Thursday, June 24, 2021

Conviction and sentence for embezzlement upheld over challenges for speedy trial violation, and to evidentiary rulings, jury instructions, and loss calculation.

In United States v. David T. Shulick, 994 F.3d 123 (3d Cir., April 13, 2021), the Third Circuit affirmed convictions and sentence for embezzling funds from a federally funded program, conspiracy, bank fraud, and making false statements. Shulick operated a for-profit education company that, among other things, contracted with the School District of Philadelphia to manage its Southwest School, which served at-risk students. Shulick received $2 million to put in place specific services: 6 teachers with set salaries and benefits, security workers, and counselors. Shulick only spent $1.186, did not provide these full services or positions, and directed the money instead to pay off liabilities for other businesses. He was convicted by a jury and appealed on speedy trial grounds, errors in evidentiary rulings, faulty jury instructions, and sentencing miscalculations. The Third Circuit Court rejected all these challenges:

 I. There was no statutory speedy trial violation. The Speedy Trial Act’s requirement that trial begin within 70 day of indictment or initial appearance can be extended where a judge grants an “ends of justice” continuance because a “case is so unusual or complex.” See 18 U.S.C. §3161(h)(7)(A). Here, the case was complex: the prosecution stemmed from a multi-year investigation involving millions of pages of documents. Shulick alleged that even if the case was complex, the government made a mistake during discovery (untimely production due to misfiling under the wrong case number), and thus this error should categorically bar them from an ends-justice continuance because it constituted a lack of diligent preparation. Where it was only a one-time administration mishap that the government had appropriately remedied, Shulick failed to meet his burden of showing that the government’s error rose to the level of “lack of diligent preparation.” As the court emphasized, the “Speedy Trial Act was not intended to provide defendants with tactics for ensnaring the courts into situations where charges will have to be dismissed on technicalities.”

 There was also no Sixth Amendment speedy trial violation. Shulick failed to establish any of the four factors - the length of delay, the reason for the delay, the defendant’s assertion of his right, and prejudice to the defendant - led to a violation.

II. The evidentiary rulings were not erroneous. The District Court rightfully excluded an agency clause in the contract and other irrelevant evidence. While the contract explicitly said the “contractor does not function as an agent of the School District,” the Court ruled this clause irrelevant because the parties “cannot bind the federal government in a criminal trial by simply saying they’re not agents of one another.” Indeed, Shulick was given significant managerial control over the administration of the school, which clearly showed he was an agent of the organization receiving federal funds under §666(a)(1)(A). Further, the district court properly excluded certain expert testimony because he was an untimely-disclosed expert witness.

 III. The District Court did not err in instructing the jury that an intentional misapplication within the meaning of § 666(a)(1)(A) can be found even if the misuse of funds still benefited the victim, in this case the School District of Philadelphia. A federal program theft occurs when the defendant “embezzles, steals, obtains by fraud, or otherwise without authority knowingly converts to the use of any person other than the rightful owner or intentionally misapplies, property.” 18 U.S.C. § 666(a)(1)(A). Consistent with sister circuits, the Court held that the disjunctive “or” shows that “intentionally misapplies” is a separate way of satisfying the statute, apart from the previous limiting phrase regarding conversion. If Congress meant for the limiting conditions to apply to “intentionally misapplies,” it would have included parallel language after that phrase and so “intentionally misapplies” is meant to be interpreted broadly.

 IV. The District Court rightfully found Shulick did not prove he was entitled to the safe harbor provision, excluding from criminal liability “bona fide salary, wages, fees, or other compensation paid, or expenses paid or reimbursed, in the usual course of business.” A defendant is entitled to an instruction on a theory of defense “if (1) he proposes a correct statement of the law; (2) his theory is supported by the evidence; (3) the theory of defense is not part of the charge; and (4) the failure to include an instruction of the defendant's theory would deny him a fair trial.” Shulick merely asserted, without providing any evidence, that he exceeded the budget for some items, and some of his spending benefited the school.

 V. The District Court properly calculated the fraud loss by taking the difference between the amount that the defendant spent on various budgeted items and the amount that the budget required him to spend. Although the defendant claims that he exceeded the budget for some items, the defendant was not entitled to offsets against the district court's calculation of fraud loss for the expenses claimed because he did not provide enough evidence to show that the additional money was spent for the benefit of the school.

 VI. Finally, the District Court did not err in supplementing the record to include a binder relied upon by the defendant’s accounting expert. While the binder was inadvertently omitted from the record, the binder was not new evidence and was material to the case, as it contained information supporting the fraud loss calculation.





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