U.S. v. Solomonson

• Decision Date: 13 July 1990
• Docket Number: Nos. 89-5124,89-5140,s. 89-5124
• Citation: 908 F.2d 358
• Parties: 31 Fed. R. Evid. Serv. 86 UNITED STATES of America, Appellee/Cross-Appellant, v. Conrad Bruce SOLOMONSON a/k/a C. Bruce Solomonson, Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 358

908 F.2d 358

31 Fed. R. Evid. Serv. 86

UNITED STATES of America, Appellee/Cross-Appellant, v. Conrad Bruce SOLOMONSON a/k/a C. Bruce Solomonson Appellant/Cross-Appellee.

Nos. 89-5124, 89-5140.

United States Court of Appeals Eighth Circuit.

Submitted Feb. 14, 1990.

Decided July 13, 1990.

Corey J. Ayling, Minneapolis, Minn., for appellant/cross-appellee.

Henry J. Shea, Minneapolis, Minn., for appellee/cross-appellant.

Before LAY, Chief Judge, BEAM, Circuit Judge, and HANSON, ^* Senior District Judge.

BEAM, Circuit Judge.

Conrad Bruce Solomonson was convicted of eight counts of mail fraud and one count of bank fraud. See 18 U.S.C. Secs. 1341, 1344 (1988). On appeal, he asserts several evidentiary errors as grounds for reversal. Further, he argues that the district court ¹ incorrectly instructed the jury that financial loss to a bank is not an element of bank fraud. The government cross-appeals the district court's refusal to impose a special assessment required by 18 U.S.C. Sec. 3013 (1988).

I. BACKGROUND

Solomonson was in the insurance business in the Minneapolis area for more than twenty-five years. After 1977, when he formed his first insurance agency, Professional Writers, Inc. (PWI), he organized several insurance-related companies using substantial personal investments and outside financing from, among others, National City Bank (NCB) in Minneapolis. Trial Transcript vol. X, at 1758-61. PWI also was financed, at least in part, with a loan from NCB. Id. at 1760-61.

PWI suffered through some rough financial times and at one point was near bankruptcy. Id. vol. VI, at 983. Eventually, PWI was unable to make the payments on the note held by NCB. Id. vol. I, at 94-95. In 1983, Solomonson, Pat McGovern, who was an employee of PWI, and another entity formed Regional Financial Agency (RFA) to purchase the assets of PWI. Id. vol. X, at 1766. Solomonson personally invested substantial amounts of money in RFA. Additionally, RFA borrowed $1.5 million from NCB. Id. at 1767. The NCB loan was renewable yearly, provided that RFA submitted certain financial information. Part of the proceeds of this loan was paid to NCB in satisfaction of PWI's debts.

As collateral for the note, RFA put $600,000 of the loan proceeds into a certificate of deposit at NCB, and Solomonson, to secure his personal guaranty, gave NCB a second mortgage on his home. Id. vol. II, at 114-16. As further security, RFA was required to provide NCB with monthly financial statements and annual audited financial statements and letters certifying that RFA was in compliance with all terms and covenants of the loan agreement. Id. at 115. NCB also required that Solomonson provide personal financial statements. Id. vol. I, at 97-99.

In 1985, the owners of RFA purchased the Caswell-Ross Agency, an established insurance agency. Id. vol. VI, at 1023-27. Caswell-Ross and RFA shared office space and some personnel but were operated as separate entities. Solomonson served as chairman of the board of directors of both Caswell-Ross and RFA. McGovern served as president and chief operating officer of both agencies.

Although PWI, and later RFA and Caswell-Ross, had "some of the best accounts in the Twin Cities," the agencies were short of cash and did not remit premiums to the insurance companies in a timely fashion. Id. at 986, 1029. Indeed, RFA was formed to provide an influx of capital when it became apparent that PWI did not have sufficient cash flow to remit the premiums due the insurance companies. Id. at 990-96. Even after the reorganization, however, the cash flow problems continued. Solomonson told McGovern not to worry about how he handled the payments to the carriers. This, among other things, led to conflict between Solomonson, McGovern and Toby Morrison, who had joined the agencies in November of 1986 to represent the interests of the third owner. Eventually, McGovern and Morrison decided that they could not maintain a working relationship with Solomonson because of the financial problems and because of the way he treated employees. Id. at 1045-67.

In the spring of 1987, McGovern and Morrison presented Solomonson with a proposal for a separation and requested an audit of both RFA and Caswell-Ross. Id. at 1066-67. At this time, Solomonson denied misusing any corporate funds. Against Solomonson's protest, an audit was conducted. The auditor discovered, among other problems, that in excess of $1.3 million had been transferred from Caswell-Ross to RFA. These transfers did not appear in the intercompany account on the financial statements. Id. vol. IX, at 1475-78. As the audit progressed, it became apparent that Solomonson had diverted over $1 million from the agencies to his personal use. Id. vol. VI, at 1069-72. Additionally, the audit revealed that payroll tax returns had not been filed from June of 1986 forward, a liability in excess of $500,000 which did not appear on the financial statements. Id. vol. IX, at 1479-81. In August of 1987, the board of directors severed the relationship between the agencies and Solomonson. Id. vol. VI, at 1074. The mail and bank fraud charges followed.

At trial, Denise Baumann, Solomonson's personal secretary, testified that Solomonson had directed her to transfer funds from PWI and RFA accounts to his personal accounts. Id. vol. II, at 244-47. She testified that Solomonson directed her to make changes in the companies' financial statements. Id. at 258-62. In general, these adjustments were made to decrease the accounts payable which reflected the amounts owed to the insurance carriers for premiums on policies sold and to hide the transfer of funds from Caswell-Ross to RFA and, ultimately, to Solomonson. Baumann also testified that as the cash flow at RFA became strained, payroll withholding taxes were collected from the employees but not paid to the federal and state authorities. Id. vol. III, at 343.

II. DISCUSSION

Solomonson argues that the district court committed reversible error in: 1) allowing the government to present irrelevant and prejudicial testimony regarding his personal expenditures; 2) not striking references to nonpayment of employee payroll withholding taxes from the indictment and allowing evidence of such nonpayment, including a prior incident, during the trial; and 3) allowing the F.B.I. case agent to testify as to the honesty of two of the government's witnesses. He also contends that the court erroneously instructed the jury regarding the elements of bank fraud.

A. Evidentiary issues

We begin our review with the evidentiary issues. Initially, we review the sufficiency of Solomonson's objections to the personal expenditure evidence and the testimony of the F.B.I. agent.

1. Personal expenditure evidence

During the government's case-in-chief, the prosecutor introduced several exhibits which detailed Solomonson's personal expenditures between January of 1984 and May of 1987. The F.B.I. case agent assigned to this investigation, Anthony D'Angelo, testified regarding the preparation of the exhibits and explained what each one represented. The evidence indicated that Solomonson spent substantial amounts of money on art, jewelry, private schools, housing and cars. He also wrote checks for large amounts to members of his immediate family. Id. vol. X, at 1705-20.

Solomonson had filed a motion in limine to exclude any evidence relating to his personal expenditures. The district court did not rule on the motion in limine before trial. When each exhibit was offered, the court stated: "Absent objection, it may be received." See, e.g., Id. vol. I, at 81. However, Solomonson did not make contemporaneous objections at the time the exhibits were offered or at the time D'Angelo testified. Thus, we will review only for plain error. See Fed.R.Crim.P. 52(b).

As this court recently noted, relief will be granted under the plain error doctrine only if the error "prejudices the substantial rights of the defendant and would result in a miscarriage of justice if left uncorrected." United States v. Carey, 898 F.2d 642, 644 (8th Cir.1990). We review for plain error considering the record as a whole and reverse only to protect the fundamental fairness of the proceeding. United States v. Young, 470 U.S. 1, 16, 105 S.Ct. 1038, 1046, 84 L.Ed.2d 1 (1985).

We fail to see how Solomonson's substantial rights were violated by the admission of this evidence. This court, among others, has held that such evidence is admissible to prove that a diversion of funds was fraudulent. United States v. Brickey, 426 F.2d 680, 685-86 (8th Cir.), cert. denied, 400 U.S. 828, 91 S.Ct. 55, 27 L.Ed.2d 57 (1970); see United States v. Hathaway, 798 F.2d 902, 908-09 (6th Cir.1986); United States v. Brutzman, 731 F.2d 1449, 1452-53 (9th Cir.1984); United States v. Knight, 607 F.2d 1172, 1176 (5th Cir.1979); United States v. Krohn, 573 F.2d 1382, 1388-89 (10th Cir.), cert. denied, 436 U.S. 949, 98 S.Ct. 2857, 56 L.Ed.2d 792 (1978). Here, Solomonson argues that because he did not deny receiving the funds, and believed that he was entitled to receive them, how he spent the funds was irrevelant. However, the government was entitled to prove that diversions occurred, and the personal expenditure evidence may have been probative of both the fact that a diversion occurred and that such diversion was fraudulent. Thus, we hold that the admission of the evidence, in light of the record as a whole, did not constitute plain error. We note that even if the district court erred in admitting the personal expenditure evidence, the other evidence against Solomonson was so substantial that any error was harmless.

2. Credibility testimony

Next, Solomonson contends that Agent D'Angelo improperly testified, on redirect examination, as to the honesty of Baumann and McGovern. As the last witness in its case-in-chief, the government recalled Agent D'Angelo. In general, the prosecutor attempted to rehabilitate Baumann and McGovern after Solomonson, on...