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United States v. Urban

April 20, 2005

UNITED STATES OF AMERICA
v.
THOMAS URBAN, APPELLANT NO. 03-1325
UNITED STATES OF AMERICA
v.
JOSEPH J. O'MALLEY, APPELLANT NO. 03-1326
UNITED STATES OF AMERICA
v.
JOSEPH R. LEONE, APPELLANT NO. 03-1356
UNITED STATES OF AMERICA
v.
GERALD S. MULDERIG, APPELLANT NO. 03-1370
UNITED STATES OF AMERICA
v.
FRED TURSI, APPELLANT NO. 03-1371
UNITED STATES OF AMERICA
v.
JAMES F. SMITH, APPELLANT NO. 03-2315
UNITED STATES OF AMERICA
v.
WILLIAM C. JACKSON, APPELLANT NO. 03-2737
UNITED STATES OF AMERICA
v.
STEPHEN M. RACHUBA, APPELLANT NO. 03-2751



On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Nos. 02-cr-00165-13, 02-cr-00165-08, 02-cr-00165-05, 02-cr-00165-06, 02-cr-00165-12, 02-cr-00165-11, 02-cr-00165-03, and 02-cr-00165-09) District Judge: Honorable Petrese B. Tucker.

Before: Scirica, Chief Judge, Fisher, and Greenberg, Circuit Judges.

The opinion of the court was delivered by: Fisher, Circuit Judge.

PRECEDENTIAL

Argued October 28, 2004

Appellants, plumbing inspectors employed by the City of Philadelphia, were convicted of improperly accepting payments from plumbers whose work they inspected in violation of the Hobbs Act and the Racketeer Influenced and Corrupt Organizations Act ("RICO"). They raise a host of contentions on appeal, including primarily a challenge to the District Court's jury instruction regarding the Hobbs Act's requirement that the covered misconduct have affected commerce. We find none of Appellants' contentions sufficient to support overturning their convictions. We will, however, vacate their sentences in light of the United States Supreme Court's recent decision in United States v. Booker, 125 S.Ct. 738 (2005), and remand to the District Court for resentencing in accordance with that decision.

I.

Appellants Thomas Urban, Joseph J. O'Malley, Joseph R. Leone, Gerald S. Mulderig, Fred Tursi, James F. Smith, William C. Jackson and Stephen M. Rachuba were plumbing inspectors employed by the Construction Services Department ("CSD"), a division of the Department of Licenses and Inspections ("L&I Department") of the City of Philadelphia. The L&I Department is a regulatory agency charged with construction inspections and business regulatory affairs. The CSD is responsible for issuing all construction permits and performing construction inspections. Appellants were tasked with performing the plumbing component of these inspections, and were expected to enforce the city plumbing code in order, among other things, to ensure the safety of the city drinking water. Appellants were assigned to districts. Plumbers were required to call the offices of the district in which their job was located to set up an appointment with an inspector. Appellants had discretion to decide when to perform the inspection. In performing inspections and enforcing the plumbing code, Appellants had the power to cite violations of the code, issue stop work orders on projects, and revoke the license of any plumber who failed to comply with the code.

In the late 1990s, law enforcement became aware that plumbing inspectors were accepting monetary payments from plumbers whose work they inspected, or claimed to have inspected. In the course of its investigation into this practice, the FBI interviewed several confidential sources - designated as CS1, CS2 and CS3, respectively - who had worked as plumbing inspectors alongside Appellants, or as plumbers whose work Appellants had inspected. An affidavit executed by an FBI agent, filed by the government in support of a request to install hidden cameras in city vehicles which would be used by suspected plumbing inspectors, detailed statements given by these confidential sources. CS1, a former plumbing inspector from 1992 to 1997, stated that 70%-80% of the plumbing contractors whose work he inspected during that time period "provided him with a cash 'tip' of $5 to $20 in return for his inspection and for allowing the contractor to work without interference." CS1 stated that he made an additional $3,000 to $6,000 per year from these "tips," and that acceptance of "tips" was commonplace among the L&I Department's plumbing inspectors. CS1 believed that plumbing inspectors, including specifically many of the Appellants, "regularly accept[ed] 'tips' while working in their official capacity as City inspectors[.]"

CS2, a small plumbing contractor who had allegedly interacted with plumbing inspectors through a third party, stated that he provided money used to pay a plumbing inspector named "Tursi" in 1999 and on at least ten prior occasions. CS3, a large general plumbing contractor who worked with several plumbing subcontractors, stated that he was told by his subcontractors that payments were made to an inspector named "O'Donnell" and his replacement named "Smith." The affidavit also stated that the affiant had interviewed a "cooperating witness" who had "made consensual recordings of L&I plumbing inspector Fred Tursi allegedly extorting money from him." This cooperating witness advised that he had given $50 to his plumbers to give to Tursi to "keep him off their backs."

On the strength of this information, the government sought and obtained from the United States District Court for the Eastern District of Pennsylvania an order authorizing the installation of hidden video cameras in two city vehicles which would be used by certain of the Appellants while on official city business. Video captured by these cameras apparently showed Appellants Jackson, Leone, O'Malley, Rachuba and Smith accepting cash on numerous occasions from plumbers during the course of conducting inspections; in many instances, Appellants apparently accepted cash payments without performing any inspection at all.

On March 19, 2002, a grand jury in the Eastern District of Pennsylvania returned an indictment of 13 plumbing inspectors, including Appellants, charging them with a violation of RICO, 18 U.S.C. § 1962, and multiple counts of Hobbs Act extortion, in violation of 18 U.S.C. § 1951. A five-week trial ensued in early September 2002. At trial, the government presented evidence showing that multiple plumbers made numerous monetary payments of varying sizes to each of the Appellants. Plumbers testified that they paid inspectors anywhere from $5 to $200 per inspection. There was ample evidence at trial that plumbers paid inspectors in order to ensure timely and favorable inspections,*fn1 and to prevent unfavorable treatment or harassment by inspectors. One plumber testified that "We felt like if you didn't do what was, what had been going on for years, you certainly would not see, you may not see an inspector showing up when you want him[,]" while another testified that he paid inspectors because "[y]ou didn't want to get on the bad side of the inspector." Other plumbers testified that they paid inspectors because they could not afford to find out if they would be treated differently by the inspectors if they did not pay. Plumber Richard Clements testified that failing to tip could result in an inspector who would "give me a hard time, or I wouldn't get the prompt service." Yet another plumber testified that when Appellant Tursi asked him for a larger tip than offered, he complied because "I felt as though there would be some kind of problem if I didn't do it."

The government presented substantial evidence demonstrating that Appellants knew that it was improper to accept monetary payments from plumbers whose work they were inspecting, thus undermining Appellants' view that they were voluntarily (and therefore properly) accepting "tips." Each Appellant was required, at the time of hiring, to sign an ethics statement acknowledging that he was not permitted to accept "any offer, any gift, favor or service that might tend to influence" him in the discharge of his duties. Every inspector hired between 1980 and 2000 - including all of the Appellants - was told that it was against city policy for employees to take any cash in any amount at any time. An ethics directive from the Mayor of Philadelphia permitted City employees to accept up to $100 in gifts per year from any one source, but expressly disallowed their acceptance of cash in any amount.

Evidence of how Appellants accepted the plumbers' payments reinforced the government's contention that Appellants knew the payments were improper. Plumbers concealed the payments to Appellants in the pages of their work permit or by folding it up and transferring the money in what was commonly referred to as a "green handshake." In a conversation taped by a cooperating witness and played for the jury, Appellant Mulderig explained that "every time they hand me a permit I, I used to fold it over like that and then put it in my pocket, you know what I mean.... when I would go to like Boston Market or something for lunch I would go in the men's room and take it out and put it in my, you know, take the money out of there and put it in my pocket." Moreover, video taken by the hidden cameras in the city vehicles apparently revealed numerous instances of Appellants surreptitiously receiving the payments and endeavoring to keep the payments hidden.

In support of the Hobbs Act's requirement that any extortionate conduct have an effect on commerce, the government presented evidence that each Appellant accepted tips from plumbers who purchased supplies made out-of-state, i.e., outside of Pennsylvania. Many of these same plumbers, however, testified that the payments they made to Appellants did not affect their ability to make out-of-state purchases.

On October 18, 2002, the jury convicted all Appellants except William Jackson of the RICO charges, and all Appellants of the Hobbs Act extortion charges. The District Court imposed varying sentences on Appellants, ranging from twelve months of home confinement to thirty-four months' imprisonment, as well as fines, assessments and probation. These eight, timely, consolidated appeals followed.

II.

The District Court properly exercised subject matter jurisdiction under 18 U.S.C. § 3231. We have appellate jurisdiction over the judgments of conviction pursuant to 28 U.S.C. § 1291, and over the sentences pursuant to 18 U.S.C. § 3742. Appellants raise a number of challenges to their convictions which we will address seriatim.

A. Appellants' challenges to the jury instructions' formulation of the Hobbs Act's effect on commerce requirement and the sufficiency of the government's evidence of such effect.

Appellants' primary arguments on appeal challenge the formulation of the Hobbs Act's effect on commerce element in the District Court's jury instructions, as well as the sufficiency of the evidence adduced by the government to prove such effect. The Hobbs Act, 18 U.S.C. § 1951(a), provides:

Whoever in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce, by robbery or extortion or attempts or conspires so to do, or commits or threatens physical violence to any person or property in furtherance of a plan or purpose to do anything in violation of this section shall be fined under this title or imprisoned not more than twenty years, or both.

18 U.S.C. § 1951(a).

In pertinent part, the District Court instructed the jury as follows on the Hobbs Act charges:

You do not even have to find that there was an actual effect on commerce. All that is necessary to prove this element is that the natural consequences of the extortion - of the money payment, potentially caused an effect on interstate commerce to any degree, however minimal or slight. Payment from a business engaged in interstate commerce satisfies the requirement of an effect on interstate commerce. If the resources of a business are expended or diminished as a result of the payment of money, then interstate commerce is affected by such payment and may reduce the assets available for purchase of goods, services or other things originating in other states.

Under this instruction, the jury could convict even if it did not find that Appellants' extortionate acts actually affected commerce, so long as it concluded that the "natural consequences" of the extortionate acts "potentially caused" just a "minimal" effect on interstate commerce. The jury was instructed to find this standard satisfied upon proof of a "[p]ayment" made by plumbers "engaged in interstate commerce," which payment "diminished" the plumbers' "resources," i.e., by proof of a "depletion of assets."

Appellants explicitly challenge the jury instruction's statement that proof of a "potential" effect on commerce is sufficient to prove the effect on commerce element under the Hobbs Act, and implicitly challenge the jury instruction's statement of the depletion of assets theory. In Appellants' view, the reference to "potential" effect is flawed because the Hobbs Act speaks in action verbs - "obstructs, delays or affects commerce" - and conduct which merely has the "potential" to affect commerce does not actually obstruct, delay or affect commerce. Appellants also argue that after a series of Supreme Court decisions between 1995 and 2000 construing the Commerce Clause, it would be constitutionally doubtful to interpret the Hobbs Act as applying to conduct which merely potentially affects commerce. Appellants further contend that the so-called "depletion of assets" theory - whereby proof that a Hobbs Act violation depletes the assets of a business engaged in interstate commerce conclusively establishes the effect on commerce requirement - was incorrectly applied here in light of the plumbers' testimony that the payments they made to Appellants did not in fact affect their ability to engage in interstate commerce. We read this latter contention as a challenge to both the jury instruction's formulation of the depletion of assets theory, and to the sufficiency of the government's evidence of effect on commerce by way of the depletion of assets theory.

To the extent that Appellants challenge the District Court's interpretation of the Hobbs Act in formulating its jury instructions, or the fidelity of its interpretation and instructions to the United States Constitution, we exercise plenary review. United States v. Singletary, 268 F.3d 196, 198-99 (3d Cir. 2001) (citations omitted); Gibbs v. Cross, 160 F.3d 962, 964 (3d Cir. 1998) (citations omitted). In reviewing a challenge to the sufficiency of the evidence, we "must determine whether, viewing the evidence most favorably to the government, there is substantial evidence to support the jury's guilty verdict." United States v. Idowu, 157 F.3d 265, 268 (3d Cir. 1998) (citation and internal quotation marks omitted). We "will sustain the verdict if 'any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.' Thus, 'a claim of insufficiency of the evidence places a very heavy burden on an appellant.'" United States v. Dent, 149 F.3d 180, 187 (3d Cir. 1998) (citations and internal quotation marks omitted).

A comprehensive review of our Hobbs Act precedent over the past thirty years compels us to reject Appellants' challenges regarding the Hobbs Act's effect on commerce requirement and the depletion of assets theory of proving such an effect. We begin with United States v. Mazzei, 521 F.2d 639 (3d Cir. 1975) ( en banc ). Mazzei, a Pennsylvania state senator, engineered lease transactions between state agencies and a private entity, B.M.I., Inc., and extorted payments from B.M.I. in connection with the transactions. He was convicted of two counts of Hobbs Act extortion. Mazzei argued on appeal that the government had failed to satisfy the Hobbs Act's effect on commerce requirement because although B.M.I. was deemed to be engaged in interstate commerce, the lease transactions which constituted the unlawful extortionate acts were local and did not themselves affect interstate commerce. We rejected this argument, accepting instead the government's contention that depletion of assets of an entity engaged in interstate commerce was enough, as "[t]his position accord[ed] with our previous holdings that where the resources of an interstate business are depleted or diminished 'in any manner' by extortionate payments, the consequent impairment of ability to conduct an interstate business is sufficient to bring the extortion within the play of the Hobbs Act." Mazzei, 521 F.2d at 642 (citing United States v. Addonizio, 451 F.2d 49 (3d Cir. 1972); United States v. Provenzano, 334 F.2d 678 (3d Cir. 1964)). We found that the facts easily satisfied this standard. B.M.I.'s subsidiaries "purchase[d] materials in a number of states for use in manufacturing products sold in almost every state[,]" id., and the payments the subsidiaries made diminished "funds available to B.M.I. for use in [ ] interstate activities... and its interstate business must to this extent be curtailed." Id. We "conclude[d] that the Hobbs Act may constitutionally be construed to reach the indirect burdens placed on interstate commerce by the extortionate activities alleged in this case and that such a construction of the statute accords with Congressional intent to proscribe extortion which 'in any way or degree obstructs, delays, or affects commerce.'" Id. (citations omitted).

In United States v. Cerilli, 603 F.2d 415 (3d Cir. 1979), we considered appeals of substantive and conspiracy convictions under the Hobbs Act. The Pennsylvania Department of Transportation (the "Department") leased equipment from private owners in order to perform snow removal, general road maintenance and repair responsibilities. Defendants were Department employees who had accepted bribes from such private owners in exchange for leasing their equipment. The government established at trial "that all the lessors had bought fuel for their equipment that had travelled in interstate commerce[,]" and that most of the lessors "had purchased equipment and/or supplies that had travelled in interstate commerce." Cerilli, 603 F.2d at 423.

On appeal, defendants argued that the evidence of interstate commerce was insufficient to support their Hobbs Act convictions. We disagreed, reiterating that "where the resources of an interstate business are depleted or diminished in any manner by extortionate payments, the consequent impairment of ability to conduct an interstate business is sufficient to bring the extortion within the play of the Hobbs Act." Id. at 424 (quoting Mazzei, 521 F.2d at 642) (other citations and internal quotation marks omitted). We continued that "[a]ll that is required to bring an extortion within the statute is proof of a reasonably probable effect on commerce, however minimal, as result of the extortion." Id. (citations omitted). As in Mazzei, we found that the government's proof of depletion of assets of entities who purchased goods in interstate commerce satisfied this standard. Id.

We then considered and rejected defendants' argument in Cerilli that the depletion of assets theory "should only be applied where the victim of the extortion is itself an interstate business." Id. We concluded that such a limited view of the Hobbs Act's scope would be "inconsistent with Congress' purpose 'to use all the constitutional power Congress has to punish interference with interstate commerce....'" Id. (quoting Stirone v. United States, 361 U.S. 212, 215 (1960)). We acknowledged that "the effect on interstate commerce proven here is certainly not very large," but made clear that "the Hobbs Act does not proscribe only those extortions that have a large effect on commerce." Id. We therefore affirmed the following jury instruction given by the district court:

I instruct you instead that you may find interstate commerce with the meaning of these instructions if you find beyond a reasonable doubt that the victim purchased goods in interstate commerce and that the money was extorted ...


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