USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-1661
UNITED STATES OF AMERICA,
Plaintiff, Appellee,
v.
STEPHEN E. WILLIAMS,
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
Torruella, Circuit Judge,
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Bownes, Senior Circuit Judge,
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and Cyr, Circuit Judge.
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William J. Genego for appellant.
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Roberta T. Brown, Assistant United States Attorney, with whom A.
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John Pappalardo, United States Attorney, and Michael K. Loucks,
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Assistant United States Attorney, were on brief for appellee.
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December 3, 1993
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CYR, Circuit Judge. Pursuant to a plea agreement,
CYR, Circuit Judge.
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appellant Stephen Williams pled guilty to fourteen counts of mail
fraud, whereupon other charges were dismissed and Williams was
sentenced to seven months' imprisonment. On appeal, Williams
challenges, among other things, the district court's denial of
his request for an evidentiary hearing and its determination that
certain criminal acts alleged in the dismissed counts constituted
"relevant conduct" under the counts of conviction. Finding no
error, we affirm.
I
I
FACTS
FACTS
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In 1980, Williams and codefendant Bruce Kotek founded
S.E.R.V.E.S.S., Inc. (SERVESS), a Massachusetts not-for-profit
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corporation which operated homes for the handicapped. SERVESS
entered into at-cost contracts with the Commonwealth of Massa-
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chusetts (Commonwealth) for the placement of mentally handicapped
persons in SERVESS group homes. These contracts entitled SERVESS
to reimbursement for its expenses but prohibited it from realiz-
ing a profit. In 1984, while serving on the SERVESS board of
directors, Williams and Kotek established Community Services,
Inc. (CSI), a for-profit corporation which would contract with
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companies like SERVESS to operate their group homes in return for
a management fee. In July 1984, Williams and Kotek, in their
capacity as SERVESS directors: (1) voted to enter into a manage-
ment contract with CSI; (2) promoted a SERVESS employee, William
Polis, to serve as SERVESS's new executive director; and (3)
resigned from the SERVESS Board effective August 31, 1984. On
September 1, 1984, the day after the Williams and Kotek resigna-
tions became effective, the SERVESS-CSI management contract was
executed by Polis on behalf of SERVESS. In 1985, during Polis's
tenure, at the instance of Williams and Kotek SERVESS entered
into several long-term leases of property owned by real estate
trusts controlled by the third codefendant, Robert Alexander.
Although only Alexander received income from these properties,
Kotek, Williams and Alexander were all residual beneficiaries
under the real estate trusts.
In January 1986, Williams and Kotek founded another
not-for-profit corporation called D.A.R.S.O., Inc. (DARSO), which
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operated day-care centers for mentally handicapped persons. Like
SERVESS, DARSO contracted directly with the Commonwealth for
reimbursement of its at-cost expenses, and leased several parcels
of real property from the same real estate trusts. DARSO also
purchased furniture from a company in which Williams held an
interest. Williams served as a director of DARSO from its
inception.
Massachusetts law requires that any not-for-profit
corporation submitting expense reimbursement requests to the
Commonwealth disclose whether the expense was incurred with a
"related person," defined as "[a] person or organization which is
associated or affiliated with or has control of or is controlled
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by the [not-for-profit corporation] or is related to the [not-
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for-profit corporation] or any director, stockholder, trustee,
partner or administrator of the [not-for-profit corporation] by
common ownership or control or in a manner specified in [I.R.C.
267(b), (c).]" See 114.5 Mass. Reg. 3.02 (emphasis added).
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In November 1990, Williams, Kotek, Alexander, and the
various corporate entities were indicted for RICO violations, 18
U.S.C. 1962(c), RICO conspiracy, 18 U.S.C. 1962(d), and
multiple counts of mail fraud, 18 U.S.C. 1341, in connection
with the alleged SERVESS and DARSO schemes to defraud the Common-
wealth. The indictment was based on Williams's failure to
disclose: (1) that he and Kotek, through executive director
Polis, "controlled" SERVESS at the time CSI and SERVESS entered
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into their management contract; and (2) that both corporations
leased property from real estate trusts whose beneficiaries were
"related parties." The government charged that the SERVESS and
DARSO reimbursement requests exceeded their costs, and that
Williams and Kotek defrauded the Commonwealth by using these
"hidden profits" to improve, and acquire equity in, the real
estate leased to SERVESS and DARSO by the real estate trusts.
At sentencing, the government characterized the dis-
missed SERVESS counts as "relevant conduct" under U.S.S.G.
1B1.3 and introduced a transcript of the grand jury testimony
of William Polis, to the effect that he was acting under Wil-
liams's "control" when he signed the SERVESS-CSI management
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contract in September 1984.1 Williams argued that the SERVESS
scheme was too remote in time and context to constitute "relevant
conduct" under the DARSO counts, and requested an evidentiary
hearing for the purpose of cross-examining Polis on his grand
jury testimony concerning the issue of "control." The district
court denied the request for an evidentiary hearing and found the
loss occasioned by the SERVESS counts to be "relevant conduct."
Williams appeals the resulting seven-month prison sentence.2
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1The gross loss occasioned the Commonwealth by the mail
fraud directly related to the SERVESS counts was estimated at
between $500,000 and $1 million, while the DARSO counts involved
estimated loss of $50,000 to $100,000. See U.S.S.G. 2F1.1.
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The district court imposed an 8-level enhancement, based on the
$500,000 to $1 million loss occasioned by the SERVESS scheme, as
"relevant conduct," see id. 1B1.3, in connection with Wil-
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liams's sentencing on the DARSO scheme counts to which he pled
guilty.
2The pre-November 1989 Sentencing Guideline calculation was
as follows:
Base offense level ( 2F1.1) 6
+ Loss between $500,000 and $1 million +8
+ More than minimal planning +2
+ Abuse of trust position +2
- Acceptance of responsibility -2
Adjusted offense level 16
Adjusted offense level 16
GSR (Criminal History Category I) 21-27 mos.
Downward departure for Substantial
Assistance -14 mos.
Sentence 7 mos.
Sentence 7 mos.
5
II
II
DISCUSSION
DISCUSSION
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The crux of Williams's grievance is that his plea
agreement with the government, which led to the dismissal of the
SERVESS counts, resulted in no lower sentence since the Common-
wealth loss relating to the SERVESS counts was considered "rele-
vant conduct" for purposes of sentencing on the DARSO counts.
Our cases, see, e.g., United States v. Wright, 873 F.2d 437, 440-
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42 (1st Cir. 1989), long since have recognized the appropriate-
ness of just such "relevant conduct" adjustments as these.
Moreover, unlike "relevant conduct" adjustments that may appear
to erode the intended benefit of a defendant's plea bargain, see
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United States v. Fox, 889 F.2d 357, 362-63 (1st Cir. 1989); see
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also Kinder v. United States, 112 S. Ct. 2290, 2292-93 (1992)
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(White, J., dissenting from a denial of certiorari) (collecting
cases and noting circuit split), in this case Williams plainly
was on notice that the government would request the court to
treat the SERVESS-related loss as "relevant conduct" under the
DARSO counts.3 Finally, while the government reserved its right
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3The plea agreement provides:
Williams agrees that the United States may
argue that the loss suffered . . . from all
of the fifteen charged schemes to defraud set
forth in predicate acts one through fifteen
of Count One of the indictment [i.e., the
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SERVESS-related conduct] may be included by
the court in its calculation of the loss
suffered by the Commonwealth of Massachu-
setts. The Government agrees that Mr. Wil-
liams may argue that the Court should not do
6
to recommend a "relevant conduct" adjustment, the plea agreement
afforded Williams significant benefit. The government agreed,
inter alia, to move to dismiss all RICO and RICO-conspiracy
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counts, and to recommend a sentence at the low-end of the appli-
cable guideline sentencing range. The government also left the
door open to a downward departure for substantial assistance.
Ultimately, of course, the district court granted a downward
departure for substantial assistance, see supra note 2, on the
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government's recommendation. See U.S.S.G. 5K1.1.
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Thus, our review discloses that both the letter and
spirit of the plea agreement was observed, resulting in substan-
tial benefit to Williams. The fact that the district court, in
scrupulous observance of the Sentencing Guidelines and our
caselaw, did not grant appellant all he had hoped does not
warrant appellate relief.
1. "Relevant Conduct"
1. "Relevant Conduct"
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Absent a mistake of law, we review "relevant conduct"
findings for clear error. United States v. Wood, 924 F.2d 399,
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403 (1st Cir. 1991). Only after the government has met its
burden of establishing, by a preponderance of the evidence, "a
sufficient nexus between the [extraneous] conduct and the offense
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of conviction," may the sentencing court, in its sound discre-
tion, make a "relevant conduct" adjustment. United States v.
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so.
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Sklar, 920 F.2d 107, 110 (1st Cir. 1990) (emphasis added). The
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district court supportably found the required nexus in this case.
The principal argument advanced by Williams on appeal
is that the conduct allegedly involved in the SERVESS scheme was
too dissimilar to be considered "relevant" to the conduct of
conviction involved in the DARSO counts.4 This supposed dissimi-
larity springs from the fact that Williams's alleged criminal
liability under the dismissed SERVESS counts was predicated on a
determination that Williams controlled Polis, thereby causing
SERVESS to violate its obligation to disclose "related parties,"
whereas criminal liability for the DARSO scheme rested directly
on the conduct of Williams and his codefendants.
The SERVESS and DARSO schemes shared a great deal in
common: (1) the same victim, i.e., the Commonwealth; (2) the
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same method of operation, i.e., SERVESS's improper requests for
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Commonwealth reimbursement of the management fees paid CSI, or
the rental fees paid for the real estate trusts; (3) the same
three principals, i.e., Williams and Kotek as influential "insid-
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ers," Alexander as the "outsider" recipient; and (4) the same
underlying substantive offense, i.e., the fraudulent failure to
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identify the defendant's "related party" status in accordance
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4Appellant's other arguments warrant little discussion.
First, he questions the temporal proximity between the DARSO and
SERVESS schemes. But this argument ignores the nature of the
underlying crime. Assuming arguendo that the SERVESS contract
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with CSI was executed before DARSO came into existence, the mail
fraud, based on the continuing non-disclosure of Williams's
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"related party" status, continued well beyond that date. Appel-
lant's second contention that any control exercised over Polis
was "intermittent" is likewise inapposite.
8
with 114.5 Mass. Reg. 3.02. Thus, the district court reasonably
could conclude that the DARSO and SERVESS schemes, while not one
and the same, were nonetheless sufficiently comparable in charac-
ter, cast and plot, to warrant similar billing under U.S.S.G.
1B1.3.
2. Sufficiency of the Evidence
2. Sufficiency of the Evidence
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The second argument Williams makes is that the evidence
was insufficient to link him to the SERVESS scheme. The eight-
level adjustment under U.S.S.G. 1B1.3 was based exclusively on
the government's contention that Williams controlled Polis's
approval of the CSI management contract, and the long-term leases
with the real estate trusts, on behalf of SERVESS. The only
"control" evidence introduced at sentencing was Polis's grand
jury testimony, which Williams correctly characterizes as hear-
say. Williams insists that the grand jury testimony was rendered
even less reliable because the prosecutor posed a series of
hostile or leading questions to Polis on the issue of "control."
Moreover, Williams argues, Polis testified that following their
resignations from the SERVESS Board in August 1984 neither
Williams nor Kotek had the power to remove Polis as the executive
director of SERVESS, and that Polis named a new board of direc-
tors, increased his own salary, and leased other properties in
which Williams had no ownership interest.
Given the deferential "clear error" standard of review,
United States v. Zuleta-Alvarez, 922 F.2d 33, 36 (1st Cir. 1990),
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cert. denied, 111 S. Ct. 2039 (1991), and the modest burden and
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9
quality of proof incumbent on the government at sentencing, id.
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at 37 (citing United States v. Mocciola, 891 F.2d 13, 17 (1st
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Cir. 1989)), Williams's claim founders on the plain language in
U.S.S.G. 6A1.3(a):
In resolving any reasonable dispute concern-
ing a factor important to the sentencing
determination, the court may consider rele-
vant information without regard to its admis-
sibility under the rules of evidence applic-
able at trial, provided that the information
has sufficient indicia of reliability to
support its probable accuracy.
Under U.S.S.G. 6A1.3(a), we repeatedly have upheld
reliance on prior hearsay testimony never subjected to cross-
examination, so long as there were other adequate indicia of
reliability. See, e.g., Wright, 873 F.2d at 441. Here, the
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Polis testimony was given under oath, subject to the penalties of
perjury, in a formal grand jury proceeding that resulted in
Williams's indictment on the DARSO counts, as well as the SERVESS
counts which were dismissed pursuant to the plea agreement. The
district court was provided with the complete transcript of the
Polis grand jury testimony, wherein Polis admitted, inter alia,
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that Williams was still "calling the shots" during the first two
years Polis served as President of SERVESS.5 The Polis testimo-
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5Polis testified as follows:
Q: But, Mr. Polis, [why did you sign] a
document [the SERVESS-CSI management con-
tract] you had never seen before, a document
in which you played no role in the negotia-
tion of on your first day on the job, which
obligated your entity to five years relation-
ship with [CSI]. What is the reason you
signed it?
A: I didn't really feel I had the choice.
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ny was the only direct evidence before the district court on
Williams's influence upon Polis. So far as the record discloses,
the Polis testimony was also the only direct evidence before the
grand jury on the issue of Williams's "control," and would appear
to have been critical to the "probable cause" determination on
which Williams's indictment on the SERVESS counts was based. In
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Q: And what was what was it that was
taking away your ability to have a choice?
A: Stephen Williams and Bruce Kotek.
Q: How?
A: The fact that they had the contracts and
the control.
* * *
Q: Mr. Polis, in the sort of natural scheme
of human relationships, two people who are
running an entity don't voluntarily relin-
quish all control over it to somebody else on
the faint hope that person will turn control
right back to them in a consulting agreement
or leave control with them by letting them do
what they want to do in terms of who they
execute leases with and the like.
Is it your testimony that there was no
conversation . . . in which you indicated
that you would continue to do their bidding
as director of SERVESS?
A: There was a discussion about they had
gone to the state, they had gone to an attor-
ney, they were coming up with an agreement
and that they wanted it signed and that they
would become the management entity and I
would run the programs.
Q: Well didn't somebody ever say at any
point in time you're going to continue to do
as we tell you to do, Bill. We're making you
executive-director but we still call the
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shots here.
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A: That's obviously how they felt.
Q: And that for a while, that's obviously
what happened Mr. Polis?
A: Yes.
Q: True?
A: True.
(emphasis added).
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these circumstances, we think there can be little question that
the Polis grand jury testimony was sufficiently reliable to
permit reliance by the sentencing court. Compare, e.g., Zuleta-
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Alvarez, 922 F.2d at 37 (upholding consideration of grand jury
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testimony where sentencing judge presided over trial and formed
independent assessment of reliability), with United States v.
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Harris, 982 F.2d 317 (8th Cir. 1992) (upholding refusal to rely
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on grand jury testimony where sentencing judge doubted its
veracity).
The sentencing judge was highly conversant both with
the facts of the case and Williams's association and involvement
with his codefendants in the SERVESS scheme. By the time Wil-
liams was sentenced, the judge not only had the benefit of the
presentence investigation report and Williams's written response,
but the understanding gained from more than two years of pretrial
proceedings. Indeed, a few weeks earlier the same judge had
sentenced Alexander and Kotek on the SERVESS and the DARSO
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counts. Cf. Zuleta-Alvarez, 922 F.2d at 37 (holding that en-
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hanced deference was due findings of fact where sentencing judge
had presided at trial).
The district court supportably found that Polis's
actions on behalf of SERVESS in entering into the CSI management
contract were controlled by Williams.
3. Evidentiary Hearing
3. Evidentiary Hearing
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Finally, Williams argues that the district court's
refusal to allow an evidentiary hearing, at which Polis could
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have been cross-examined, constituted an abuse of discretion. We
have yet to hold that it is an abuse of discretion to deny cross-
examination in the sentencing context. See United States v.
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Regan, 989 F.2d 44, 47 (1st Cir. 1993).
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Williams has not demonstrated an abuse of discretion
here. See Garcia, 954 F.2d at 19. Even though, as Williams
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alleges, the Polis grand jury testimony on "control" was central
to the "relevant conduct" adjustment relating to the SERVESS
counts, we cannot say that the district court, which had the
benefit of the grand jury transcript and its own long-term famil-
iarity with these proceedings, was presented with a compelling
basis for conducting an evidentiary hearing to revisit the same
ground. Williams was accorded an opportunity to contest, in
writing, the government's evidence of "control." Yet he neither
proffered rebuttal evidence nor alleged or identified any false
grand jury testimony by Polis, but simply disputed the import of
Polis's testimony by denying "control" without suggesting what
additional or different information might be gleaned from cross-
examining Polis. Williams's sheer earnestness in pursuing the
request was not enough. In these circumstances, and absent some
more concrete proffer, the district court did not abuse its
discretion in denying an evidentiary hearing.
Affirmed.
Affirmed.
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