USCA1 Opinion
August 18, 1993 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 92-1959
UNITED STATES,
Appellee,
v.
RICHARD L. ROWE,
Defendant, Appellant.
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ERRATA SHEET
The opinion of this Court issued on July 22, 1993, is
amended as follows:
On page 2, footnote 1, lines 4-5, replace "29 U.S.C.
1131;" with "29 U.S.C. 1023, 1024, and 1131;".
July 30, 1993
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 92-1959
UNITED STATES,
Appellee,
v.
RICHARD L. ROWE,
Defendant, Appellant.
___________
ERRATA SHEET
The opinion of this Court issued on July 22, 1993, is
amended as follows:
On page 4, line 7 from the bottom: strike "Fed. R. Civ. P.
52(a)."
On page 4, last line: change "q" in "quideline" to "g"
UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
____________________
No. 92-1959
UNITED STATES,
Appellee,
v.
RICHARD L. ROWE,
Defendant, Appellant.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
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Before
Boudin, Circuit Judge,
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Campbell, Senior Circuit Judge,
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and Stahl, Circuit Judge.
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Susan E. Silver with whom Jack F. St. Clair and Joseph, St. Clair
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& Cava were on brief for appellant.
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Victor A. Wild, Assistant United States Attorney, with whom A.
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John Pappalardo was on brief for appellee.
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July 22, 1993
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BOUDIN, Circuit Judge. Pursuant to a plea agreement,
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Richard Rowe pled guilty to numerous criminal charges
stemming from his role in a fraudulent health insurance
scheme whose victims were a number of small businesses and
their employees.1 Rowe developed and administered a multi-
employer health insurance plan which offered below-market
rates for coverage comparable to that provided by other
insurance companies, and which was falsely represented as
being a tax-exempt ERISA plan "approved" by the United States
Department of Labor. Rowe and others involved in the scheme
mismanaged the operation and converted plan assets and, as a
result, many subscribers to the plan were left with unpaid
medical bills.
Rowe was sentenced to an aggregate six-year term of
imprisonment, to three years of supervised release, and
ordered to pay up to $1,903,386 in restitution. He now
appeals, challenging the following sentencing calculations:
a two-level increase in his base offense level for victim
vulnerability, U.S.S.G. 3A1.1; a two-level increase for
obstruction of justice, U.S.S.G. 3C1.1; and a one-level
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1Rowe pled guilty to all counts against him which
included conspiracy, 18 U.S.C. 371; mail fraud, 18 U.S.C.
1341; ERISA theft, 18 U.S.C. 664; ERISA false
statements, 18 U.S.C. 1027; failure to file certain ERISA
statements, 29 U.S.C. 1023, 1024, 1131; and ERISA
kickback, 18 U.S.C. 1954. ERISA is the acronym for the
Employment Retirement Income Security Act of 1974, 29 U.S.C.
1001 et seq.
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upward departure for causing the loss of confidence in an
important institution, U.S.S.G. 2F1.1, application note
10(e). We set aside the enhancement for victim vulnerability
and otherwise affirm.
Victim Vulnerability. Section 3A1.1 of the Sentencing
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Guidelines directs the sentencing court to increase a
defendant's base offense level by two levels:
If the defendant knew or should have known that a
victim of the offense was unusually vulnerable due
to age, physical or mental condition, or that a
victim was otherwise particularly susceptible to
the criminal conduct . . . .
The commentary to the guideline states that the adjustment
applies "where an unusually vulnerable victim is made a
target of criminal activity by the defendant." U.S.S.G.
3A1.1, application note 1. The commentary further explains
that an adjustment for victim vulnerability is warranted
where, for example, a defendant fraudulently markets an
ineffective cancer cure or targets a handicapped person for
robbery, but not where a fraud is aimed at the general public
and "one of the victims happened to be senile." Id.
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The government made two arguments in the district court
in support of the enhancement. First, it said that small
businesses such as those solicited by Rowe are unable to
obtain affordable health insurance for their employees,
making them particularly susceptible to offers of low-cost
health insurance. Second, the government argued that
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individual employees were rendered vulnerable once they
developed medical problems because they then faced the choice
of either continuing their payments to Rowe's plan, despite
its nonpayment or delayed payment of their medical bills, or
else possibly losing their health insurance. Rowe contends
that the district court erred in accepting these arguments as
a basis for imposing an enhancement under section 3A1.1. He
says that the district court should have required the
government to produce evidence that the employers and
employees were in fact unusually vulnerable instead of taking
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the government's assertions at face value. We agree.
In our view, it may be fair to assume as a matter of
reasonable inference that a number of the small businesses to
whom the insurance was sold were motivated by need as well as
by the prospect of savings. It is even more likely that
those subscribers who were already ill when the plan faltered
would be inclined to remain longer with the plan for lack of
alternatives. The district court in sentencing matters is
not restricted to formal evidence, and the court's factual
inferences, as well as direct findings, are normally set
aside only if "clearly erroneous." See 9 Wright & Miller,
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Federal Practice and Procedure 2573, at 689, 2587 (1971 &
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1993 Supp.).
Nevertheless, we think as a matter of interpretation of
the guideline, cf. United States v. Sabatino, 943 F.2d 94,
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102 (1st Cir. 1991), that the enhancement does not apply in
this case. In construing this guideline, the circuit courts
have been rather quick to reverse enhancements based on the
victims' class membership, without a showing of individual
circumstances; and, in addition, the case law has emphasized
the need for "unusual[]" vulnerability and "particular[]"
susceptibility. U.S.S.G. 3A1.1.2 In Wilson, the court
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reversed the enhancement for one who fraudulently solicited
for "relief" funds in a town stricken by a tornado, saying:
[I]f we were to adopt the government's position,
virtually every defendant convicted of a crime
involving fraudulent solicitation would be subject
to an upward adjustment under 3A1.1. Those who
engage in this criminal activity usually target
their solicitations at those they think most likely
to respond to the requests for money. We do not
think, however, that the Sentencing Commission
intended on that account to impose an upward
adjustment on virtually all defendants convicted of
fraudulent solicitation.
913 F.2d at 138.
We think that even if we accept the government's
assumption that small businesses are often limited in their
sources for securing insurance, this does not itself show
that measure of "unusual" or "peculiar" vulnerability or
susceptibility of victims needed to invoke the guideline.
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2See, e.g., Sabatino, 943 F.2d at 103; United States v.
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Paige, 923 F.2d 112, 113-114 (8th Cir. 1991); United States
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v. Creech, 913 F.2d 780, 781-82 (10th Cir. 1990); United
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States v. Wilson, 913 F.2d 136, 138 (4th Cir. 1990). Compare
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United States v. Pavao, 948 F.2d 74, 78 (1st Cir. 1991)
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(enhancement upheld where district court heard evidence of
drug user's actual vulnerability to crime).
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Apart from directing his offers to the group "most likely to
respond," Wilson, 913 F.2d at 138, there is nothing in the
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record to suggest that Rowe focused special attention on
precariously placed victims--conduct evincing the "extra
measure of criminal depravity which 3A1.1 intends to more
severely punish." United States v. Moree, 897 F.2d 1329,
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1335 (5th Cir. 1990).
We do not say that under the guideline special
vulnerability may never be derived from class membership; as
the commentary states, "market[ing] an ineffective cancer
cure" would qualify for enhancement. U.S.S.G. 3A1.1,
application note 1. But where there is only an ordinary
measure of increased likeliness to respond in the solicited
group, and no evidence that the defendant selected individual
victims based on special susceptibility, we think the
enhancement does not apply. It is hard to articulate a more
precise standard where so much turns on degree. The emerging
case law will pick out the pattern.
As for the individual employees who later developed
medical conditions, we agree with the government that it is
probably safe to assume that these individuals had more than
the usual incentive to continue paying their premiums. There
may well be among this group some who were especially
stricken and unusually vulnerable, just as there may have
been some small businesses truly desperate to obtain
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insurance. Although individuals who became ill after the
insurance was sold were hardly a special target of Rowe's
initial solicitations, it may be that their subsequent
inability to switch plans contributed in some manner to his
profits.
But in this case the thrust of the wrongdoing with which
Rowe was charged was the initial fraudulent solicitations and
the mismanagement or looting of the plan's assets. The near
certainty that some of the subscribers would be more enmeshed
than others appears to have been a collateral aspect of the
wrongdoing. Indeed, the situation is rather close to the
case in which a fraud is aimed at the general public and some
of the victims are senile or otherwise unusually susceptible.
Yet in that instance the guideline commentary expressly
precludes an enhancement, U.S.S.G. 3A1.1, application note 1,
presumably because there is no special targeting of such
victims and the added impact is incidental. We think the
same result follows in this case.3
Obstruction of Justice. Rowe's guilty plea encompassed
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related charges that were brought in Atlanta and Boston and
that were later consolidated. After Rowe's arrest in Boston
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3At oral argument before this court, the government
implied that Rowe's company told individual subscribers with
medical problems that they had no choice, given their
existing conditions, other than to stay with its plan despite
late payment of their claims. However, no evidence to this
effect was presented to the district court.
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on January 23, 1990, he was released on bond on the
condition, among others, that he appear for all judicial
proceedings as required. Two days later Rowe was arraigned
in the Atlanta case in the Northern District of Georgia.
Shortly thereafter Rowe fled the country, and a warrant
for his arrest was issued on April 13, 1990. Rowe was
arrested in Denmark by Danish authorities on June 16, 1990,
and returned the next month to Atlanta where he remained in
federal custody without bail. While Rowe was out of the
country, the district court in Georgia heard motions in the
case in Rowe's absence. Rowe's action in fleeing the country
resulted in a two-level enhancement for obstruction of
justice, U.S.S.G. 3C1.1, which Rowe now appeals.
The government argues that Rowe has waived any objection
to the enhancement for obstruction of justice because his
written objection to the enhancement as proposed in the
presentence report was not repeated at the sentencing
hearing. At the outset of the hearing, the district judge
asked Rowe's counsel whether he had any "additions or
corrections" to make to the presentence report, which
incorporated an enhancement for obstruction of justice.
Rowe's lawyer replied that the only correction concerned
Rowe's assets and liabilities, and the discussion then turned
to the defendant's assets and to other issues.
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Notably, the government, when asked the same question,
said that it had no additions or corrections to make, even
though it had filed its own written objections to the
presentence report. When the district court then inquired
into one of those objections, the prosecutor told the judge
that he had "understood the Court to be asking whether there
were any additional matters the government wanted to submit
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to the Court as opposed to argue to the Court." Rowe's
lawyer might have reached the same conclusion since the
matter of Rowe's assets was a newly-raised issue. We need
not pursue the matter because the enhancement was
appropriate.
Rowe argues that the obstruction enhancement does not
apply to flights from arrest that do not endanger others.
U.S.S.G. 3C1.1, application note 4(d), and 3C1.2. This
is a generally correct statement of the law but an erroneous
description of the reason for Rowe's enhancement. Rowe
received the enhancement for his failure to appear for
judicial proceedings. This was made clear in the presentence
report. The commentary to the obstruction guideline in
effect at the time of Rowe's sentencing provides for a two-
point increase for a defendant's "willfully failing to
appear, as ordered, for a judicial proceeding." U.S.S.G.
3C1.1, application note 3(e) (1990).
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Although this commentary was not in effect when Rowe
fled to Denmark, no ex post facto problem is presented. The
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1989 version of the guidelines were in effect when Rowe
disappeared in early 1990. The courts have uniformly held
that flight from judicial proceedings constitutes an
obstruction of justice under the 1989 version of the
Guidelines. United States v. Monroe, 990 F.2d 1370, 1375
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(D.C. Cir. 1993) (canvassing cases); United States v.
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McCarthy, 961 F.2d 972, 979-80 (1st Cir. 1992).
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Rowe's only response to the actual basis for the
enhancement is that he was unaware of probation proceedings
to obtain his passport. It was during these proceedings that
authorities learned of Rowe's absence from the country. In
his response to the presentence report, Rowe explained that
he had already left for Denmark when the probation office
began its efforts to secure his passport. However, as Rowe's
counsel conceded at oral argument in this court, one of the
conditions of Rowe's release was that he turn over his
passport. The obvious purpose of the requirement was to
prevent Rowe from avoiding prosecution by leaving the
country. We find no error in the district court's decision
to enhance Rowe's sentence for obstruction of justice.
Loss of Confidence in an Important Institution. We also
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affirm the district court's decision to depart upward one
level for loss of confidence in an important institution.
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The commentary to the fraud guideline says that an upward
departure may be warranted if the amount of the loss involved
does not fully capture the harm or seriousness of the
conduct, and then gives several examples of when a departure
may be appropriate. U.S.S.G. 2F1.1, application note 10.
One of the examples is where "the offense caused a loss of
confidence in an important institution." Id., application
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note 10(e).
In its presentence memorandum, the government cited
articles and congressional testimony describing the growing
threat to the health insurance industry, and in particular to
multi-employer arrangements for small businesses, caused by
fraudulent operators posing as legitimate insurers. Rowe
argues that there was no evidence that his own conduct
occasioned a loss of confidence in the health industry. In
our view no such evidence was required.
We think it obvious that the many businesses and
employees defrauded by Rowe must have had their confidence in
health insurers shaken as a result of their experience. It
cannot be seriously doubted that they and others made aware
of the scheme are now likely to be more wary of insurers, and
especially of legitimate but relatively unknown insurers who
cater to small businesses. The district court did not need
to hear evidence to reach this conclusion. See United States
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v. Fousek, 912 F.2d 979, 981 (8th Cir. 1990) (evidence not
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necessary to show that bankruptcy trustee's embezzlement of
funds caused a loss of confidence in the institution of
bankruptcy trustees).
We conclude that the vulnerability enhancement cannot
stand but that the other challenges to the sentence fail.
The sentence is vacated and the case is remanded for re-
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sentencing consistent with this opinion.
It is so ordered.
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