128 F.2d 676 (8th Cir. 1942), 12067, O'Malley v. United States

Docket Nº12067, 12116; 12075, 12117; 12087, 12118.
Citation128 F.2d 676
Case DateJune 01, 1942
CourtUnited States Courts of Appeals, United States Court of Appeals (8th Circuit)

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128 F.2d 676 (8th Cir. 1942)










Nos. 12067, 12116; 12075, 12117; 12087, 12118.

United States Court of Appeals, Eighth Circuit.

June 1, 1942

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Ralph M. Russell and John G. Madden, both of Kansas City, Mo. (James P. Aylward, R. R. Brewster, James E. Burke, Brewster, Brewster & Brewster, and Madden, Freeman & Madden, all of Kansas City, Mo., on the brief), for appellants O'Malley and Pendergast.

William S. Hogsett and Richard K. Phelps, both of Kansas City, Mo., special counsel and as amici curiae, for appellee.

Before GARDNER, THOMAS, and RIDDICK, Circuit Judges.

GARDNER, Circuit Judge.

These are appeals from judgments convicting appellants, Robert Emmett O'Malley, Thomas J. Pendergast, and A. L. McCormack, of criminal contempt. A somewhat extended statement of the facts leading up to and involved in the conduct held to have been contemptuous will be necessary.

On May 28, 1930, 139 insurance companies filed 137 separate injunction suits against the Superintendent of Insurance and the Attorney General of Missouri, to protect proposed increase in premium rates for fire, windstorm, and hail insurance filed by the companies with the superintendent. Motions for interlocutory injunctions were brought on for hearing before a three-judge court and interlocutory injunctions were entered upon conditions, among others, that the companies might collect the increased rates pendente lite but must deposit the amount of the increase so collected with a custodian of the court to await the ultimate outcome of the suits. Deposits were made aggregating $10, 000, 000.

One Charles R. Street, now deceased, was the agent of the companies; Thomas J. Pendergast was a political boss with almost dictatorial power, residing in Kansas City, Missouri; Robert Emmett O'Malley, a creature of Pendergast, was Superintendent of Insurance and a party defendant in the suit; A. L. McCormack was an insurance agent, residing at St. Louis, Missouri.

While these suits were pending and undetermined, Street, Pendergast, O'Malley and McCormack, conspired and agreed together that the insurance companies, acting through Street and O'Malley, would enter into a pretended or fake settlement of the suits, whereby 80% of the impounded fund would be paid to the insurance companies; that Street, as agent of the insurance companies, would pay Pendergast for his influence with and control over O'Malley the sum of $750, 000, with a portion of which O'Malley should be bribed to betray the policyholders, and with another portion of which McCormack was to be compensated for his services as a go-between. Pursuant to this conspiracy, the named conspirators, after some conferences, agreed upon a fake settlement at a conference in the Muehleback Hotel in Kansas City. The attorneys for the superintendent and the companies, being ignorant of the corruption and fraud in the settlement, presented to the court in open court, as a basis for motions for decree, the fake settlement as a genuine, good-faith settlement by antagonistic litigants. This sham settlement was presented to the court on June 22, 1935, by Street, Pendergast, O'Malley and McCormack, through and by their emissaries. The court, the members of which were without knowledge of the fraudulent character of the proposed settlement, was grossly deceived by the false and fraudulent representations made in open court at the instance of the conspirators, including the appellants, and entered a decree pursuant to the said fraudulent settlement.

The court found that the deception practiced upon it was vicious misbehavior committed and consummated in its presence and in open court; that it was intended and calculated to mislead and deceive the court, and to obtain fraudulent judgments and decrees; that the deception was a continuing deception, was intended to exert its deceiving, pernicious and poisonous influence indefinitely and until and unless discovered by the court; that the deception was fortified and renewed by affirmative supplemental acts of deception committed as late as March, 1939.

At a conference in Kansas City, which followed a prior conference held in Chicago, a written agreement was executed by Street, as agent for the insurance companies, and O'Malley, as Superintendent of Insurance, which provided that O'Malley, as superintendent, would make an order approving 80% of the increase in rates sought by the insurance companies, and that the parties to the pending litigation, by their attorneys, would appear in court and join in seeking appropriate orders for

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distribution of the impounded money, 20% to policyholders, 50% to the insurance companies, and 30% to Charles R. Street and Robert J. Folonie, as trustees for the insurance companies. These trustees were to account therefor to the companies, but not to the court nor to the Superintendent of Insurance. The agreement provided that the insurance companies would take appropriate means to present to the court the agreement of settlement; that O'Malley, as superintendent, would appropriately consent to decree for distribution of the impounded monies, and that the companies and O'Malley would mutually undertake to join in securing orders for decrees confirming their agreement. In the meantime, Pendergast had been paid some $400, 000 of the $750, 000 agreed to be paid. The insurance companies accordingly filed in each case a motion reciting the terms of settlement and praying for an order of distribution in accordance therewith. Following the filing of these motions by the insurance companies, O'Malley and the insurance companies filed in each case their stipulation agreeing that the court should make such order of distribution.

On June 22, 1935, on October 26, 1935, and on January 24, 1936, hearings in open court were had, and motions and briefs were filed by counsel for O'Malley. The written agreement of May 18, entered into at the Muehlebach Hotel, was not produced nor shown to the court. At the hearings the court was urged to enter order or decree of distribution in accordance with the agreement. The court was assured of the good faith of the settlement; that it was a fair settlement for the policyholders; that the insurance companies had suffered more in the distribution than anyone else, and that O'Malley had worked faithfully and intelligently for the policyholders, whose specific representative or trustee he was. At the hearing in open court on October 26, 1935, counsel for O'Malley assured the court that the settlement 'was a good settlement, ' 'a tremendous and splendid settlement from the standpoint of the policyholders, ' that it was the 'cleanest, most decent, and the finest settlement ever made in Missouri. ' Counsel informed the court that O'Malley had specifically requested that they 'show this court the motives' which had inspired him to make this settlement; that he had driven 'as hard a bargain as he could, ' and had made 'a settlement which he thinks is clean, fine and decent.'

The trial court found that counsel were ignorant of the bribery, corruption and fraud which lay back of the settlement. The court, relying upon the representations made, entered decrees of distribution in accordance with the motions and stipulations. The funds which had been impounded under the terms of the interlocutory injunctions were in the custody and control of the court, awaiting the ultimate determination of whether such funds belonged to the companies or to the policyholders.

Street died February 1, 1938. The Commissioner of Internal Revenue, upon investigation of Street's income tax returns, found that large sums had been received by him as a result of his activities in connection with Missouri fire insurance rate litigation, which he failed to report for the year 1936. In March 1939, McCormack testified to the underlying facts before a federal grand jury, which was conducting an inquiry into the matter. Prior to that time, he had kept secret, as had also Street, Pendergast and O'Malley, the corrupt acts in connection with the settlement of the insurance suits. On May 29, 1939, after report of the fraud had created a public scandal, the then Superintendent of Insurance filed a motion in the insurance rate litigation, asking that the decrees of February 1, 1936, be set aside and the insurance companies be ordered to restore the previously impounded funds which had been distributed to them. The insurance companies made prompt repudiation of the settlement. An order of restitution was made and the insurance companies restored the money they had received.

At the conclusion of the hearing on May 29, 1939, Judge Stone asked the United States District Attorney whether contempt proceedings would be filed against any 'individual or individuals who have engaged or been consciously connected with foisting an improper agreement upon this court, and inducting its action thereby. ' Following the taking of evidence as to this corrupt settlement, Judge Stone, on May 20, 1940, again called attention to the facts that had been before the court, and said: 'It is apparent from the statement of counsel upon both sides here that there is, in the evidence in this regard, ground for believing that there has been a very gross imposition and fraud perpetrated in and upon this court by at least Pendergast, O'Malley and McCormack and there may be others. ' On behalf of the court he requested the

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Acting United States Attorney to prepare such pleadings and citations as might be necessary to institute contempt proceedings against 'the three persons named and any others which an examination of this evidence or any other knowledge which he may have or may obtain to warrant him in also including in either a combined or separate...

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