United States v. Coyle

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit

8-23-1995

United States v Coyle
Precedential or Non-Precedential:

Docket 94-2208

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 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

N0. 94-2208

UNITED STATES OF AMERICA

v.

MICHAEL C. COYLE,

Appellant

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 93-cr-00329)

Argued July 17, 1995

Before: SLOVITER, Chief Judge, SCIRICA, Circuit Judge,
298
and AMBROSE, District Judge

(Filed August 23, 1995)

Elizabeth K. Ainslie (Argued)
Ainslie & Bronson
Philadelphia, PA 19107

Attorney for Appellant

Robert E. Goldman
Tammy E. Avery (Argued)
Office of United States Attorney
Philadelphia, PA 19106

Attorneys for Appellee

1
 OPINION OF THE COURT

SLOVITER, Chief Judge.
Michael C. Coyle appeals his conviction and sentence on

three counts of mail fraud, 18 U.S.C. § 1341, five counts of

making false statements on documents required by ERISA, 18 U.S.C.

§ 1027, and two counts of blackmail, 18 U.S.C. § 873.
I.

Facts and Procedural Background

Michael C. Coyle was the Chief Financial Officer for

Health Corporation of America (HCA) from December 1986 through

October 1990. HCA, a publicly traded corporation, was in the

business of designing, operating and administering medical,

dental and vision care plans. It had two subsidiaries: the North

American Dental Administrators (NADA) and the Cytex Corporation.

Through the assistance of Larry Smith, the principal of Eastern

State Casualty Associates, HCA was awarded three contracts by the

United Paper Convertors Local 286 Welfare Trust Fund to

administer plans providing health care benefits to members of the

Paper Convertors Local 286. These are employee benefit plans

subject to Title I, as amended, of the Employee Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1145. The

duration of these particular contracts is unclear from the record

although it appears that the contracts were renewed prior to

their eventual termination in 1990.

NADA administered the Fund's dental plans for members

in New Jersey (New Jersey dental plan). Cytex administered the

2
Fund's dental plan for members in Pennsylvania and Delaware

(referred to here as the Pennsylvania dental plan). A division

of Cytex, National Vision Plan (NVP), administered the Fund's

vision care plan. The companies will be referred to collectively

as HCA.

HCA received monthly premiums from the Fund, which were

calculated at a fixed rate per covered employee per month, and

HCA made the payments to participating physicians, dentists and

laboratories. The Pennsylvania dental contract covered about

2700 members while the New Jersey dental contract covered about

300. Under the contracts covering the vision care plan and the

New Jersey dental plan, all premium payments not disbursed to

participating physicians or laboratories or retained as

administrative costs were to be returned to the Fund. There was

no similar provision for refund of surplus premiums in the

Pennsylvania dental contract although the contracts appear to

have functioned similarly in all respects. In particular, there

was no refund of any premiums under any of the contracts.

All three contracts contained provisions for assuring

disclosure to and record inspection by the Fund, and required HCA

to prepare and submit to the Fund annual reports containing

complete and accurate accounting of all funds received and

disbursements made.

Under ERISA, the Fund was required to file a federal

Form 5500, also referred to as the "annual report," showing

financial information of, inter alia, assets and liabilities,
income and expenses, including the amounts and purposes of

3
disbursements and money retained. See 29 U.S.C. § 1023. Form

5500 is filed with the Internal Revenue Service which provides

copies to the Department of Labor and the Pension Benefit

Guaranty Corporation. Schedules A, attached to Form 5500, must

be filed for every defined benefit plan when any benefits are

"purchased from and guaranteed by an insurance company, insurance

service, or other similar organization." 29 U.S.C. § 1023(e). In

addition, ERISA obliges "an insurance carrier or other

organization which provides some or all of the benefits under the

plan, or holds assets of the plan" to transmit and certify

certain information to the plan administrator, here the Fund, to

assist in its preparation of the annual report. See 29 U.S.C.

§1023(a)(2)(A). The information received by the Fund must be

maintained publicly. 29 U.S.C. § 1026(a).

It was Coyle's responsibility to approve all

disbursements to service providers on behalf of the Fund and to

prepare or to direct the preparation of the financial reports

submitted to the Fund. Pursuant to the Fund's request, Coyle

prepared or supervised the preparation of the Schedules A for

1986, 1987 and 1988 which HCA transmitted to the Fund's

accountants for inclusion with the federal Forms 5500.

Joseph R. Cusumano, the Chief Executive Officer of HCA

until 1990, devised a scheme whereby HCA would conceal the true

amount of disbursements and administrative costs, and thereby

retain as administrative retention a higher amount than reported

to the Fund or than permissible under at least some of the

contracts and under New Jersey law. See Dental Plan Organization

4
Act, N.J. Stat. Ann. §§ 17:48D-1 to 17:48D-24 (West 1985 and

Supp. 1995). In order to effectuate this scheme, Coyle prepared

the Schedules A with false or distorted figures, overstating the

amounts paid to medical service providers and understating the

amounts retained by HCA. Agent James L. Black, Department of

Labor, Office of Labor Racketeering, testified that Coyle

understated the amount of premiums retained by HCA by $84,000 in

1986, and $214,000 in 1987 and 1988. The government's evidence

shows an understatement of administrative retention by $298,000

during the relevant period. Coyle does not contest that the

figures provided by HCA were false or that he was responsible for

submitting them falsely.

When the scheme was uncovered, Coyle was indicted on

charges of mail fraud, false statements on documents required by

ERISA, and blackmail of Cusumano. By the time of Coyle's trial,

Cusumano, who had been convicted by a jury in 1990 on a 49-count

indictment for defrauding another welfare benefit plan, see

United States v. Cusumano, 943 F.2d 305 (3d Cir. 1991), cert.

denied, 502 U.S. 1036 (1992), was no longer involved with HCA. In

fact, Cusumano testified for the prosecution at Coyle's trial in

this case. The jury returned a verdict against Coyle on all

counts, and Coyle was sentenced to twenty-seven months

incarceration with three years supervised release and restitution

of $298,330.00.

On appeal, Coyle challenges the sufficiency of the

evidence on the mail fraud counts, the propriety of the jury

instructions on the false statements and blackmail counts, and

5
the district court's imposition of enhancements under the

sentencing guidelines for abuse of trust and the amount of the

fraud loss incurred by the Fund.
II.

Mail Fraud Conviction

Coyle first argues that the evidence with respect to

the mail fraud was insufficient for the jury to find that he

engaged in a scheme intended to defraud the Fund or that the

mailings of the Schedules A were in furtherance of the fraudulent

scheme. When the sufficiency of the evidence at trial is

challenged, we must view the evidence in the light most favorable

to the government. Glasser v. United States, 315 U.S. 60, 80

(1942). A claim of insufficiency of evidence places a very heavy

burden on the appellant. We must affirm the convictions if a

rational trier of fact could have found defendant guilty beyond a

reasonable doubt, and the verdict is supported by substantial

evidence. United States v. Gonzalez, 918 F.2d 1129, 1132 (3d

Cir. 1990), cert. denied, 498 U.S. 1107, and cert. denied, 499

U.S. 968, and cert. denied, 499 U.S. 982 (1991).

The mail fraud statute, 18 U.S.C. § 1341, proscribes

any "scheme or artifice to defraud" in which the defendant

participated with the specific intent to defraud and in which the

mails were used "in furtherance of the fraudulent scheme." United
States v. Hannigan, 27 F.3d 890, 892 (3d Cir. 1994). The scheme

"need not be fraudulent on its face but must involve some sort of

fraudulent misrepresentations or omissions reasonably calculated

to deceive persons of ordinary prudence and comprehension."

6
United States v. Pearlstein, 576 F.2d 531, 535 (3d Cir. 1978)

(citation omitted). Proof of specific intent is required, id. at

537, which "may be found from a material misstatement of fact

made with reckless disregard for the truth." Hannigan, 27 F.3d at

892 n.1.

Coyle argues that the Fund was not induced to enter

into these contracts by fraud. The issue before us is not

whether there was fraud in the inducement of the contract, but

whether Coyle intentionally engaged in a scheme by which the Fund

was defrauded of premiums under the guise of administrative

costs. There is sufficient evidence that there was such a

scheme, and that Coyle knowingly participated in it.

There was testimony that the amounts reported on the

Schedules A which Coyle prepared for the Fund did not accurately

reflect the administrative costs retained and the amounts paid to

providers. App. at 259-64. Cusumano, who was intimately

involved in the scheme, testified that "we reported improperly,

with my full knowledge, and kept more dollars for administration

than we were supposed to where we were compelled to by the New

Jersey contract and kept more dollars in Pennsylvania by not

paying the dentists as many dollars as we were supposed to pay

them, through various functions, we kept an excessive amount of

dollars for administration so that we could keep the company

going." App. at 54.

Cusumano also testified that Coyle was the HCA

representative who dealt with the Fund. App. at 56. Moreover,

it was Coyle who supervised the preparation of the Schedules A by

7
the HCA staff and he personally provided the figures for

administrative costs. App. at 44.

HCA accountant Keith Geyer explained that, rather than

following standard accounting procedures, Coyle set an amount to

report for administrative retention and directed him to subtract

that amount plus the amount of Smith's commissions from the

premiums received to arrive at the amount HCA reported as "claims

paid." Cusumano testified that a fair retention rate for

administrative costs would have been at most in the low 20% of

the total premiums received, App. at 60, and Alex Johns, a

consultant hired by the Fund, testified that 10% was a fair rate.

Agent Black produced documents evidencing that HCA's actual

retention rate (including the amount paid in commissions) was

between 30% and 70%. See App. at 251-64.

Coyle argues that the Fund Trustees were not deceived

by HCA because they knew that HCA was not accounting to the Fund

based on HCA's actual payments to the providers but was instead

accounting to the Fund on the basis of the "usual, customary and

reasonable" value of the providers' services. Coyle notes that

although Johns had advised the Trustees that the Fund might be

entitled to a refund from HCA and that it should cancel its

contracts with HCA, the Fund did not take that advice. In

addition, Coyle argues that the government failed to produce any

evidence that the Fund Trustees reviewed the Schedules A.

To the extent that Coyle is arguing the Fund was

negligent in ignoring Johns' advice and in failing to review the

Schedules A, we reject the relevance of those allegations, even

8
if true. The negligence of the victim in failing to discover a

fraudulent scheme is not a defense to criminal conduct. United

States v. Kreimer, 609 F.2d 126, 132 (5th Cir. 1980). As

Cusumano explained, the false reporting was necessary to the

scheme to retain the excessive administrative costs, because the

consequence of accurate reporting would have been that they

"would have had to lower the price for the ensuing year" for that

contract. App. at 54. As for the Fund's reliance, Jack Klein,

the Fund's accountant, testified that he had no obligation to

independently verify the validity of the figures provided by HCA

and, therefore, did not do so. An employer trustee for the Fund,

Theodore Seidenberg, who was later co-chair of Local 286's health

and welfare and pension boards, testified that the Trustees would

never have agreed to contract with HCA if they had known that HCA

was withholding between 50% and 70% for administrative costs.

App. at 165. A rational jury could infer that the Fund was

deceived by the intentional actions of Coyle and his associates.

Coyle's participation in HCA's unlawful activities by preparing

the Schedules A or directing their preparation with false figures

and the knowledge that the Schedules A would be sent to the

Fund's accountant and, eventually, to the IRS fully supports the

conclusion that he intended that the scheme's illicit objectives

be achieved. Pearlstein, 576 F.2d at 541.

Coyle also contends that even if the three Schedules A

on which the three mail fraud counts are predicated were intended

to conceal HCA's true profits from the Fund, the mailings did not

further the scheme. The three mailings which formed the basis of

9
the three mail fraud counts were a mailing of a Form 5500 with a

Schedule A by the Fund to the IRS in 1987, (Count One), a mailing

of a Schedule A by HCA to the Fund's accountant in 1988, (Count

Two), and a mailing of a Form 5500 with the Schedule A by the

Fund's accountant to the IRS in 1990, (Count Three).

The federal mail fraud statute reaches only the use of

the mails when that mailing is part of the execution of a fraud.

Schmuck v. United States, 489 U.S. 705, 710 (1989) (citing Kann

v. United States, 323 U.S. 88, 95 (1944)). However, the use of

the mails need not be an essential element of the scheme. Id.

(citing Pereira v. United States, 347 U.S. 1, 8 (1954)). It is

sufficient if the mailings are "'incident to an essential part of

the scheme' or 'a step in [the] plot.'" Id. at 710-11 (quoting

Badders v. United States, 240 U.S. 391, 394 (1916)). We have

held that the mailings must be sufficiently closely related to

the scheme to bring the conduct within the ambit of the mail

fraud statute, United States v. Lebovitz, 669 F.2d 894, 896 (3d

Cir.), cert. denied, 456 U.S. 929 (1982), and the "scheme's

completion [must] depend[] in some way on the charged mailings."

United States v. Otto, 742 F.2d 104, 108 (3d Cir. 1984), cert.
denied, 469 U.S. 1196 (1985). Even mailings made after the

fruits of the scheme have been received may come within the

statute when they are "designed to lull the victims into a false

sense of security, postpone their ultimate complaint to the

authorities, and therefore make the apprehension of the

defendants less likely than if no mailings had taken place." Id.
(citation and quotation omitted).

10
 In this case, there was a basis for the jury to

conclude that the mailings induced the Fund Trustees to accept

the accuracy of the financial figures on the Schedules A and made

apprehension of HCA's fraudulent scheme less likely. There was

sufficient evidence for the jury to infer that but for the

mailings of the Schedules A with the false amounts HCA would have

been unable to carry out its scheme either because the true

figures would have prompted an investigation by the Department of

Labor, see Transcript of Jury Trial, Dec. 1, 1993 (9:30 a.m.) at

103-16 (Testimony of Howard Hensley, Chief of Division of

Reporting and Disclosure, Department of Labor), or because the

Fund's accountants or consultant would have alerted the Fund to

the amount of HCA's profit, see Transcript of Jury Trial, Dec. 1,

1993 (9:30 a.m.) at 25-55 (Testimony of Alex Johns), and

Transcript of Jury Trial, Nov. 30, 1993 (9:30 a.m.) at 133-52

(Testimony of Jack Klein).

Thus, the mailings were incident to an essential part

of the scheme, i.e., concealing HCA's true profits. We hold that

there was sufficient evidence to sustain Coyle's conviction on

the three counts of mail fraud.
III.

False Statements Conviction
Counts Four through Eight charged Coyle with making

false statements on documents required by ERISA in violation of

18 U.S.C. § 1027. That section, which can be read and understood

more easily with some editorial emphasis and bracketed numerical

insertions, reads:

11
 Whoever, in any document required by title I
of the [ERISA] to be published, or kept as
part of the records of any employee welfare
benefit plan or employee pension benefit
plan, or certified to the administrator of
any such plan, [1] makes any false statement
or representation of fact, knowing it to be
false, or [2] knowingly conceals, covers up,
or fails to disclose any fact the disclosure
of which is required by such title or is
necessary to verify, explain, clarify or
check for accuracy and completeness any
report required by such title to be published
or any information required by such title to
be certified, shall be fined under this
title, or imprisoned not more than five
years, or both.

18 U.S.C. § 1027 (emphasis and bracketed numbers added). This

court has previously stated that the three elements necessary to

sustain a conviction under section 1027 are (1) the defendant

made a false statement; (2) knowing it to be false; and (3) in a

document required by ERISA. United States v. Furst, 886 F.2d

558, 568 (3d Cir. 1989), cert. denied, 493 U.S. 1062 (1990).

Coyle does not argue that the government failed to

prove that he made false statements knowing them to be false.

Instead he argues that the district court erred in "refus[ing] to

give the instruction proposed by the defense limiting the jury's

consideration to only those factual disclosures on the Schedule A

forms which were legally compelled." Appellant's Brief at 20. In

another, but related contention, Coyle argues that the indictment

charged only one of the disjunctive methods of violating 18

U.S.C. § 1027, but that the court instructed the jury about both,

and that this led to a fatal variance.

12
 Generally, we review the district court's refusal to

give certain jury instructions under an abuse of discretion

standard although where, as here, the question is whether the

jury instructions stated the proper legal standard, our review is

plenary. See Government of the Virgin Islands v. Isaac, 50 F.3d

1175, 1180 (3d Cir. 1995). As on all occasions when we consider

jury instructions we consider the totality of the instructions

and not a particular sentence or paragraph in isolation. In Re

Braen, 900 F.2d 621, 626 (3d Cir. 1990), cert. denied, 498 U.S.

1066 (1991).

Each of the five false statement counts alleges that

Coyle "in a document required to be published by ERISA . . . and

required to be kept as part of an employee welfare benefit plan

by ERISA" unlawfully and knowingly caused the making of a false

statement and representation of fact, and that those acts

violated 18 U.S.C. §§ 1027 and 2 (emphasis added). Each of the

false statements counts unambiguously charges that the false

information consisted of "the amounts of claims paid, [HCA's

payments to the physician and dentist providers],"

"administrative service or other fees" and "total retention."

Each false statement count unambiguously charges that the false

reports with which Coyle is charged appeared in the Schedules A

prepared by HCA and filed by or on behalf of the Fund as part of

the Forms 5500.

We discern what appear to be several different threads

to Coyle's challenge to his false statements conviction, none of

which are convincing. We do not understand Coyle to argue that

13
the documents, i.e., the Schedules A, were not documents that

were required by ERISA to be published or kept. He argues

instead, in somewhat abbreviated fashion, that HCA does not fall

within the statutory sections that impose the obligation to make

the factual disclosures that were proven to be false. However,

inasmuch as the false factual statements were in documents

required by ERISA to be published or kept, Coyle's argument

misses the mark.

29 U.S.C. § 1023 requires an annual report to be

published and filed with the Secretary of Labor for every covered

employee benefit plan, and that it contain specified information.

Subsection (a)(2)(A) requires that if some of the information

that the administrator, here the Fund Trustees, needs to submit

the annual report and to comply with title I of ERISA is

maintained by "an insurance carrier or other organization which

provides some or all of the benefits under the plan, or holds

assets of the plan in a separate account," that organization must

transmit and certify the accuracy of such information to the

administrator. (emphasis added). See also 29 C.F.R. § 2520.103-

5(a). Subsection (e) requires that information as to, inter
alia, total claims paid, commissions paid, and administrative

fees paid be enumerated on a statement included in the annual

report (the Schedule A) "[i]f some or all of the benefits under

the plan are purchased from and guaranteed by an insurance

company, insurance service, or other similar organization."

(emphasis added).

14
 Coyle contends that HCA is not an "other similar

organization." The district court instructed the jury that as a

matter of law HCA was "a medical service provider" and therefore

subject to the obligation to transmit and certify information

needed by the administrator to file its annual report. In doing

so, the court relied on our decision in United States v.

Martorano, 767 F.2d 63 (3d Cir.) (per curiam), cert. denied, 474

U.S. 949 (1985). In Martorano, a welfare fund had contracted

with AMMA Health Center, Inc. to provide outpatient medical

coverage to union members. Id. at 64. The Fund requested that

AMMA prepare utilization reports which it needed to complete Form

5500. Martorano, who prepared AMMA's reports, significantly

understated its profits on the utilization reports, and was

indicted under 18 U.S.C. § 1027 for making false statements in

documents required by ERISA.

We rejected Martorano's argument that 18 U.S.C. § 1027

applies only to fiduciaries of union pension and welfare funds

and does not apply to medical service providers. We held that by

selling medical services to the Fund, AMMA fell under the

statutory coverage of 29 U.S.C. § 1023(e) of ERISA. Id.
Therefore, the "understatement of profits by a health care

organization that furnishes outpatient medical coverage to

members of a health and welfare fund governed by ERISA

constitutes a violation of [18 U.S.C. § 1027]." Id. at 64; see

also United States v. Sarault, 840 F.2d 1479 (9th Cir. 1988)

(false statements made by attorney representing an assetless

insurance company). We concluded that the language in 18 U.S.C.

15
§ 1027 is broad enough to cover medical service providers and

reasoned that such a construction would promote the goals of

ERISA because "[i]f medical service providers are not sanctioned

for providing false information, plan participants will suffer."

Martorano, 767 F.2d at 65.

Although AMMA, unlike HCA, itself provided the medical

services, it was HCA that undertook to design, contract for

and administer the dental and vision care benefit plans for Local

286's Fund, and it was only HCA that maintained the records and

was in the position to supply the Fund with the information to

which 29 U.S.C. §§ 1023(e) and 1023(a)(2)(A) refer. Moreover, it

was HCA which held the premiums, i.e., the "assets of the plan"

as referred to in the statute, in a separate account. See

Transcript of Jury Trial, Nov. 30, 1993 (9:30 a.m.) at 140

(Testimony of Jack Klein). Therefore, we agree with the district

court that HCA had the reporting and record-retaining obligations

that ERISA imposes.

Coyle also seems to argue that the false statements can

be excused because they were made in response to questions on

Schedules A that apply only if the contracts were "experience-

rated," and Coyle contends the Fund's plans were not because they

did not set group premiums by evaluating participant utilization

of medical services. This is a red herring. Coyle admits that

HCA completed the Schedules A on behalf of the Fund for the years

in question as though the contracts were "experience-rated," and

that the figures for claims paid and administrative costs

retained in the responses to those questions were false. Coyle's

16
argument on the "experience-rated" issue seems based on his

premise that the crime charged was that of making false

statements as to factual "disclosures" which were required, but

as discussed above the crime charged and proven was that the

false statements appeared on ERISA-required "documents."

Moreover, the Fund specifically requested that HCA

prepare the Schedules A. HCA was obliged by the statute to

certify the accuracy of its statements. See 29 U.S.C.

§1023(a)(2)(A). It also had an obligation under title I of ERISA

to maintain records which provide in sufficient detail

information from which required documents might be verified and

checked for accuracy and completeness. See 29 U.S.C. § 1027. HCA

purported to comply with its obligations by reporting to the Fund

on the Schedules A it prepared. Even if HCA erred by completing

the section for experience-rated contracts, the information it

did provide was proven false, thus violating the prohibition of

18 U.S.C. § 1027 against "making any false statement or

representation of fact, knowing it to be false" in a document

ERISA requires be published or kept.

Coyle offers no authority to support the implicit and

rather bold proposition that one may make false statements or

supply information to the government on required forms, but avoid

liability if the false information voluntarily supplied may have

been more than required. Such an argument would undercut one of

the purposes of section 1023 of ERISA, which is to enable the

Department of Labor to use the annual reports and the Schedules A

to carry out its statutory responsibilities, including the

17
initiation and conduct of investigations to assure the integrity

of the individual plans and the $205 trillion estimated to be in

ERISA plan assets. We thus reject Coyle's contention that the

court should have limited the jury's consideration to required

factual "disclosures."

Coyle's other argument, i.e., that the instruction the

court did give was erroneous because the indictment charged only

one of the two methods of violating 18 U.S.C. § 1027 but the

court charged as to both, also stems from Coyle's preoccupation

with the "disclosure" language. Admittedly, in this respect the

indictment could have been more carefully drawn, but we see no

reversible error in the charge.

To understand we return to the statute, and the

disjunctive crimes set forth in 18 U.S.C. § 1027. The statute as

read by this court, and as read by Coyle, is set forth in the

Appendix to this opinion.

The district court's comprehensive charge correctly

delineated both crimes. The court explained that the indictment

charged Coyle, inter alia, with "false statements and concealment

of facts in relation to documents required by [ERISA]." App. at

422-23 (emphasis added). After explaining that the jury must

find that the Fund fell within ERISA, the court stated that the

Government must prove beyond a reasonable doubt "that [1] the

defendant made or caused the making of a false statement or

representation of fact knowing it to be false or [2] knowingly

concealed, covered up or failed to disclose any fact, the

disclosure of which is necessary to verify, explain, clarify or

18
check for accuracy and completeness any form 5500 Schedules A

published by the Local 286 Paper Converters Welfare Trust Fund."

App. at 423 (bracketed material and emphasis added). The court

then told the jury it must find that the Schedules A submitted by

Coyle to the Fund were documents required by ERISA, and that

Coyle acted knowingly.

Coyle reads the statute to set out the following two

methods of violation, i.e., "[t]he first method is by making a

false statement of fact (or by covering up or failing to disclose

such fact) the disclosure of which fact is required by Title I of

ERISA," Appellant's Brief at 19, and the second method is "making

a false statement of fact, the disclosure of which is not

required by ERISA, but is nonetheless necessary to verify,

explain, clarify or check the accuracy or completeness of reports

which are required to be filed." Id. at 20. Coyle misreads the

statute.

The court correctly told the jury that to establish a

violation the government must prove (1) the knowing making of a

false statement or representation of fact in an ERISA-required

document or (2) the knowing concealment, cover-up, or failure to
disclose any fact the disclosure of which is required or is

necessary to verify, explain, etc. One violation deals with the

making of a false statement, the other with the omitting or

concealment of relevant facts. They are separated by an "or"

with verbs on either side, i.e., "makes any false statement" or

"knowingly conceals . . ." The statute would charge a violation

in grammatical terms even if the language describing one or the

19
other prong were completely eliminated. In contrast, Coyle's

reading of the statute erroneously divides the violations in an

ungrammatical manner. This is evident from the Appendix to this

opinion.

Coyle's theory of a variance between the indictment and

the charge may stem from the fact that the indictment contained

surplus language relating to facts the "disclosure of which is

required" by ERISA, added to what we have referred to as the

"making false statement" prong of 18 U.S.C. § 1027. That

language more appropriately belongs with the "knowing

concealment" prong of 18 U.S.C. § 1027, i.e., concealment or

nondisclosure of a fact "disclosure of which is required . . . or

is necessary to verify," etc. The indictment does not expressly

charge that second violation, although it is arguable that the

concealment of a necessary fact is but the mirror image of

supplying false statements of fact, i.e., not disclosing or

concealing the true facts.

Coyle is not entitled to a reversal because of the

inclusion of the unnecessary "disclosure of which is required"

language which, at most, is mere surplusage. It is a long-

standing principle of criminal procedure that "[a] part of the

indictment unnecessary to and independent of the allegations of

the offense proved may normally be treated as 'a useless

averment' that 'may be ignored.'" United States v. Miller, 471

U.S. 130, 136 (1985) (quoting Ford v. United States, 273 U.S.

593, 602 (1927)). Moreover, if the additional language created

any confusion, the explanation following the "that is" language

20
of the same sentence made absolutely clear what the charge

against Coyle was. Three false statement counts ended with the

language, "that is, that defendant caused the filing of a

Schedule A with the IRS reporting falsely the amounts of claims

paid, administrative service or other fees, and total retention,

knowing these amounts to be false." App. at 16. The other two

are similar in respects relevant here. These charges were

supported by substantial evidence.

Because Coyle contends there was a lack of proof that

the factual disclosures were required, he frames an argument of a

fatal variance between the indictment and the proof. This is a

far cry from the classic fatal variance case on which Coyle

relies. In Stirone v. United States, 361 U.S. 212 (1960), the

Court held that the trial evidence and the instruction so

broadened the possible bases for conviction that they "destroyed

the defendant's substantial right to be tried only on charges

presented in an indictment returned by a grand jury." Id. at

217.

Here, the concealed facts were the very facts that were

the subject of the false statements, i.e., the accurate facts as

to payments to doctors and dentists and HCA's administrative

costs. Thus, the court's instruction did not prejudice Coyle.

See United States v. Pelullo, 964 F.2d 193, 216 (3d Cir. 1992).
In order to convict Coyle for the crime charged, under both the

indictment and the court's instructions the jury would have had

to find that there were false statements made on the Schedules A.

The indictment identified the false statements made in the

21
Schedules A with the requisite specificity. See Fed. R. Crim. P.

7. There were no other allegedly false documents before the

jury. Therefore, the variance, if any, did not alter the

elements of the offense charged. See United States v. Asher, 854

F.2d 1483, 1497 (3d Cir. 1988), cert. denied, 488 U.S. 1029

(1989). See also Turner v. United States, 396 U.S. 398, 420

(1970) ("[W]hen a jury returns a guilty verdict on an indictment

charging several acts in the conjunctive . . . the verdict stands

if the evidence is sufficient with respect to any one of the acts

charged.").

We reject Coyle's contention that the evidence was

insufficient to sustain a conviction or that the district court

erred in its instruction.
IV.

Blackmail Conviction

Coyle contends that the district court erred in its

jury instruction on the blackmail charge. In so arguing, Coyle

notes correctly that the case law on blackmail is "sparse."

Nonetheless, we find no ambiguity in the statutory language

relevant here.

The blackmail statute provides:
Whoever, under a threat of informing, or as a
consideration for not informing, against any
violation of any law of the United States,
demands or receives any money or other
valuable thing, shall be fined under this
title or imprisoned not more than one year,
or both.

22
18 U.S.C. § 873. The court's instruction closely tracked the

statutory language. App. at 429-30.

Two blackmail letters were identified in the indictment

and at trial the government produced evidence of a series of five

letters written by Coyle to Cusumano beginning October 18, 1990

and continuing until October 29, 1990. They alternate between

vague threats, accusations and demands. App. at 81-96.

In one of these letters, Coyle advised Cusumano that he

had "been contacted by the FBI to discuss their investigation of

the expense accounts you provided them earlier this year,"

stated, "I really don't wish to be involved and hope to stonewall

the request based on unavailability and a lack of a clear memory

at this time," and then -- in language that leaves no doubt as to

its purpose -- stated, "Any attempt to tamper with my severance,

deferred compensation or paid time off adjustment pay or any

other moneys due me could reflect in my decision. I know you

understand." App. at 87-88.

Coyle engages in semantic sophistry when he argues that

because the payment of the benefits was to come from HCA rather

than Cusumano, he did not "demand" anything from Cusumano within

the meaning of the statute. But the statute does not require

that the quid pro quo be a two-party transaction. Coyle's offer

"to stonewall" the FBI in exchange for receiving Cusumano's

assistance in securing (or forbearance in interfering with) his

severance pay from HCA falls within the language of the statute.

Coyle argues that the district court erred in denying

his proposed instruction that he could not be convicted if he was

23
entitled to the benefits he demanded. He argues that something

to which he was entitled could not be "consideration." However,

what is made unlawful by the blackmail statute is Coyle's use of

the offer not to report the fraudulent activity or not to

cooperate with the authorities as leverage over Cusumano, see

United States v. Smith, 228 F. Supp. 345, 348 (E.D. La. 1964),

whether or not Coyle had a claim of right to the benefits. The

blackmail statute thus reaches those who would evade their

responsibility to inform the authorities about a violation of the

law by exchanging the promise to forebear from giving such

information for some benefit. It is the use of the information

in this manner that Congress sought to penalize. A jury could

find that this is exactly what Coyle did. The district court did

not err in rejecting Coyle's attempt to restrict the scope of the

blackmail statute.
V.

Calculation of Sentence

Finally, Coyle raises two claims of error in the

calculation of his sentence.

Coyle claims that the district court erred in enhancing

his offense level by two points for abuse of a position of trust

pursuant to U.S.S.G. § 3B1.3. A sentencing court must first

determine whether the defendant held a position of trust, a

purely legal question for which our review is de novo. United

States v. Craddock, 993 F.2d 338, 340 (3d Cir. 1993). The second

question, whether defendant abused his position in a way that

24
significantly facilitated the crime, is a question of fact which

we review for clear error. Id.

"[O]ne has been placed in a position of trust when, by

virtue of the authority conferred by the employer and the lack of

controls imposed on that authority, he is able to commit an

offense that is not readily discoverable." Id. at 342; see also

United States v. Lieberman, 971 F.2d 989, 993 (3d Cir. 1992). In

both Craddock and Lieberman this court affirmed the two-level

enhancement, finding it significant that the defendants'

positions--a Western Union teller and a bank vice president,

respectively--provided them with the "freedom to commit a

difficult-to-detect wrong." See Lieberman, 971 F.2d at 993

(citation and quotation omitted).

In this case, Coyle's position as Chief Financial

Officer of HCA afforded him the authority to conceal HCA's true

profits and the evidence fully supports the conclusion that the

Fund's reliance on his accounting expertise allowed him to commit

a "difficult-to-detect" wrong. Coyle's arguments that the

government was obliged to offer proof that he was in some way a

fiduciary or that the Trustees were naive are unavailing. The

district court's imposition of the two-level enhancement was

proper.

Coyle also challenges the calculation of fraud loss.

Because Coyle is challenging the district court's legal

interpretation of "fraud loss," our review is plenary. United
States v. Badaracco, 954 F.2d 928, 936 (3d Cir. 1992).

25
 Under the applicable guideline, the base offense level

for fraud is six, U.S.S.G. § 2F1.1(a), which must be increased

according to the size of the loss attributable to the fraud,

U.S.S.G. § 2F1.1(b). The district court set the amount of fraud

loss at $298,330, and accordingly enhanced Coyle's offense level

by eight. U.S.S.G. § 2F1.1(b)(1)(I). This amount was derived

from testimony at trial about the difference between the amount

HCA reported to be its administrative retention on the Schedules

A and the amount it actually retained. The government contended

that this was a reasonable estimate of the fraud loss because

there was testimony that if the actual amount of administrative

retention had been accurately reported, the Fund would have

renegotiated the contract and demanded a refund. See App. at 164

(Testimony of Theodore Seidenberg) and App. at 336-41, 351

(Testimony of Alex Johns).

Coyle recognizes that the government's figure may

accurately measure the magnitude of HCA's misrepresentation of

its actual costs. He argues that it does not measure any loss

suffered by the Fund because the Fund could have at most

renegotiated lower premium contracts and that the amount of fraud

loss should be reduced by the percentage of the loss which

derives from the Pennsylvania dental contract because there was

no obligation to refund premiums under that contract.

"As in theft cases, [fraud] loss is the value of the

money, property, or services unlawfully taken." U.S.S.G. §2F1.1,

comment. (n.7); see also United States v. Mummert, 34 F.3d 201,
204 (3d Cir. 1994). Our precedents establish that "fraud 'loss'

26
is, in the first instance, the amount of money the victim has

actually lost" revised upward to the "intended or probable loss

if either amount [is] higher and determinable." United States v.

Kopp, 951 F.2d 521, 523, 536 (3d Cir. 1991). But that is not the

exclusive method of measuring fraud loss. Under the guidelines

and our precedent, "the offender's gain from committing the fraud

is an alternative estimate that ordinarily will underestimate the

loss." U.S.S.G. § 2F1.1, comment. (n.8); see also Badaracco, 954

F.2d at 938. Also, "[t]he loss need not be determined with

precision [and] [t]he court need only make a reasonable estimate

of the loss." U.S.S.G. § 2F1.1, comment. (n.8).

In Badaracco, we recognized that certain breaches of

fiduciary duty comparable to embezzlement may justify estimating

fraud loss by using the "gross gain" alternative, as expressly

authorized in Application Note 8. 954 F.2d at 938. In

Badaracco, a bank president used his position to approve

financing for real estate developments on the condition that the

borrowers distribute subcontracting work to companies in which he

or members of his family had a financial interest. The district

court calculated the fraud loss by adding together the value of

the contracts awarded to defendant's family companies. Defendant

appealed, claiming that the court should have calculated the loss

based on the net profit earned by the family companies rather

than the face value of the contracts. Id. at 936.
In affirming this aspect of the sentence, we referred

to our opinion in Kopp, where we declined to accept an automatic
equation between loss in fraud cases and in theft cases. In

27
theft cases, "loss" was defined as "amount taken." In Kopp, we

had explained that "embezzlement," which is placed under the

theft guideline, involves "not only a taking but also an action

akin to a breach of fiduciary duty, which might justify always

using the amount taken as 'loss.'" 951 F.2d at 530 n.13. Thus,

we held that under the circumstances in Badaracco, i.e., "the

officer of a financial institution [who] uses his or her position

for personal benefit, there is a breach of fiduciary duty

comparable to that implicated by embezzlement." 954 F.2d at 938.

This justified using the defendant's "gross gain" as set forth in

Application Note 8.

For similar reasons, we hold that it was appropriate

for the district court to adopt "amount taken" or "gross gain" as

the measure of fraud loss, i.e., the difference between the

amount reported and the amount retained. Inasmuch as this

encompasses "gross gain," we reject Coyle's contention that the

amount of fraud loss should be reduced by the amount of

administrative retention attributable to the Pennsylvania

contract even though there was no explicit requirement that

surplus funds be returned in that contract. The circumstances of

this scheme have a strong resemblance to embezzlement, and HCA's

position vis-a-vis the Fund had elements strongly comparable to

those of Badaracco's relationship to the bank. Thus, the

district court's use of the $298,330 fraud loss figure was in

keeping with the applicable guidelines, and the district court's

decision to increase Coyle's base offense level by eight was not

error.

28
 VI.

Conclusion

For the foregoing reasons, we will affirm the judgment

of conviction and sentence imposed by the district court.

____________________________

TO THE CLERK:

Please file the foregoing opinion.

_________________________
Chief Judge

29
 A P P E N D I X

18 U.S.C. § 1027 (with emphasis and bracketed numbers supplied by
court):

Whoever, in any document required by title I
of the [ERISA] to be published, or kept as
part of the records of any employee welfare
benefit plan or employee pension benefit
plan, or certified to the administrator of
any such plan, [1] makes any false statement
or representation of fact, knowing it to be
false, or [2] knowingly conceals, covers up,
or fails to disclose any fact the disclosure
of which is required by such title or is
necessary to verify, explain, clarify or
check for accuracy and completeness any
report required by such title to be published
or any information required by such title to
be certified, shall be fined under this
title, or imprisoned not more than five
years, or both.

18 U.S.C. § 1027 (with emphasis and bracketed numbers supplied by
Coyle, Appellant's Brief at 19):

Whoever, in any document required by title I
of the [ERISA] to be published, or kept as
part of the records of any employee welfare
benefit plan or employee pension benefit
plan, or certified to the administrator of
any such plan, makes any false statement or
representation of fact, knowing it to be
false, or knowingly conceals, covers up, or
fails to disclose any fact [1] the disclosure
of which is required by such title or [2] is
necessary to verify, explain, clarify or
check for accuracy and completeness any
report required by such title to be published
or any information required by such title to
be certified, shall be fined under this
title, or imprisoned not more than five
years, or both.

30
298

Honorable Donetta W. Ambrose, United States District Judge for
the Western District of Pennsylvania, sitting by designation.

31