U.S. v. Neely

• Decision Date: 18 November 1992
• Docket Number: 88-1402,Nos. 88-1387,88-2799,88-2603,88-2800 and 88-2906,88-2574,s. 88-1387
• Citation: 980 F.2d 1074
• Parties: 37 Fed. R. Evid. Serv. 448 UNITED STATES of America, Plaintiff-Appellee, v. Margaret NEELY, Forest Bailey, Steve Johnson, Cornell Stokes, and Ben Israel, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1074

980 F.2d 1074

37 Fed. R. Evid. Serv. 448

UNITED STATES of America, Plaintiff-Appellee, v. Margaret NEELY, Forest Bailey, Steve Johnson, Cornell

Stokes, and Ben Israel, Defendants-Appellants.

Nos. 88-1387, 88-1402, 88-2574, 88-2603, 88-2799, 88-2800

and 88-2906.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 16, 1992.

Decided Nov. 18, 1992.

Mark D. Pollack, Alan Grossman and Anton R. Valukas, Asst. U.S. Attys., Office of the U.S. Atty., Criminal Div., David Stetler and Victoria J. Peters, Asst. U.S. Attys., James R. Ferguson, Jonathan C. Bunge (argued), Office of the U.S. Atty., Criminal Receiving, Appellate Div., Chicago, Ill., for U.S.

William H. Theis, Chicago, Ill., argued for Margaret Neely.

William H. Theis (argued), Gerald J. Collins, Chicago, Ill., for Ben Israel.

Paul M. Brayman, Chicago, Ill., argued for Forest Bailey.

Lewis Myers, Jr., Paul M. Brayman (argued), Chicago, Ill., for Steve Johnson.

Thomas Peters, Chicago, Ill., argued for Cornell Stokes.

Before BAUER, Chief Judge, EASTERBROOK, Circuit Judge, and WOOD, Jr., Senior Circuit Judge.

BAUER, Chief Judge.

In a forty-eight count indictment, twenty-six people were charged with mail fraud, racketeering, and conspiracy as a result of their association with a scheme involving staged automobile accidents, padded medical bills, and fraudulent insurance claims. After an eleven-week trial, the jury convicted the defendants in this consolidated appeal, Forest Bailey, Ben Israel, Steve Johnson, Margaret Neely, and Cornell Stokes, of substantially all the counts with which they were charged. We find no merit in their challenges to these convictions, and affirm them in all respects.

I.

The defendants were indicted in connection with a conspiracy to defraud insurance companies by staging automobile accidents. Insurance agent Forest Bailey, working with two other agents who do not raise claims on appeal, obtained multiple automobile insurance policies for Larry Lake and Walter McCullins. Lake and McCullins, as well as Steve Johnson and Carl Langley, drove in the staged accidents. After securing insurance, Bailey, the drivers, and former alderman Perry Hutchinson arranged staged accidents. Ben Israel, Steve Johnson, Margaret Neely, and Cornell Stokes were volunteer "victims." The drivers pretended to strike the victims (or struck them at very low speed), the victims fell to the ground screaming for an ambulance. The victims then feigned injury (hard-to-diagnose back and neck injuries were the most common complaints) and were taken to the hospital. After they were discharged from the hospital, the victims visited another conspirator, Dr. Aaron Long. Long submitted fraudulent bills for unnecessary medical treatment to the drivers' insurance companies. Another conspirator, Nolan Harrison, verified false wage-loss claims for the victims, which were submitted for payment. Patrick McClurkin, an attorney, negotiated with the insurance companies on behalf of the victims.

The participants divided the spoils of the seventeen staged accidents. After several years, the scheme began to sour. In the fall of 1985 Lake was subpoenaed by a federal grand jury. He went to see Bailey, and after they discussed the subpoena, he agreed to go to Belize indefinitely. Long, McClurkin, and Hutchinson gave Lake $3,400 for his trip. Tr. at 4542. Lake left in November 1985 and, though he received another $1,500 from Bailey, he returned to Chicago on December 30, 1985. Lake was afraid to tell his co-conspirators of his return, Tr. at 4549, but Steve Johnson saw him in traffic one day in January 1986.

Lake realized that Johnson had seen him, and wrote four virtually identical letters which detailed the fraud scheme and pinned responsibility for it on Bailey. Lake hoped that the letters would protect him from Bailey and others who might be willing to take drastic steps to protect themselves. He eventually sent one of the letters to the United States Attorney's Office for the Northern District of Illinois; he sent another to Forest Bailey. The two remaining letters he placed in safe deposit boxes. Bailey, after consulting with Hutchinson, Long, and McClurkin, responded to the letter protesting his innocence. Lake cooperated with the government and testified before the grand jury. He pleaded guilty to one count of mail fraud and one count of conspiracy.

Count one of the forty-eight count superseding indictment charged Bailey, McClurkin, Long, Harrison, and Hutchinson with conspiracy to commit mail fraud. Counts two through thirty-five charged the various defendants with substantive mail fraud. Count thirty-six charged Bailey and Hutchinson with racketeering; counts thirty-seven and thirty-eight charged the pair with conspiracy to obstruct justice and with obstruction of justice. The remaining counts charged various defendants with perjury to the grand jury, conspiracy to evade income taxation, and filing false tax returns.

II. Forest Bailey

Bailey was convicted on all counts with which he was charged: three counts of conspiracy in violation of 18 U.S.C. § 371, thirty-four counts of mail fraud in violation of 18 U.S.C. § 1341, one count of racketeering in violation of 18 U.S.C. § 1962(c), one count of obstruction of justice in violation of 18 U.S.C. § 1503, and two counts of filing false tax returns in violation of 26 U.S.C. § 7206(1). Bailey was sentenced to fourteen years in prison, followed by five years on probation. Bailey argues that he is entitled to a new trial because of three allegedly erroneous evidentiary rulings by the district court. We shall consider each challenge in turn.

Bailey and Steve Johnson (one of the drivers) submitted a joint brief, but we shall examine their claims under Federal Rule of Evidence 404(b) separately. Bailey asserts that the district court should not have admitted evidence that he was involved in another insurance fraud scheme. The government presented evidence that Bailey orchestrated another automobile insurance fraud scheme at the same time he was participating in the staged-accident scam. Bailey arranged for cars to be stripped and crushed, and then reported them stolen to insurance companies. The district court admitted this evidence under Federal Rule of Evidence 404(b). Rule 404(b) provides that evidence of other acts is not admissible to show that the defendant has a bad character and that he acted consistently with that character. United States v. Harvey, 959 F.2d 1371, 1373-74 (7th Cir.1992). Evidence of other acts may be admitted however, to establish "motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident." Fed.R.Evid. 404(b). The government presented the "other acts" evidence to establish Bailey's intent or state of mind. The judge gave the jury a cautionary instruction directing it to limit its consideration of the second scheme to Bailey's intent. See, e.g., Tr. at 4431, 5119.

Larry Lake testified that Bailey directed him to purchase expensive cars for Bailey. Tr. at 4432. Lake stripped the cars, Bailey filed insurance claims for the damage, and then Lake reassembled the cars. Tr. at 4432, 4437. Bailey also ordered Lake to destroy three cars, and filed claims for theft. Id. at 4432. Lake testified that Bailey also had him strip and scrap other people's cars. Tr. at 4490-92. Aaron Long testified that Bailey arranged for Long to submit a false repair claim on Long's car, and then had the car towed and crushed so Long could submit a false theft claim too. Tr. at 5616-23. Marshall Wade (Tr. at 5120-24) and Norman Cross (Tr. at 2159- 66) testified that Bailey made similar arrangements for them.

We review a district court's decision to admit Rule 404(b) evidence (as we do other evidentiary rulings), for an abuse of discretion. United States v. Torres, 977 F.2d 321 (7th Cir.1992); United States v. Whalen, 940 F.2d 1027, 1032 (7th Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 403, 116 L.Ed.2d 352 (1991).

In order to admit evidence under Rule 404(b), the district court must find that:

(1) the evidence is directed toward establishing a matter in issue other than the defendant's propensity to commit the crime charged, (2) the evidence shows that the other act is similar enough and close enough in time to be relevant to the matter in issue, (3) the evidence is sufficient to support a jury finding that the defendant committed the similar act, and (4) the probative value is not substantially outweighed by the danger of unfair prejudice.

Id. See United States v. Lennartz, 948 F.2d 363, 366 (7th Cir.1991); United States v. Zapata, 871 F.2d 616, 620 (7th Cir.1989) (citing United States v. Shackleford, 738 F.2d 776, 779 (7th Cir.1984)). Bailey's claims center on the fourth prong of the test. He contends that the district court abused its discretion "because it mechanically admitted the evidence without considering [its] prejudicial effect...." Bailey Brief at 12. Further, Bailey contends that because "[t]here was more than ample direct evidence establishing ... specific intent ...," intent was not an issue, and the government did not need to present the 404(b) evidence. Bailey Brief at 13. Bailey overlooks the federal rule that " 'a simple plea of not guilty ... puts the prosecution to its proof as to all elements of the crime charged.' " Estelle v. McGuire, --- U.S. ----, ----, 112 S.Ct. 475, 481, 116 L.Ed.2d 385 (1991) (quoting Mathews v. United States, 485 U.S. 58, 64-65, 108 S.Ct. 883, 887, 99 L.Ed.2d 54 (1988)). Mail fraud is a specific intent crime, Lennartz, 948 F.2d at 366, and "the prosecution's burden to prove every element of the crime is not relieved by a defendant's tactical decision not to contest an essential element of the offense." McGuire, --- U.S. ----, 112 S.Ct. at 481.

The district court did not mechanically admit the evidence. It found that the government provided clear and convincing evidence that there was a second scheme, and that the...