United States v. De Castro

                    United States Court of Appeals,

                           Eleventh Circuit.

                             No. 95-4648.

             UNITED STATES of America, Plaintiff-Appellee,

                                  v.

         Maria J. DE CASTRO, a.k.a. Fifi, Defendant-Appellant.

                             Feb. 5, 1997.

Appeal from the United States District Court for the Southern
District of Florida. (No. 94-320-CR-EBD), Edward B. Davis, Judge.

Before TJOFLAT and BLACK, Circuit Judges, and REAVLEY*, Senior
Circuit Judge.

     REAVLEY, Senior Circuit Judge:

     Appellant Maria De Castro complains that the district court

erred in failing to let the jury decide the element of materiality

in her trial for making false statements in violation of 

18 U.S.C. § 1010

.    We conclude that materiality is an element of this crime,

but that failing to submit this element to the jury was harmless

error.     We also conclude that the admission of evidence regarding

a government investigation was not plain error.       Accordingly we

affirm.

                              BACKGROUND

     De Castro was charged with conspiracy to make and making false

statements to the Department of Housing and Urban Development

(HUD), for the purpose of obtaining federally insured mortgages, in

violation of 

18 U.S.C. §§ 371

 and 1010.        She was convicted of

conspiracy and five of the six substantive counts.


     *
      Honorable Thomas M. Reavley, Senior U.S. Circuit Judge for
the Fifth Circuit, sitting by designation.
      The government's proof showed that De Castro and others

submitted applications for mortgages insured by the Federal Housing

Administration (FHA), an agency within HUD, on behalf of low income

applicants.             The     applications      contained       false      employment

information regarding the applicants.                   De Castro was a mortgage

broker who acted as an authorized underwriter for the loans.                          De

Castro, two real estate brokers, and several putative "employers"

participated       in     the    scheme    to    obtain    the    government-backed

mortgages.       The "employers" were business owners paid to submit

false   employment        verifications         that    were   part    of    the    loan

documentation.         De Castro decided the amount of income used, so as

to   meet    the    qualification         requirement     of     the   FHA    for   each

applicant.         She signed a certification form for each of the

mortgages, stating that she had reviewed the case file and found

that it met HUD's requirements.              The real estate brokers, Virginia

and Osvaldo Labrador, as well as several of the loan applicants and

false employers, testified for the government.                   One of the brokers

testified that "with [De Castro's] signature, the cases could be

approved" by the FHA.

      The district court instructed the jury that materiality was an

element     of   the     offense.      The      court   further    instructed       that

materiality was a question of law for the court to decide and that

the court had already determined that the alleged false statements

were material. The defendant objected to the instruction and moved

for a mistrial.           Because it was then well-established in this
circuit that materiality was a question of law,1 the district court

overruled the objection and denied the motion.

     After the Supreme Court's decision in United States v. Gaudin,

however, we now know that the Constitution requires the jury to

determine whether a false statement is material if materiality is

an   element    of   the   offense.2   The rule in     Gaudin   applies

retroactively to this direct appeal, which was pending when Gaudin

was decided.3

                                 ANALYSIS

     We first determine whether materiality is an element of 

18 U.S.C. § 1010

, and, if it is, whether it was harmless error for the

district court to direct a verdict against defendant on that

element.

1. Materiality is an Element of 

18 U.S.C. § 1010

         Whether materiality is an element of 

18 U.S.C. § 1010

 is an

issue of law reviewed de novo.4        Section 1010 reads, in pertinent


     1
      See United States v. Kramer, 

73 F.3d 1067, 1074

 (11th
Cir.1996) (noting that it was well-established that materiality
was a question of law before Gaudin).
     2
      United States v. Gaudin, --- U.S. ----, ----, 

115 S.Ct. 2310, 2320

, 

132 L.Ed.2d 444

 (1995) (materiality under 

18 U.S.C. § 1001

 is a question for the jury); Kramer, 

73 F.3d at 1074

(applying Gaudin to 

18 U.S.C. § 1623

).
     3
      Griffith v. Kentucky, 

479 U.S. 314, 328

, 

107 S.Ct. 708, 716

, 

93 L.Ed.2d 649

 (1987) ("[A] new rule for the conduct of
criminal prosecutions is to be applied retroactively to all
cases, state or federal, pending on direct review or not yet
final, with no exception for cases in which the new rule
constitutes a "clear break' with the past."); Kramer, 

73 F.3d at 1074

 (applying Gaudin retroactively).
     4
      See United States v. Hooshmand, 

931 F.2d 725, 737

 (11th
Cir.1991) (statutory interpretation is a question of law reviewed
de novo).
part:

     Whoever, for the purpose of obtaining any loan ... from any
     person ... with the intent that such loan ... shall be offered
     to or accepted by the Department of Housing and Urban
     Development for insurance, ... or for the purpose of
     influencing in any way the action of such Department, makes,
     passes, utters, or publishes any statement, knowing the same
     to be false ... shall be fined not more than $5,000 or
     imprisoned not more than two years, or both.

     Although the word "material" does not appear in the statute,

we believe that precedent and logic dictate that a materiality

requirement be read into it.         In    Gevinson v. United States,        we

upheld    an   indictment   charging      violations   of   §   1010   because

"[m]ateriality, while not alleged in haec verba, is alleged in

substance and this is sufficient."5         We stated that the evidence at

trial was sufficient to make out a case "of knowingly and wilfully

uttering and passing a false material statement with the intent to

influence FHA in a transaction pending before FHA." 6              Relying on

Gevinson, we stated in United States v. Black that in order to

obtain a valid conviction under § 1010, "it was necessary for the

government to prove beyond a reasonable doubt that [the defendant]

knowingly made a false statement concerning a material fact to HUD

as charged in the indictment...."7
     We do not believe that Gevinson's and Black's use of the term

"material"     was   careless   or   accidental.       We   have   implied    a

materiality element into analogous false statement statutes.              For


     5
      

358 F.2d 761, 763

 (5th Cir.), cert. denied, 

385 U.S. 823

,

87 S.Ct. 51

, 

17 L.Ed.2d 60

 (1966).
     6
        

Id. at 765

 (emphasis added).
     7
      

644 F.2d 445, 447

 (5th Cir.), modified on other grounds,

651 F.2d 392

 (5th Cir.1981) (emphasis added).
example, in United States v. Swearingen, we held that materiality

was an element of 

18 U.S.C. § 1344

(a)(2),8 and in United States v.
Rapp, we listed materiality as an element of 

18 U.S.C. §§ 1005

 and

1014.9      Requiring a false statement to be material excludes trivial

falsifications from prosecution. If materiality is not an element,

then       the    statute    reaches   statements   that   are   incapable   of

influencing HUD.            We do not believe that Congress intended this

result.

       In United States v. Hoag, the Seventh Circuit held that

materiality is not an element of § 1010, reasoning that the word

       8
      

858 F.2d 1555, 1556, 1558

 (11th Cir.1988), cert. denied,

489 U.S. 1083

, 

109 S.Ct. 1540

, 

103 L.Ed.2d 844

 (1989). At the
time, 

18 U.S.C. § 1344

 stated:

                 (a) Whoever knowingly executes, or attempts to execute,
                 a scheme or artifice—(1) to defraud a federally
                 chartered or insured financial institution; or (2) to
                 obtain any of the moneys, funds, credits, assets,
                 securities, or other property owned by or under the
                 custody or control of a financial institution by means
                 of false or fraudulent pretenses, representations, or
                 promises shall be fined not more than $10,000 or
                 imprisoned not more than five years, or both.
       9
      

871 F.2d 957, 963-64

 (11th Cir.), cert. denied, 

493 U.S. 890

, 

110 S.Ct. 233

, 

107 L.Ed.2d 184

 (1989). 

18 U.S.C. § 1005

reads in pertinent part:

                      Whoever makes any false entry in any book, report,
                 or statement of [any Federal Reserve bank, member bank,
                 national bank or insured bank] with intent to injure or
                 defraud such bank [or various government actors] shall
                 be fined not more than $5,000 or imprisoned not more
                 than five years, or both.

                 

18 U.S.C. § 1014

 reads in pertinent part:

                      Whoever knowingly makes any false statement or
                 report, or willfully overvalues any land, property or
                 security, for the purpose of influencing in any way the
                 action of ... any [FDIC-insured bank] upon any ... loan
                 shall be fined $5,000 or imprisoned not more than two
                 years, or both.
"material" does not appear in its wording. 10                  Hoag was criticized

in United States v. Staniforth, which noted that Hoag created

tension with decisions that had implied a materiality element into

other false statement statutes.11                  Staniforth refused to extend

Hoag, adopting instead the "better view" that materiality is an

element of 

18 U.S.C. § 1014.12

              We agree that following Hoag would

create a tension with our circuit's treatment of § 1010 and other

false statement statutes.

     Aside from repeating Hoag's argument that the word "material"

does not appear in § 1010, the government argues that the statute's

intent requirement obviates the need for a materiality element.

The government asserts that § 1010's intent requirement, which

limits prosecution to those who make false statements "for the

purpose     of    influencing"       HUD,   already    meets    the   objective    of

excluding        trivial     false    statements      from   prosecution.         The

government        also     argues    that    the    intent     requirement   brings

materiality in "by the back door," because juries will generally

determine a defendant's purpose in making a false statement by

considering the statement's ability to influence HUD's actions—that

is, by considering whether the statement is material.13

     These arguments are not without some force, but we are not

writing on a blank slate.             The intent requirement of § 1010 does

     10
          

823 F.2d 1123, 1125-26

 (7th Cir.1987).
     11
          

971 F.2d 1355, 1358

 (7th Cir.1992).
     12
          

Id.

     13
      See 

id. at 1357-58

 (noting that materiality often plays a
role in determining whether the intent requirement of false
statement statutes is met).
not differ in any meaningful way from the intent requirements in §§

1344, 1005, and 1014, yet Swearingen and Rapp read materiality into

those statutes.     Further, while in most cases an individual is

unlikely   to   provide   information   actually   immaterial   to   the

recipient, intending to influence it, this need not always be so.

Thus reading materiality into false statement statutes serves a

useful function in preventing trivial prosecutions.

     While Gevinson, Black, Swearingen, and Rapp favor including

materiality as an element of § 1010, the government points to no
precedent indicating otherwise.     We hold that materiality is an

element of 

18 U.S.C. § 1010

.

2. Harmless Error

     Although the district court erred in failing to allow the jury

to decide the element of materiality, the question remains whether

the error is reversible.      The courts are divided on whether a

Gaudin error is reversible per se, or is instead susceptible to

plain error review or harmless error review.14      Gaudin itself did


     14
      See United States v. Jobe, 

90 F.3d 920, 925

 (5th Cir.1996)
(Gaudin error subject to plain error review); United States v.
McGhee, 

87 F.3d 184, 186-87

 (6th Cir.) (same), petition for
rehearing en banc granted, 

95 F.3d 1335

 (6th Cir.1996); United
States v. David, 

83 F.3d 638, 646-47

 (4th Cir.1996) (Gaudin error
subject to plain error review, but error always "affects
substantial rights" under plain error test); United States v.
Raether, 

82 F.3d 192, 194

 (8th Cir.1996) (Gaudin error subject to
harmless error review); United States v. DiRico, 

78 F.3d 732, 736-38

 (1st Cir.1996) (Gaudin error is a "structural defect" not
subject to harmless error analysis); United States v. Pettigrew,

77 F.3d 1500, 1511

 (5th Cir.1996) (Gaudin error not subject to
harmless error analysis); United States v. Lopez, 

71 F.3d 954, 960

 (1st Cir.1995), cert. denied, --- U.S. ----, 

116 S.Ct. 2529

,

135 L.Ed.2d 1053

 (1996) ("[O]ur best guess is that the Supreme
Court would regard [Gaudin error as] reversible per se if there
were a timely objection—although not automatically "plain error'
if no objection occurred....").
not resolve this question.15

      In      Chapman   v.     California,16       the   Court     held     that    a

constitutional error does not render a conviction reversible per

se;     instead such an error can be held harmless if the reviewing

court is "able to declare a belief that it was harmless beyond a

reasonable doubt."17         Although Chapman recognized that "there are

some constitutional rights so basic to a fair trial that their

infraction can never be treated as harmless error,"18 the Court has

since      recognized   that    such   errors,     sometimes     referred    to    as

"structural" errors or defects,19 "are the exception and not the

rule," and that there is a "strong presumption" that harmless error

analysis      is   applicable    to    a   trial    error   of     constitutional

dimension.20

        Although constitutional errors are presumptively subject to

review for harmless error, other courts have struggled with whether

Sullivan v. Louisiana21 forecloses such review.                  In Sullivan, the

Court held that harmless error analysis cannot be applied to a


      15
      Gaudin, --- U.S. at ---- - ----, 

115 S.Ct. at 2321-22

(Rehnquist, C.J., concurring).
      16
           

386 U.S. 18

, 

87 S.Ct. 824

, 

17 L.Ed.2d 705

 (1967).
      17
           

Id. at 24

, 

87 S.Ct. at 828

.
      18
           

Id. at 23

, 

87 S.Ct. at 827-28

.
      19
      E.g., Sullivan, 508 U.S. at 280-83, 113 S.Ct. at 2082-83;
Arizona v. Fulminante, 

499 U.S. 279, 308-11

, 

111 S.Ct. 1246, 1264-65

, 

113 L.Ed.2d 302

 (1991) (opinion of Rehnquist, C.J., for
the Court).
      20
      Rose v. Clark, 

478 U.S. 570, 577-79

, 

106 S.Ct. 3101, 3106

,

92 L.Ed.2d 460

 (1986).
      21
           

508 U.S. 275

, 

113 S.Ct. 2078

, 

124 L.Ed.2d 182

 (1993).
defective reasonable doubt instruction.          The Court reasoned that

where there is a defective reasonable doubt instruction, there is

no jury verdict within the meaning of the Sixth Amendment upon

which a harmless error scrutiny can operate.22          In an alternative

analysis, the Court held that the error was a "structural error,"

that is, a serious and basic error that infected the entire trial,

"with     consequences      that   are   necessarily   unquantifiable   and

indeterminate," and hence one where harmless error analysis in

inapplicable.23

     In three recent cases, our court has addressed whether the

failure to allow the jury to decide the materiality element is

reversible.     In United States v. Kramer,24 the defendant urged that

the error was reversible per se.          We rejected this argument, and

concluded that even though the error was plain, the defendant did

not meet requirement of showing that his substantial rights were

affected, i.e. that the outcome of the trial was affected by the

error.25     Again in United States v. Toussaint26 and United States v.

Calhoon,27 we held that the district court's failure to let the jury

decide materiality was not prejudicial under the plain error

standard and hence was not reversible.

          Our case is distinguishable from Kramer, Toussaint and

     22
          

Id. at 280-81

, 

113 S.Ct. at 2082

.
     23
          

Id. at 280-83

, 

113 S.Ct. at 2082-83

.
     24
          

73 F.3d 1067

 (11th Cir.1996).
     25
          Id. at 1074-75.
     26
          

84 F.3d 1406, 1407

 (11th Cir.1996).
     27
          

97 F.3d 518, 529-30

 (11th Cir.1996).
Calhoon in one regard.       In our case defense counsel did object to

the failure of the district court to allow the jury to decide the

element of materiality.       In Kramer, Toussaint and Calhoon, there

was no objection and the court therefore turned to the plain error

standard of review.       Plain error review applies to alleged errors

under Fed.R.Crim.P. 52(b) to which there was no objection at the

trial.     The rule provides that "[p]lain error or defects affecting

substantial rights may be noticed although they were not brought to

the attention of the court."        In United States v. Olano,28 the Court

defined the standards for plain error review.          The Court held that

the defendant seeking a reversal for plain error must establish (1)

an error, (2) which was plain, and (3) which affected "substantial

rights."29      Even if these requirements are met, the reviewing court

is left with discretion to correct the error, and should not

correct     the   error   unless   it   seriously   affects   the   fairness,

integrity or public reputation of judicial proceedings.30

     Significant to our case, the Court in Olano held that in

deciding whether the error affected "substantial rights" under Rule

52(b), the review is similar to harmless error review when there is

a timely objection under Fed.R.Crim.P. 52(a).          Rule 52(a) provides

that "[a]ny error, defect, irregularity or variance which does not

affect     substantial    rights   shall   be   disregarded."       The   Court

explained that prejudice is the focus under either subpart of Rule

52 when deciding whether the defendant's substantial rights were

     28
          

507 U.S. 725

, 

113 S.Ct. 1770

, 

123 L.Ed.2d 508

 (1993).
     29
          

Id. at 730-32

, 113 S.Ct. at 1776.
     30
          Id.
affected:

     The third and final limitation on appellate authority under
     Rule 52(b) is that the plain error "affec[t] substantial
     rights." This is the same language employed in Rule 52(a),
     and in most cases it means that the error must have been
     prejudicial:    It must have affected the outcome of the
     District Court proceedings. When the defendant has made a
     timely objection to an error and Rule 52(a) applies, the Court
     of Appeals normally engages in a specific analysis of the
     District Court record—a so-called "harmless error" inquiry—to
     determine whether the error was prejudicial.       Rule 52(b)
     normally requires the same kind of inquiry, with one important
     difference: It is the defendant rather than the Government
     who bears the burden of persuasion with respect to prejudice.
     In most cases, the Court of Appeals cannot correct the
     forfeited error unless the defendant shows that the error was
     prejudicial.31

     We read the Court to say that the ultimate question of harm or

prejudice is the same whether or not objection is made at the time

of trial, but the burden of persuading the appellate court of the

harm or prejudice is borne by the government where objection was

made at trial.      The Court did leave open the possibility that some

errors, such as the structural defects described in Fulminante,32

might also be deemed to affect substantial rights regardless of

their effect on the outcome of the trial.33

      We conclude that even though there was an objection in our

case pointing out the Gaudin error, the error is not reversible per

se, but is subject to harmless error review.         The mere fact that an

objection     was   raised   does   not   render   harmless   error   review

inapplicable. The Supreme Court has employed harmless error review



     31
          Id. at 734-35, 113 S.Ct. at 1778 (citations omitted).
     32
      Arizona v. Fulminante, 

499 U.S. 279, 308-11

, 

111 S.Ct. 1246, 1264-65

 (opinion of Rehnquist, C.J., for the Court).
     33
          Olano, 

507 U.S. at 734-35

, 113 S.Ct. at 1778.
where objections were lodged with the district court.34           Moreover,

the law of our circuit compels the conclusion that a Gaudin error

is not reversible per se even where the defendant does object.

Olano teaches that the prejudice requirements under the plain error

and harmless error standards are the same, except for the burden of

persuasion.     If our court in     Kramer, Toussaint and Calhoon had

concluded     that   the   Gaudin   errors   in   those   cases   were   not

susceptible to prejudice scrutiny, either because the error was

structural or because there was no constitutional verdict on which

to conduct a review for prejudice, it would not have conducted a

prejudice analysis.        In short, we believe that our court has

already held that Sullivan does not extend to Gaudin errors.

     In United States v. Medina,35 the court held that a district

court's failure to submit a jurisdictional element of a drug

offense to the jury, and directed verdict on that element, was not

reviewable for harmless error and hence was reversible per se.36

However, since the three other cases discussed above (two of which

preceded Medina) hold that the specific error at issue here—failing

to submit the element of materiality to the jury—is not reversible

per se but is instead subject to review for prejudice, we follow

these precedents rather than Medina.

      Applying harmless error analysis to this case, we conclude

that the Gaudin error was harmless beyond a reasonable doubt.             We

     34
      E.g. Fulminante, 

499 U.S. at 283, 294-96

, 

111 S.Ct. at 1250, 1257

; United States v. Hasting, 

461 U.S. 499, 502-03

, 510-
11, 

103 S.Ct. 1974, 1977, 1981

, 

76 L.Ed.2d 96

 (1983).
     35
          

90 F.3d 459

 (11th Cir.1996).
     36
          

Id. at 464

.
have defined the test for materiality as "whether a statement has

a natural tendency to influence, or is capable of influencing, the

exercise of a governmental function."37 The government conclusively
proved     that   De   Castro's        submission    of   fraudulent   documents,

containing false employment information about mortgage applicants,

not only had the capacity to influence the government, but in fact

influenced    the      FHA    to   guarantee   the    loans    in   issue.        More

specifically, the proof established that the FHA would not have

insured the mortgages but for De Castro's submission of the false

loan documents, certification that they were accurate, recruitment

of the false employers, and calculation of the income amounts

listed on the employer verification forms.

      We are further persuaded that the error was harmless because

of the finding the jury did make.                    While not instructed to

determine materiality, the jury was instructed to decide, and found

beyond a reasonable doubt, that De Castro submitted the false

documents "for the purpose of obtaining a mortgage insured by the

Department of Housing and Urban Development."                 As explained above,

the intent element is not the same as the materiality element.                    The

former concerns the defendant's state of mind, while the latter

concerns the effect on the government agent. However, proof of the

two   elements     are       closely    related.      The   materiality      of   the

statements is evidence of intent to influence government action, in

this case the approval of the mortgages.                  Conversely, proof that

the defendant intended to influence the government is evidence that

      37
      United States v. Grizzle, 

933 F.2d 943, 948

 (11th Cir.),
cert. denied, 

502 U.S. 897

, 

112 S.Ct. 271

, 

116 L.Ed.2d 223

(1991).
the   statements     she   made   were   material.        While   there   may   be

instances where a defendant intends to influence government action

by making immaterial statements, such circumstances are not present

here.

3. Admission of HUD Findings

        De Castro separately argues that the district court erred in

permitting the government to introduce a HUD "finding" of fraud.

Scott Kottman, a loan specialist and investigator for HUD, was the

government's      first    witness.      He   testified    that    he   began   an

investigation after a large number of mortgage defaults in the

Phoenix area.        He noticed that the majority of the bad loans

involved the same broker, Virginia Labrador, and that the same

employers kept appearing in the files.             He then discovered that

home buyers were not employed where the files indicated, and linked

the paperwork in the files to De Castro.          Kottman testified that he

investigated De Castro's company, Phoenix Mortgage, because of

"[t]he unusually large number of false claims."                   He went on to

testify that after the investigation De Castro was suspended from

doing business with the FHA.          The suspension letter was admitted

into evidence without objection.

      Citing United States v. Christo38 and other authority, De
Castro complains that it is error to allow the introduction of the

results of an agency's "findings" in a criminal trial. She further

argues that the error was compounded by the prosecutor's statements

in his opening and closing arguments, such as the statement in

opening argument that HUD "found evidence of fraud," and the

      38
           

614 F.2d 486

 (5th Cir.1980).
statement in closing argument that HUD "concluded there was fraud

on the part of Phoenix."

      De Castro concedes that there was not a proper objection to

the evidence or the argument of the prosecutor, and accordingly the

plain error of review applies.

      In Christo, the defendant was convicted of misapplication of

bank funds.         The government's theory was that bank overdrafts in

violation      of     a   civil      banking     statute     constituted         criminal

misapplication.           The jury was further instructed that the civil

violation could be considered in deciding criminal liability.                         The

court      found    plain    error     based   on    "the    inclusion      of    [civil]

violations in the case," and "indeed the whole tenor of the

trial."39      In these regards Christo bears little similarity to our

case.      In our case the government never contended, nor was the jury

instructed, that a violation of a civil statute was sufficient to

establish, or even relevant to, guilt under a criminal statute made

the basis of the indictment.

      The error here, if any, does not rise to the level of plain

error.      Kottman did not testify that there was an agency finding of

"fraud."        The government offered extensive evidence from the

participants in the scheme that De Castro submitted fraudulent

documents to HUD.           The prosecutor never argued that a HUD finding

of fraud was sufficient to convict De Castro, and instead reminded

the jurors in closing argument of the testimony of ten witnesses

besides Kottman.          Under the plain error standard, De Castro does

not   carry     her   burden      of   showing      that    the   claimed    error    was

      39
           

Id. at 492

.
prejudicial, meaning "that the error affected the outcome of the

District Court proceedings."40 Even if De Castro had met this prong

of the plain error test, we should not exercise our discretion to

correct a plain error unless the error seriously affected "the

fairness, integrity or public reputation of judicial proceedings."41

The     error,    if   any,   in   allowing   the   evidence   of   the   HUD

investigation does not satisfy this last element of the plain error

test.

      AFFIRMED.




      40
           Olano, 

507 U.S. at 734-35

, 113 S.Ct. at 1778.
      41
           Id. at 732, 113 S.Ct. at 1776.