U.S. v. Daddona

• Decision Date: 29 September 1994
• Docket Number: 93-7682,Nos. 93-7338,Nos. 93-7351 and 93-7682,93-7683,93-7725 and 93-7351,s. 93-7338,s. 93-7351 and 93-7682
• Citation: 34 F.3d 163
• Parties: UNITED STATES of America, Appellee, v. John L. "Jack" DADDONA, Appellant in, and 93-7725. United States of America v. Sidney Cohen, Appellant in
• Court: U.S. Court of Appeals — Third Circuit

Page 163

34 F.3d 163

UNITED STATES of America, Appellee, v. John L. "Jack" DADDONA, Appellant in Nos. 93-7338, 93-7683,

and 93-7725.

United States of America v. Sidney Cohen, Appellant in Nos. 93-7351 and 93-7682.

Nos. 93-7338, 93-7682, 93-7683, 93-7725 and 93-7351.

United States Court of Appeals, Third Circuit.

Argued May 19, 1994.

Decided Aug. 17, 1994.

Order Amending Caption Sept. 29, 1994.

David Barasch, U.S. Atty. and Kim Douglas Daniel (argued), Asst. U.S. Atty., Harrisburg, PA, for appellee.

James G. Wiles (argued), Law Offices of James G. Wiles, Philadelphia, PA and James L. Heidecker, Jr., Allentown, PA, for appellant Daddona.

Francis Recchuiti (argued), Vangrossi & Recchuiti, Norristown, PA, for appellant Cohen.

Before: BECKER, LEWIS, Circuit Judges, and IRENAS, District Judge. ^*

OPINION OF THE COURT

IRENAS, District Judge.

Appellants were convicted of various counts of fraud stemming from their attempts to disclaim performance and payment bonds issued in connection with a construction project. Pursuant to U.S.S.G. Sec. 2F1.1(b), the trial court determined the amount of loss for sentencing purposes to be in excess of $1,500,000, most of which represented the mortgagee's cost to complete the project after taking it over from the mortgagor/developer. Although the mortgagee was not an obligee under the bonds, the district court nonetheless concluded that its loss was properly attributable to the appellants' fraudulent conduct.

Appellants raise a number of challenges to their convictions and sentences and to the district court's denial of motions for a new trial. We will affirm the judgments of conviction and the district court's denial of appellants' motions for a new trial. However, because we find that the trial court improperly calculated the losses resulting from the appellants' fraudulent conduct, we will vacate the sentences and remand both cases for resentencing.

I. FACTS AND PROCEDURAL HISTORY

Appellant Sidney Cohen ("Cohen") was a principal in Green Hill Associates ("Green Construction on the project began in July of 1986. By the spring of 1987, the project was substantially behind schedule. Cohen sought to replace the general contractor, Susquehanna Construction Company ("Susquehanna"), with Eastern Consolidated Utilities, Inc. ("ECU"), a building contractor owned and operated by appellant John L. ("Jack") Daddona ("Daddona"). Summit agreed to the substitution, provided ECU obtain performance and payment bonds in the amount of $3 million. ¹ Summit also threatened foreclosure unless the bonds were produced by July 29, 1987.

Hill"), a limited partnership and the developer of the Green Hill Apartment Building Project ("the project") in Susquehanna Township, Pennsylvania. The project was financed by an $8.9 million mortgage loan to Green Hill from the Summit Tax Exempt Bond Fund, L.P. ("Summit"), which in turn was headed by Stuart J. Boesky ("Boesky").

Daddona consulted Daniel Culnen ("Culnen") of the Culnen & Hamilton Agency ("C & H"), one of the largest independent surety bond brokers on the East Coast and Daddona's long-time insurance agent. He advised Culnen of Summit's demand, and Culnen agreed to issue the bonds through Employers Insurance of Wausau ("Wausau"), for whom he was a registered independent agent. However, as a condition to his agreement, Culnen required that Daddona, Cohen, and their families agree in writing to personally indemnify Wausau for any claims paid on the bonds. ²

By letter dated June 15, 1987, Culnen advised Summit that in the event ECU were to become the project's general contractor, it would be able to obtain the necessary bonding. Thereafter, on July 6, 1987, Cohen, Daddona, and their families executed an indemnity agreement. On July 20, 1987, ECU and Green Hill entered into a $3.4 million contract for the completion of the project.

On July 27, 1987, Culnen directed his bond manager, Pamela Hayes ("Hayes"), to prepare the bonds on Wausau forms. Hayes prepared the bonds, affixed the Wausau corporate seal, and attached power of attorney forms. Hayes, purportedly at Culnen's behest, did not follow the usual procedure and give the bonds a new number. Rather, she affixed a number that had been used on a previous ECU project and then twice witnessed Culnen's signature under the fictitious name of "B. Adams."

Culnen signed both bonds and delivered them to Daddona along with a cover letter explaining the method of calculating the bond premium. Although Culnen did have authority to execute and deliver Wausau bonds, he breached his own agreement with Wausau by failing to report his execution and delivery of the bonds and by failing to obtain Wausau's prior approval.

Daddona signed the bonds on July 29, 1987, and forwarded them to Cohen. Cohen witnessed Daddona's signatures on the bonds and directed his attorney, Mitchell Leiderman ("Leiderman"), to forward copies of the bonds to Summit, which Leiderman did on July 30, 1994. Summit halted its foreclosure proceedings, and ECU commenced work on the project in August of 1987.

A. Padding the Invoice

In August Culnen prepared and mailed to Daddona an invoice for the bond premiums in the amount of $42,413. Shortly thereafter Cohen called Culnen and instructed him to prepare a new invoice in the amount of $52,413 At Daddona's direction, Culnen forwarded the upwardly revised invoice to Cohen, who submitted it to Summit on October 7, 1987, as part of a monthly requisition. When Summit released the funds to Cohen on October 21, 1987, Cohen immediately forwarded the monies to Culnen and received a check back from Culnen for $10,000 on November 27, 1987.

the difference representing an unrelated $10,000 consulting fee owed by Cohen to Culnen. Daddona indicated that he had no objections to the request.

Culnen retained the remaining $42,413 for a period of time, but was pressured by Cohen and Daddona to divide the money. Consequently, Culnen agreed to give Daddona a $32,413 credit against his outstanding account balance, which was memorialized in a credit memo dated May 11, 1988. On May 16, 1988, Culnen forwarded a second check for $10,000 to Cohen.

B. Resuming Construction

Once the new general contractor was in place, Cohen sought to entice the subcontractors, many of whom had left the project for non-payment, to return to work on the project. At several jobsite meetings conducted in August of 1987, Cohen and ECU employees displayed copies of the bonds and assured the subcontractors that the bonds guaranteed their payment. At least two subcontractors, Thomas Strawbridge and Robert Yingling, subsequently executed contracts with ECU for work on the project. Copies of the bond were also mailed to Les Stewart ("Stewart") of York Excavating Company ("York"), thereby inducing him to return to work.

C. Disclaiming the Bonds

By the end of 1987, the project was still behind schedule, and Summit was again threatening foreclosure. In or around December of 1987, Cohen and Daddona returned the original bonds to Culnen without informing Summit or the subcontractors. ³ By January of 1988, most of the subcontractors had left the site for non-payment, and on February 5, 1988, Summit commenced foreclosure proceedings.

In a settlement reached on April 8, 1988, Summit agreed to pay Green Hill $216,000 less the amount of any unpaid subcontractor bills then due and owing on the project. In return, Green Hill agreed to deed the project to Boesky's nominee, Green Hill Investors, ⁴ to assign to Summit Green Hill's rights (but not its obligations) in the contract with ECU, and to escrow Cohen's beneficial interest in the bonds to pay off liens that might accrue on the property in the four months following the settlement. ⁵

In March, Wausau began to receive claims on the payment bond. On March 16, 1988, the attorney for the International Brotherhood of Electrical Workers Union ("IBEW") filed a claim against the bond with Wausau's home office in Wisconsin and forwarded copies to Cohen and Daddona. On March 21, 1988, Jack Meyers ("Meyers") of Construction Management Corporation ("CMC") also made a claim by sending a copy of the claim letter to Wausau's regional bond manager in Totowa, New Jersey, Ken Gelok ("Gelok").

CMC and York filed formal claims against Wausau on April 14, 1988.

Gelok was surprised by the claims. Company policy required both regional manager and home office approval prior to the issuance of any bonds in excess of $750,000. Gelok knew nothing of the bonds and called Culnen on or about March 25, 1987, to clarify the situation. Culnen advised Gelok that the claims were not valid because he had the cancelled bonds in his possession.

At a meeting in Culnen's office on March 29, 1988, Culnen delivered the bonds to Gelok and falsely assured him that the bonds were not valid, that he had never signed them, and that someone else--perhaps Meyers--had forged his signature. Culnen repeated this tale in a letter dated April 15, 1988, in which he advised Gelok that the bonds were forgeries and that York's and CMC's claims were "phoney claims filed by crooks who probably stole blank forms and forged [Culnen's] signature."

On April 20, 1988, Gelok again met with Culnen at the latter's office. During the course of the meeting, Gelok advised Culnen that he had been unable to contact Cohen to confirm Culnen's story about the bonds. Culnen then picked up the telephone, dialed some numbers, and handed the phone to Gelok. A man who identified himself as Sidney Cohen informed Gelok that "there was no bond in force, there never was and there never would be." Daddona App. at 325. The man also advised Gelok that the bonds on which Meyers' and Stewart's claims were based were forgeries, and that Meyers may have been the one who forged Culnen's signature.

On April 22, 1988, Culnen wrote a second letter to Gelok, in which he informed Gelok that he had contacted Daddona, then on a hunting trip in Alaska, and "the conclusion we [i.e.,...