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United States v. David Shulick
Citation: Not availableDocket: 18-3305
Court: Court of Appeals for the Third Circuit; November 14, 2021; Federal Appellate Court
Original Court Document: View Document
David Shulick, a lawyer and businessman, owned Delaware Valley High School Management Corporation (DVHS), which operated the Southwest School under a contract with the School District of Philadelphia. The contract required DVHS to provide essential educational services and staff for at-risk students, with a budget exceeding $2 million. However, Shulick embezzled funds intended for these services, benefiting himself and co-conspirator Chaka Fattah, Jr., rather than fulfilling the contractual obligations. Following a lengthy fraud investigation, Shulick was charged and convicted. In his appeal, he raised various claims of procedural errors, including violations of his right to a speedy trial, evidentiary issues, jury instruction problems, and sentencing miscalculations. After reviewing these claims, the court found no reversible errors and upheld the conviction. Additionally, it was noted that Shulick failed to meet the contract's staffing and service requirements, hiring fewer teachers and security personnel and paying them less than promised, while attempting to reduce their salaries further. Shulick misrepresented to the School District his annual spending on salary and benefits, claiming $850,000 but spending only about $396,000 in 2010-11 and $356,000 in 2011-12. Of over $2 million received, he allocated only $1,186,001 for designated expenditures at Southwest. His failure to properly allocate these funds was part of a conspiracy to embezzle money, directing unspent funds to co-conspirator Chaka Fattah, Jr., who used them to settle Shulick's business liabilities while keeping a portion for himself. Testimonies from former DVHS employees highlighted the adverse effects of this scheme, which left students without promised counseling and teachers managing safety concerns without adequate support. After a multi-year investigation, Shulick was indicted on October 11, 2016, on multiple charges including conspiracy to embezzle from a federally funded program and bank fraud. Although wire fraud charges were dropped, he faced a lengthy trial that concluded with a conviction on May 8, 2018. Shulick received a total sentence of 60 months for several convictions, along with 20 months for tax fraud counts, to be served consecutively but concurrently with the other sentences. He was also fined $40,000, assessed $700, and ordered to pay restitution totaling $764,735. Shulick appealed, claiming violations of his right to a speedy trial under the Sixth Amendment and the Speedy Trial Act, which mandates trials commence within 70 days of indictment, subject to certain exclusions. In August 2017, the Government identified a significant error in its investigation: a server seized from DVHS was incorrectly filed under a different case number related to former Congressman Chaka Fattah, Sr. instead of the conspiracy involving Shulick and Fattah, Jr. Upon discovering this, the Government informed the District Court and produced 1.5 million pages of documents and 900,000 emails, but did not dismiss the indictment. Shulick invoked the Speedy Trial Act to move for dismissal, which the District Court denied, indicating it was speculative to assume the remaining 64 days of the 70-day trial clock would run out before the case was trial-ready. The Court noted that it could continue the trial if justified by the ends of justice, which it subsequently did by rescheduling the trial from October 2, 2017, to April 11, 2018. Shulick argued that the continuance was inappropriate due to the Government's lack of diligent preparation as per 18 U.S.C. § 3161(h)(7)(C). However, the Court countered that the complexity of the case warranted the delay, asserting that the interests of justice outweighed the need for a speedy trial. It highlighted the case’s complexity, stemming from a lengthy investigation and extensive documentation, which was recognized as complex from the start of the proceedings. Shulick contested this, claiming the continuance was improperly granted due to the Government's fault, and argued that the Court's reasons for granting the continuance did not align with the actual motivations. The Court's interpretation of the Speedy Trial Act is subject to de novo review, while its factual findings are reviewed for clear error, and its decision to grant a continuance is assessed for abuse of discretion. The Court found sufficient evidence supporting the complexity designation, noting that Shulick had previously received multiple continuances to manage discovery. Shulick’s reliance on the case of Crane is deemed inappropriate, as the circumstances differ significantly. In Crane, the district judge openly acknowledged efforts to expedite the trial despite unavailability, which were criticized as inappropriate. In contrast, Shulick has not demonstrated any similar misconduct, merely asserting a baseless claim of pretext. The District Court's decision to continue the trial was justified in response to the Government's acknowledged discovery violation, aiming to prevent prejudice to the defense and enforce a prior ban on late-produced documents. Shulick further contends that any Government discovery violation should automatically negate the possibility of an "ends-of-justice" continuance, framing it as a lack of diligent preparation under § 3161(h)(7)(C). However, the Government argues that not all discovery violations indicate a lack of diligence unless they are proven to be in bad faith or chronic. While the Speedy Trial Act does not define "lack of diligent preparation," precedent supports distinguishing between minor violations and those indicating bad faith or habitual misconduct. Courts have recognized that inadvertent delays in discovery do not equate to a lack of preparedness, particularly if negligence is established rather than intentional misconduct. The Speedy Trial Act is not intended to serve as a technicality for dismissing charges, and district courts are granted discretion to differentiate between minor and significant discovery violations. This discretion aligns with their authority to manage discovery and implement appropriate remedies. When non-compliance occurs under Federal Rule of Criminal Procedure 16, the district court may mandate compliance, grant continuances, exclude evidence, or provide other just remedies. The District Court's decision to grant a continuance and impose sanctions for the Government’s discovery practices is affirmed as appropriate, countering Shulick’s argument for a categorical rule that would hinder trial judges' discretion. Shulick failed to demonstrate that the Government’s late production constituted a "lack of diligent preparation" under 18 U.S.C. § 3161(h)(7)(C). Although he cited previous criticisms of the Government's slow discovery, these did not pertain to the August 2017 production in question and were not used to claim a speedy trial violation until he requested continuances. Despite acknowledging a careless administrative error by the Government, Shulick did not substantiate his claim that this was a chronic issue. The District Court's handling of the situation did not breach the Speedy Trial Act. Regarding Shulick's Sixth Amendment claim, which assesses the reason for delay, the assertion of the right, and any resultant prejudice, the District Court found no violation. While there was an 18-month delay from indictment to trial attributed to the Government, Shulick failed to prove he was prejudiced. On appeal, he contended that the District Court neglected to consider pre-indictment delay in its analysis, referencing the Eleventh Circuit's ruling in United States v. Ingram. However, the Third Circuit maintains that pre-indictment delays do not invoke Sixth Amendment protections, as rights only attach post-indictment. The District Court's rejection of Shulick's pre-indictment delay argument was thus upheld. The inquiry into Shulick's speedy trial claim is resolved as the indictment was issued within the limitations period. His second Sixth Amendment argument posits that the District Court incorrectly dismissed his claim of prejudice, a critical factor in the Barker analysis. This factor evaluates interests protected by the speedy trial right: preventing oppressive pretrial detention, minimizing anxiety for the accused, and limiting defense impairment. Shulick contends that his defense was prejudiced due to the unavailability of witness Benjamin Wright, an Assistant Superintendent, who fell ill. However, the District Court found Shulick did not provide adequate factual support for this claim, failing to specify Wright’s potential testimony or its favorable nature, despite having previously interviewed him. On appeal, Shulick vaguely asserts Wright’s testimony would have been important but does not substantiate this claim; thus, it does not meet the requirement to establish prejudice. The court referenced a similar case, United States v. Harris, where a vague claim of prejudice was also rejected due to lack of detail regarding the witness's potential testimony. The court emphasized that general assertions about witnesses' memories fading are insufficient. Additionally, even if Shulick's assertions about Wright's testimony were accurate, the District Court correctly noted that the satisfaction of the School District or Wright with Shulick’s performance is legally irrelevant, as a victim's negligence does not constitute a defense to criminal actions. Consequently, both Shulick's statutory and constitutional claims regarding the speedy trial rights were dismissed. Shulick also alleges that the District Court made reversible evidentiary and instructional errors. The admissibility of evidence is reviewed for abuse of discretion, while the interpretation of the Federal Rules of Evidence is reviewed de novo. The District Court properly defined "agency" under 18 U.S.C. § 666 and excluded an agency clause from the Southwest contract relevant to Shulick’s conviction for theft from federally funded organizations. An agent of an organization commits a federal offense under 18 U.S.C. § 666(a)(1)(A) if they embezzle, steal, fraudulently obtain, or convert property valued at $5,000 or more, belonging to the organization, which must have received over $10,000 in federal benefits within a year. In contesting his federal theft conviction, Shulick argues he was not an "agent" of the organization under the statute. The statute defines an "agent" as someone authorized to act on behalf of another, including employees and independent contractors with managerial responsibilities. The court ruled that contractual language stating the contractor does not act as an agent of the School District is irrelevant, as agency status is determined by the statute, not private contracts. The District Court found substantial evidence that Shulick had authority to act for the School District, including managerial control over hiring, curriculum, and operations. Shulick also challenged the jury instruction regarding agency, noting the omission of part of the Third Circuit's model instruction. However, he did not object to this omission in the District Court, resulting in a waiver of his right to assert legal error unless it constituted plain error, which the court found did not occur. A model jury instruction serves as a guideline for litigants and trial courts to accurately interpret the law but is not legally binding or precedential. In this case, the District Court adopted an essential element of the model instruction, affirming that an agent can be someone outside an organization, consistent with the interpretation of § 666(d)(1). The Court appropriately instructed the jury that an agreement between parties does not establish an agency relationship binding on the federal government in a criminal prosecution, directing them to disregard any testimony regarding such agreements while allowing consideration of other agency-related evidence. Shulick contended that the District Court erred by excluding evidence that would demonstrate he did not act "without authority" as required by § 666(a)(1)(A). This evidence included a prior request for proposal from the School District, which suggested a low priority on budget adherence, and claims that School District employees did not object to certain expenditures, which Shulick argued amounted to ratification. The Court found no abuse of discretion in excluding the proposal due to its irrelevance, as it pertained to a bidding process from two years prior to Shulick's involvement. Shulick's appeal did not present sufficient legal authority to contest this relevancy determination. The Court also rightly excluded evidence regarding the School District employees' lack of objection to noncompliant expenditures, as negligence in discovering fraud does not constitute a defense. Additionally, Shulick challenged the exclusion of Frederick Hamilton's testimony, arguing it was improperly categorized as expert testimony requiring prior disclosure under Federal Rule of Criminal Procedure 16. The Court confirmed that defense counsel had been questioned about the nature of Hamilton's testimony, and the Government requested full disclosure of Hamilton's expert opinions, consistent with the rules regarding expert witness testimony. The defense initially provided minimal information about expert witness Hamilton, including his curriculum vitae and a brief description of his potential testimony. Judge Bartle deemed this insufficient under Rule 16, indicating that a full disclosure of Hamilton's opinions and bases was necessary if he were to be offered as an expert witness. Defense counsel stated they would not provide further disclosures and intended to present Hamilton only as a summary witness. However, when Hamilton testified, he attempted to deliver expert analysis regarding the allocation of costs across Shulick’s business ventures, which the District Court excluded. The court accepted the Government's argument that this testimony constituted undisclosed expert opinion based on Hamilton's accounting experience and forensic background, which went beyond mere summary and required compliance with expert testimony rules. Shulick also claimed reversible error in the jury instructions related to federal program theft. The District Court instructed that intentional misapplication of funds could be established even if such misuse benefited the victim, referencing 3d Cir. Model Jury Inst. 6.18.666A1A-3. Shulick argued this instruction was legally flawed, but the court applied plenary review to assess the legal accuracy of the jury instruction. The federal program theft statute defines liability for those who knowingly misapply property, indicating that the emphasized jury instruction requires the property to be used inappropriately for someone else's benefit. Funds used to benefit the "rightful owner" do not constitute federal program theft, as defined by the statute. Federal program theft occurs when a defendant embezzles, steals, obtains by fraud, or without authority converts property for the use of anyone other than the rightful owner, or intentionally misapplies property. A correction made by the Court clarified the terminology from "unauthorized person" to "unauthorized purpose," emphasizing the importance of precise language in statutory interpretation. The statute's disjunctive "or" indicates that intentional misapplication is a distinct offense from conversion, and the rule of the last antecedent suggests that the limiting phrase modifies only the word it immediately follows, which is "converts." This interpretation is supported by the fact that Congress can explicitly impose conditions, as it has in other parts of the statute. The comparison with an earlier version of the statute, which had the limiting condition apply to all prohibitions, reinforces the argument that the current separate treatment for intentional misapplication signifies a deliberate legislative intent to broaden its scope. Amendments to statutes are presumed to have meaningful effects, indicating Congress's intent to clarify the law. Shulick argues that references in the legislative history labeling Congress’ revisions as merely "technical" amendments cannot refute the clear text of the statute. He contends that when a statute's language is unambiguous and does not result in absurdity, reliance on legislative history is unnecessary. Courts have interpreted intentional misapplication under 666(a)(1)(A) broadly, indicating that using funds for legitimate purposes but in violation of conflict of interest rules still constitutes misapplication. Shulick cites cases that affirm this interpretation, noting that misapplication includes unauthorized uses that benefit the victim, even if the funds were used for legitimate purchases. However, Shulick claims that the Supreme Court's decision in Kelly v. United States undermines this understanding, as it clarified that §666(a)(1)(A) addresses property fraud and does not criminalize all dishonest acts. He argues that the jury's instruction allowing for conviction based on unauthorized spending that benefited the School District may have led to Shulick's conviction despite the absence of personal gain. Shulick emphasizes that Kelly established that the statute only penalizes schemes aimed at obtaining a victim's property, which he argues was not the case in his situation. Shulick exercised unauthorized budget reallocation rights, which is not criminalized under 18 U.S.C. § 666(a)(1)(A). The jury instruction challenged by Shulick aligns with the precedent set in Kelly, where the Court reversed convictions due to the absence of property as the object of fraud. Although Shulick abused his power regarding the use of government property, his scheme aimed at political retribution rather than property theft. Kelly clarified that property must be the scheme's object, not merely a benefit rule based on personal gain. Shulick held multiple contracts with the Philadelphia School District, including the Southwest School and the Kelly Drive School. The Government argued that Shulick misappropriated funds from the Southwest contract to cover obligations for the Kelly Drive School, thereby neglecting the Southwest's needs. Shulick's defense attempted to shift blame, framing his actions as mere contract violations. However, the jury found the prosecution's theory consistent with Kelly, affirming that misusing designated funds constitutes property fraud, regardless of the overall benefit to the School District. The jury instruction allowing for this conviction was upheld, and even if there were any instructional errors, they would be deemed harmless due to the jury's alternative theories of guilt. The doctrine emphasizes that the primary aim of a criminal trial is to ascertain the defendant's guilt or innocence, promoting public respect for the judicial process by focusing on trial fairness over minor errors. An error in jury instruction warrants reversal only if it impacts the defendant's substantial rights, as per Fed. R. Crim. P. 52(a). Shulick contends that the jury instruction deviates from the federal program theft statute as outlined in Kelly, but such an error is deemed harmless if it is highly probable it did not influence the judgment. The court maintains that a jury's decision is upheld if there is a firm belief that the error did not prejudice the defendant. When reviewing the case, the court found that a clear alternative theory of guilt, supported by strong evidence, diminishes the likelihood of harm from an improper instruction. The government presented a clear theory compliant with Kelly, asserting that Shulick embezzled contract funds for personal use, which constituted classic property fraud. Evidence showed Shulick mismanaged a significant portion of the $2,096,000 contract, failing to fulfill obligations and diverting unspent funds to a co-conspirator for unrelated expenses. Testimonies from credible witnesses, including an FBI agent and former employees, corroborated these claims, reinforcing the compelling nature of the government's case against Shulick. Funds from contracts were misappropriated by Shulick to cover personal expenses related to his business ventures, including his law firm and consulting fees, rather than benefiting the School District of Philadelphia. The government demonstrated that these actions constituted embezzlement, as Shulick used money intended for DVHS for personal gain, alongside Fattah, Jr. The total expenditures specific to Southwest were documented at $1,186,001, with the defense attempting to include additional expenses, which the District Court excluded as undisclosed expert testimony. Evidence indicated that Shulick did not meet budgetary requirements, further supporting claims of embezzlement. The prosecution consistently framed Shulick's actions as theft, detailing various methods of misappropriation in their jury charge, which emphasized embezzlement rather than any lesser theory. Throughout the trial, Shulick was depicted as intentionally misusing funds, with specific claims of embezzling nearly a million dollars highlighted in closing arguments. The jury was instructed on the elements of embezzlement, supporting the charge of conspiracy with Fattah, Jr. to unlawfully divert funds from a federally funded program. The disputed jury instruction was not central to the case, as it was not emphasized within the overall charge, which predominantly focused on Shulick as a property taker. The court upheld the conviction despite the incorrect use of “honest services” in the jury instructions, referencing precedents that affirm that jury instructions should be viewed as a whole. Key to the prosecution's case was Shulick's embezzlement of funds owed to the School District of Philadelphia, supported by overwhelming evidence. Shulick's argument against the jury instructions on federal program theft, particularly regarding the safe harbor provision under 18 U.S.C. § 666(c), was rejected. The court emphasized that a defendant is entitled to a jury instruction only if the proposed defense is legally correct, supported by evidence, distinct from the charge, and necessary for a fair trial. Shulick failed to demonstrate that his theory met these criteria, providing only a brief assertion without legal backing or specific examples of expenditures that might qualify for safe harbor protection. The court noted that it is not the judges' role to search for evidence in the record to support a defendant's claims. The District Court did not err in its decision not to provide a specific jury instruction and in its calculations regarding Shulick's sentencing. Shulick claimed errors in calculating a fraud loss of $795,735, arguing that the District Court incorrectly applied sentencing guidelines. The Court's calculation was based on the School District's loss, determined by subtracting the actual expenditures by Shulick from the budgeted amounts, referencing U.S.S.G. 2B1.1, Note 3(F)(ii), which defines loss in cases involving government benefits. Shulick disputed this reference, asserting that the case was a "fee-for-service business deal" rather than a government benefit situation, and contended that a general definition of loss should have been used instead. However, the Court found that the distinction between governmental benefits and other types of funds was not relevant in this case. The precedent established in United States v. Nagle supported the District Court's approach, confirming that the correct calculation involved the contract's face value minus the fair market value of the services provided. Shulick's limited spending on student services constituted the actual loss to the School District. Additionally, Shulick argued that the Court improperly calculated credits against loss, as U.S.S.G. 2B1.1, Note 3(E)(i) allows for reductions based on the value of services rendered to the victim. The burden was on Shulick to demonstrate entitlement to specific offsets, which he failed to do according to the Court. The Court dismissed the calculations provided by Shulick's expert, which included various expenditures not directly related to the services rendered under the contract. The Court's refusal to adopt these calculations was not deemed clearly erroneous. Shulick failed to demonstrate that additional funds were spent for the benefit of Southwest. He challenged the District Court's restitution and forfeiture calculations, arguing that the Mandatory Victims Restitution Act restricts restitution to "pecuniary loss" that is a "direct and proximate" result of his actions. However, his arguments reiterated those previously dismissed, and the District Court's calculation of actual loss was deemed appropriate. Regarding forfeiture, Shulick contended that the District Court did not explicitly find that he acquired the funds. The Order of Forfeiture confirmed that $649,735.00 represented the value of property obtained by Shulick, based on the government’s Memorandum Regarding Fraud Loss. Additionally, Shulick objected to the District Court's decision to supplement the record with a binder used by defense expert Hamilton during sentencing. Although Hamilton did not discuss the binder during direct examination, the Government questioned him about it during cross-examination. The court allowed the Government to supplement the record after the binder was not formally entered due to the defense's failure to provide it. The District Court deemed the binder material as it contained information relevant to Hamilton’s fraud loss calculation, which Shulick also raised on appeal. The court's discretion in supplementing the record was upheld, as the binder was not considered "new evidence" but was necessary to correct an inadvertent omission. Consequently, the appeal was affirmed.