.25 Again in United States v. Toussaint26 and United States v.
Calhoon,27 we held that the district court's failure to let the jury
decide materiality was not prejudicial under the plain error
standard and hence was not reversible.
Our case is distinguishable from Kramer, Toussaint and
22
Id. at 280-81, 113 S.Ct. at 2082.
23
Id. at 280-83, 113 S. Ct. at 2082-83.
24
73 F.3d 1067 (11th Cir.1996).
25
Id. at 1074-75.
26
84 F.3d 1406, 1407 (11th Cir.1996).
27
97 F.3d 518, 529-30 (11th Cir.1996).
Calhoon in one regard. In our case defense counsel did object to
the failure of the district court to allow the jury to decide the
element of materiality. In Kramer, Toussaint and Calhoon, there
was no objection and the court therefore turned to the plain error
standard of review. Plain error review applies to alleged errors
under Fed.R.Crim.P. 52(b) to which there was no objection at the
trial. The rule provides that "[p]lain error or defects affecting
substantial rights may be noticed although they were not brought to
the attention of the court." In United States v. Olano,28 the Court
defined the standards for plain error review. The Court held that
the defendant seeking a reversal for plain error must establish (1)
an error, (2) which was plain, and (3) which affected "substantial
rights."29 Even if these requirements are met, the reviewing court
is left with discretion to correct the error, and should not
correct the error unless it seriously affects the fairness,
integrity or public reputation of judicial proceedings.30
Significant to our case, the Court in Olano held that in
deciding whether the error affected "substantial rights" under Rule
52(b), the review is similar to harmless error review when there is
a timely objection under Fed.R.Crim.P. 52(a). Rule 52(a) provides
that "[a]ny error, defect, irregularity or variance which does not
affect substantial rights shall be disregarded." The Court
explained that prejudice is the focus under either subpart of Rule
52 when deciding whether the defendant's substantial rights were
28
507 U.S. 725, 113 S. Ct. 1770, 123 L. Ed. 2d 508 (1993).
29
Id. at 730-32, 113 S.Ct. at 1776.
30
Id.
affected:
The third and final limitation on appellate authority under
Rule 52(b) is that the plain error "affec[t] substantial
rights." This is the same language employed in Rule 52(a),
and in most cases it means that the error must have been
prejudicial: It must have affected the outcome of the
District Court proceedings. When the defendant has made a
timely objection to an error and Rule 52(a) applies, the Court
of Appeals normally engages in a specific analysis of the
District Court record—a so-called "harmless error" inquiry—to
determine whether the error was prejudicial. Rule 52(b)
normally requires the same kind of inquiry, with one important
difference: It is the defendant rather than the Government
who bears the burden of persuasion with respect to prejudice.
In most cases, the Court of Appeals cannot correct the
forfeited error unless the defendant shows that the error was
prejudicial.31
We read the Court to say that the ultimate question of harm or
prejudice is the same whether or not objection is made at the time
of trial, but the burden of persuading the appellate court of the
harm or prejudice is borne by the government where objection was
made at trial. The Court did leave open the possibility that some
errors, such as the structural defects described in Fulminante,32
might also be deemed to affect substantial rights regardless of
their effect on the outcome of the trial.33
We conclude that even though there was an objection in our
case pointing out the Gaudin error, the error is not reversible per
se, but is subject to harmless error review. The mere fact that an
objection was raised does not render harmless error review
inapplicable. The Supreme Court has employed harmless error review
31
Id. at 734-35, 113 S.Ct. at 1778 (citations omitted).
32
Arizona v. Fulminante, 499 U.S. 279, 308-11, 111 S. Ct.
1246, 1264-65 (opinion of Rehnquist, C.J., for the Court).
33
Olano, 507 U.S. at 734-35, 113 S. Ct. at 1778.
where objections were lodged with the district court.34 Moreover,
the law of our circuit compels the conclusion that a Gaudin error
is not reversible per se even where the defendant does object.
Olano teaches that the prejudice requirements under the plain error
and harmless error standards are the same, except for the burden of
persuasion. If our court in Kramer, Toussaint and Calhoon had
concluded that the Gaudin errors in those cases were not
susceptible to prejudice scrutiny, either because the error was
structural or because there was no constitutional verdict on which
to conduct a review for prejudice, it would not have conducted a
prejudice analysis. In short, we believe that our court has
already held that Sullivan does not extend to Gaudin errors.
In United States v. Medina,35 the court held that a district
court's failure to submit a jurisdictional element of a drug
offense to the jury, and directed verdict on that element, was not
reviewable for harmless error and hence was reversible per se.36
However, since the three other cases discussed above (two of which
preceded Medina) hold that the specific error at issue here—failing
to submit the element of materiality to the jury—is not reversible
per se but is instead subject to review for prejudice, we follow
these precedents rather than Medina.
Applying harmless error analysis to this case, we conclude
that the Gaudin error was harmless beyond a reasonable doubt. We
34
E.g. Fulminante, 499 U.S. at 283, 294-96, 111 S. Ct. at
1250, 1257; United States v. Hasting, 461 U.S. 499, 502-03, 510-
11, 103 S. Ct. 1974, 1977, 1981, 76 L. Ed. 2d 96 (1983).
35
90 F.3d 459 (11th Cir.1996).
36
Id. at 464.
have defined the test for materiality as "whether a statement has
a natural tendency to influence, or is capable of influencing, the
exercise of a governmental function."37 The government conclusively
proved that De Castro's submission of fraudulent documents,
containing false employment information about mortgage applicants,
not only had the capacity to influence the government, but in fact
influenced the FHA to guarantee the loans in issue. More
specifically, the proof established that the FHA would not have
insured the mortgages but for De Castro's submission of the false
loan documents, certification that they were accurate, recruitment
of the false employers, and calculation of the income amounts
listed on the employer verification forms.
We are further persuaded that the error was harmless because
of the finding the jury did make. While not instructed to
determine materiality, the jury was instructed to decide, and found
beyond a reasonable doubt, that De Castro submitted the false
documents "for the purpose of obtaining a mortgage insured by the
Department of Housing and Urban Development." As explained above,
the intent element is not the same as the materiality element. The
former concerns the defendant's state of mind, while the latter
concerns the effect on the government agent. However, proof of the
two elements are closely related. The materiality of the
statements is evidence of intent to influence government action, in
this case the approval of the mortgages. Conversely, proof that
the defendant intended to influence the government is evidence that
37
United States v. Grizzle, 933 F.2d 943, 948 (11th Cir.),
cert. denied, 502 U.S. 897, 112 S. Ct. 271, 116 L. Ed. 2d 223
(1991).
the statements she made were material. While there may be
instances where a defendant intends to influence government action
by making immaterial statements, such circumstances are not present
here.
3. Admission of HUD Findings
De Castro separately argues that the district court erred in
permitting the government to introduce a HUD "finding" of fraud.
Scott Kottman, a loan specialist and investigator for HUD, was the
government's first witness. He testified that he began an
investigation after a large number of mortgage defaults in the
Phoenix area. He noticed that the majority of the bad loans
involved the same broker, Virginia Labrador, and that the same
employers kept appearing in the files. He then discovered that
home buyers were not employed where the files indicated, and linked
the paperwork in the files to De Castro. Kottman testified that he
investigated De Castro's company, Phoenix Mortgage, because of
"[t]he unusually large number of false claims." He went on to
testify that after the investigation De Castro was suspended from
doing business with the FHA. The suspension letter was admitted
into evidence without objection.
Citing United States v. Christo38 and other authority, De
Castro complains that it is error to allow the introduction of the
results of an agency's "findings" in a criminal trial. She further
argues that the error was compounded by the prosecutor's statements
in his opening and closing arguments, such as the statement in
opening argument that HUD "found evidence of fraud," and the
38
614 F.2d 486 (5th Cir.1980).
statement in closing argument that HUD "concluded there was fraud
on the part of Phoenix."
De Castro concedes that there was not a proper objection to
the evidence or the argument of the prosecutor, and accordingly the
plain error of review applies.
In Christo, the defendant was convicted of misapplication of
bank funds. The government's theory was that bank overdrafts in
violation of a civil banking statute constituted criminal
misapplication. The jury was further instructed that the civil
violation could be considered in deciding criminal liability. The
court found plain error based on "the inclusion of [civil]
violations in the case," and "indeed the whole tenor of the
trial."39 In these regards Christo bears little similarity to our
case. In our case the government never contended, nor was the jury
instructed, that a violation of a civil statute was sufficient to
establish, or even relevant to, guilt under a criminal statute made
the basis of the indictment.
The error here, if any, does not rise to the level of plain
error. Kottman did not testify that there was an agency finding of
"fraud." The government offered extensive evidence from the
participants in the scheme that De Castro submitted fraudulent
documents to HUD. The prosecutor never argued that a HUD finding
of fraud was sufficient to convict De Castro, and instead reminded
the jurors in closing argument of the testimony of ten witnesses
besides Kottman. Under the plain error standard, De Castro does
not carry her burden of showing that the claimed error was
39
Id. at 492.
prejudicial, meaning "that the error affected the outcome of the
District Court proceedings."40 Even if De Castro had met this prong
of the plain error test, we should not exercise our discretion to
correct a plain error unless the error seriously affected "the
fairness, integrity or public reputation of judicial proceedings."41
The error, if any, in allowing the evidence of the HUD
investigation does not satisfy this last element of the plain error
test.
AFFIRMED.
40
Olano, 507 U.S. at 734-35, 113 S. Ct. at 1778.
41
Id. at 732, 113 S.Ct. at 1776.