U.S. v. Newman

• Decision Date: 14 September 1994
• Docket Number: No. 91-1963,91-1963
• Parties: UNITED STATES, Appellee, v. Thomas E. NEWMAN, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1

49 F.3d 1

UNITED STATES, Appellee, v. Thomas E. NEWMAN, Defendant, Appellant.

No. 91-1963.

United States Court of Appeals, First Circuit.

Heard Sept. 14, 1994.

Decided Feb. 28, 1995.

John A. Macfadyen, Providence, RI, for appellant.

Margaret E. Curran, Asst. U.S. Atty., with whom Sheldon Whitehouse, U.S. Atty., and Edwin J. Gale, Asst. U.S. Atty., Providence, RI, were on brief for appellee.

Before SELYA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and STAHL, Circuit Judge.

LEVIN H. CAMPBELL, Senior Circuit Judge.

Defendant Thomas Newman appeals from final judgment and sentence entered by the district court after a three-week criminal trial. The jury convicted Newman of five counts of wire fraud (18 U.S.C. Sec. 1343 (1988)) and four counts of transporting stolen property in interstate commerce (18 U.S.C. Sec. 2314 (1988)), all arising out of his allegedly fraudulent acquisition of an insurance company and the diversion of almost $400,000 of its funds for his personal use. Newman alleges that the district court committed a variety of errors at trial and at sentencing. We affirm the judgment, and most, but not all, aspects of the sentence.

I.

In late 1989, Newman, a self-described businessman, met with the owner and officers of Rumford Property and Liability Insurance Company ("RPLIC") to discuss his possible purchase of the Rhode Island-based insurance company. After a series of discussions and negotiations, Newman purchased RPLIC for $200,000 on December 11, 1989. RPLIC's stock was immediately transferred to the newly-created Rumford Holding Company ("RHC"), which was wholly owned by Newman.

Prior to the purchase, RPLIC had been facing financial difficulties. In part because of these difficulties, RPLIC had been under investigation by Rhode Island's Department of Business Regulation ("DBR") and had entered into several consent orders concerning its operations. The most recent of these orders, dated May 1989, was still in effect at the time of purchase and restricted, inter alia, certain uses of RPLIC's assets without DBR approval. At the time of purchase, these assets consisted of approximately $1.2 million in cash, $1 million in common stock, $200,000 in bonds, and various other assets. RPLIC's liabilities exceeded its assets. Under Rhode Island law, a sale of an insurance company is subject to approval by the DBR. R.I.Gen.Laws Sec. 27-35-2. When first notified of the possibility that RPLIC might be sold, the DBR indicated that it would not approve the sale unless the purchaser added $2.5 to $5 million in capital.

At the time of the purchase, Newman was aware of these facts. During the course of the negotiations, various drafts of the purchase agreement were circulated, all of which referred to the consent order and the need to obtain approval from the DBR. Newman had also been given a letter documenting RPLIC's financial condition and indicating that its liabilities exceeded its assets. The final agreement required Newman to seek DBR approval of the sale immediately. Furthermore at the closing on December 11, Newman read the most recent consent order, dated May 1989. Although Newman first expressed surprise and concern over the content of the consent order, he was assured that it would not bar the normal operation of the business, although it would bar any extraordinary transfers of funds. After a lengthy discussion Newman went ahead and purchased RPLIC, as noted above, for $200,000 ($100,000 in cash, which he had borrowed, and $100,000 in a promissory note). ¹

The next day, December 12, Newman met with a number of RPLIC officers and announced that he needed to make disbursements of approximately $400,000 from RPLIC's accounts. Over their objections, Newman directed them to transfer from RPLIC's accounts (and the accounts of RPLIC's subsidiaries) the following funds: a $120,000 check from a RPLIC subsidiary's checking account; $79,100 from various money market accounts; and $184,300 ² from a number of brokerage accounts. The check was given to Newman personally, and the other funds were transferred to a checking account in the name of Rumford Holdings, for which Newman was the sole signatory. Altogether, $380,400 was removed from RPLIC's accounts.

Newman subsequently used the $120,000 check to pay back the loan that he had taken out for the cash he had needed at the closing. From the Rumford Holdings checking account, Newman made the following disbursements: $150,000 to the brokerage firm that had helped him acquire RPLIC; $21,000 ³ in a check payable to himself; $7,000 in cash to himself; $15,000 ⁴ in three checks, one to himself and two to his wife; and $50,000 ⁵ in a wire transfer to an account in his name and that of his wife at the First Virginia Bank. The funds from this last transfer were used to pay his personal bills, including mortgage payments on a house. Included in the above were the disbursements and transfers that formed the basis for the five counts of wire fraud and four counts of interstate transport of stolen property set forth in the indictment. Newman subsequently made additional transfers of funds from RPLIC, ⁶ although these transfers were not a part of the indictment.

Although the purchase agreement required Newman to seek DBR approval of the sale immediately, he did not notify the DBR of the sale until March of 1990. In April, the DBR sent a letter to Newman demanding that he formally seek approval from the DBR by filing a "Form A" by mid-April. Then in May, the DBR learned that Newman had diverted nearly $490,000 of RPLIC's funds. The DBR wrote Newman, notifying him that he had no authority to divert the funds and demanding that he return the funds to RPLIC immediately. After receiving no response from Newman, the DBR in June of 1990 petitioned for an order placing RPLIC in receivership.

Newman was indicted in February of 1991. The government argued that Newman had acquired the company with no intent of revitalizing it, but with the sole intent to divert its assets for his own personal use. The government contended that Newman knew that RPLIC was in financial trouble and that the consent order precluded transfer of RPLIC's assets, yet removed those assets without making any attempt to provide the company with the needed capital infusion.

Newman's defense at trial was that he was an innocent victim who had been deceived by the other participants involved in the purchase of RPLIC, namely, the former owner, various RPLIC executives, and the broker of the purchase. Newman claimed that he was unaware of RPLIC's dire financial position and that his counsel had advised him that the consent order did not apply to him. Newman further claimed that, after the purchase of RPLIC, he had tried desperately to find investors to provide the necessary capital, and that the transferred funds were simply loans that he intended to repay. Newman also argued that he failed to seek DBR approval because he believed he had more time under the contract before he was required to do so.

The jury convicted Newman of all nine counts. In September of 1991, the district judge sentenced Newman to concurrent terms of 71 months for the four counts of interstate transport of stolen property and 60 months for the five counts of wire fraud. The judge also imposed concurrent three-year terms of supervised release on the condition that Newman pay $489,779 in restitution and the costs of his supervised release. ⁷

II.

Newman argues that the district court made errors at the trial and at sentencing. These errors can be grouped into four categories: (1) the district court excluded evidence that should have been allowed; (2) the district court allowed evidence that should have been excluded; (3) the district court permitted the prosecutor to question Newman unfairly; and (4) the district court erroneously applied the sentencing guidelines. Only in the last category do we find any claim of merit.

A. Improperly Excluded Evidence

Newman argues that the district court abused its discretion in refusing to admit into evidence a series of letters exchanged in May of 1990 between Newman and Daniel K. Jackson & Associates, an investment firm. The correspondence included a form filled out by Newman containing basic information about RPLIC and requesting investment capital. The correspondence also included a response from the company indicating it was interested in perhaps arranging financing. According to Newman, the correspondence was clearly relevant in that it corroborated his testimony at trial that he was in fact actively seeking capital investment for the continuing operation of RPLIC. It would supposedly have rebutted the government's contention that Newman had bought the company with the sole intent of diverting its assets.

We agree with the government that the district court did not abuse its discretion in excluding the evidence as irrelevant. The correspondence was exchanged in May of 1990, four months after Newman had purchased RPLIC and diverted its assets. Given the timing of the correspondence, the district court could reasonably have found that it said nothing about the relevant issue: Newman's state of mind at the time of the purchase and diversion of assets. The correspondence, moreover, was cumulative. Even assuming arguendo its relevance, its exclusion was unprejudicial, since Newman had already testified that he sought investment financing from Daniel K. Jackson & Associates as well as a number of other investment companies, and the government never disputed this assertion.

Newman next argues that the district court abused its discretion when it excluded certain proffered testimony by the director of the DBR. This testimony concerned the circumstances that led up to the consent orders entered into with RPLIC prior to Newman's purchase of the company. The district court concluded that this testimony was not relevant to whether Newman had known of the consent orders. Newman argues,...