U.S. v. Leahy
| Decision Date | 04 October 2006 |
| Docket Number | No. 05-2639.,No. 06-1485.,No. 05-2652.,No. 05-2692.,05-2639.,05-2652.,05-2692.,06-1485. |
| Citation | 464 F.3d 773 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. John J. LEAHY, William E. Stratton, James M. Duff, and Terrence Dolan, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Charles E. Ex (argued), David Buvinger, Office of the United States Attorney, Chicago, IL, for Plaintiff-Appellee.
Anthony Pinelli (argued), Chicago, IL, Michael D. Sher (argued), Neal, Gerber & Eisenberg, Chicago, IL, Terence H. Campbell, Cotsirilos, Tighe & Streicker, Chicago, IL, Mark L. Rotert (argued), Thomas A. Durkin, Durkin & Roberts, Chicago, IL, for Defendants-Appellants.
Before RIPPLE, MANION, and SYKES, Circuit Judges.
This appeal stems from James Duff's admitted, successful schemes to cheat the City of Chicago out of funds slotted for minority- and women-owned businesses and to swindle various workers compensation insurance providers out of proper premiums. Duff's expansive plots swept up many of his business associates and family members, and this appeal consolidates a broad range of challenges (by him and them) to pleas, jury convictions, and sentences. We affirm in part and reverse in part.
Two complex fraud schemes hatched by James Duff, a Chicago businessman, are at the heart of this case. Despite the significant overlap between the participants and companies that figure in the two plots, we will discuss the facts of each separately in the interest of clarity.
In 1990, the City Council of Chicago passed an ordinance to grant an advantage to select businesses owned by minorities ("MBEs") and women ("WBEs") in the award of city contract money. Specifically, Chicago's Purchasing Agent had to "establish a goal of awarding not less than 25% of the annual dollar value of all Contracts to qualified M.B.E.s and 5% of the annual dollar value of all Contracts to qualified W.B.E.s." In addition to requiring the heads of departments and agencies to work with the Purchasing Agent to meet this goal, the ordinance also contained an explicit provision setting aside certain contracts for qualified MBEs and WBEs that met "target market requirements." Companies that wished to obtain a contract with the city, but which were neither MBEs nor WBEs, had to commit to expend 25% of the value of the contract with MBEs and 5% with WBEs. The ordinance included subcontracting as one of the various ways to fulfill this requirement. Penalties for a contractor's failure to meet the appropriate percentages ranged from liquidated damages to termination.
While the ordinance provided substantial assistance to MBEs and WBEs, it imposed heavy restrictions on which companies qualified. In particular, it limited its application based both on owner involvement in the business and the level of success achieved by the business. For a business to qualify as an MBE, one or more members of a minority group must have ownership of 51% of the company, and one or more members of a minority group must have day-to-day management and control. The ordinance defined a WBE in like manner, substituting women for minorities. A figurehead minority or woman owner, therefore, would not be enough for certification; a member of one of these select groups must own and, for all practical purposes, run the business.
There was an additional limitation. Chicago prohibited any "Established Business" from gaining this favored status. According to the ordinance, an established business was one which, "by virtue of its size and capacity . . . does not need to be a participant in the Program in order to effectuate the purposes of the Program . . . ." Giving further guidance, the ordinance presumed a business met this definition if it (and any affiliates) totaled $17 million in average annual gross receipts over a three-year period. This restriction indicates that Chicago was not interested in subsidizing entrenched, successful businesses, even if the businesses were owned by women or minorities. As a former city official put it at trial, "it was a program to assist those companies to win contracts with the City in a competitive situation and become economically viable so that they, in fact, could compete as prime contractors." In other words, this was an affirmative action program whose fruits were reserved for fledgling minority and women businesses.
When Chicago passed the ordinance, James Duff, a white man, controlled numerous businesses in the city. For purposes of the present discussion, we focus our attention on two of those businesses. First, he controlled Windy City Maintenance ("Windy Maintenance"), a company providing janitorial services, which Duff incorporated in 1989. While his mother, Patricia Green Duff ("Green Duff"), was Windy Maintenance's sole shareholder, this was an empty formality as she had no real involvement with the business, exercising no control over its affairs and spending considerable time in vacation homes in Florida and Wisconsin. Duff himself actually ran Windy Maintenance, making all substantive financial and business decisions, including hiring employees and negotiating contracts. Second, Duff controlled a company named Remedial Environmental Manpower ("Remedial"), which "manage[d] and provide[d] manpower for environmental cleanup." Remedial was incorporated in 1988, and its purported owners were William Stratton ("Stratton"), who owned fifty-five percent of the stock, and Green Duff, who owned the remaining forty-five percent. Stratton, a black man, acted as the occasional driver and companion of Duff's father, a friendship dating back to earlier union days. Stratton routinely came to the Remedial office (space shared with a number of other Duff businesses) shortly before lunch in the company of Duff's father and, while there, mainly played cards with members of the Duff family and watched television. For the early part of its existence, Remedial was more of an empty shell than a thriving concern, or as Duff himself put it, "a company that didn't work out." To the extent that Remedial was an actual company, however, Duff was in charge.
With Green Duff and Stratton in the ownership positions of these companies, Windy Maintenance and Remedial appeared, at least superficially, well-positioned to obtain WBE and MBE certification after the passage of the ordinance. Of course, for either to gain such a status, Duff would need to obscure his kingship over the companies.
Windy Maintenance was the first to try to take advantage of the ordinance. In 1991, it applied for certification as a WBE, claiming in the application that Green Duff, who used her maiden name, Patricia Green, both owned and ran the company. Green Duff repeated this representation to city officials during a subsequent certification interview, and Windy Maintenance obtained the desired certification as a WBE. Windy Maintenance retained this position for several years, with corporate officers, such as Terrence Dolan, submitting annual renewal applications that reiterated the false description of Green Duff's role.
Windy Maintenance's certification allowed it to win lucrative contracts with Chicago and subcontracts with City contractors specifically because of its WBE status. In particular, Windy Maintenance entered into subcontracts to provide janitorial services for a terminal at O'Hare International Airport and the Harold Washington Library. Windy Maintenance also contracted directly with Chicago for similar services at the city's 911 Center and a district of the Chicago Police Department. In 1999, Windy Maintenance informed the city that it would no longer apply for WBE certification as it had reached the maximum dollar limits it could obtain under the program. Over the years in which Windy Maintenance was certified as a WBE, it obtained $37,512,279 from these contracts and subcontracts. Throughout this time, Duff was totally in charge at Windy Maintenance.
Remedial's big break came slightly later than that of its sister company. In approximately 1991, Duff was approached by James Barry, a long-time friend and business associate, to discuss providing the labor portion of a bid that Barry's company, Waste Management of Illinois ("Waste Management"), was submitting to Chicago. Chicago was looking for a company to provide construction, administration, and labor services for four new recycling centers as part of the city's Blue Bag recycling program. Of course, Chicago's involvement meant that the winning bid had to comply with the strictures of the 1990 ordinance. Duff responded to Barry's solicitation that he could not only fulfill Waste Management's labor needs, but could do so using a company that could achieve MBE certification—Remedial. Remedial's lack of work experience did not faze Barry. He was selecting Duff, a friend and established businessman who had consistently met Barry's expectations in past projects, while getting credit for hiring an MBE. As Barry put it at trial, "it was my understanding that no matter what the ownership structure of the company would be, that I was going to continue to deal with Jimmy and rely on Jimmy to operate and control." After eventually winning the Blue Bag contract, Waste Management designated Remedial as its MBE subcontractor in its 1993 plan to the city.
Obtaining certification as an MBE turned out to be a much trickier proposition for Remedial than it had been for Windy Maintenance. In 1993, Remedial submitted its initial certification affidavit to the city's purchasing agent for approval. This application revealed that Ellen Niemeier was the sole minority shareholder and contained no references to Duff's mother, Green Duff. Duff's influence had not diminished, as Ellen Niemeier happened to be his wife. Nonetheless, the application raised a variety of...
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