U.S. v. Dandy

• Decision Date: 15 September 1993
• Docket Number: Nos. 92-1702,92-1840,s. 92-1702
• Parties: -5236, 93-2 USTC P 50,638, 37 Fed. R. Evid. Serv. 988 UNITED STATES of America, Plaintiff-Appellee, v. Alex DANDY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1344

998 F.2d 1344

72 A.F.T.R.2d 93-5236, 93-2 USTC P 50,638,

37 Fed. R. Evid. Serv. 988

UNITED STATES of America, Plaintiff-Appellee, v. Alex DANDY, Defendant-Appellant.

Nos. 92-1702, 92-1840.

United States Court of Appeals Sixth Circuit.

Argued March 18, 1993.

Decided June 7, 1993.

As Amended Aug. 11, 1993.

Rehearing and Suggestion for Rehearing En Banc Denied Sept.

15, 1993.

Robert Haviland, Asst. U.S. Atty. (argued and briefed), Office of the U.S. Atty., Flint, MI, for plaintiff-appellee.

Richard L. Stoper, Jr. (argued and briefed), Robert J. Rotatori (argued and briefed), Gold, Rotatori, Schwartz & Gibbons, Cleveland, OH, for defendant-appellant in No. 92-1702.

Richard L. Stoper, Jr. (argued and briefed), Robert J. Rotatori (argued and briefed), Gold, Rotatori, Schwartz & Gibbons, Cleveland, OH, Neil H. Fink, Evans & Luptak, Detroit, MI, for defendant-appellant in No. 92-1840.

Before: MILBURN and RYAN, Circuit Judges; and COFFIN, Senior Circuit Judge. ^*

MILBURN, Circuit Judge.

Defendant Alex Dandy appeals from the judgment of the district court dated May 22, 1992, on his convictions on ten counts of tax offenses, mail fraud, bankruptcy fraud, and obstruction of justice, all resulting from the jury's finding him guilty. He also appeals from the district court's "Corrected Judgment" entered on June 29, 1992, which eliminated an ambiguity in the judgment concerning his parole eligibility date. On appeal, defendant raises the following issues: (1) whether the trial judge erred in ruling that the judge's acquaintance with a government witness did not require his recusal, (2) whether the district court's limitations on cross-examination and its admission of certain evidence denied defendant his Sixth Amendment right to confront witnesses against him, (3) whether prosecutorial misconduct deprived defendant of a fair trial, (4) whether the district court's questioning of witnesses and commenting on the evidence deprived defendant of a fair trial, (5) whether Counts 1 and 2 of the indictment alleging tax evasion are barred by the statute of limitations, (6) whether Count 8 properly charged a violation of the mail fraud statute, (7) whether Count 9 properly charged a violation of the mail fraud statute, (8) whether the district court committed reversible error in refusing to instruct the jury that repayment is a factor to be considered in determining whether a particular transaction is a loan, and (9) whether the district court lacked jurisdiction to enter its corrected judgment. We affirm in part, vacate in part, and remand.

I.

A.

Defendant Alex Dandy purchased and controlled Hamady Brothers Food Markets, Inc. ("Hamady") through a holding company owned by his family trust. Dandy assumed control of Hamady's business in 1981.

McDonald Dairy was Hamady's dairy supplier, and it followed the common industry practice of paying rebates to its customers based on the volume of their purchases. Beginning in late 1981, Dandy directed Hamady's accounting department to cash the rebate checks but to account for them as "gift certificates" issued to "Alex Dandy" rather than as rebates earned by Hamady. Dandy then endorsed each gift certificate and directed the accounting department to apply them as credits to his personal loan account with Hamady, thereby reducing the amount he owed. From 1982 to 1984, Dandy diverted more than $1 million in McDonald Dairy rebates through this gift certificate scheme. He also received small amounts from other wholesalers supplying goods to Hamady. He did not report any of this money on his personal income tax returns for 1982 through 1984.

During this same period, defendant also demanded that McDonald Dairy pay numerous bills he had incurred for items such as airline tickets, televisions, and limousine service. McDonald Dairy paid the bills in order to avoid losing its business with Hamady. Other suppliers also agreed to make such payments at Dandy's direction.

In one scheme, a bank account was opened by defendant's friend, Father Basil Kalekas, under the auspices of the "St. George's Orthodox Church Pastor's Charitable Fund." Nearly all the money deposited to this fund was paid under Dandy's direction by Hamady's suppliers or by Hamady itself. About 80 percent of the money was then withdrawn as cash and given to defendant. Father Kalekas paid some small personal bills for charitable expenses from the fund, but all checks in the amount of $500 or more were paid at Dandy's direction to or on behalf of himself or his friends for their personal use. When Father Kalekas died, defendant demanded and received the remaining $27,000 in the fund from Kalekas' widow. During the years 1982 through 1984 and 1986, Dandy received about $375,000 in such third-party payments, including $157,500 paid to the Pastor's Charitable Fund which Dandy never declared on his personal income tax returns.

Also during late 1981, Dandy began to obtain kickbacks from another Hamady supplier, M & B Distributors ("M & B"). He told M & B to raise the markup M & B charged Hamady by one-half percent and to use the resulting money to pay a salary to Dandy's son-in-law, David Kirdassi. Kirdassi never did any work whatsoever for M & B but received $38,400 yearly from 1982 through 1985 and an additional $6,400 in early 1986. None of these kickbacks were reported on Dandy's income tax returns.

On January 24, 1985, an Internal Revenue Service ("IRS") agent issued a summons to McDonald Dairy for records of rebate moneys it had paid to Hamady "or any officer" of Hamady. Defendant sought to cover up his gift certificate scheme by hiring new accountants, signing a note to pay back Hamady for the rebate moneys he had diverted to his account, and directing Hamady to file amended income tax returns declaring that the moneys were corporate income.

In November 1985, a second IRS subpoena was served on McDonald Dairy for records of rebate moneys paid during 1980, 1984, and 1985. Again, defendant directed McDonald Dairy to give the IRS only those checks payable to "Hamady Brothers Food Markets" and to withhold all checks which represented payments directly or indirectly to himself.

In March 1986, Dandy purchased options to buy all the common stock of Nu-Trax, Inc., d/b/a "Chatham Super Markets" ("Chatham/Nu-Trax"). He also acquired proxies to vote all of the Chatham/Nu-Trax stock, gaining complete and exclusive control over the corporation. Using his control, defendant Dandy caused Chatham/Nu-Trax to greatly increase its purchases from certain suppliers whom defendant directed to inflate their prices in order to pay for such things as a sham salary to his son-in-law and kickbacks to defendant's solely owned corporations, ADI International and Michigan Milk Movers, Inc. The sham salary and kickbacks were for "consulting fees" even though these entities provided no services whatsoever for anyone. The suppliers involved in the schemes included M & B Distributors, McDonald Dairy, and London's Farm Dairy ("London's") and the schemes involved several hundred thousand dollars.

Defendant Dandy also diverted numerous Chatham/Nu-Trax assets to himself causing Chatham/Nu-Trax to sell tractors, trailers, and other equipment to its suppliers at very low prices. He then directed the suppliers to pay the remaining value of this equipment to his wholly-owned corporation, ADI International, as "consulting fees," even though ADI International provided no consulting services. He also directed Chatham/Nu-Trax to pay ADI International over $275,000 in bogus "consulting fees." By 1986, it was clear that bankruptcy was inevitable for Chatham/Nu-Trax. Defendant then sold his worthless option on Chatham/Nu-Trax's remaining stock back to Chatham/Nu-Trax, forcing it to pay him cash and transfer real estate worth over $7 million. However, he kept his proxy for exactly one year and one day in order to prevent Chatham/Nu-Trax from declaring bankruptcy during the one-year period within which his option sale could be rescinded as an avoidable transfer under bankruptcy law. Chatham/Nu-Trax and Hamady declared bankruptcy in 1987.

Dandy then declared on his 1986 income tax returns the $7 million he had received for the sale of the option as a capital gain, thereby reducing the tax declared. However, he omitted from the return income he had received in the form of kickbacks, payments by suppliers for personal services, and sham salaries paid to his son-in-law and his son's girl friend.

B.

On December 14, 1990, an indictment was returned charging defendant Dandy with tax evasion, willfully filing false returns, mail fraud, and bankruptcy fraud. On April 12, 1991, the grand jury returned a superseding indictment charging defendant in Counts 1 through 3 with tax evasion for the years 1982 through 1984 in violation of 26 U.S.C. § 7201; willfully filing false amended returns for 1982, 1983, and 1986 in Counts 4, 5 and 11 in violation of 26 U.S.C. § 7206(1); obstructing an IRS audit in Count 6 in violation of 18 U.S.C. § 1505; mail fraud in Counts 7 through 9 in violation of 18 U.S.C. § 1341; and bankruptcy fraud in Count 10 in violation of 18 U.S.C. §§ 152 and 2(b). Trial began on September 10, 1991, and concluded on November 20, 1991. The jury returned a verdict of guilty on all counts except Count 7 which had been dismissed by the district court. The district court sentenced defendant to a total of twenty-three years' imprisonment on May 22, 1992, and entered judgment on June 3, 1992. A timely appeal followed. On June 29, 1992, the district court entered a "Corrected Judgment." A timely appeal again followed.

II.

A.

Defendant Dandy argues that District Judge Cleland should have recused himself pursuant to Dandy's motion under 28 U.S.C. § 455(a) because of Judge Cleland's acquaintance with Douglas Mowat, President of London's Farm Dairy, and with certain members of the London family. We review a district court's refusal to grant a motion for recusal for...