U.S. v. Dugan

• Decision Date: 13 June 1990
• Docket Number: No. 89-2438,89-2438
• Citation: 902 F.2d 585
• Parties: 30 Fed. R. Evid. Serv. 613 UNITED STATES of America, Plaintiff-Appellee, v. Michael T. DUGAN, II, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 585

902 F.2d 585

30 Fed. R. Evid. Serv. 613

UNITED STATES of America, Plaintiff-Appellee, v. Michael T. DUGAN, II, Defendant-Appellant.

No. 89-2438.

United States Court of Appeals Seventh Circuit.

Argued April 13, 1990.

Decided May 15, 1990.

Rehearing Denied June 13, 1990.

Larry A. Mackey, Scott C. Newman, Asst. U.S. Attys., Indianapolis, Ind., for plaintiff-appellee.

Kevin McShane, Henry Y. Dein, Indianapolis, Ind., for defendant-appellant.

Before CUDAHY, POSNER and FLAUM, Circuit Judges.

FLAUM, Circuit Judge.

Defendant Michael T. Dugan, II, appeals his convictions for mail fraud, wire fraud, extortion, bribery and engaging in a pattern of racketeering activity. He claims that the admission of co-conspirator statements under Federal Rule of Evidence 801(d)(2)(E) deprived him of his confrontation rights under the sixth amendment and, in addition, that the evidence presented at trial was insufficient to support his convictions for mail fraud. We affirm.

I.

In 1974, Dugan was elected to a four year term as Judge of Marion Superior Court, Civil Division, Room Number V, an Indiana court having general jurisdiction over all types of civil and family litigation. He was re-elected to a six-year term in 1978, and again in 1984. Dugan has admitted that during his tenure he engaged in three separate illegal remunerative schemes: extortion of receivership and appraisal appointees, extortion of a company placed in a trusteeship under his control, and the improper use of public money for personal use.

In 1974, Dugan's friend Robert I. Highfill was involved in some of the discussions that led to Dugan being slated as a judicial candidate. Within thirty days of his election to the superior court bench, Judge Dugan called Highfill to his chambers and explained to him that as a judge, he had the power to make remunerative court appointments. He thereafter appointed Highfill regularly to court-ordered appraisals and receiverships.

In 1977, as the frequency and profitability of Highfill's court appointments were increasing, Dugan asked Highfill to obtain a station wagon so that Dugan and his family could vacation in Las Vegas and California. At Dugan's direction, Highfill gave him a number of gasoline credit cards which he then used, signing the name "Robert Highfill" or "Michael Highfill" to purchase approximately $250 in gasoline for the wagon at Highfill's expense along his route from Indiana to California and back.

By 1979, Highfill had become wholly dependent upon court appointments from Dugan for his livelihood. In that year, shortly after authorizing a $2,500 payment to Highfill as receiver for a case in his court, Dugan asked Highfill to loan him $2,000. Highfill gave Dugan the money in cash and it was never repaid. In 1982, Dugan again asked Highfill to finance a personal vacation by obtaining a van for the judge's fishing trip to Canada. Highfill once more acquiesced to Dugan's demands.

John P. Flanagan was also a long-time friend and political ally of Dugan. From the late 1970's until September of 1980, Flanagan received only two court appointments from Dugan. In September of 1980, Flanagan had a lunch conversation with Dugan during which he agreed to pay Dugan, in cash, forty percent of every receivership or appraisal fee that Dugan authorized. After this meeting, and through March of 1985, Flanagan received fifty receiverships and appraisal appointments from Dugan. In every receivership or appraisal case to which Flanagan was appointed, Dugan personally authorized the payment of fees, arranged to meet with Flanagan, waited while Flanagan cashed the fee checks, and personally collected his cash kickback. Flanagan eventually pleaded guilty to paying Dugan a total of $31,240 in cash in return for court appointments.

In addition to kickback agreements involving receivership and appraisal cases, Dugan extorted unlawful payments from most of the principal executives of a troubled insurance company which was the subject of a rehabilitation lawsuit pending for ten years in his court. Underwriters National Assurance Company ("Underwriters") was an Indianapolis-based stock-type insurance corporation. The company principally sold health and disability insurance policies to commercial airline pilots. By 1974, stock in the company was being publicly traded, with hundreds of shareholders across the United States and tens of thousands of policyholders worldwide. Underwriters owned approximately twenty-five million dollars in assets, consisting primarily of commercial real estate and a stock and bond portfolio.

In 1974, the Indiana Department of Insurance (the "Department"), which regulated all insurance companies doing business in the state, found Underwriters to have insufficient reserves with which to meet certain obligations to its policy holders. Specifically, Underwriters was obligated on a substantial block of its business to make premium refunds to policyholders who had avoided filing any claims during a ten-year period. The Department determined that Underwriters could not meet its premium refund obligations while maintaining the reserves necessary to protect current policyholders. It therefore filed a "rehabilitation" lawsuit under an Indiana statutory provision authorizing court supervision for financially troubled insurance companies.

In 1976, Judge Dugan approved a Plan of Rehabilitation for Underwriters. The Plan permitted the company to return to normal operation while acknowledging a $2.5 million dollar debt to the policyholders entitled to premium refunds. The Plan allowed ten years--until November 22, 1986--for the company to repay the $2.5 million to the policyholders out of surplus generated from its business operations. As for the stockholders of Underwriters, the Plan required them temporarily to place their stock in a trust to be supervised by the court. Each year the court would appoint a board of trustees to hold and vote the stock until the policyholders had been repaid, at which time the stockholders would take back legal title to their stock. If, by November 22, 1986, the policyholders still had not been repaid, the Plan provided that the stockholders would forfeit all their stock. Those policyholders still remaining with Underwriters in 1986 would become entitled to a default remedy: Underwriters would be converted to a mutual company, of which the remaining policyholders would be the nominal owners. This procedure came to be known as "mutualization."

The Plan contemplated a limited supervisory role for the court during its ten-year duration, consisting primarily of appointing the board of trustees and ensuring that policyholders were properly repaid from the company's profits in accordance with the Plan. As time went by, however, Dugan became constantly more active in the business affairs of Underwriters. Although not provided for in the Plan, Dugan selected or approved the chairmen of the boards of trustees and directors, the company's successive presidents, the company's management contracting arrangements, marketing managers, and legal counsel. He also fixed the compensation levels for these individuals, drafted their employment or agency contracts, conducted job interviews of prospective employees, fired executives when they displeased him, and negotiated their severance agreements.

Dugan used this assumed power to extort $190,000 from the company over a nine year period by demanding kickbacks from his appointees and inflating the salaries of his appointees to cover the kickbacks. The details of the scheme are unimportant for our purposes, although we relate a few instances as examples. Much of the scheme was run through Robert Eichholtz, a close friend of Dugan's who at the time was chairman of the boards of directors and of the trustees of Underwriters. In early 1979, Eichholtz approached David Phipps, an executive at Underwriters, and said that he had been making periodic payments of cash to Dugan. Eichholtz told Phipps that if Phipps wished to remain employed at Underwriters, he should also begin making payments, in the amount of $200 each month. By 1983, Phipps' salary was raised from $40,000 to $99,000 and his required monthly kickback payment was increased to $700.

Dugan also extorted payments from Dr. James R. Riggs. Dugan appointed Riggs as trustee and approved an increase in trustee fees from $2,500 to $6,000. Riggs was told by Eichholtz that Dugan would expect $1,000 per year payment in cash if Riggs wished to keep his position. Riggs agreed to this arrangement. When Eichholtz died in 1983, Riggs replaced him as chairman of the board of directors. As chairman, Riggs was to receive $1,000 each month, $300 of which was paid back to Dugan. In 1983, Riggs' salary was increased to $3,000 per month of which Dugan received $1,000. All in all, Riggs ended up paying Dugan $39,000 in cash kickbacks from fees and salary.

Without belaboring the point, Dugan also extorted money from several other people by exercising his control over the company. These people included Eichholtz and Flanagan (in addition to the amounts he extorted from Flanagan from the receiverships and appraisals), among others. In each case, the extortion scheme was the same: Dugan would require kickbacks for appointments with the company, inflating salaries to cover the costs of the kickbacks.

In addition to these direct cash payments, Dugan enjoyed an Underwriters expense account, which allowed him to dine several times each week, to vacation frequently at resorts in California, and to tour Europe, all at Underwriters expense. The actual dollar amounts from these more indirect financial benefits totalled more than $21,000.

Finally, with respect to Underwriters, Dugan attempted to purposefully cause mutualization and name himself as the future chairman of the board of the mutualized company. This action would have deprived the policyholders of about $2,500,000, plus interest, and would have...