U.S. v. McDougal, 96-3270

• Decision Date: 23 February 1998
• Docket Number: No. 96-3270,96-3270
• Citation: 137 F.3d 547
• Parties: 48 Fed. R. Evid. Serv. 1127 UNITED STATES of America, Appellee, v. Susan H. McDOUGAL, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 547

137 F.3d 547

48 Fed. R. Evid. Serv. 1127

UNITED STATES of America, Appellee, v. Susan H. McDOUGAL, Appellant.

No. 96-3270.

United States Court of Appeals Eighth Circuit.

Submitted April 17, 1997.

Decided Feb. 23, 1998.

Kenneth W. Starr, Little Rock, AR, argued (LeRoy Morgan Jahn, Rod J. Rosenstein and Eric H. Jaso, Little Rock, AR, on the brief), for Appellee.

David Berg, Houston, TX, argued (Joel Androphy, Kathryn Berg, David J. Healey, Houston, TX, Jennifer Horan, Little Rock, AR, and Bobby R. McDaniel, Jonesboro, AR, on the brief), for Appellant.

Before McMILLIAN, JOHN R. GIBSON, and BEAM, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

Susan McDougal appeals her conviction on four counts arising out of a $300,000 Small Business Administration loan from Capital Management Services to her, doing business as Master Marketing, a sole proprietorship. She was convicted of mail fraud for submitting a false Small Business Administration Form 1031 in connection with the loan, in violation of 18 U.S.C. § 1341 (1994) (Count 13); of aiding and abetting in the misapplication of the funds from the loan, in violation of 18 U.S.C.A. § 657 (West Supp.1997) (Count 14); of aiding and abetting the making of a false entry in the reports and statements of Capital Management Services, which stated that the purpose of the loan was for operating expenses of Master Marketing, when it was known that the proceeds would not be so used, in violation of 18 U.S.C. § 1006 (1994) (Count 15); and of aiding and abetting in making a false statement for the purpose of influencing the actions of Capital Management Services by falsely representing that the purpose of the loan was to provide operating capital for Master Marketing, in violation of 18 U.S.C.A. § 1014 (West Supp.1997) (Count 16). ¹ Susan McDougal argues that her convictions should be reversed because: (1) there was insufficient evidence to convict her; (2) co-conspirator hearsay statements were admitted and the district court ² failed to grant a mistrial after dismissal of the conspiracy charges; (3) the court admitted extraneous act evidence; (4) the district court gave erroneous, incomprehensible and mutually exclusive jury instructions; (5) the prosecutors made statements during the trial and closing arguments which amounted to comment about Susan McDougal's failure to testify and call witnesses; (6) the government made improper use of expert opinion testimony; and, finally (7) the trial was tainted by cumulative error. We affirm.

Trial testimony was that David Hale was president of Capital Management Services, a small business investment company, which lent money supplied by the Small Business Administration. James McDougal was the Chairman of the Board of Madison Guaranty Savings and Loan, and Susan McDougal, his wife, was Senior Vice President, corporate secretary and board member.

At James McDougal's direction, Madison Guaranty loaned a straw man monies to buy some property from Hale at an inflated price. The purpose of this transaction was to raise money for Hale to invest in Capital Management in order to increase Capital Management's lending limit to $300,000. Around the same time James McDougal told Hale that McDougal needed a loan from Capital Management. To borrow money from a small business investment company, a borrower had to present an application from which the investment company could determine the purpose of the loan. Small Business Administration regulations prevented the investment companies from loaning money for the purchase of raw land or to pay off other loans. Hale said James McDougal told him, "[W]e're going to want to put the loan in Susan's advertising company." Hale testified that James McDougal brought him an application for a loan for Susan McDougal, doing business as Master Marketing, a sole proprietorship.

The application for the Master Marketing loan stated that it was an advertising and public relations consulting firm doing business at 1310 Main Street in Little Rock, with Susan McDougal, a well known Little Rock advertising personality, as sole owner. Further, it stated that in 1985, her third year in advertising, Ms. McDougal had the sole responsibility for production of T.V., radio, and newspaper advertising for several successful advertising campaigns with gross billings in excess of $1,500,000. The application stated that the loan proceeds would be used to sustain and service current clients, add new clients, and expand client services. Twenty percent of the funds would be used for office and technical equipment, and the balance for operating capital. The loan was needed because the nature of the business required advance payments for media time purchased, creating heavy capital requirements to cover the cash flow demands arising from delay between the time the firm paid for media buys and subsequent collection from the firm's clients.

Hale testified that he used the information James McDougal supplied in the Master Marketing loan application to prepare documentation for the loan, including the note guaranty, and various Small Business Administration forms. In particular, Hale relied on the application in preparing the Small Business Administration Form 1031, which the Administration uses for purposes of regulatory oversight. The Form 1031 stated that the purpose of the loan was to provide "working capital" to Master Marketing. Hale stated that he knew when he filled out the Form 1031 that the loan proceeds would not be used for working capital for Master Marketing.

Hale testified that he prepared the loan documentation and laid it out on a table. On April 3, 1986, Susan McDougal came into his office, reviewed the documents, asked Hale a few questions about them, and then signed all the documents requiring her signature. The Form 1031 was with the other documents for her review. She then accepted the $300,000 check, made payable to "Susan H. McDougal d/b/a/ Master Marketing." She did not endorse the check, but it was deposited in James and Susan McDougal's personal checking account at Madison Guaranty Savings and Loan five days later.

Over the next two months, the $300,000 deposited in the McDougals' personal account was all spent. The government introduced evidence of how the money was spent. It summarizes that evidence as showing the McDougals used $153,370.57 for payments on their existing loans; $28,019.71 for renovations or loans on their house; $45,000 to buy new land; $14,660 for Susan McDougal's brother's political campaign; and $58,199.26 for other expenses, such as apartment rental, housekeeping, utilities, gasoline, dry cleaning, groceries, professional fees for accounting, medical, title and interior decorating services, and department store and credit card accounts. Although these are slightly different categories than the government's witness used at trial, Susan McDougal does not contest the government's summarization of the expenditures.

Hale testified that in May or June 1986 James McDougal came to Hale's office unexpectedly. Hale said McDougal was "real frightened" and wanted to see the file on the Master Marketing loan. James McDougal said he was going to have to "change the purpose out." He had prepared another loan application.

The second application described Master Marketing as a "general purpose real estate brokerage and land development firm with Susan McDougal, a well-known Little Rock real estate executive, as sole owner." It described her ten years' experience in real estate sales and development, as well as her advertising activities. This application stated that Master Marketing was located at 1308 Main Street in Little Rock, whereas the first application gave the address as 1310 Main. The new application said $107,000 would be used to extend water and sewer lines to 127 lots in one real estate development and the balance used to complete surveying and road building on another 700-acre property.

Hale told James McDougal that he could not switch applications because the second application would not match the Form 1031 already filed with the Small Business Administration. Hale took the substitute application and placed it in another file, so that auditors would not see it, note the discrepancy with "the other document," and launch an investigation.

The government introduced evidence directed to the existence of Master Marketing. The government established that people who would be expected to know about Master Marketing, if it had been doing business, knew nothing about it.

Susan McDougal had in fact participated in various advertising campaigns for Madison Guaranty and Madison Financial Corporation, but these activities had been handled through an entity known as Madison Marketing. The advertising agency that Madison Guaranty used during that time dealt with Susan McDougal through Madison Marketing and was paid by checks drawn on the Madison Marketing bank account. The head of that advertising agency, Chester Storthz, told the FBI in June 1994 that he had never heard of "Master Marketing."

The McDougals' accountant, Charles James, identified the McDougals' 1985 and 1986 tax returns, which showed no Schedule C for "Master Marketing" and no income for it (although they did show income for "Madison Marketing"). James testified he had never heard of Susan McDougal doing business as Master Marketing. Kirby Randolph, the employee at Madison who handled the McDougals' personal bank accounts, never kept an account for "Master Marketing." Greg Young, the comptroller at Madison Guaranty, who was responsible for processing invoices and bills for payment, never received any invoices payable to Master Marketing and had never heard of it. Lisa Armstrong, who worked for Madison Marketing, had heard of Master Marketing, but did not know of it as a going concern. Susan McDougal had told her in October 1995 that Master Marketing was the predecessor to Madison Marketing, but this was all Lisa...