Ali Bazzi v. Tyco Healthcare Group

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 10-2474
___________
United States of America, *
*
Appellee, *
* Appeal from the United States
v. * District Court for the
* Southern District of Iowa.
James Norman Van Elsen, *
*
Appellant. *
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Submitted: February 17, 2011
Filed: August 31, 2011
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Before SMITH, GRUENDER, and BENTON, Circuit Judges.
___________
SMITH, Circuit Judge.
James Norman Van Elsen stands convicted for the theft or embezzlement of
funds from his employee's Individualized Retirement Accounts (IRA), in violation of
18 U.S.C. § 664. On appeal, Van Elsen argues that his conviction should be reversed
because, at trial, the district court 1 barred him from presenting evidence to the jury that
he eventually repaid all of the embezzled funds. We affirm.
1The Honorable Robert W. Pratt, Chief Judge, United States District Court for
the Southern District of Iowa.

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I. Background
Van Elsen solely owned Van Elsen Consulting, Inc. (VEC), a small actuarial
business that serviced insurance companies. In September 2002, Van Elsen
established a "Simple IRA" for his employees' benefit. A Simple IRA, similar to a
401(k) retirement plan, enables employees to save for retirement by authorizing their
employer to withhold from their paycheck pretax dollars in predetermined amounts
and deposit the funds into the employees' Simple IRAs. When Van Elsen established
the Simple IRA, his retained plan administrator, American Funds, advised Van Elsen
of his legal obligation to deposit withheld money into an employee's Simple IRA as
soon as the money could be reasonably segregated from VEC's general assets but not
later than 30 days after the last day of the month in which the monies were withheld.
In the fall or winter of 2004, Van Elsen began working on plans to start his own
life insurance company, "Pella RE." Van Elsen testified that, during this period, he
largely delegated the direction of VEC's day-to-day operations to VEC employees,
and focused the majority of his time on starting Pella RE.
In 2005 and 2006, Van Elsen withheld retirement money from the paychecks
of three employees, Michael Staudacher, Mark Rowley, and Terry Hilker, but Van
Elsen failed to deposit any withheld money into the employees' Simple IRAs within
the statutory period. On several occasions in 2005 and 2006, Van Elsen admitted to
the employees—both orally and via email—that he failed to timely deposit the
withheld monies but assured repayment as soon as possible. For example, in a
February 2005 email, Van Elsen reassured the three employees that "I know, I am
behind in the IRA payments . . . . No one should worry, all monies will be deposited."
In late summer 2005, the Department of Labor ("Labor Department") received
a complaint from one of VEC's former employees concerning Van Elsen's failure to
deposit Simple IRA withholdings for the year 2004. In response to the Labor
Department's subsequent inquiry into the matter, Van Elsen assured the Labor
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Department representative that this failure was an isolated mistake but failed to
mention that the Simple IRA deposits for 2005 were also in arrears. Moreover, Van
Elsen also withdrew more than $213,000 from VEC's company bank account to pay
his own personal mortgage, make department store purchases, and finance personal
trips. In June 2005, Van Elsen used approximately $10,000 from the company's
account to purchase a boat.
In June 2006, an Internal Revenue Service (IRS) agent contacted Van Elsen
about delinquent payroll taxes, and, according to Van Elsen, instructed him "not to
make any unnecessary payments to anyone other than the IRS until a repayment plan
could be established for his debts to the IRS." At trial, Van Elsen testified that the IRS
agent instructed him to pay over to the IRS the Simple IRA monies that he withheld
from his employees' paychecks. The IRS Agent countered this claim with her own
trial testimony that, never in her 23 years with the IRS, had she advised a taxpayer to
take such action. Presently, on appeal, Van Elsen avers in his brief that, "[a]s [he]
understood it, payments to the employees' retirement accounts were 'unnecessary'
according to the IRS."
In the fall of 2006, the Labor Department again received a complaint about Van
Elsen's failure to pay into the Simple IRA, prompting one of its investigators to
contact Van Elsen. Van Elsen conceded that he failed to timely deposit employees'
withholdings into their Simple IRAs but attributed this failure to ongoing financial
difficulties that the company was experiencing. Van Elsen did not claim to the Labor
Department, as he did at trial, that the IRS had advised him earlier that year to abstain
from depositing money into the Simple IRAs until he paid his tax arrears. Moreover,
despite draining $213,000 from the company's accounts for personal expenditures,
Van Elsen told the Labor Department investigator that he had not drawn a salary in
2005 or 2006 as a self-imposed austerity measure. At trial, Van Elsen testified that,
notwithstanding the seemingly personal use to which it was put, the $213,000 in
withdrawals was not "salary" or "income."
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In September 2006, just before Van Elsen received his second Labor
Department complaint, the IRS placed a $17,000 levy on one of VEC's company
accounts. In October 2006, the IRS levied VEC's accounts receivable. On December
31, 2006, Van Elsen closed VEC. In April of 2008, Van Elsen and his wife filed for
protection under Chapter 11 of the Bankruptcy Code. On January 14, 2010, Van Elsen
repaid the Simple IRA deposits to the Labor Department by depositing all past-due
monies plus interest into his employees' accounts pursuant to his Chapter 11
reorganization plan. Van Elsen's repayment occurred approximately six years after
they were due, nearly seven months after his indictment and just two weeks before
trial.
At trial, Van Elsen sought to introduce evidence of his attempts to start Pella
RE, certain medical ailments from which he suffered, his allegedly unwavering intent
to repay the withheld Simple IRA money, and his actual repayment. The government
filed a motion in limine to bar Van Elsen from introducing any such evidence.
Ultimately, the district court permitted Van Elsen to introduce evidence of his
attempts to found Pella RE, his ailments, and his intent to repay the Simple IRA
withholdings. However, the district court concluded that evidence of Van Elsen's
actual repayment on the eve of trial is irrelevant. The district court first entertained
Van Elsen's argument at a pretrial conference, just before voir dire:
MR. LOCHNER [att'y for the gov't]: There was just one thing. The
defendant did finally make a payment about two weeks ago of what he
owes these employees. I filed that as to exclude that evidence as being
irrelevant because it was so far after the crime was either committed or
not committed, but at least on that one I would like a limiting instruction
to explain to the jury that—
THE COURT: I just think it's irrelevant. Yeah.
* * *
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MR. APPLEBY [Att'y for Van Elsen]: I had intended to ask him about
that.
* * *
THE COURT: Well, why don't you make an offer of proof and then if
I think it has something to do with intent, I'll let it in.
It's difficult. It seems to me if we did that in every case where the
Government claimed a late payment there would be very few
prosecutions. I'm thinking of tax, ERISA, et cetera. So my sense is it's
irrelevant, but maybe I'm missing something, which is always easy for
me to do.
MR. APPLEBY: Well, Judge, I'm thinking of—
THE COURT: Yeah.
MR. APPLEBY: —if I'm a juror, it makes a lot of difference to me with
intent, seeing if he wanted to defraud the plan, if he actually paid it. If he
paid it, there's certainly a sense that there was no intention to defraud.
THE COURT: But it does seem to me that the statute would be
meaningless, wouldn't it? I mean, every time the Government would
indict me for nonpayment of taxes, if I come in the day before trial and
pay up—I mean, that's kind of my common sense thinking about it, but
you know, maybe—I guess your claim is it goes to intent?
MR. APPLEBY: That's my claim, Judge, yes.
THE COURT: Okay. Well, let me think about it.
Subsequently, the case proceeded to trial, and, after the government rested and
just before putting on his own evidence, Van Elsen made his final proffer as to the
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evidence of his repayment and the district court concluded that such evidence was
inadmissible due to its irrelevance:
MR. APPLEBY: . . . If it please the Court, Your Honor, I'd offer proof
that Mr. Van Elsen was civilly sued by the Department of Labor to
recover these unpaid employee contributions to the SIMPLE IRA plus
additional interest they call opportunity costs; that through that process
he agreed to pay and he has, indeed, paid the entire amount and that suit
has been satisfied and settled.
He went through bankruptcy and entered into a stipulation with
the Department of Labor there to make that payment, so the civil suit
was a direct result of that. Those payments have all been made.
THE COURT: Okay. And, counsel, I think my ruling, this goes to the
Government's motion in limine, was based upon [sic] I didn't believe that
that had anything to do with their intent—with his intent, pardon me, in
'05 and '06.
Your argument is this does have something to do with intent, I
take it?
MR. APPLEBY: Yes, Your Honor. That's the argument.
The jury convicted Van Elsen of theft or embezzlement from an employee
benefit plan in violation of 18 U.S.C. § 664, and the district court subsequently
sentenced him to 15 months' imprisonment. On appeal, Van Elsen maintains that the
district court erred when it precluded him from presenting evidence of his eventual
repayment.
II. Discussion
"We review a district court's evidentiary rulings . . . for abuse of discretion,
according substantial deference to the district court's rulings." United States v.
Ferguson, 484 F.3d 1068, 1074 (8th Cir. 2007). "Even when an evidentiary ruling is
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improper, we will reverse a conviction on this basis only when the ruling affected
substantial rights or had more than a slight influence on the verdict." United States v.
Haas, 623 F.3d 1214, 1219 (8th Cir. 2010) (quotation and citation omitted). The
district court did not abuse its discretion in precluding Van Elsen from presenting
evidence of repayment because such evidence is irrelevant to the mens rea that 18
U.S.C. § 664 proscribes. Van Elsen's repayment, even if he genuinely intended to
repay, did not negate the illegality of his misuse of employees' Simple IRA
withholdings for his personal prerogatives. Such defalcation, regardless of its
purportedly temporary duration, constituted an offense punishable under 18 U.S.C.
§ 664.
Title 18, United States Code, Section 664, Van Elsen's statute of conviction,
imposes criminal liability on
[a]ny person who embezzles, steals, or unlawfully and willfully abstracts
or converts to his own use or to the use of another, any of the moneys,
funds, securities, premiums, credits, property or other assets of any
employee welfare benefit plan or employee pension benefit plan, or of
any fund connected therewith.
(Emphases added.) Section 664 plainly criminalizes four types of
theft—embezzlement, stealing, abstraction, and conversion—each of which is
separated with the disjunctive conjunction, "or." In other words, Van Elsen could
violate § 664 if he embezzles or steals or unlawfully and willfully abstracts or
unlawfully and willfully converts funds from his or her employees' Simple IRAs.
Neither we nor the Supreme Court have directly addressed the specific intent, if any,
required for any of these offense terms found in § 664. However, the Supreme Court
and this circuit have interpreted these terms in other contexts because Congress has
employed them in other, similarly worded statutes. Both courts have concluded that
at least two of the four acts—stealing and willful conversion—do not require proof
of a defendant's specific intent to permanently deprive.
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For instance, in Morissette v. United States, the Supreme Court construed 18
U.S.C. § 641—a statute prohibiting the theft of public money, property, or records.
342 U.S. 246 (1952). Notably, § 641 is situated at the beginning of United States Code
Chapter 31, where § 664 also resides. Worded similarly to § 664, § 641 imposes
criminal liability on "[w]hoever embezzles, steals, purloins, or knowingly converts to
his use or the use of another" any United States government property. 18 U.S.C. §
641. In Morissette, the named defendant was convicted under § 641 for venturing onto
an abandoned Air Force bombing range during a hunting trip and salvaging what he
believed to be discarded bomb materials, which he subsequently had pressed into
scrap metal and sold. 342 U.S. at 247. Despite Morissette's persistent contention that
"he believed the casings were cast-off and abandoned, that he did not intend to steal
the property, and took it with no wrongful or criminal intent," the trial court instructed
the jury that "[t]hat is no defense." Id. at 248–49. Although the Supreme Court
ultimately "read into the statute" a general intent requirement and thus overturned
Morissette's conviction, it did so based on the rationale that,
Congressional silence as to mental elements in an Act merely adopting
into federal statutory law a concept of crime already so well defined in
common law and statutory interpretation by the states may warrant quite
contrary inferences than the same silence in creating an offense new to
general law, for whose definition the courts have no guidance except the
Act.
Id. at 262 (emphasis added).
Accordingly, "where Congress borrows terms of art in which are accumulated
the legal tradition and meaning of centuries of practice, it presumably knows and
adopts the cluster of ideas that were attached to each borrowed word." Id. at 263. "In
such a case," the Supreme Court reasoned, "absence of contrary direction may be
taken as satisfaction with widely accepted definitions, not as a departure from them."
Id. In concluding that common law traditionally applied a general-intent mens rea to
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theft offenses, the Morissette Court, in dicta, contrasted "stealing" with "knowing
conversion," both of which § 664 (Van Elsen's statute of conviction) criminalizes:
Probably every stealing is a conversion, but certainly not every knowing
conversion is a stealing. To steal means to take away from one in lawful
possession without right with the intention to keep wrongfully.
Conversion, however, may be consummated without any intent to keep
and without any wrongful taking, where the initial possession by the
converter was entirely lawful. Conversion may include misuse or abuse
of property. It may reach use in an unauthorized manner or to an
unauthorized extent of property placed in one's custody for limited use.
Money rightfully taken into one's custody may be converted without any
intent to keep or embezzle it merely by commingling it with the
custodian's own, if he was under a duty to keep it separate and intact.
Id. at 271–72 (internal quotation and citation omitted). Thus, in this dicta in
Morissette, the Supreme Court construed "conversion," as it is used in a provision
which shares space with § 664 in Chapter 31 of the United States Code, to be closer
to a misappropriation or an embezzlement than a common law larceny in that it does
not necessitate proof of an accused's intent to permanently deprive the victim of his
or her property. Notably, in United States v. Rehak, we relied on this very dicta from
Morissette to conclude that "[s]ection 641 prohibits both permanent and temporary
takings." 589 F.3d 965, 973 (8th Cir. 2009).
Just five years after Morissette, the Supreme Court decided United States v.
Turley, 352 U.S. 407 (1957) in which it construed 18 U.S.C. § 2312, commonly called
the "Dyer Act." 352 U.S. 408 (1957). At the time, that provision punished "[w]hoever
transports in interstate or foreign commerce a motor vehicle or aircraft, knowing the
same to have been stolen." National Motor Vehicle Theft Act, ch. 645, 62 Stat. 806
(1948) (current version at 18 U.S.C. § 2312 (2006)) (emphasis added). In that case,
the issue before the Supreme Court was "whether the meaning of the word 'stolen,' as
used in this provision, is limited to a taking which amounts to common-law larceny,
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or whether it includes an embezzlement or other felonious taking with intent to
deprive the owner of the rights and benefits of ownership." Turley, 352 U.S. at 408.
In other words, the Supreme Court in Turley squarely addressed, in the context
of the Dyer Act, the scope of conduct implicated by the word "stolen." In Turley, the
Supreme Court reiterated its rule of statutory construction from Morissette that,
"where a federal criminal statute uses a common-law term of established meaning
without otherwise defining it, the general practice is to give that term its common-law
meaning." Turley, 352 U.S. at 411. Nevertheless, despite the narrow, larcenous
meaning it ascribed "stolen" and "stealing" in Morissette,2 the Supreme Court stated
in Turley, that "'stolen' and 'steal' have been used in federal criminal statues, and the
courts interpreting those words have declared that they do not have a necessary
common-law meaning coterminous with larceny and exclusive of other theft crimes."
Id. at 412. Instead, relying largely on the Dyer Act's legislative history in which
"Congress used the word 'stolen' as synonymous with 'theft,' a term generally
considered to be broader than 'common-law larceny,'" id. at 414, the Turley court
"conclude[d] that the Act requires an interpretation of 'stolen' which does not limit it
to situations which at common law would be considered larceny," id. at 417.
Since Turley, this court has adopted Turley's broad definition of "stolen" and
applied it to the Dyer Act as well as other federal criminal statutes. In Schwab v.
United States, for example, this court rejected the defendant's argument that the Dyer
Act's use of the word "stolen" compelled proof of a specific intent to permanently
deprive, noting that Turley foreclosed this argument. 327 F.2d 11, 13 (8th Cir. 1964).
Then-Circuit Judge Blackmun went on to "agree" with the following definition of
"stolen," which he did not explicitly restrict to the Dyer Act context:
2See supra Part II ("To steal means to take away from one in lawful possession
without right with the intention to keep wrongfully.") (quoting Morissette, 342 U.S.
at 262).
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"It is significant that in none of the other cases which have adopted the
broader definition of the term 'stolen' has the court indicated that an
intent to permanently deprive the owner of his property is an essential
element of the crime. . . . I am convinced that while the defendants may
not have formed a specific intent to permanently deprive the owner of his
property, they did intend to deprive him of his property for so long as it
suited their purposes."
Id. at 14 (quoting United States v. Brickles, 177 F. Supp. 944, 947–48 (D. Mont.
1959)). Similarly, in United States v. Johnson, 575 F.2d 678 (8th Cir. 1978), this court
construed 18 U.S.C. § 2113(b) which precludes "stealing" or "purloining" of money
from a bank. The court stated in dicta that "[t]he foregoing discussion [involving
Turley] suggests that the terms 'steal or purloin,' as used in 18 U.S.C. § 2113(b), are
not limited to conduct included in common law larceny" and thus "entertain[ed] some
doubt about the validity of Mr. Johnson's position" to the contrary. Id. at 680.
The Supreme Court and this circuit broadly construe Congress's use in a federal
theft statute of the word "conversion," and more especially, the word "steal." Unless
Congress states otherwise, we do not discern, through Congress's deployment of those
words, a Congressional intent to proscribe only larcenous thefts infused with the
malefactor's intent to permanently deprive the victim of his or her property. Moreover,
we find persuasive that at least two of our sister circuits have construed § 664 to not
require proof of such an intent to permanently deprive. See United States v. Walker,
234 F.3d 780, 783 (1st Cir. 2000) ("[T]he crime of embezzlement does not include as
an element an intent to permanently deprive the victim of the funds, but rather a
temporary deprivation will do . . . ."); United States v. Wuagneux, 683 F.2d 1343,
1359 (11th Cir. 1982) (holding that evidence was sufficient to support guilty verdict
under § 664 where defendant procured loan from a pension fund based on grossly
overvalued collateral even though defendant was indicted prior to loan's maturity,
reasoning that "the loan was in default at the time of trial" (citing United States v.
Waronek, 582 F.2d 1158, 1161 (7th Cir. 1978) for the proposition that "intent to
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permanently deprive owner of property [is] not an element of embezzlement," and
United States v. Daley, 454 F.2d 505, 510 (1st Cir. 1972) for the proposition that
"possibility of future recovery of funds does not preclude criminal liability")).
Van Elsen relies principally upon United States v. American Grain & Related
Industries, to buttress his argument that repayment of converted or embezzled
property is relevant to intent in a conversion or embezzlement prosecution. In
American Grain, the Des Moines-based defendants operated wheat silos in Houston
and Fort Worth, Texas. 763 F.2d 312, 316 (8th Cir. 1985). After a "blending error" at
the Houston facility, which resulted in the spoilage of wheat slated for shipment, a
company vice president ordered the transfer of grain from the Fort Worth facility to
cover the pending Houston order. Id. However, other employees informed the vice
president that this measure would likely deplete the Fort Worth facility's wheat below
the minimum level required by federal licensing regulations, which mandated that
facilities keep a certain amount of wheat on hand. Id. Believing this estimate to be in
error, the vice president ordered the shipment anyway and promised to replace the
grain if unacceptable depletion occurred. Id. Upon learning that the vice president had
in fact depleted the Fort Worth facility's grain below the regulatory minimum, the
company replaced the Fort Worth wheat and disclosed the mishap to the government.
Id. at 318. In the resulting prosecution, the company was charged with conspiring "to
remove, dispose of, and convert grain owned by or pledged to the Commodity Credit
Corporation (CCC), an agency of the federal government, in violation of 15 U.S.C.
§ 714m(d)." Id. at 315. The district court refused to instruct the jury that the
company's intent to replace the Fort Worth wheat was a defense to willful conversion,
or that it was even relevant to intent. Id. at 320. On appeal, this court reversed. Id.
Specifically, although this court affirmed a portion of the jury charge instructing that
"intent to replace the grain is not a defense to a willful conversion," it clarified that
"the jury also should have been instructed that efforts to replace the grain are relevant
to whether appellants had the intent necessary to commit a willful conversion of CCC
grain at the time it was shipped to Houston." Id.
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American Grain is distinguishable from Van Elsen's case for several reasons.
First, it is undisputed that Van Elsen was permitted to present evidence at his trial that
he always intended to repay the withheld funds. Second, American Grain limited its
analysis to conversion, whereas Van Elsen's statute of conviction, 18 U.S.C. § 664,
additionally criminalizes "stealing," which does not seem to require proof of an intent
to permanently deprive. Third, American Grain is factually distinguishable because
the defendants in that case repaid the wheat approximately a week after its conversion,
and, as the American Grain court made clear, the repayment was relevant only insofar
as it bore on the inquiry of "whether appellants had the intent necessary to commit a
willful conversion of CCC grain at the time it was shipped to Houston." 763 F.2d at
320 (emphasis added). In contrast, Van Elsen did not repay his employees until years
after embezzling their funds and did so as a condition of his bankruptcy discharge.
Fourth, and finally, in the 30-plus years since American Grain, this court has never
cited it as support for Van Elsen's proposition that an intent to repay is either a defense
or otherwise relevant to a prosecution under any federal criminal law for
embezzlement, "stealing," or even conversion.
In conclusion, because the intent to permanently deprive is neither a required
element of, nor a defense to, the "conver[sion]" or "steal[ing]" that 18 U.S.C. § 664
criminalizes, the district court did not abuse its discretion when it excluded evidence
of Van Elsen's eventual repayment of his employees' funds in a bankruptcy proceeding
as irrelevant. See Fed. R. Evid. 402 ("Evidence which is not relevant is not
admissible."); Fed. R. Evid. 401 ("'Relevant evidence' means evidence having any
tendency to make the existence of any fact that is of consequence to the determination
of the action more probable or less probable than it would be without the evidence."
(emphasis added)).
III. Conclusion
Based on the foregoing, we affirm.
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