United States v. Cohen

Opinions of the United

1999 Decisions States Court of Appeals

for the Third Circuit

2-23-1999

USA v. Cohen

Precedential or Non-Precedential:

Docket 97-1888

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Filed February 19, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 97-1888 and 98-1004

UNITED STATES OF AMERICA,

Appellant in No. 97-1888

v.

GERSON COHEN,

Appellant in No. 98-1004

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Crim. No. 97-124)

District Judge: Honorable Clarence C. Newcomer

Argued June 8, 1998

Reargued January 12, 1999

Before: SCIRICA, NYGAARD, and ROTH,* Circuit Judges

(Opinion filed February 19, 1999)

_________________________________________________________________

* Judge Seitz was a member of the original panel. However, he died

before the matter was decided. Judge Roth has been designated a

member of the panel in his stead.

Michael R. Stiles

Walter S. Batty, Jr.

Amy L. Kurland (Argued)

Office of the United States Attorney

Suite 1250

615 Chestnut Street

Philadelphia, PA 19106

Counsel for Appellant/Cross-

Appellee United States of America

Catherine M. Recker (Argued)

Aeryn S. Fenton

Welsh & Recker, P.C.

Suite 3402

1818 Market Street

Philadelphia, PA 19103

Counsel for Appellee/Cross-

Appellant Gerson Cohen

OPINION OF THE COURT

NYGAARD, Circuit Judge.

A jury convicted Gerson Cohen of mail fraud for paying

kickbacks to a grocery store's purchasing agents. Cohen

challenges his conviction, claiming that the evidence was

insufficient; that the Court improperly admitted evidence

that his co-conspirators had pleaded guilty; and that the

Court wrongfully denied judicial immunity to a defense

witness. We will affirm his conviction. The Government

appeals Cohen's sentence, claiming that the District Court

erred in calculating the enhancement by using the dollar

value of the bribes rather than the benefit conferred by the

bribe, and by granting a reduction for accepting

responsibility. We will vacate Cohen's sentence and remand

for resentencing.

I.

Butler Foods, a wholesale meat distribution company,

sells meat to supermarket chains, individual grocery stores,

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and restaurants. Butler Foods' salesmen made illegal cash

payments to customers' meat managers to induce them to

purchase from Butler Foods. The payments usually

amounted to one penny per pound of meat purchased,

provided that the customer bought at least 10,000 pounds

a week. After customers made qualifying purchases, Larry

Lipoff, part owner of Butler Foods, gave the kickback

money to his salesmen, who then delivered the cash to the

meat managers.

Gerson Cohen, a meat salesman for Butler Foods,

participated in this illegal payment scheme. From 1992

through 1995, Cohen paid kickbacks totaling $111,548.21

to five meat managers for Thriftway Food Stores. In

addition to Cohen's regular salary by corporate check,

Butler Foods paid Cohen $500 per week in cash. He failed

to report this income on his tax returns for three years,

resulting in a tax deficiency of $23,939. He was charged

with twenty-five counts of mail fraud, in violation of 18

U.S.C. S 1341, and three counts of subscribing a false tax

return, in violation of 26 U.S.C. S 7206. The District Court

severed the charges and convened a jury trial on mail

fraud.

The jury convicted Cohen on all twenty-five counts of

mail fraud. He then pleaded guilty to the three counts of

income tax fraud. Applying U.S.S.G. S 2B4.1 to Cohen's

participation in the kickback scheme, the District Court

initially assigned a base offense level of 8, then enhanced it

6 levels by using the actual dollar amount of the kickbacks.

It granted Cohen a decrease of 2 levels under U.S.S.G.

S 3B1.2(b) for his minor role in the offense. The Court then

considered Cohen's tax offenses and assigned a combined

offense level of 14 under U.S.S.G. S 3D1.4. Finally, the

Court granted Cohen a reduction of 2 levels for accepting

responsibility under U.S.S.G. S 3E1.1. The District Court

sentenced Cohen to twenty-eight concurrent terms offive

months in prison, five months home confinement, three

years supervised release, a $7500 fine, and a $1400 special

assessment.

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II.

A.

Cohen first argues that the Government's evidence was

insufficient to prove that he used the U.S. mail. We

disagree. An essential element of mail fraud is "the use of

the United States mails in furtherance of the fraudulent

scheme." United States v. Hannigan, 27 F.3d 890, 892 (3d

Cir. 1994). This element requires some competent evidence

that, as a routine business practice or office custom, the

type of document at issue in the case was sent through the

U.S. mail. See id. at 893-94. As we indicated in Hannigan,

"the prosecution need not affirmatively disprove every

conceivable alternative theory as to how the specific

correspondence was delivered," but "some reference to the

correspondence in question is required." Id. at 892-93.

Cohen himself need not have placed the particular

documents into the U.S. mail. A mailing is knowingly

caused within the terms of the statute "[w]here one does an

act with knowledge that the use of the mails will follow in

the ordinary course of business." Pereira v. United States,

347 U.S. 1, 8-9, 74 S. Ct. 358, 363 (1954).1 Here, the

bookkeeper for Butler Foods, who supervised the clerical

workers who were responsible for generating and mailing

invoices, testified extensively about the company's standard

business practice for billing its customers. She testified

that after the meat invoices were prepared, they were

placed in envelopes, run through the postal meter, and put

in a U.S. mail bin which Lipoff took to the post office in his

car. She testified that Butler Foods never used any delivery

method other than the U.S. mail for any of its invoices, and

that the Thriftway invoices at issue in this case were

handled in the normal manner.

A manager at the company testified that it was standard

practice to pick up the invoices in the U.S. mail bin and

_________________________________________________________________

1. In a factually similar case, the Ninth Circuit Court of Appeals held

that a meat buyer for a supermarket chain was subject to the statute

even though he did not personally participate in the relevant mailings.

See United States v. Lea, 618 F.2d 426, 430 (9th Cir. 1980).

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drop them off at the post office, and that he himself did this

on occasion. Finally, an accountant for the Thriftway stores

testified that it was normal business practice for his

company to receive Butler Foods' invoices through the U.S.

mail. This testimony provides sufficient evidence that Butler

routinely delivered its invoices through the U.S. mails.

B.

Next, Cohen argues that the District Court erred by

admitting evidence that the three Thriftway meat managers

whom the Government called as witnesses had pleaded

guilty to receiving kickbacks from Cohen. Cohen contends

that this evidence was inadmissible under Federal Rule of

Evidence 403 because the risk that the jury would convict

him based on his co-conspirators' guilty pleas substantially

outweighed their probative value. We review the admission

of such evidence only for abuse of discretion. See United

States v. Gaev, 24 F.3d 473, 476 (3d Cir. 1994).

Although the plea agreements of co-conspirators are not

admissible to prove the defendant's guilt, they are

admissible for some purposes: to rebut the inference that

the defendant was unfairly singled out for prosecution, to

dampen attacks on credibility, to foreclose an inference that

the prosecution is hiding evidence, to explain the witness's

firsthand knowledge of the defendant's misdeeds, and to

elicit facts bearing on the witness's credibility. In Gaev, we

held that the general principle applicable to the admission

of such testimony is this: "If a co-conspirator who appears

as a witness has pleaded guilty, the trier of fact should

know about the plea agreement in order properly to

evaluate the witness's testimony, unless that would unduly

prejudice the defendant." Id.

Cohen argues that admitting the guilty pleas of the three

Thriftway meat managers was an abuse of discretion

because he promised not to attack their credibility on that

basis. However, "[w]hile plea agreements have often been

admitted in response to actual or anticipated attacks on a

witness's credibility, an attack is not always necessary to

justify their introduction." Id. at 477-78. Even absent any

suggestion by Cohen, it would have been natural for the

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jury to wonder why Cohen was prosecuted but the meat

managers were not. Moreover, the guilty pleas were

admissible to impeach the credibility of the managers,

whose testimony supported Cohen's claim that paying

kickbacks was a common practice in the wholesale meat

industry, and therefore, not criminal. That these same

managers had entered guilty pleas for accepting the

payments contradicted this testimony. The District Court

concluded that admitting the guilty pleas was proper for

one or all of the reasons cited in Gaev and would not be

unduly prejudicial to defendant Cohen.

In any case, a proper limiting instruction will normally

cure a potentially prejudicial admission of plea agreements.

The District Court instructed the jury not to draw

conclusions or inferences about Cohen's guilt from the fact

that prosecution witnesses had pleaded guilty to similar

charges. Because the Government proffered the evidence for

valid purposes, and the District Court gave a sufficient

limiting instruction, admitting the guilty pleas was well

within the Court's discretion.

C.

Cohen also claims that the District Court erred by

refusing to confer judicial immunity on a witness crucial to

his defense. According to Cohen's proffer, Larry Lipoff, part

owner of Butler Foods, would have testified that Harold

Friedland, owner of several Thriftway stores, admitted

knowing of Cohen's kickbacks to two Thriftway meat

managers. That knowledge, the defense contends, would

have prevented Cohen from being found guilty under the

fraud statute. When Cohen attempted to call him as a

defense witness, Lipoff invoked his Fifth Amendment

privilege against self-incrimination. The Government

refused to immunize Lipoff, who was under investigation for

his role in the kickback scheme, and the District Court

refused Cohen's request to confer judicial immunity on

Lipoff.

A judge may confer immunity on a defense witness who

otherwise refuses to testify if five conditions are met: the

immunity is properly sought in the district court, the

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witness is available to testify, the proffered testimony is

clearly exculpatory, the proffered testimony is essential to

the defense, and there is no strong governmental interest

against the immunity. See Government of V.I. v. Smith, 615

F.2d 964, 972-73 (3d Cir. 1980). A potential prosecution of

the prospective witness is a sufficient governmental interest

to countervail a grant of judicial immunity. See United

States v. Lowell, 649 F.2d 950, 965 (3d Cir. 1981). Here,

the Government suspected that Lipoff, as the owner of

Butler Foods and Cohen's employer, was the architect of

the kickback scheme. Lipoff was under investigation at the

time of Cohen's trial and has since been indicted for his

role. Therefore, because the Government had a strong

interest in not immunizing Lipoff, the District Court

correctly denied judicial immunity.

D.

Finally, Cohen argues that the Government is

impermissibly using his post-conviction immunized

testimony. After Cohen's conviction, the Government

granted him use immunity and compelled him to testify

before a grand jury. Shortly thereafter, the Government

appealed Cohen's sentence, and the same prosecutor who

questioned him before the grand jury filed the

Government's appellate brief. Based on this fact, Cohen

claims that the Government is exploiting his immunized

testimony in this appeal.

It is true, of course, that the Government may not use a

witness's compelled immunized testimony as evidence

against him in a subsequent criminal prosecution. See 18

U.S.C. S 6002. Thus, Cohen's immunized testimony may

have tainted a subsequent trial, were we ordering one.

Moreover, the decision of the U.S. Attorney here could

potentially have infected this appeal if Cohen could point to

some information given in the immunized testimony that

the Government is using against him. Cohen, however, has

not alleged any specific manner in which the Government

used the information learned during his immunized

testimony to gain an unfair advantage in this appeal. The

Government supported all factual assertions in its brief

with citations to the District Court record and made no

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reference to Cohen's immunized testimony. Cohen,

therefore, has not shown any prejudice to him from this

dual role of the prosecutor.

III.

The Government appeals Cohen's sentence, arguing that

the District Court misapplied two sections of the United

States Sentencing Guidelines. We review the District

Court's factual findings for clear error. Questions regarding

the District Court's interpretations of the sentencing

guidelines are "purely legal," and thus require plenary

review. United States v. Frierson, 945 F.2d 650, 655 (3d Cir.

1991).

A.

First, the Government argues that the District Court

misinterpreted U.S.S.G. S 2B4.1 by enhancing Cohen's

sentence with reference to the actual dollar amount of the

kickbacks rather than to the net value Butler Foods gained

as a result of those kickbacks. Section 2B4.1(a) assigns an

initial base offense level of 8 to conduct involving

commercial bribery and kickbacks. Subsection (b)(1) then

provides an enhancement based on the greater of two dollar

amounts: "the value of the bribe or the improper benefit to

be conferred." The commentary to this section states that if

the latter figure cannot be estimated, then the court must

use the former. See U.S.S.G. S 2B4.1 application note 6.

At sentencing, the parties disagreed over the correct

interpretation of "improper benefit." The Government

argued that the phrase referred to the net value Butler

Foods gained as a result of Cohen's payment of the

kickbacks. Cohen argued that it referred to the money he

himself pocketed as a result of his kickbacks. In a colloquy

with Cohen's attorney, the District Court appeared to agree

that "improper benefit" meant the money accruing to Cohen

as an individual. The Court then found it "extremely

difficult, if not impossible, to measure the benefit to the

briber in this case." Therefore, it instead used the actual

dollar amount of the kickbacks, $111,548.21, to enhance

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Cohen's base offense by 6 levels. See U.S.S.G.

SS 2B4.1(b)(1), 2F1.1(b)(1)(G).

The District Court misinterpreted "improper benefit."

"Improper benefit" is "the value of the action to be taken or

effected in return for the bribe." U.S.S.G. S 2B4.1

application note 2. The commentary to section 2B4.1 cross-

references section 2C1.1, the comments to which state:

The value of "the benefit received or to be received"

means the net value of such benefit. Examples: . .. A

$150,000 contract on which $20,000 profit was made

was awarded in return for a bribe; the value of the

benefit received is $20,000. Do not deduct the value of

the bribe itself in computing the value of the benefit

received or to be received. In the above examples,

therefore, the value of the benefit received would be the

same regardless of the value of the bribe.

U.S.S.G. S 2C1.1 application note 2 (emphasis added). In

addition, the comments to section 2B4.1 state:

As with non-commercial bribery, this guideline

considers not only the amount of the bribe but also the

value of the action received in return. Thus, for

example, if a bank officer agreed to the offer of a

$25,000 bribe to approve a $250,000 loan under terms

for which the applicant would not otherwise qualify,

the court, in increasing the offense level, would use the

greater of the $25,000 bribe, and the savings in

interest over the life of the loan compared with

alternative loan terms. If a gambler paid a player

$5,000 to shave points in a nationally televised

basketball game, the value of the action to the gambler

would be the amount that he and his confederates won

or stood to gain. If that amount could not be estimated,

the amount of the bribe would be used to determine

the appropriate increase in offense level.

U.S.S.G. S 2B4.1 application note 6 (emphasis added).

Thus, "improper benefit" refers to the net value accruing

to the entity on whose behalf the individual paid the bribe.

Other courts agree. See, e.g., United States v. Landers, 68

F.3d 882, 884 (5th Cir. 1995) (sales representative who

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paid bribes is subject to enhancement based on the net

value his employer derived from contracts obtained as a

result of the bribes); United States v. Ziglin, 964 F.2d 756,

758 (8th Cir. 1992) (defendant subject to enhancement for

the total amount of improper benefit that resulted from

bribery scheme, not merely for his individual share); United

States v. Kant, 946 F.2d 267, 269 (4th Cir. 1991)

(defendant's sentence must be enhanced based on net

value of improper benefit accruing to him and his two co-

conspirators).

Cohen's attorney conceded at oral argument that this

understanding of "improper benefit" is correct. She

acknowledged that the net value of the contracts gained by

Butler Foods as a result of the Thriftway kickback scheme

would be the appropriate basis for calculating Cohen's

sentence, if the Government's evidence accurately reflected

the net value of these contracts.

At sentencing, the Government adduced evidence of the

"improper benefit" that accrued to Butler Foods. Cohen's

kickbacks induced Thriftway to purchase $10,000,000

worth of meat from Butler Foods, whose seven percent

margin yielded a profit of $700,000. On remand, the

District Court must specifically address the evidence

produced by the Government and any contrary evidence

put forth by Cohen and state its reasons for accepting or

rejecting the evidence. A $700,000 "improper benefit," if

sufficiently proved, mandates an enhancement of 10 levels

to Cohen's base offense. See U.S.S.G. SS 2B4.1(b)(1),

2F1.1(b)(1)(K).

Cohen offers two other arguments to support the District

Court's enhancement calculation. First, he claims that

section 2B4.1(b)(1) permits enhancement based on

"improper benefit" only if that benefit would not have been

realized "but for" the kickback. We do not interpret section

2B4.1 to be so rigid. The text requires the court to estimate

the value of the "improper benefit to be conferred." "To be

conferred" is tentative language that requires something

less than actual causation; it could include any benefit that

the briber expected to receive at the time he paid the bribe,

even if he did not ultimately receive it. If Cohen's reading

were correct, the language would read "improper benefit

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actually conferred" rather than "to be conferred." Moreover,

even if Cohen's claim that most distributors paid kickbacks

to customers is accurate, his "but for" argument fails. If

paying kickbacks to potential customers was as

commonplace as Cohen claims, then it follows that the

contracts secured by Butler Foods as a result of its

acquiescence in this illegal practice would not have been

conferred if Cohen had not made these payments.

Second, Cohen argues that the Government should be

estopped from claiming that the actual dollar amount of the

bribe was the correct measure under section 2B4.1. In

prosecuting the three Thriftway meat managers for their

roles in accepting Cohen's bribes, the Government entered

into plea agreements stating that "the value of the improper

benefit to Butler Foods to be conferred by the

bribery/kickback payments is not readily provable as of the

date of this agreement." In these earlier plea agreements,

the Government simply acknowledged that, at that time, it

did not have enough information to calculate the improper

benefit to Butler Foods. By the time of Cohen's conviction,

the Government had learned the relevant facts--the total

value of meat Thriftway purchased and Butler's profit

margin--that permitted the proper determination. Hence,

Cohen's estoppel theory fails entirely.

We conclude that the District Court misinterpreted

section 2B4.1 and, as a result, may have applied an

incorrect enhancement to Cohen's base offense level. 2 We

will therefore vacate and remand for resentencing. Of

course, it remains for the District Court to find whether the

Government has proven its claims of resulting value by a

preponderance of the evidence. See United States v.

McDowell, 888 F.2d 285, 291 (3d Cir. 1989).

_________________________________________________________________

2. Judge Scirica notes that where the improper benefit conferred on a

principal is grossly disproportionate to the bribe paid and to the amount

received by the agent, and the disproportion is "present to an exceptional

degree," a downward departure under S 5K2.0 might be appropriate.

Koon v. United States, 518 U.S. 81, 96 (1996).

11

B.

The Government also argues that the District Court erred

by granting Cohen a 2-level reduction under section 3E1.1.

The District Court must reduce the base offense by 2 levels

"[i]f the defendant clearly demonstrates acceptance of

responsibility for his offense." U.S.S.G. S 3E1.1. The

determination of the sentencing judge as to whether such

acceptance of responsibility has been shown "is entitled to

great deference on review." U.S.S.G. S 3E1.1 application

note 5.

At sentencing, Cohen stated to the Court: "If I would have

known when this started that it was going to be like this,

your Honor, I would have lost the job and I would have

gladly lost it. I'm sorry." The District Court found that

Cohen "has accepted responsibility for his offenses, borne

out by his statements here in court," and granted Cohen

the reduction.

The Government argues that Cohen should not have been

granted this reduction because he went to trial on the mail

fraud counts. This argument is supported by an application

note to section 3E1.1 which states: "This adjustment is not

intended to apply to a defendant who puts the Government

to its burden of proof at trial by denying the essential

factual elements of guilt, is convicted, and only then admits

guilt and expresses remorse." U.S.S.G. S 3E1.1 application

note 2. While the note admits to some rare exceptions (for

example, a defendant may go to trial to "assert and

preserve issues" unrelated to factual guilt), none of those

appear to be applicable to Cohen. See id. In addition, "in

each [rare exception], . . . a determination that a defendant

has accepted responsibility will be based primarily upon

pre-trial statements and conduct." Id.

Cohen argues that the effect of application note 2 is to

create an unconstitutional burden on defendants in

Cohen's position by effectively penalizing them for asserting

their constitutional right to trial. Our holding in Frierson,

945 F.2d at 650, offers some support for this position. In

Frierson, we held that the denial of a reduction under

section 3E1.1 is a penalty which cannot properly be

imposed solely for the defendant's assertion of his Fifth

Amendment privilege. See id. at 658-59.

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The characterization of 3E1.1 reductions has been the

subject of some dispute. Even within circuits, the approach

has occasionally been erratic. Compare United States v.

Parker, 903 F.2d 91, 105 (2d Cir. 1990) ("We, like the

Eleventh Circuit, `are unprepared to equate the possibility

of leniency with impermissible punishment.' "), with United

States v. Oliveras, 905 F.2d 623, 626 (2d Cir. 1990) ("So

long as the defendant's statements are not immunized

against use in subsequent criminal prosecutions, the effect

of requiring a defendant to accept responsibility for crimes

other than those to which he has pled guilty or of which he

has been found guilty is to penalize him."). A majority of the

other courts construe denied 3E1.1 reductions as"denied

benefits" rather than "penalties." See, e.g., United States v.

Frazier, 971 F.2d 1076, 1086 (4th Cir. 1992) ("we fail to see

how withholding the leniency offered in U.S.S.G.S 3E1.1

from those who refuse to waive their right to remain silent

can be thought punitive"); United States v. White, 869 F.2d

822, 826 (5th Cir. 1989) ("The fact that a more lenient

sentence is imposed upon a contrite defendant does not

establish a corollary that those who elect to stand trial are

penalized."); United States v. Henry, 883 F.2d 1010, 1011

(11th Cir. 1989) ("Section 3E1.1 may add to the dilemmas

facing criminal defendants, but . . . [w]e are unprepared to

equate the possibility of leniency with impermissible

punishment."). These decisions often rely on Corbitt v. New

Jersey, 439 U.S. 212, 99 S. Ct. 492 (1978).

We believe that Corbitt controls our decision. In Corbitt,

the Supreme Court held that a New Jersey murder statute

that provided the potential for a shorter sentence to

defendants who pleaded non vult was constitutional and did

not violate the defendant's Sixth Amendment right to trial.

See Corbitt, 439 U.S. at 218, 99 S. Ct. at 497. In doing so,

the Court noted that "not every burden on the exercise of

a constitutional right, and not every pressure or

encouragement to waive such a right, is invalid.

Specifically, there is no per se rule against encouraging

guilty pleas." Id. at 218-19, 99 S. Ct. at 497. To the extent

that Corbitt is in tension with our decision in Frierson, we

must follow the Supreme Court. Sentencing Guideline

3E1.1 creates an analogous incentive for defendants to

13

plead guilty, and under Corbitt, this incentive is

constitutional.

Were this simply a matter of determining a defendant's

credibility, we would defer entirely to the District Court

because we cannot claim to have an equal ability to

perceive and judge the defendant's demeanor. That is to

say, the words "I am sorry," uttered by a defiant defendant,

mean nothing. The same words from a contrite defendant

mean everything. Here, however, because the sentencing

guidelines need to be consistently interpreted to serve their

purpose, and because the comments to the various sections

provide an avenue to consistent interpretation, we must see

that they are applied by a sentencing court. We will vacate

and remand for further consideration.

We recognize that this case presents the unusual

situation in which the defendant has pleaded guilty to some

of the charges against him (the tax counts) while going to

trial on others. The sentencing guidelines do not specifically

address this situation, noting only that "truthfully

admitting the conduct comprising the offense(s) of

conviction" is a factor for the judge to consider. U.S.S.G.

S 3E1.1 application note 1(a). In cases such as this, the

trial judge "has the obligation to assess the totality of the

situation in determining whether the defendant accepted

responsibility." McDowell, 888 F.2d at 293 n.2. Were the

District Court able to grant a credit for Cohen's guilty plea

to the three tax charges separately, then we would see no

error. However, the guidelines do not allow for this because

multiple counts of conviction must be grouped before an

adjustment can be made for acceptance of responsibility

under Part E of Chapter 3 of the guidelines. See U.S.S.G.

S 1B1.1. As a result, the "totality" assessment must include

the fact that Cohen originally pleaded not guilty to all the

counts and put the Government to its proof on the majority

of the charges, pleading guilty to the tax counts only after

being convicted on the bribery charges.

IV.

Because we conclude that the District Court

misinterpreted sections 2B4.1 and 3E1.1 of the sentencing

14

guidelines, and that it must make findings of fact with

respect to whether the Government has proved the benefit

to be conferred upon Butler Foods, we will vacate Cohen's

sentence and remand for resentencing in accordance with

this opinion. We reject all other allegations of error.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

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