USA. v. Montani

• Decision Date: 11 February 2000
• Docket Number: No. 99-1692,99-1692
• Citation: 204 F.3d 761
• Parties: (7th Cir. 2000) UNITED STATES of America, Plaintiff-Appellee, v. John J. MONTANI, Defendant-Appellant
• Court: U.S. Court of Appeals — Seventh Circuit

Page 761

204 F.3d 761 (7th Cir. 2000)

UNITED STATES of America, Plaintiff-Appellee, v. John J. MONTANI, Defendant-Appellant.

No. 99-1692

In the United States Court of Appeals For the Seventh Circuit

Argued October 26, 1999

Decided February 11, 2000

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 98 CR 63--Ann Claire Williams, Judge. [Copyrighted Material Omitted] Before Harlington Wood, Jr., Kanne and Diane P. Wood, Circuit Judges.

Kanne, Circuit Judge.

John J. Montani challenges his conviction and sentence for mail fraud under 18 U.S.C. sec. 1341. A jury convicted Montani in March 1999 of defrauding his employer, Sears, Roebuck & Co. (Sears), of the proceeds from the liquidation sale of furniture and also defrauding Sears of the benefit of his honest services, as that term is incorporated into 18 U.S.C. sec. 1346. Then-District Judge Ann Claire Williams calculated Montani's offense level for a crime involving more than $500,000 and sentenced Montani to forty-one months in prison. We affirm Montani's conviction and sentence.

I. History

John J. Montani began working for Sears in the 1960s while still in college and held a variety of positions with the company over the next twenty-five years. As part of a standard company practice, Montani agreed to abide by the company's code of business ethics, which prohibited, among other things, self-dealing transactions. In 1990, he moved from Florida to the Chicago area and became the company's national manager of finance for home fashions. Later that year, he became national manager of logistics at an annual salary of $125,000 and was told to reduce the company's furniture overstock. In this position, he was responsible for selling off, at the best possible price, furniture that Sears could not or did not want to sell in its own stores or through its catalog. Typically, the furniture to be liquidated had been damaged in some way, had been returned by customers or was simply outdated.

A variety of factors made the liquidated furniture difficult to sell. Sears required that its trade name be removed from the merchandise, that it not be resold close to a Sears store and that liquidators buy loads of the furniture sight unseen and without warranty. The company tried other ways to get rid of the furniture, including markdowns at its retail stores and through outlet stores, but these failed to reduce sufficiently the inventory. In the early 1990s, Sears had a furniture surplus valued at $100 million stacked in forty-five to fifty warehouses around the country. Montani was in charge of furniture valued at about $2.7 million.

At the direction of Donald Shaffer, the company's national merchandise manager for furniture, Montani surveyed the furniture industry, sought advice from Sears's buyers and contacted a number of liquidators. Montani concluded that the best Sears could do would be to sell the surplus at between 7 cents and 10 cents on the dollar of the original cost to Sears. Montani reported this information to Shaffer and received Shaffer's approval to sell the furniture at 10 cents. However, Montani had difficulty finding buyers even at that price. Buyers naturally wanted to "preselect" the furniture, taking only the merchandise that could be sold and leaving Sears with the junk. Sears, understandably, wanted to push its junk off on the liquidators along with the salable merchandise.

A few years before moving to Chicago, Montani met Mark Israel, and the two discussed going into business together. Israel partly owned Diebolt Manufacturing, Inc., and Fort Dearborn Screw and Bolt, Inc., and had been involved in a similar liquidation transaction with Jack Knippel, a man who would eventually become the purchaser of the Sears furniture. Sometime in late 1991, Israel and Montani met and began to talk about Montani's liquidation problem. At this point, Israel's and Montani's versions of the story diverge. Israel, who agreed to testify against Montani in exchange for a plea agreement, said that Montani suggested that Israel purchase the furniture from Sears at 10 cents on the dollar, and if Israel could find a buyer at a higher price, the two would split the proceeds. Montani testified at trial that he did not have any idea until after the first transaction had been completed that Israel would share the profits with him. Israel formed a company called D&M Sales in 1991, and in December 1991, the company entered its first deal with Sears to buy liquidated furniture at 10 percent of cost.

D&M Sales reached a deal to resell the furniture to the Brutus Company, run by Knippel, for 50 cents on the dollar. (Montani contends that Israel told him that Knippel was paying 30 cents on the dollar, proving, once again, the adage about honor among thieves.) To pay Montani his share and avoid detection by Sears, Montani opened a bank account in the name of Retail Logistics Consulting, for whom Montani would be paid as a "consultant." This "salary" was in reality Montani's share of the 20 cent per dollar profit earned on the sale to Knippel. Montani asserted that Israel did not offer to split the profits with him until after the first transaction had been completed. When presented with the offer, however, Montani readily accepted and had Israel write a check for $14,500 to Retail Logistics Consulting, which was in fact Montani. Montani said he did not consider the payment a kickback and insists it had no effect on his decision to continue selling to D&M. Instead, he considered it a "gift" from Israel. Sears never knew that Montani was receiving payments connected to the furniture sales nor that Montani had found, directly or indirectly, a purchaser who would pay 50 cents on the dollar for the merchandise.

The last shipment to D&M, and its last shipment to Brutus, arrived in late 1992. In that time, Knippel had received between 150 and 200 tractor- trailers full of furniture and had paid Israel $821,955. Knippel resold the furniture for about $750,000. Israel had paid Sears $196,304.41, or about 7 cents on the dollar, and given Montani more than $306,632.10. Israel apparently attempted to keep for himself the extra 20 cents on the dollar that Knippel paid him, but it is unclear from the record how much Israel received in total, although it was at least as much as Montani received. At the same time, the two also had been running a separate scheme to dispose of Sears's used mattresses through a company called CDG Co. A Sears subsidiary, Sears Logistics Services, paid liquidators to take the used mattresses, and CDG entered into an agreement with the subsidiary to take the mattresses for a $2.50 per unit fee. In fact, CDG was run by Israel under the false name Robert Allyn and managed by Diane Montani, the defendant's wife. Sears's checks to CDG actually went to Montani's post office box. The CDG transactions were not included in the indictment in this case, but evidence of the scheme was admitted at trial as evidence of other wrongs under Rules 404(b) and 608(b) of the Federal Rules of Evidence.

In October 1992, an internal audit showed Montani's unit had been losing more money than expected and that most of the losses were related to Montani's sales. Montani told the auditor, James Terrell, that D&M Sales was a liquidator and that 10 cents was better than Sears could expect anywhere else. In March 1993, Sears officials questioned Montani again, and Montani told them that he had received more than $300,000 from Israel as a consultant on deals unrelated to the furniture liquidation. After that meeting, Montani and Israel attempted to falsify some documents to prove Montani really was doing consulting work for D&M. Montani also falsified federal tax returns for 1991, 1992 and 1993 in an effort to convince Sears that he had legitimately earned the income as a consultant through Retail Logistics. Montani met again with Sears officials about two weeks after the first meeting, and now accompanied by an attorney, he stuck to his story about consulting for D&M. Sears fired Montani at this second meeting.

In January 1998, Montani and Israel were indicted on a one-count indictment charging them with using the mails to defraud Sears in violation of 18 U.S.C. sec.sec. 2 (aiding and abetting), 1341 (mail fraud) and 1346 (right to honest services). Israel accepted a plea agreement and testified against Montani. The jury convicted Montani on October 29, 1998, and he was sentenced by Judge Williams on March 12, 1999. Section 2B4.1 of the United States Sentencing Guidelines mandated a base offense level of eight, and directed the district judge to follow the table in sec. 2F1.1 to enhance the defendant's sentence depending on the amount of the "improper benefit to be conferred" by the fraud. U.S.S.G. sec. 2B4.1(b)(1). Judge Williams calculated that benefit as $625,651, which represents the difference between the amount Knippel paid D&M and the amount D&M paid Sears. At that amount, sec. 2F1.1 requires a ten-level increase. In addition, Judge Williams added four levels for abusing a position of trust and obstructing justice for a total score of twenty- two points, which translates into a forty-one to fifty-one month sentencing range. Judge Williams sentenced Montani to forty-one months in prison.

II. Analysis

Montani raises four issues on appeal. First, he challenges the district court's decision to admit at trial evidence of Israel's guilty plea. Second, he challenges the court's decision to allow evidence regarding the CDG enterprise under Rule 404(b). Third, Montani challenges the sufficiency of the evidence against him, and finally, he contends the district court committed error by enhancing his sentence ten levels under sec. 2F1.1.

A. Co-defendant's Plea

Montani contends that the district court improperly allowed evidence of Israel's plea agreement to be admitted at trial. This Court reviews for abuse of discretion a trial...