United States v. Filippi ( 1999 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v. No. 97-4970
THOMAS R. FILIPPI,
Defendant-Appellant.
Appeal from the United States District Court
for the Southern District of West Virginia, at Charleston.
Charles H. Haden II, Chief District Judge.
(CR-97-47)
Submitted: February 9, 1999
Decided: February 23, 1999
Before LUTTIG, WILLIAMS, and MICHAEL, Circuit Judges.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
James F. Humphreys, James A. McKowen, JAMES F. HUM-
PHREYS & ASSOCIATES, L.C., Charleston, West Virginia, for
Appellant. Rebecca A. Betts, United States Attorney, Hunter P.
Smith, Jr., Assistant United States Attorney, Philip J. Combs, Assis-
tant United States Attorney, Charleston, West Virginia, for Appellee.
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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Thomas R. Filippi was convicted by a jury of sixty-six counts of
mail fraud, see 18 U.S.C. §§ 1341, 2 (1994), one count of obstruction
of justice, see 18 U.S.C.A. § 1503 (West Supp. 1998), and six counts
of money laundering, see 18 U.S.C. § 1957 (1994). Filippi appeals his
conviction, contesting a number of the district court's evidentiary rul-
ings. He also appeals his 57-month sentence, challenging the district
court's determination that he abused a position of trust, see U.S. Sen-
tencing Guidelines Manual § 3B1.3 (1997), its decision to place the
mail fraud counts and the money laundering counts in separate
groups, see USSG § 3D1.2, and its decision to make an obstruction
of justice adjustment in each group, see USSG § 3C1.1. We affirm.
In 1994, Filippi started Creative Counseling Corporation, working
out of his home. Filippi was president and treasurer of the company.
Joan Upole was the only other shareholder. The company had three
divisions. The first, Managed Health Services, did vocational rehabili-
tation counseling, primarily for the Workers' Compensation Division
of the West Virginia Bureau of Employment Programs. Filippi ran
this part of the company. Upole was involved with Options Counsel-
ing Associates, which offered private counseling services and gener-
ated only a small amount of income to the corporation. The third
division, Creative Counseling Services, never became functional.
From June 1994 until December 20, 1994, Filippi did all the voca-
tional rehabilitation work for the corporation. During this time, he
billed 3,441 hours of work to Workers' Compensation, although a
normal yearly work schedule of forty hours of work for fifty-two
weeks would be 2080 hours. In November 1994, Filippi billed an
average of 24.75 hours per day. In December 1994, Filippi billed an
average of 39.51 hours per day. In late December 1994, Filippi hired
the first of five employees who, from then on, did most of the voca-
2
tional rehabilitation work, with Filippi functioning chiefly as an
administrator. He reviewed and edited the employees' case expense
reports, which they faxed to him, and submitted bills to Workers'
Compensation. The case expense reports detailed the hours worked,
travel time, and other expenses. Filippi consistently overbilled Work-
ers' Compensation by inflating the hours worked and travel time
expended, by billing for services not performed and undocumented in
the employees' case reports, and by billing more than once for ser-
vices performed. The district court determined at sentencing that
Filippi had been overpaid by about $200,000.1
During his trial, Filippi conceded that he had been overpaid and
that he owed money to Workers' Compensation. He testified that he
did not know how much he owed. However, between 1994 and 1996,
Filippi wrote corporate checks for $14,781 in payment of a debt owed
by his domestic partner; for $14,233 to pay off the balance of the
mortgage on the house he shared with his partner; for $75,000 to pay
for house remodeling; and for $30,145 to buy a sports car. He also
transferred $65,000 to his investment account.
In April 1995, Workers' Compensation began an investigation of
possible fraud. In February 1996, Filippi and the corporation received
subpoenas for corporate records and meetings of the board of direc-
tors, corporate tax returns, and some claimant files. In early March
1996, Filippi and Upole met and drafted corporate minutes and reso-
lutions which were backdated to 1994 and 1995. One resolution
authorized payment of a $150,000 bonus to Filippi; another, dated
July 1995, authorized a loan of $176,747 to him. Filippi told Upole
that the latter resolution would "take care of taxes." Afterward, Filippi
gave Upole $100 as a bonus.
Following Filippi's conviction, the probation officer calculated his
guideline range by placing the mail fraud and money laundering
counts in separate groups. He grouped the obstruction of justice count
with the money laundering counts, and recommended adjustments for
obstruction of justice in both the mail fraud group and the money
laundering group.
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1 In 1994, Filippi was paid $164,770 by Workers' Compensation. In
1995, he was paid $381,303.
3
The probation officer recommended a base offense level of 6 for
the mail fraud counts, see USSG § 2F1.1, increased to 20 by specific
offense characteristics and adjustments for abuse of a position of trust
and obstruction of justice. He recommended a base offense level of
17 for the money laundering counts, see USSG§ 2S1.2, increased to
22 by enhancements for knowing use of proceeds of unlawful activ-
ity, the amount of loss, and obstruction of justice. Because the
obstruction of justice count carried an adjusted offense level of 16, the
probation officer used the higher offense level for the money launder-
ing counts as the offense level for that group. See USSG § 3D1.4.
The probation officer also recommended an adjustment for abuse
of a position of trust in connection with the mail fraud counts. This
adjustment increased the combined adjusted offense level, even
though the money laundering/obstruction of justice group had a
higher offense level, because the multiple count unit increase would
have been lower if the offense level for the mail fraud group had been
more than four levels less serious than the money launder-
ing/obstruction of justice group. See USSG§ 3D1.4.
Under the multiple counts rules, two levels were added because
there were two groups of counts and the offense level for the less seri-
ous group (the mail fraud group) was within four levels of the more
serious group (the money laundering/obstruction of justice group).
See USSG § 3D1.4. This calculation yielded a final offense level of
24. Because Filippi was in criminal history category I, the resulting
guideline range was 51-63 months. At sentencing, the district court
overruled all Filippi's objections to the presentence report and sen-
tenced him to serve 57 months imprisonment.
I. Abuse of a Position of Trust
Whether a defendant occupied a position of trust is a factual ques-
tion reviewed for clear error. See United States v. Adam, 70 F.3d 776,
782 (4th Cir. 1995). To earn the adjustment, the defendant must have
"abused a position of public or private trust . .. in a manner that sig-
nificantly facilitated the commission or concealment of the offense
. . . ." USSG § 3B1.3. Application Note 1 of the commentary states
that a position of public or private trust "is characterized by profes-
sional or managerial discretion (i.e., substantial discretionary judg-
4
ment that is ordinarily given considerable deference)." The position
must have assisted the defendant, for example, "by making the detec-
tion of the offense . . . more difficult." Id. The determination is made
from the perspective of the victim. See United States v. Glymph, 96
F.3d 722, 727 (4th Cir. 1996).
In Adam, this Court held that a physician who commits welfare
fraud abuses a position of trust because "physicians exercise enor-
mous discretion: their judgments with respect to necessary treatments
ordinarily receive great deference and it is difficult to prove that those
judgments were made for reasons other than the patients' best inter-
ests." Adam, 70 F.3d at 782. Ordinary commercial relationships, by
contrast, do not constitute a trust relationship sufficient to justify an
adjustment under § 3B1.3. See United States v. Moore, 29 F.3d 175,
179-80 (4th Cir. 1994).
Filippi argues that his relationship with Workers' Compensation
was an ordinary commercial relationship. However, before he could
receive referrals from Workers' Compensation, he had to sign a pro-
vider agreement in which he agreed to provide only medically neces-
sary services and to bill only for services actually provided. Filippi
was not supervised and Workers' Compensation trusted him to bill
honestly for hours worked providing rehabilitation services. On these
facts, we find that Filippi's relationship with Workers' Compensation
was more than an ordinary commercial relationship. In fact, it more
closely resembled that of a doctor participating in a government pro-
gram. Therefore, we find that the district court did not clearly err in
finding that Filippi abused a position of trust.
II. Obstruction of Justice Adjustments
Guideline section 3C1.1 provides for a two-level adjustment "[i]f
a defendant willfully obstructed or impeded, or attempted to obstruct
or impede, the administration of justice during the investigation . . .
of the instant offense . . . ." At sentencing, Filippi contested only the
obstruction of justice adjustment applied by the probation officer to
the money laundering group. Defense counsel stated that "[o]ur posi-
tion is that the two level enhancement should only apply to the mail
fraud group." On appeal, he maintains that the adjustment should not
have been made in either group. With regard to the mail fraud group,
5
the issue is reviewed for plain error only. See United States v. Olano,
507 U.S. 725, 732 (1993). For the money laundering group, the issue
is reviewed for clear error because the district court made a factual
determination that Filippi's attempt to obstruct the investigation
extended to his money laundering activities. See United States v.
Daughtrey, 874 F.2d 213, 217 (4th Cir. 1989).
With regard to the mail fraud counts, Filippi argues that the adjust-
ment was erroneous because he cooperated with the investigation and
created the false corporate records solely so he could comply fully
with the subpoena or for tax purposes. He suggests that, because he
was not charged with any tax offenses, his conduct did not obstruct
the investigation of the mail fraud offenses or any relevant conduct.
He relies on United States v. Self, 132 F.3d 1039 (4th Cir. 1997), cert.
denied, 118 S. Ct. 1573 (1998), which holds that "offense" as used in
§ 3C1.1 means the offense of conviction and all relevant conduct.
Under Self, an adjustment is not warranted if the defendant obstructs
the investigation of "an offense committed by the defendant that is
neither the offense of conviction nor relevant conduct to the offense
of conviction." Id. at 1043.
We find that the district court did not plainly err in making the
adjustment because Filippi created the false corporate records in an
effort to avoid tax consequences flowing from the mail fraud offense.
Relevant conduct includes acts by the defendant which occurred "in
the course of attempting to avoid detection or responsibility for [the
offense of conviction]." USSG § 1B1.3(a)(1). Filippi clearly was
seeking to impede the investigation into his business practices and
was taking steps to minimize his exposure to criminal penalties of any
kind. Having failed to report the ill-gotten gains from the mail fraud,
he obviously feared prosecution for tax offenses. Although he was
never charged with any tax offenses, the creation of the false corpo-
rate documents was intended to frustrate the investigation of the mail
fraud, which he reasonably feared might lead to a tax prosecution.
Filippi makes a similar argument concerning the obstruction of jus-
tice adjustment to the money laundering counts. For the reasons
explained above, the district court did not clearly err in finding that
the adjustment also applied to the money laundering counts. Filippi's
creation of the false documents was intended to obstruct not only a
6
possible tax prosecution, but the entire investigation relating to his
overbilling, including his use of the illegally-acquired funds.
III. Grouping
Counts involving substantially the same harm are deemed "closely
related counts" and are placed in the same group for purposes of cal-
culating the guideline range. See USSG § 3D1.2. The district court's
decision to group the mail fraud and money laundering counts sepa-
rately is one involving interpretation of the guidelines and is reviewed
de novo. See United States v. Toler, 901 F.2d 399, 402 (4th Cir.
1990).
Filippi asserts that the mail fraud and money laundering counts
should have been grouped together under either § 3D1.2(b) or (d), or
both. Section 3D1.2(b) provides that counts are closely related when
they "involve the same victim and two or more acts or transactions
connected by a common criminal objective or constituting part of a
common scheme or plan." Filippi argues that Workers' Compensation
was the victim of both offenses and that both offenses were part of
a common scheme. However, his argument fails because society, not
Workers' Compensation, was the victim of the money laundering
offense. See United States v. Kunzman, 54 F.3d 1522, 1531 (10th Cir.
1995) (victim of fraud is defrauded individual, but society is victim
of money laundering); accord United States v. Lombardi, 5 F.3d 568,
570 (1st Cir. 1993). Therefore, the "same victim" requirement was not
met.
Section 3D1.2(d) provides that counts are closely related:
[w]hen the offense level is determined largely on the basis
of the total amount of harm or loss, the quantity of a sub-
stance involved, or some other measure of aggregate harm,
or if the offense behavior is ongoing or continuous in nature
and the offense guideline is written to cover such behavior.
We have held that money laundering counts may be grouped with
other offenses if they are both part of an ongoing or continuous
scheme. See United States v. Walker, 112 F.3d 163, 167 (4th Cir.
7
1997). In Walker, an insurance agent deposited money received from
customers for annuities into his own account, then sent false docu-
ments to the customers and used some of the defrauded funds to make
false interest payments. Because the defendant pled guilty to money
laundering under 18 U.S.C.A. § 1956(a)(1)(A)(i) (West Supp. 1998),
which forbids laundering "with the intent to promote the carrying on
of [the] specified unlawful activity," we found that he had conceded
that his "money laundering was part of his fraudulent scheme . . . ."
Id. However, in United States v. Porter, 909 F.2d 789, 793 (4th Cir.
1990), where the defendant purchased a house with the proceeds of
an illegal gambling operation and later sold it again, we held that the
gambling and money laundering counts were not closely related
because there was no evidence that the sale "was in any way inte-
grated with the gambling operation or connected to any particular
gambling transactions." Id.2 Porter reasoned that, "[t]o hold other-
wise would mean that every act of money laundering would be
closely related to the underlying crime which produced the laundered
money." Id.Unlike the defendant in Walker, Filippi was convicted of money
laundering under § 1957, which simply involves spending more than
$10,000 of unlawful proceeds. He contends that he used the unlawful
proceeds to further the fraudulent scheme when he remodeled the
house in which he had his office, bought a sports car, hired staff and
provided them with computers, printers, fax machines, and tele-
phones.
Clearly, some of Filippi's business proceeds were legitimate and
were used to carry on his legitimate business activities. However, he
also withdrew a large amount of money from the corporation and
used it for his personal benefit. It appears from the record that Filippi
put most, if not all, of the money which was unlawfully obtained to
personal uses having nothing to do with furthering either his voca-
tional rehabilitation business or the mail fraud. Consequently, we find
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2 The defendant in Porter pled guilty to money laundering pursuant to
§ 1956(a)(1)(B)(i), which prohibits financial transactions with proceeds
of unlawful activity knowingly designed "to conceal or disguise the
nature, the location, the source, the ownership, or the control of the pro-
ceeds . . . ."
8
that this case is governed by Porter rather than by Walker. We there-
fore find no error in the district court's decision to place the mail
fraud and money laundering counts in separate groups.
IV. Admission of Filippi's 1995 Amended Tax Return
On the day of trial, defense counsel moved to exclude a copy of
Filippi's 1995 amended tax return, on which he reported $164,304 in
income. Of this amount, $150,000 was identified as a bonus. On his
first tax return, Filippi had reported only $14,000 in income. The
court denied the motion on the government's representation that the
tax return would establish a motive for Filippi's creation of the false
corporate documents, that is, to avoid prosecution for under-reporting
income. On appeal, Filippi claims that the amended return was unduly
prejudicial3 and was irrelevant because he was not charged with any
tax offenses.
Relevant evidence is defined as "evidence having any tendency to
make the existence of any fact that is of consequence to the determi-
nation of the action more probable or less probable than it would be
without the evidence." Fed. R. Evid. 401. The district court has broad
discretion to determine whether evidence is relevant. See United
States v. Fernandez, 913 F.2d 148, 155 (4th Cir. 1990). As the gov-
ernment maintains, the amended return showed that Filippi was con-
cerned that the investigation might subject him to prosecution for tax
offenses, and it corroborated Upole's testimony that Filippi said the
creation of the corporate resolution authorizing a non-taxable
$176,747 loan to him would "take care of taxes." Even though he was
not charged with tax offenses, the amended return was relevant
because it showed that Filippi's motive for creating the false corpo-
rate documents was to obstruct the pending investigation.
Relevant evidence may be excluded if it is unduly prejudicial. See
Fed. R. Evid. 403. However, evidence is not unduly prejudicial
merely because it is probative, see United States v. Queen, 132 F.3d
991, 999 (4th Cir. 1997), but only if it will cause the jury to decide
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3 Although the government asserts that Filippi failed to preserve the
issue of prejudice, defense counsel preserved the issue by arguing that
the amended return was prejudicial.
9
the case on emotion rather than reason. Id. The amended tax return
was not evidence of this kind. Therefore, the district court did not
abuse its discretion in permitting the government to introduce it.
V. Other Evidentiary Rulings
Before trial, the government moved to exclude from evidence four
letters Filippi had written to Workers' Compensation between Febru-
ary and July 1995 complaining of delays in payment and of confusion
in the billing process. The district court ruled initially that the letters
could not be mentioned in opening arguments. Later, the court permit-
ted Filippi to introduce any letters he sent to Workers' Compensation
before May 1995, when Filippi testified that he learned that he and
his corporation were under investigation. The court required redaction
of hearsay in the letters about advice that personnel at Workers' Com-
pensation allegedly gave to Filippi concerning his billings. Ulti-
mately, Filippi offered two letters, one written in February 1995, the
second written in April 1995. The district court's evidentiary rulings
are reviewed for abuse of discretion. See United States v. Bostian, 59
F.3d 474, 480 (4th Cir. 1995).
Filippi first argues that the district court erred in granting the gov-
ernment's motion in limine to prohibit mention of the letters in open-
ing statements. He offers no authority to support his position.
Generally, opening statements should avoid references to evidence of
doubtful admissibility because such statements may, if the evidence
is not admitted, trigger a mistrial. See United States v. Sloan, 36 F.3d
386, 397-99 (4th Cir. 1994) (defense opening statement); United
States v. Brockington, 849 F.2d 872, 874-75 (4th Cir. 1988) (prosecu-
tor's opening statement). Because the district court had not yet ruled
on the admissibility of the letters Filippi sought to introduce, it did not
abuse its discretion in prohibiting reference to the letters in opening
statements.
Filippi also contends that the requirement to redact hearsay from
the letters was an abuse of discretion because hearsay is admissible
when it occurs in regular business records. Again, he has no authority
for his position. While regular business records fall within a recog-
nized exception to the hearsay rule, see Fed. R. Evid. 803(6) (records
of regularly conducted activity), Rule 805 requires that hearsay within
10
hearsay is admissible only if it also comes within an exception to the
hearsay rule. See Precision Piping v. E.I. du Pont de Nemours, 951
F.2d 613, 619 (4th Cir. 1991); United States v. Portsmouth Paving
Corp., 694 F.2d 312, 321 (4th Cir. 1982).
The hearsay Filippi sought to introduce consisted of advice about
his billing which he alleged certain employees of Workers' Compen-
sation had given him, i.e., that he should resubmit bills which were
not paid promptly and that he should change the date of the services
rendered so as not to confuse the computers at Workers' Compensa-
tion. None of the employees who allegedly gave him this advice were
called as witnesses, and the statements they allegedly made did not
come within any hearsay exception. Consequently, the district court
did not abuse its discretion in requiring redaction of these hearsay
statements from the letters admitted into evidence.
Third, Filippi argues that the court abused its discretion in exclud-
ing those letters he wrote after he learned that he was being investi-
gated because all four letters should have been admissible as business
records. However, business records may be excluded if "the source of
information or the method or circumstances of preparation indicate
lack of trustworthiness." Fed. R. Evid. 803(6). Business documents
prepared with litigation in mind are not admissible because litigation
is not a regularly conducted business activity and because there may
be an obvious motive to misrepresent. See AMPAT/Midwest v. Illinois
Tool Works, 896 F.2d 1035, 1045 (7th Cir. 1990); cf. United States
v. Frazier, 53 F.3d 1105, 1110 (10th Cir. 1995) (regular audit pre-
pared by neutral third party deemed trustworthy and admissible).
Here, Filippi's letters to Workers' Compensation were not a regular
activity of his business and he had a clear motive to use them to create
an exculpatory explanation of his billing practices. Consequently, this
case is distinguishable from United States v. Baxter, 492 F.2d 150,
165 (9th Cir. 1973) (drug dealer's business records admissible even
after he became informant), on which Filippi relies. The district court
did not abuse its discretion in excluding the letters written after
Filippi became aware of the investigation.
Finally, in a claim submitted pursuant to Anders v. California, 386
U.S. 738 (1967), Filippi asserts that the district court abused its dis-
cretion in allowing West Virginia State Trooper Bennett to compare
11
the hours Filippi worked, as recorded on his case expense reports,
with the hours he billed to Workers' Compensation, as shown on the
Workers' Compensation computer printouts, because the two were
"apples and oranges," and the evidence was"not based on fact."
Defense counsel argued that the billing printouts covered an entire
reporting period (about twenty-one days), rather than just the date
shown on the printout, while the case expense reports showed work
done on a specific day. However, Bennett testified about the hours
reflected on all the case expense reports pertaining to each client for
the whole period covered in the billing printout, as well as the hours
billed for each client during the period. We find that the testimony
was not misleading, lacking in foundation, irrelevant, or unduly preju-
dicial.
For the reasons discussed, we affirm the conviction and the sen-
tence. We dispense with oral argument because the facts and legal
contentions are adequately presented in the materials before the court
and argument would not aid the decisional process.
AFFIRMED
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