United States v. James Michael Dugan ( 1998 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 97-3206
___________
United States of America, *
*
Plaintiff-Appellee, *
*
v. * Appeals from the United States
* District Court for the
James Michael Dugan, * District of Minnesota
*
Defendant-Appellant.. *
___________
Nos. 97-3522, 97-4328
___________
United States of America, *
*
Plaintiff-Appellee, *
*
v. *
*
Larry Leonard Thompson, *
*
Defendant-Appellant. *
___________
Submitted: May 15, 1998
Filed: July 24, 1998
___________
Before McMILLIAN, NOONAN1, and MORRIS SHEPPARD ARNOLD, Circuit
Judges
___________
NOONAN, Circuit Judge.
Larry Leonard Thompson and James Michael Dugan appeal their convictions of
three counts of mail fraud in violation of 18 U.S.C. §§ 1341 and 2, eight counts of
wire fraud in violation of 18 U.S.C. §§ 1343 and 2, and two counts of interstate
transportation in violation of 18 U.S.C. §§ 2314 and 2.
FACTS
In the summer of 1994 Thompson formed an organization he called GAILS, an
acronym for Go American International Listing Services. Its announced purpose was
to facilitate imports into and exports from the United States. Its members were to
solicit manufacturers in this country to use GAILS to market their products abroad at
a fee of $25,000. Thompson and Dugan recruited the members, informing them that
GAILS already had a "global network of over 1,200 established trade
1
The Honorable John T. Noonan, Jr., United States Circuit Judge, United States
Court of Appeals for the Ninth Circuit, sitting by designation.
-2-
agents." The members were asked to pay the organization a total of $25,000 for
territorial rights to represent GAILS and to pay $2,500 "fully refundable" as an initial
fee to GAILS. Thompson and Dugan ran advertisements in newspapers around the
country seeking members and informing potential members that they could make
yearly incomes of as much as $200,000. GAILS was said by them to have its
international headquarters on Old Bond Street, London, England and its national
headquarters in the World Trade Center in New York City. Each of the defendants
stated that the agents were known to them and in place. Each of the defendants stated
that they had previous success in international marketing, and Thompson, in
particular, referred to his success in marketing concrete docks, the so-called "Rock
Dock" scheme.
In the first six months of marketing Dugan placed ads and did telemarketing
from Florida where he was in a halfway house serving time for his previous federal
conviction in 1988 of mail fraud in connection with the Rock Dock. In February 1995
he came to Minneapolis where Thompson had been directing the operation and, in
March 1995 he participated in a conference discussing what they should do as
Thompson was being returned to prison for violation of his probation in connection
with the Rock Dock. They agreed that members or potential members would be told
that Thompson was going to Europe and Australia to visit the agents.
-3-
Dugan, when he was in Florida, had explained his presence there to potential
members by saying it was a "free trade zone," without mentioning his confinement in
the halfway house.
No network of 1,200 agents existed. No headquarters in London or New York
existed. No manufacturers were ever persuaded to invest with GAILS. No member
had a chance of earning money honestly from the scheme. No money paid by
members was refunded. GAILS was an out and out scam run by two men who not
only had practiced a similar scam in marketing the oxymoronic Rock Dock but had
actually been incarcerated because of their earlier fraudulent venture.
PROCEEDINGS
On July 2, 1996 the two defendants were indicted along with Teo Stephan
Leonard. Leonard subsequently pleaded guilty and became a witness against
Thompson and Dugan. The indictment set out the scheme to defraud and then in
specific counts charged Thompson and Dugan with "aiding and abetting each other" in
specific acts of fraud directed against named individuals.
Prior to trial the government gave notice of its intent to present evidence of the
Rock Dock scheme and its consequences as evidence "inextricably intertwined" with
the crimes for which the defendants were on trial and as Fed. R. Evid. 404(b)
-4-
evidence. The district court ruled in the government's favor.
Thompson sought to introduce a tape recording, lasting 40 minutes, of the
March meeting that discussed the action to be taken when he returned to prison.
Thompson, Dugan and five others had participated at this meeting. Dugan and the
government objected to admitting the whole recording on the grounds that much of it
was hearsay. Thompson did not identify specific passages that should be admitted.
The district court sustained the objections.
At the government's request the court gave "a willful blindness" instruction as
to Dugan, who had not testified at trial and whose defense essentially had been lack of
guilty knowledge of Thompson's scheme, at least prior to Dugan's coming to
Minnesota.
During its deliberations the jury sent a note asking the judge to define "agent"
and "network." The court ruled that the jury did not need the definitions.
The trial began on January 22, 1997 and ended on February 10, 1997 when the
jury found them guilty on all counts. Thompson was sentenced to four years
imprisonment and to payment of restitution in the amount of $321,455. Dugan was
sentenced to 2½ years in prison and the payment of $75,000 in restitution. The
restitution obligations were made joint and several.
-5-
ANALYSIS
Both Thompson and Dugan attack the ruling on the admission of the Rock
Dock evidence. As to Thompson, since he mentioned the Rock Dock scheme in his
promotion of GAILS, it was proper for the government to show that Rock Dock had
in fact been a criminal enterprise. It was equally appropriate to explain Thompson's
absence from the last phase of GAILS by his re-incarceration to serve out the rest of
his Rock Dock sentence. As to Dugan, the Rock Dock conviction explained why he
was confined to a halfway house in Florida and so was relevant in establishing that
fact in contradiction of Dugan's lying explanation as to why he was in Florida. As to
both defendants, the evidence of the Rock Dock criminal scheme was similar in
pattern to the one in which they were embarked. It was admissible evidence to
establish their fraudulent intent. United States v. Williams, 95 F.3d 723, 730-31 (8th
Cir. 1996), cert. denied, 117 S. Ct. 750 (1997).
Dugan objects that the willful blindness instruction was inappropriate, but
makes no showing to this effect. Dugan's main defense was that he was not aware of
what Thompson was up to. It was proper for the jury to be told that that was no
defense if he wilfully closed his eyes to his confederate's misrepresentations. United
States v. Gonzales, 90 F.3d 1363, 1371 (8th Cir. 1996).
Dugan challenges the sufficiency of the evidence against him. He was
-6-
indicted as both a principal and an abettor. As to counts 3, 4, 8, 9, 10, 11, and 12, the
evidence showed Dugan making false statements designed to induce the victim to
invest; his liability as a principal was established. As to counts 1, 2, 5, 6, 7, and 13,
Dugan's activity in placing advertisements and managing recruitments for GAILS was
sufficient to establish his liability as an abettor of Thompson's fraud.
The defendants' contention that the court should have defined agent and
network is not persuasive. The words are familiar American words. No special
knowledge was required for the jury to appreciate their meaning. See United States v.
Shyres, 898 F.2d 647, 653-54 (8th Cir.), cert. denied, 498 U.S. 821 (1990). Similarly,
the district court did not abuse its discretion in refusing to permit the playing of the
entire recording of the March 1995 meeting. See United States v. Woolbright, 831
F.2d 1390, 1395 (8th Cir. 1987).
Thompson alleges that the government misled the grand jury. The allegations
are not well supported. In any event, the verdict of the petit jury makes any error in
the grand jury proceeding connected with the charging decision "harmless beyond a
reasonable doubt." United States v. Mechanik, 475 U.S. 66, 70 (1986).
The defendants challenge the orders of restitution on the grounds that the
district court did not make findings on their ability to pay. If the sentencing had been
under the Mandatory Victims Restitution Act of 1996, 18 U.S.C.
-7-
§ 3663A(c)(1)(A)(ii), the district court would have been under an absolute duty to
order restitution when sentencing for mail fraud. This statute was not referred to by
the district court, nor is it referred to by the government on appeal. We have noted
that an order of restitution under the statute "is punishment for Ex Post Facto Clause
purposes." United States v. Williams, 128 F.3d 1239, 1241 (8th Cir. 1997). The Act
became effective April 24, 1996. Thompson's and Dugan's crimes occurred before
this date so the statute is not applicable to them.
The district court considered the objections raised by Thompson and Dugan
regarding their ability to pay restitution. However, in ordering restitution under
Section 3663 as it existed prior to the Mandatory Victims Restitution Act, the district
court was required to "make . . . a finding" on their ability to pay "before ordering
restitution." United States v. Van Brocklin, 115 F.3d 587, 602 (8th Cir. 1997). The
district court made no such findings. However, because neither Thompson nor Dugan
objected to the lack of specific findings on their ability to pay, this Court reviews the
restitution order for plain error. See United States v. Riebold, 135 F.3d 1226, 1231-
32 (8th Cir. 1998). The district court did not plainly err in its restitution orders. It
considered each man's financial situation, reducing Dugan's restitution order almost
$250,000 below the level proposed by the Probation Office and fining neither man.
The restitution ordered, while heavy, was not improper.
-8-
The convictions and sentences of the defendants are AFFIRMED.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT
-9-