Unpublished Disposition, 902 F.2d 42 (9th Cir. 1990)

MEMORANDUM^* 

Michael Sher appeals his conviction, following a jury trial, for twelve counts of mail fraud. Sher contends that the district court erred by (1) admitting statements of his former co-defendants as co-conspirators' statements, (2) denying his motion to dismiss the indictment for outrageous government conduct, (3) finding that the conviction was supported by sufficient evidence, and (4) imposing a special assessment of $50 for each count.

In 1981, Johnny Martin was in an automobile accident and had subsequent dealings with a chiropractor Millard Hamsher, who introduced him to an investigator, Art Lewis, who was working for Sher. The evidence at trial showed that Hamsher generated false medical records indicating that Martin had major complaints of pain. Although never asking Martin if he had been injured, Sher sent a demand letter to Aetna Insurance Company on Martin's behalf demanding more than a $6,000 settlement. The evidence also showed that Sher confirmed Lewis' offer to Martin of $100 for each new client referral.

In February 1983 Martin told Santa Clara police about his involvement with Hamsher, Lewis and Sher. In a sting operation, the California Highway Patrol prepared a fictitious collision report. A C.H.P. officer, Sonny Ash, assumed a fictitious name of one who had been involved in the accident, and Sher eventually sent a demand letter to the California State Automobile Association on Ash's behalf. The letter was based in part on a false itemized bill by Hamsher. Evidence showed that Ash told Sher that he had seen Hamsher only once.

Sher was convicted of twelve counts arising out of the Ash episode. His Fed. R. Crim. P. 29(b) motion for acquittal on the other counts was granted at the conclusion of the government's evidence.

Sher first contends that the district court erred when it admitted declarations of Hamsher and Lewis concerning Sher's role. The evidence was admitted as statements of co-conspirators. Pursuant to Fed.R.Evid. 801(d) (2) (e), evidence of the conspiracy and evidence of the defendant's connection to the conspiracy must be shown as preliminary fact questions before statements of co-conspirators can be admitted. See e.g., United States v. Silverman, 861 F.2d 571, 576 (9th Cir. 1988); United States v. Zavala-Serra, 853 F.2d 1512, 1514 (9th Cir. 1988).

The government in this case proved the existence of a conspiracy independent of the challenged statements. Hamsher created false medical records for clients Lewis subsequently signed up for Sher. Sher himself actually made the false claims to the insurance companies. Sher's connection to the conspiracy was established. The government also showed the statements were made during the course and furtherance of the conspiracy, since the evidence showed that Hamsher and Lewis told the clients they were working with Sher while they both explained the mechanics of the insurance claim, and encouraged the clients to refer new clients for the scheme. Therefore there was no error in admitting the evidence.

Sher also contends that the government engaged in "outrageous government conduct" requiring dismissal of the indictment. See United States v. Bogart, 783 F.2d 1428, 1438 (9th Cir. 1986), vacated in part on other grounds, sub nom. United States v. Wingender, 790 F.2d 802 (1986). The "outrageous conduct" defense generally cannot be invoked where the criminal enterprise was already in effect before the government became involved. United States v. Stenberg, 803 F.2d 422, 429 (9th Cir. 1986).

Here, the government agents "manufactured" an automobile accident in order to infiltrate an existing scheme to exploit real accidents. Although the accident involving Ash was phony, whether the accident actually occurred is not material to Sher's crimes. Rather, Sher's crimes rested on the false medical records generated by Hamsher and the fact that Sher pursued a claim against the insurance company even though he knew that Ash had not in fact been injured or treated as the records indicated. Thus, the government's conduct in presenting the defendant with a set of facts which would allow him to follow his existing fraudulent practices did not create the crime and was not outrageous. See United States v. Scott, 859 F.2d 792, 794 (9th Cir. 1988) (government agent may initiate purchase from contraband dealer).

The court instructed the jury on Sher's defense of entrapment, but Sher argues on appeal that the court should have held there was entrapment as a matter of law. To prove entrapment as a matter of law, the defendant must show by undisputed evidence that he was not predisposed to commit the crime, but did so as a result of the government's inducement. United States v. Citro, 842 F.2d 1149, 1151-52 (9th Cir.), cert. denied, 109 S. Ct. 170 (1988); United States v. Marcello, 731 F.2d 1354, 1357 (9th Cir. 1984).

Here, Sher points to his assertions to Ash in July and August 1984 (that his office would not be party to fraud, that he would have to send the settlement check back because Ash had told him the medical bill was phony, and that he had to "look like a Boy Scout") to show that he lacked the requisite predisposition to commit the crime. He argues that the government did not show sufficient evidence of predisposition to rebut his claim that Ash's "cajoling" statements and actions induced Sher to commit the fraud.

Nonetheless, these events must be viewed in the context of all the evidence. See Marcello, 731 F.2d at 1358. The government presented substantial evidence to suggest that Sher was predisposed to pursue and collect on claims without regard to their validity, and to ignore or suppress information which should have alerted him to the fraud.

With respect to sufficiency of the evidence, Sher's principal claim is insufficiency of the evidence to show the requisite intent. However, " [o]ne who acts with reckless indifference to whether a representation is true or false is chargeable with knowledge of its falsity." United States v. Beecroft, 608 F.2d 753, 757 (9th Cir. 1979) (defendants who misrepresented viability of company in promotional mailings liable for mail fraud despite belief in truth of their assertions). Here, the government offered ample evidence to show that Sher made little or no effort to verify the data on which he filed insurance claims.

At the very least, the record contains sufficient evidence to suggest that Sher took advantage of the illegal actions of Hamsher and Lewis by pursuing insurance claims based on the false materials they generated, while either knowing that the materials were fraudulent or acting with reckless indifference to their veracity. This evidence supports his conviction. See id. at 757, 759.

The district court imposed a $600 special assessment fee under 18 U.S.C. § 3031, which this court has recently held unconstitutional. United States v. Munoz-Flores, 863 F.2d 654, 661 (9th Cir. 1988), cert. granted, 110 S. Ct. 48 (1989). In view of the Supreme Court's grant of certiorari to consider the issue, we vacate the assessment and remand for reconsideration by the district court after the Supreme Court's decision in Munoz-Flores is announced. The imposition of the special assessment is reversed, and conviction and sentence are otherwise AFFIRMED.