United States v. Douglas N. Pearson and Arthur M. Hawkins
Docket: 02-4356, 03-1005, 03-1232
Court: Court of Appeals for the Seventh Circuit; October 14, 2003; Federal Appellate Court
Arthur Hawkins and Douglas Pearson, former executives of Exide Corporation, were convicted of wire fraud and conspiracy related to a bribery scheme intended to maintain a contract with Sears for manufacturing DieHard batteries. They appealed their convictions on several grounds: the superceding indictment was filed outside the statute of limitations, the trial venue in the Southern District of Illinois was improper, prejudicial discovery rulings were made by the district court, and their ability to examine a key witness was improperly restricted. The court rejected all these arguments and upheld the district court's judgment.
Hawkins served as CEO and Chair, while Pearson was Executive Vice President of Sales and Marketing and later President of North American Operations. Exide's 1993 bid for the DieHard contract claimed advanced technology and specific battery features, but the produced batteries contained minimal silver, lacked value-adding components, and had a design flaw. Quality issues arose soon after the launch, prompting Exide to retrieve defective batteries from approximately 700 stores.
To retain the Sears contract, Exide bribed Gary Marks, the battery buyer for Sears, with multiple payments totaling around $10,000 each, beginning in March 1995 and lasting until February 1996. Initially, these payments were made directly by Exide's Senior Vice President of Sales and Marketing, Joseph Calio, but after his complaints, the payments were routed through Marks's fictitious consulting company, DG Consulting. Following Marks's departure from Sears in 1997, Hawkins informed him about an investigation implicating both of them. To conceal their actions, they fabricated a consulting agreement and backdated documents to validate the bribes. Hawkins further compensated Marks with payments for his role in the cover-up scheme in 1999.
In January 2001, Hawkins and Pearson were indicted on charges of wire fraud and conspiracy to commit wire fraud, related to defective batteries produced by Exide. The indictment alleged that Exide's batteries failed testing standards, and internal quality assurance reports were falsified to conceal manufacturing defects. Defendants were accused of supplying these defective batteries to Sears distribution centers without recalling them and falsely advertising certain "proprietary features" that were either absent or did not enhance durability. Additionally, it was alleged that Hawkins and Pearson made illegal payments to an individual named Marks to influence his judgment regarding their business arrangement with Sears, while falsifying corporate records to cover up these payments.
Following the original indictment, two superseding indictments were filed in March and July 2001. The trial for the second superseding indictment commenced on March 18, 2002, leading to a jury conviction for both defendants after approximately three months. Hawkins received a 120-month prison sentence, three years of supervised release, and a $1 million fine, while Pearson was sentenced to 64 months in prison, two years of supervised release, and a $150,000 fine. Both defendants appealed, raising over a dozen issues without contesting the sufficiency of the evidence against them.
Their primary argument on appeal was that the second superseding indictment was time-barred, as it was filed outside the statute of limitations and did not relate back to the original indictment. The original indictment, filed within the five-year limit, included a wire-fraud count from January 31, 1996. Legal precedent establishes that a superseding indictment can relate back to the original if it does not materially alter the charges.
Defendants raise two statute of limitations issues regarding the indictments. First, they argue that the original indictment, being filed under seal, should not toll the statute of limitations. However, Federal Rule of Criminal Procedure 6(e)(4) permits sealed indictments, and the court finds no justification to alter the statute of limitations analysis in this case, especially since an open indictment followed two months later. The court also confirmed that the only modification in the first superceding indictment was the removal of an unindicted coconspirator's identity, which did not affect the charges or the statute of limitations. While acknowledging the importance of public access to court proceedings, the court notes that the indictment should have been unsealed once the coconspirator's identity became public, and it is now unsealed.
Second, defendants claim that the second superceding indictment materially broadened the conspiracy charge, which would prevent it from relating back to the original indictment and render it time-barred. The modifications included extending the conspiracy's end date and adding three overt acts. Defendants contend these acts were unrelated to the alleged wire fraud conspiracy. However, the court holds that the central objective of the conspiracy was maintained, as the actions taken were integral to the ongoing deception regarding defective batteries. The court concludes that defendants were adequately notified of the charges against them, affirming that the second superceding indictment does not violate the statute of limitations.
Pearson and Hawkins argue that venue in the Southern District of Illinois is improper for their wire fraud charges. The determination of venue requires assessing whether the government has established, by a preponderance of the evidence, that the alleged crimes occurred in the charged district, viewed favorably towards the government. The Constitution mandates that criminal trials occur in the state where the crimes were committed, and this is reinforced by Federal Rule of Criminal Procedure 18. For offenses that span multiple jurisdictions, 18 U.S.C. § 3237(a) allows prosecution in any district where the offense began, continued, or completed.
The defendants claim the wire fraud count should not be tried in the Southern District of Illinois since the wire transfer in question involved banks in Pennsylvania and Illinois, not in the Southern District. However, case law indicates that venue is not improper if any acts in that district provide evidence of the crime's elements. Previous rulings established that venue can be appropriate in a district where the intended effects of the defendants' actions were felt, regardless of where the acts physically occurred.
In this case, the defendants aimed to defraud customers in the Southern District of Illinois, utilizing wires to promote defective batteries through false advertising. The defective batteries were distributed in that district, and an audit there led to the discovery of the defects. Additionally, a related defendant, the Exide Corporation, pled guilty to similar charges in the Southern District of Illinois, further supporting the venue's appropriateness.
Fraudulent activities in the Southern District of Illinois demonstrated the "intent to defraud," crucial for wire fraud charges under 18 U.S.C. § 1343. The Supreme Court mandates that venue analysis considers the offense's nature, as established in United States v. Rodriguez-Moreno. Pearson and Hawkins's wire fraud aimed at defrauding consumers, including those in this district, confirming proper venue.
Hawkins challenged the venue for the conspiracy count, but overt acts, such as selling defective batteries and airing advertisements in the Southern District of Illinois, supported the conspiracy to commit mail fraud. Venue is valid if any overt act related to the conspiracy occurs in the district, as per United States v. Molt.
Regarding discovery and pretrial rulings, defendants' objections are reviewed with deference to the district court's broad discretion. Discovery challenges are only reversed if they show actual and substantial prejudice, which the defendants failed to demonstrate. The government implemented an open-file policy, granting defendants extensive access to documents.
The district court denied defendants' motion for a trial continuance, which was their third request. Defendants claimed they needed more time due to 86 boxes of discovery materials yet to be copied, but they did not argue that these materials were unavailable. They had ample time—one year from the first superseding indictment and seven and a half months from the second—to prepare for trial. The court found no abuse of discretion in denying the continuance request.
Defendants argued that the district court should have mandated the government to provide lists of potential witnesses and trial exhibits. However, their briefs did not reference the relevant provisions of Federal Rule of Criminal Procedure 16, which addresses disclosure of evidence. Specifically, Rule 16(a)(1)(E) obligates the government to allow defendants to inspect and copy items that are material to their defense, intended for use in the government's case-in-chief, or belonging to the defendant. The court clarified that neither the Constitution nor Rule 16 guarantees a defendant a list of prospective witnesses in noncapital cases, though a district court may require such a list at its discretion. The decision not to require a witness list is consistent with Congressional intent, as it may prevent witness intimidation or influence. Regarding exhibit lists, defendants acknowledged receipt of the exhibits but sought a list for organizational purposes. Rule 16 does mandate the availability of physical evidence but does not require the government to provide organizational aids for those materials. While an exhibit list could enhance trial efficiency, the court found no abuse of discretion in the district court's decision not to mandate such a list, as it is not a requirement under Rule 16.
Defendants contended that the district court incorrectly denied their motion to compel the production of approximately 3,800 allegedly defective batteries obtained by the government from Sears. They argued that the government's refusal to provide the batteries hindered their defense against claims of defectiveness, as testing was not possible due to the batteries' deteriorated condition, which the government cited. Defendants countered that while testing would be challenging, it was not impossible. Under Rule 16, the government must provide access to materials relevant to the defense. In United States v. Armstrong, the Supreme Court clarified that "material to the preparation of the defendant's defense" does not include materials necessary solely for the defendant's defense theory. Defendants claimed that testing the batteries could have helped their response to the government's allegations, but the court found it hard to see how they experienced actual prejudice since Exide had already stipulated to the batteries' latent defects. The district court's denial of the motion was not deemed an abuse of discretion given these circumstances.
Additionally, defendants alleged violations of Brady v. Maryland, asserting that the government failed to disclose evidence favorable to their defense. To establish a Brady violation, defendants must demonstrate that the prosecution suppressed evidence that was favorable and material. They provided three examples but failed to show that the evidence was not accessible through due diligence. One example involved grand jury testimony from Tim Findlay, which the court noted was irrelevant and Findlay was available as a witness. The other examples, including requests for debriefing notes from a cooperating co-defendant and grand jury testimony from a family member, were similarly dismissed as easily obtainable. Thus, the court found no Brady violation in the district court's refusal to compel the government to produce these materials.
Defendants argued that the district court improperly excluded certain documents during their cross-examination of witness Joseph Calio. The court's evidentiary rulings are reviewed for abuse of discretion. Calio testified about receiving bribes through wire transfers from Exide, which he covered up with backdated documents. Defendants sought to introduce documents they claimed would explain the wire transfers, including airline tickets, a passport, and an American Express statement, asserting Calio used the wired funds for a personal trip rather than for bribery. The government contested the relevance of these documents, and the court agreed, determining they would mislead the jury and relying on Federal Rules of Evidence 403 and 608(b) to exclude them. The appellate court found no abuse of discretion, emphasizing the trial judge's unique perspective on jury dynamics and the discretionary nature of balancing probative value against potential prejudice.
Additionally, defendants contended the court improperly ended Calio’s testimony after concerns arose regarding potential breaches of his plea agreement. Calio had already testified extensively over three days, including significant cross-examination. Defendants claimed the ruling precluded them from addressing specific conversations Calio had with government witness Rick Randalls, but they did not clarify the importance of this information or why it had not been previously addressed.
Calio was on the witness stand for three and a half days, during which the defense had multiple opportunities to challenge his credibility. Cumulative evidence, which offers minimal probative value, is excludable under Federal Rule of Evidence 403, including cumulative impeachment evidence as established in United States v. Boyd. The defense questioned Calio on various matters such as inconsistencies in his accounts of meetings with the defendants, inaccuracies in a deposition with the Florida Attorney General, allegations of tax evasion, potential bias against Pearson, and his government deal for testimony. The defense did not justify the need for additional testimony from Calio, which the district court deemed cumulative. The discretion to determine if testimony is cumulative lies with the district court, and no abuse of discretion was found in its decision to conclude Calio's testimony. Hawkins and Pearson raised other issues on appeal, but these arguments were considered meritless and not significant enough to warrant further discussion.
Convictions and sentences of the defendants are affirmed. Chief Judge Joel M. Flaum and Judge Kenneth F. Ripple did not participate in the case. In March 2001, defendants Marks and Calio pled guilty to wire fraud and entered plea agreements. Sears Automotive Marketing Services, Inc. reached a pretrial diversion agreement in December 2001, agreeing to pay $62.6 million to avoid prosecution. The court emphasizes that all filed documents are public records unless sealed by a judge, and any sealed documents will remain under seal for 14 days to allow for requests for approval.
The court declines to adopt the Ninth Circuit's venue analysis from United States v. Pace, which required a direct or causal connection to the wires for a wire fraud offense, differing from its established approach. Defendants raised concerns about 23 boxes of documents received by their copy vendor, which the court suggests should be addressed with the vendor rather than the court. They did not argue that the government violated the Jencks Act regarding witness statements but focused instead on the provision of a witness list.
Defendants claimed the government's provision of an exhibit list to the district court constituted ex parte communication, violating United States v. Culp. The court noted that no information was concealed from the defendants as they had copies of the exhibits but recognized that sharing the list would have prevented the dispute. Lastly, the court found no relevance in the defendants' request for a CD-Rom containing battery data and upheld the district court's denial of their motion to compel its production.
