[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
September 12, 2002
THOMAS K. KAHN
No. 00-14144 CLERK
________________________
D. C. Docket No. 96-00030-CR-FTM-24D
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
DANIEL M. EDGAR,
J. MICHAEL WARD,
Defendants-Appellants.
________________________
Appeal from the United States District Court
for the Middle District of Florida
_________________________
(September 12, 2002)
Before DUBINA and BARKETT, Circuit Judges, and HODGES*, District Judge.
BARKETT, Circuit Judge:
Defendants-Appellants J. Michael Ward (“Ward”) and Daniel M. Edgar
(“Edgar”), executive officers at Cape Coral Hospital (“the Hospital”), appeal their
convictions and the sentences imposed for crimes arising out of various schemes
whereby Ward and Edgar used their positions to illegally convert Hospital funds to
their own benefit. Specifically, Ward appeals his total 87-month concurrent
sentences and his conviction for the following: (1) conspiracy to defraud the
United States, in violation of 18 U.S.C. § 371 (Count 1); (2) theft from an
organization receiving government funds, in violation of 18 U.S.C. § 666 (Counts
2, 4, 23-25, 37 and 51); (3) money laundering, in violation of 18 U.S.C. §
1956(a)(1) (Counts 21 and 53); (4) bank fraud, in violation of 18 U.S.C. § 1344
(Count 26); and (5) tax evasion, in violation of 26 U.S.C. § 7201 (Counts 55-59).
Edgar appeals his total 87-month concurrent sentences and his conviction for the
following: (1) conspiracy to defraud the United States, in violation of 18 U.S.C. §
371 (Count 1); (2) theft from an organization receiving government funds, in
violation of 18 U.S.C. § 666 (Counts 3, 4, and 38); (3) money laundering, in
*
Honorable Wm. Terrell Hodges, U.S. District Judge for the Middle District of Florida,
sitting by designation.
2
violation of 18 U.S.C. § 1956(a)(1) (Counts 5-21 and 54); and (4) tax evasion, in
violation of 26 U.S.C. § 7201 (Counts 60-63).
Ward and Edgar present multiple grounds for overturning their convictions
and sentences. We have carefully considered these various arguments and have
concluded that the district court did not commit reversible error in this case. The
parties’ arguments regarding the constitutionality of 18 U.S.C. § 666, however,
merit some discussion. Edgar argues that 18 U.S.C. § 666 is facially
unconstitutional because Congress lacks the power to enact criminal laws under the
Spending Clause of the Constitution.1 Edgar further asserts that if § 666 is void
1
18 U.S.C. § 666, entitled “Theft or bribery concerning programs receiving Federal
Funds,” provides in pertinent part:
(a) Whoever, if the circumstance described in subsection (b) of this section
exists–
(1) being an agent of an organization, or of a State, local, or Indian
tribal government, or any agency thereof –
(A) embezzles, steals, obtains by fraud, or otherwise without
authority knowingly converts to use of any person other
than the rightful owner or intentionally misapplies,
property that –
(i) is valued at $5,000 or more, and
(ii) is owned by, or is under the care, custody, or
control of such organization, government or agency.
..
...
shall be fined under this title, imprisoned not more than 10 years,
or both.
(b) The circumstance referred to in subsection (a) of this section is that the
organization, government, or agency receives, in any one year period,
benefits in excess of $10,000 under a Federal program involving a grant,
contract, subsidy, loan, guarantee, insurance, or other form of Federal
3
due to its constitutional infirmity, then his money laundering convictions cannot
stand because the § 666 convictions were the predicate offenses alleged in the
money laundering counts. Ward argues that the Indictment was “fatally flawed”
because (1) § 666 is unconstitutionally vague; (2) § 666 is unconstitutional as
applied because there is no continuing federal interest in the Medicare, Part A
funds after their distribution to the Hospital; (3) the Indictment failed to allege that
the exception found at § 666(c) was inapplicable; and (4) the Indictment failed to
sufficiently allege facts establishing federal jurisdiction under § 666.
BACKGROUND
Ward served as the Hospital’s President and Chief Executive Officer from
1976 through May 1994. Edgar joined the Hospital as Chief Operating Officer in
1978. Through a series of transactions spanning the years 1987 to 1994, Ward and
Edgar misappropriated hundreds of thousands of dollars from the hospital for their
own benefit. A detailed description of the schemes they carried out, however, is
not necessary to the resolution of their constitutional claims. For the purpose of
our discussion, the key fact is the hospital’s participation in the Medicare, Part A
program, which provides federal assistance payments to hospitals and other
assistance.
(c) This section does not apply to bona fide salary, wages, fees, or other
compensation paid, or expenses paid or reimbursed, in the usual course of
business.
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institutions.2 Inasmuch as a slightly more detailed description of the conduct
underlying Ward’s conviction is required in resolving his contention that the
statute is unconstitutionally vague, we set forth additional facts at the appropriate
point in our discussion.
DISCUSSION
In fulfilling its legislative function, Congress may only act pursuant to an
express grant of power or authority in Article I of the Constitution. Courts
considering claims involving 18 U.S.C. § 666 have concluded that Congress
passed the statute pursuant to its powers under the Spending Clause. See, e.g.,
United States v. Zwick, 199 F.3d 672, 687 (3d Cir. 1999); United States v.
Santopietro, 166 F.3d 88, 92-94 (2d Cir. 1999); United States v. McCormack, 31
F.Supp.2d 176, 186 n.18 (D. Mass. 1998) (collecting cases); see also United States
v. Fischer, 529 U.S. 667, 689 n.3 (2000) (Thomas, J., dissenting); United States v.
Suarez, 263 F.3d 468, 487 n.7 (6th Cir. 2001) (Boggs, J., dissenting in part). The
Spending Clause of the Constitution empowers Congress “to lay and collect Taxes,
2
The Hospital received the following Medicare, Part A payments for each of its fiscal
years ending June 30, 1987, through June 30, 1994: (1) $19,399,532 for 1987; (2) $18,237,393
for 1988; (3) $20,032,561 for 1989; (4) $22,622,558 for 1990; (5) $25,442,303 for 1991; (6)
$29,886,106 for 1992; (7) $35,023,003 for 1993; and (8) $35,796,275 for 1994. Medicare, Part
A payments accounted for approximately forty-five percent of the Hospital’s net revenues.
These figures come from the records of Mutual of Omaha, a fiscal intermediary which received
funding from the United States to process and pay claims filed by Medicare, Part A beneficiaries.
5
Duties, Imposts, and Excises, to pay the Debts and provide for the common
Defence and general Welfare of the United States.” Art. I, § 8, cl. 1.
Edgar argues that Congress has no power to pass criminal laws under the
Spending Clause. He maintains that courts have upheld conditional grants of funds
to state and local governments on the theory that Congress is not enacting a law
binding on those governments, but instead offering a contract which the
governments may reject or accept subject to the conditions attached by Congress.
It is this contract theory, Edgar asserts, that prevents such congressional actions
from upsetting the balance of power between federal and state governments. Edgar
contends that § 666, by contrast, is a federal criminal statute designed to punish
conduct traditionally within the realm of state concerns, and that such legislative
action extends beyond the scope of Congress’s powers under the Spending Clause.
Accordingly, Edgar contends that the district court should have granted his motion
to dismiss the § 666 counts because § 666 is facially unconstitutional. After
carefully considering the question, we now hold that § 666 is a valid exercise of
Congress’s powers under the Spending Clause.
I. The Supreme Court’s Limiting Construction of § 666 in United
States v. Fischer.
Our conclusion that § 666 is constitutional has as its first point of reference
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the Supreme Court’s treatment of the statute. The first Supreme Court decision
reviewing a § 666 prosecution stated that there was “no serious doubt about the
constitutionality” of the statute’s anti-bribery provision under the circumstances
presented. See Salinas v. United States, 522 U.S. 52, 60 (1997) (citing Westfall v.
United States, 274 U.S. 256 (1927)). In Fischer v. United States, 529 U.S. 667
(2000), the Court again upheld a § 666 conviction. The defendant in Fischer was a
health care consultant who had been prosecuted under § 666 for fraud and bribery
involving a municipal hospital agency which received more than $10,000 in federal
funds. At issue was whether payments to the hospital agency under the federal
Medicare program constituted “benefits” for purposes of § 666(b), a limiting
provision which requires that the alleged offense conduct involve an “organization,
government, or agency [that] receives, in any one year period, benefits in excess of
$10,000 under a Federal program involving a grant, contract, subsidy, loan,
guarantee, insurance, or other form of Federal assistance.”
Characterizing Medicare as “a comprehensive federal assistance enterprise
aimed at ensuring the availability of quality health care for the broader
community,” Fischer, 529 U.S. at 680, the Court held that Medicare payments to
health care providers count as “benefits” under § 666(b) and not, as the defendant
argued, simply as compensation for services rendered. Id. at 676-78. The Court
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thus upheld the health care consultant’s conviction under the statute’s
misappropriation and bribery provisions. At the same time, the Court rejected the
government’s contention that any funds distributed from federal coffers would
qualify as benefits for purposes of the limitation established by § 666(b). A seven-
judge majority stated:
Any receipt of federal funds can, at some level of
generality, be characterized as a benefit. The statute does
not employ this broad, almost limitless use of the term.
Doing so would turn almost every act of fraud or bribery
into a federal offense, upsetting the proper federal
balance.
Id. at 681.3 The Court went on to hold that the evaluation of whether particular
federal receipts count as “benefits” turns on the relevant federal “program’s
structure, operation, and purpose,” as well as the conditions under which an entity
receives federal payments. Id. It reasoned that Medicare payments pass the
requisite threshold, citing as relevant factors the program’s comprehensive scheme
of regulation and its broad aim of promoting the long-term stability of health-care
providers.
We are persuaded that the Court’s reference to “the proper federal balance”
demonstrates its cognizance of potential constitutional limitations upon the
3
In a dissent joined by Justice Scalia, Justice Thomas likewise read the statute’s use of
the term “benefits” to require a limiting construction, differing with the majority only as to the
test to be applied. See Fischer, 529 U.S. at 690-91 (Thomas, J., dissenting).
8
application of § 666. Cf. United States v. Suarez, 263 F.3d 468, 486 (6th Cir.
2001) (Boggs, J., dissenting in part) (remarking that “the Fischer majority’s
language regarding the need to respect the proper balance between state and federal
sovereigns makes clear their constitutional concerns with a broad reading of §
666”). The Court’s rejection of the government’s proposed construction of the
term “benefits,” on the basis of the threat it posed the proper federal balance,
clearly implied a conclusion as to the soundness of the Court’s own alternative
construction. By requiring attention to a program’s “structure, operation, and
purpose” in determining whether federal monies constitute “benefits,” the Court
indicated that constitutional concerns implicated by the statute’s language may be
overcome through careful construction.
In this sense, the Court’s approach to § 666 has validated the efforts of the
Second and Third Circuits in several pre-Fischer decisions. Both courts had
identified the same constitutional concern addressed by the Court in Fischer: the
potential amenability of § 666 to interpretations that would render an exceedingly
large class of traditional state offenses subject to federal prosecution. See United
States v. Zwick, 199 F.3d 672, 682-83 (3d Cir. 1999) (noting that “most literal
interpretation” of § 666 is “troubling from an interpretative standpoint in that it
broadens the range of activity criminalized by the statute and alters the existing
9
balance of federal and state powers”); United States v. Santopietro, 166 F.3d 88,
93 (2d Cir. 1999) (offering, as reductio ad absurdum, the federal prosecution of “a
bribe paid to a city's meat inspector . . . just because the city's parks department had
received a federal grant of $10,000”). The solution endorsed by both circuits was
the recognition of an offense element limiting the statute’s application to conduct
bearing a sufficient connection to the expenditure of federal funds or the integrity
of federal programs. The Supreme Court’s decision in Fischer has now confirmed
the existence of the constitutional limits suspected by the Second and Third
Circuits, while also clarifying that these limits are built into § 666(b)’s requirement
that recipient entities receive at least $10,000 in federal “benefits” over the course
of a year. After Fischer, it is clear that the term “benefits” encompasses only
federal funds expended under sufficiently comprehensive programs. Application
of this standard is to be guided by reference to a program’s “structure, operation,
and purpose,” as well as the conditions under which recipient entities receive
funds. This discussion of the relevant factors presages a broad enough inquiry to
assure that applications of § 666 remain within constitutional bounds.
II. Congressional Authority To Enact § 666 As a Necessary and
Proper Means of Preserving its Spending Power.
Although the Fischer majority did not expressly reference any constitutional
provision, we are persuaded that a basis for the enactment of § 666 may be found
10
in Congress’s authority, under the Necessary and Proper Clause, to protect its
capacity to fruitfully exercise the spending power. As a means of ensuring the
efficacy of federal appropriations to comprehensive federal assistance programs,
the anti-corruption enforcement mechanism strikes us as bearing a sufficient
relationship to Congress’s spending power to dispel any doubt as to its
constitutionality.
Article I of the Constitution gives Congress the authority to “make all Laws
which shall be necessary and proper for carrying into Execution” its enumerated
powers. Art. I, § 8, cl. 18. From the time of the Supreme Court’s landmark
decision in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819), it has been
recognized that the Necessary and Proper Clause authorizes Congress, subject to
other constraints imposed by the Constitution, to adopt measures that bear a
rational connection to any of its enumerated powers. Therefore, § 666 may be
upheld if the availability of federal criminal jurisdiction over the specified offense
conduct bears a reasonable relationship to exercise of the Congressional spending
power.
In Fischer, the Supreme Court’s analysis at times bears inflections of this
mode of analysis. The Court noted that “the language of subsection (b) reveals
Congress’ expansive, unambiguous intent to ensure the integrity of organizations
11
participating in federal assistance programs.” Fischer, 529 U.S. at 678. This
reference to ensuring integrity, as well as the identification of plural federal
assistance programs, suggests a reading of § 666 as serving a Congressional meta-
purpose: the creation of an enforcement mechanism sufficient to assure that
disbursements meeting the § 666(b) threshold are in fact applied in furtherance of
the purposes for which they are dispensed.
Further support for our reliance upon the Necessary and Proper Clause may
be found in United States v. Lipscomb, No. 00-10461, 2002 WL 1539805 (5th Cir.
July 12, 2002), despite the failure of a fractured panel in that case to resolve an as-
applied challenge to § 666’s constitutionality. Shifting majorities of the Lipscomb
panel contributed to a judgment reversing a former Dallas City Council member’s
conviction under § 666 for accepting bribes from a taxicab company. This
judgment, however, did not depend on any conclusion as to § 666’s
constitutionality. Rather, each of the two opinions addressing the defendant’s
constitutional challenge appears to have viewed the enactment of § 666 as within
Congress’s powers under the Necessary and Proper Clause. In one of the three
opinions entered in the case, Judge Wiener applied a necessary-and-proper analysis
as one ground on which the statute and the defendant’s prosecution could be
upheld. Judge Wiener found the rational connection standard satisfied by two
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federal interests in criminal jurisdiction over corruption of the kind at bar. First
was the absolute size of federal funds – $56 million – received by the city of
Dallas. Lipscomb, 2002 WL 1539805, at *22. Second was the “integrity vel non
of federal programs and funds,” id. at *23, by which Judge Wiener meant
Congress’s interest in ensuring “the honesty of state and local officials who have
federal funds in their purview or federal programs under their authority.” Id.
In a separate opinion, Judge Smith outlined his opposing view that § 666
was unconstitutional as applied through the prosecution of the former council
member’s corrupt activities. Judge Smith’s opinion nonetheless suggested that the
Necessary and Proper Clause affords a sufficient basis for Congress’s enactment of
§ 666. Distinguishing the “federal interest in federally-funded programs” from the
“federal government’s generalized interest in everything that occurs within its
borders,” Lipscomb, 2002 WL 1539805 at *56, he reasoned that policing a taxicab
company’s bribery of a local legislator is “necessary and proper” only to the
pursuit of the latter, generalized interest, and thus exceeds the bounds of
Congress’s Article I powers. Judge Smith therefore appears to have presumed that
§ 666 is necessary and proper inasmuch as it may be applied to safeguard
substantial amounts of federal funding disbursed in connection with reasonably
comprehensive federal assistance programs.
13
The opinions of both Judge Wiener and Judge Smith thus support our view
that the Necessary and Proper Clause provides Congress with the requisite
authority to enact § 666, even if some prosecutions under the statute may require
reversal. Indeed, for Congress to exercise its spending power effectively, it must
be assured that the instrumentalities through which the federal government pursues
comprehensive aims can be trusted to apply appropriated funds toward their
intended objectives. The legislative history of § 666 provides evidence of exactly
such an intent. According to a Senate Report accompanying the statute, the
purpose of the law is “to create new offenses to augment the ability of the United
States to vindicate significant acts of theft, fraud, and bribery involving Federal
monies that are disbursed to private organizations or State and local governments
pursuant to a Federal program.” S. Rep. No. 225, 98th Cong., 2d Sess. 369-70
(1984). The report also states that “the Federal Government clearly retains a strong
interest in assuring the integrity of . . . program funds.” Id.
These statements indicate that through § 666, Congress sought to establish a
safeguard to assure that federal benefits would be used for their intended purposes.
§ 666 provides such assurance by authorizing the federal prosecution of individuals
who corrupt entities which receive (1) more than $10,000 in federal funds (2) in
connection with programs defined by a sufficiently comprehensive “structure,
14
operation, and purpose” to merit characterization of the funds as benefits under §
666(b). Fischer, 529 U.S. at 681. It is reasonable for Congress to conclude that
any corruption of such recipient organizations, regardless of whether the corruption
involves the misappropriation of specifically federal funds, endangers the
comprehensive programs in which the organizations participate, and thus the
effective exercise of the Congressional spending power as well.
Accordingly, we reject Edgar’s facial challenge to the constitutionality of §
666 and find that the district court did not abuse its discretion in denying Edgar’s
motion to dismiss on this ground. Moreover, since Edgar has not demonstrated
any constitutional infirmity in the enactment of § 666, the money-laundering
convictions premised on his § 666 offenses must also stand.
III. Section 666 is Not Unconstitutionally Vague.
Ward raises two additional constitutional challenges to his conviction under
§ 666. The first focuses on an exception set forth in § 666(c), which precludes
prosecution of alleged offense conduct involving only “bona fide salary, wages,
fees, or other compensation paid, or expenses paid or reimbursed, in the usual
course of business.” Ward argues that § 666 is unconstitutionally vague because
the phrase “usual course of business” is subject to two meanings: (1) the usual
course of business of other businesses in an industry, or (2) the usual course of
15
business of the entity at issue in a particular case. The district court concluded that
this argument was meritless. We agree.
Absent a First Amendment claim, vagueness challenges must be evaluated in
light of the facts of the individual case before the court; in other words, the statute
is judged on an “as applied” basis. Maynard v. Cartwright, 486 U.S. 356, 361
(1988). Because “objections to vagueness under the Due Process Clause rest on
the lack of notice,” an as-applied vagueness challenge “may be overcome in any
specific case where reasonable persons would know that their conduct is at risk.”
Id.
We agree with the district court’s characterization of Ward’s claim as
“meritless” because any reasonable person would understand that the phrase “usual
course of business” in § 666(c) would not bar prosecution for the conduct alleged
in the § 666 counts in the Indictment. Among the transactions for which Ward was
convicted were the following: converting hospital monies into unauthorized
bonuses to himself; profiting from the Hospital’s use of a warehouse that he,
Edgar, and another officer in effect sold to the Hospital on two separate occasions;
participating in the diversion of Hospital funds to himself and others through the
use of fictional invoices; collecting a finder’s fee from the Hospital in connection
with an investment of the Hospital’s parent company; using Hospital monies to pay
16
premiums on insurance policies for which he was solely responsible; and profiting
from the Hospital’s purchase, at an inflated price, of a real estate option from a
partnership in which he held an undisclosed interest. Any reasonable person would
understand that the funds involved in these transactions could not be construed as
lawful payments or reimbursements made in the “usual course of business.”
Moreover, under the “as applied” standard, the meaning of “usual course of
business” must be viewed in light of Ward’s knowledge and experience as a
hospital president, CEO, and member of the Board of Directors. Surely Ward
knew on the basis of this experience that neither Cape Coral nor any other hospital
would permit a few of its executives to convert enormous sums of money for their
personal benefit as part of the hospital’s “usual course of business.”
Because we agree with the district court that Ward’s vagueness challenge is
meritless, we conclude that the district court did not abuse its discretion in denying
Ward’s motion to dismiss on that ground.
IV. Section 666 is Not Unconstitutional As Applied.
Ward also argues that the § 666 counts should have been dismissed because
the absence of a continuing federal interest in the Medicare, Part A funds after their
distribution to the Hospital makes his prosecution under § 666 unconstitutional.
On Ward’s view, § 666 requires the Government to prove that misappropriated
17
funds themselves came either from a federal source or from a pool including
federal funds committed to a specific federal purpose. Ward contends that no such
federal purpose guided the use of funds he misappropriated because these monies
were reimbursement to the hospital for its prior treatment of Medicare patients.
Since the patients had already been treated, he maintains, it should be recognized
that such funds lost “their federal character” upon disbursement to the hospital as
compensation for the completed services. Ward Brief at 20.
As a matter of statutory interpretation, the Supreme Court’s decision in
Fischer forecloses Ward’s argument. In Fischer, the Court reasoned that payments
disbursed as reimbursement for the treatment of Medicare patients “are made not
simply to reimburse for treatment of qualifying patients but to assist the hospital in
making available and maintaining a certain level and quality of medical care, all in
the interest of both the hospital and the greater community.” Fischer, 529 U.S. at
679-80. Hence the payments may be reimbursement, but they do more than
compensate for services already provided – they sustain health care providers in
their future operations and thereby ensure the continued availability of medical
care for persons covered by the Medicare program. This broader purpose shows
the federal government to have a continuing interest in the sound administration of
Medicare reimbursement funds, long after any particular patient’s course of
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treatment is completed.4
Since Ward challenges the constitutionality of the statute’s application to his
conduct, however, his argument ultimately rests on the assertion that this
identification of a continuing federal interest in reimbursement funds extends the
reach of § 666 beyond the limits of Congress’s spending power. As discussed
earlier in this opinion, however, this argument was implicitly rejected by the
Supreme Court in Fischer. There, the Supreme Court held that the corruption of
health care providers participating in the federal Medicare program affords a
sufficient basis for prosecution under § 666. The Supreme Court adopted this
construction of the statute even as it manifested a cognizance of constitutional
limits in remarking that alternative interpretations could upset the “proper federal
balance.” Fischer, 529 U.S. at 681. The Court’s decision not to further probe the
limits of permissible construction only indicates that Medicare-related prosecutions
under § 666 remain well removed from the relevant constitutional boundaries. Cf.
id. at 682 (“Other cases may present questions requiring further examination and
elaboration of the term ‘benefits.’”). Whatever further elucidation may be required
4
We reject Ward’s effort to distinguish the Fischer case on the ground that it did not
explicitly identify the funds in question as Medicare, Part A funds, the only type of payments at
issue in this case. The Medicare program’s bifurcation into a Part A and a Part B is irrelevant for
our present purpose of determining whether a continuing federal interest exists in funds paid
health care providers as reimbursement for services rendered.
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to identify the point at which § 666’s application will transgress the outer boundary
of Congress’s spending power, Fischer clearly vindicated § 666’s constitutionality
as applied to the defrauding of entities funded under Medicare.
We therefore agree with the district court that the government could
constitutionally prosecute Ward under § 666, and hold that the district court did not
abuse its discretion in denying Ward’s motion to dismiss on this ground. See
Pielago, 135 F.3d at 707. Viewing all facts and inferences in favor of the
government, we also find that the government adduced sufficient evidence of a
“federal interest” in the stolen funds to merit submitting the § 666 charges to the
jury. See Rule Crim. Proc. 29. Accordingly, we conclude that the district court
did not err in denying Ward’s motion for judgment of acquittal. See Hansen, 262
F.3d at 1236 (upholding denial of Rule 29 requires only a determination that “a
reasonable fact-finder could conclude that the evidence established the defendant’s
guilt beyond a reasonable doubt.”).
Because we conclude there is no merit to any of the arguments Edgar and
Ward make in this appeal, we affirm their convictions.
AFFIRMED.
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