United States v. Donohue
| Decision Date | 01 March 2018 |
| Docket Number | Case No. 16-4261,Case No. 16-4287,Case No. 16-4267,Case No. 16-4271 |
| Parties | UNITED STATES OF AMERICA, Plaintiff-Appellee, v. DARYL DANE DONOHUE (16-4261); WILLIAM SCHURECK (16-4267); KENNETH JACKSON (16-4271); DENNIS DECIANCIO (16-4287), Defendants-Appellants. |
| Court | U.S. Court of Appeals — Sixth Circuit |
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 18a0103n.06
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO
BEFORE: DAUGHTREY, McKEAGUE, and BUSH, Circuit Judges.
McKEAGUE, Circuit Judge. These four consolidated appeals stem from judgments on jury verdicts finding all four defendants guilty of numerous charges relating to an investment fraud scheme. The scheme revolved around development of a hypodermic syringe destruction device called the "Sharps Terminator." The jury found that defendants had made material misrepresentations and omitted material facts in soliciting funding for development of the product. Defendants were sentenced to various terms of imprisonment and ordered to pay restitution to the victims in the total amount of nearly $10 million. On appeal, defendants assert various claims of error that raise several common themes. None has been shown to merit relief. We therefore affirm all four judgments.
In August 1992, defendant Kenneth Jackson was convicted in Ohio state court of multiple counts of unlicensed sales of securities and sales of unregistered securities, passing bad checks, perjury, theft and aggravated theft. The convictions stemmed from Jackson's operation of what the government has characterized as a $13 million Ponzi scheme involving sales of securities in "Vision Television Network." As a consequence, Jackson was incarcerated from 1992 to 1999.1 He was also prohibited, by injunction of the Securities and Exchange Commission ("SEC"), from holding any corporate officer or director position in a publicly traded company. Jackson was also subject to a disgorgement order requiring him to pay $1.8 million to the SEC.
Despite these setbacks, in 2002, Jackson had become director of research and development for Event Future (a/k/a E-Med), a company he and co-defendant Daryl Dane Donohue established to design and manufacture a hypodermic needle destruction device called "Needlezap." The Needlezap disposes of used needles by crushing them. It is a Class III medical device requiring Food & Drug Administration ("FDA") approval before marketing. Donohue was employed by E-Med to address the FDA's regulatory compliance requirements. The Needlezap was granted FDA approval in 2003 and was patented in 2006.
In 2007, Jackson left E-Med and he and co-defendant William Schureck created Medical Safety Solutions ("MSS") to develop and market an improved version of the Needlezap called the "Sharps Terminator." The Sharps Terminator was designed to dispose of used needles byincinerating them. Again, FDA premarket approval was required. Donohue was hired by MSS as a regulatory compliance consultant, but Jackson, director of research and development, was responsible for obtaining FDA approval of the Sharps Terminator. Schureck was Chief Executive Officer of MSS.
To raise funds for development of the Sharps Terminator by selling securities, MSS prepared two prospectuses, "Prospectus A" (2007) and "Prospectus B" (2009). Prospectus A disclosed an Assets Purchase Agreement under which MSS agreed to pay Jackson and Schur Partnership (a venture established by Schureck) $3 million for transfer of ownership of the Sharps Terminator, along with its patent and intellectual property rights. What the prospectuses did not include, relevantly, was any mention of MSS co-founder Jackson's prior convictions for theft and securities fraud offenses. Nor did the prospectuses disclose that the conduct for which Jackson was convicted also precipitated action by the SEC that resulted in a $1.8 million judgment against him, as well as an injunction prohibiting him from holding any officer or director position in a publicly traded company.
In the summer of 2007, MSS began displaying its plans for the Sharps Terminator and soliciting investments at medical trade shows. MSS raised $5 million from investors in response to Prospectus A. Among the first such investors, co-defendant Dennis DeCiancio invested $275,000 and became a promoter of the Sharps Terminator at trade shows. Of the $5 million received, $3 million was to be used to pay for the intellectual property rights in the Sharps Terminator and to repay prior investors in the Needlezap, and $2 million was to be used for further research and development of the Sharps Terminator.
In July 2007, MSS also purportedly commenced efforts to obtain FDA premarket approval and told inquiring investors for years that progress was slow, but approval wasimminent. In fact, Jackson testified, it was not until October 2012 that he first filed the application for premarket approval. The FDA responded to the application a month later with the first of several deficiency letters, which MSS was attempting to address when, in March 2013, its efforts were undercut by execution of a search warrant and seizure of MSS files and records. In the meantime, the FBI had begun investigating MSS's operations.2
The investigation ripened into an 80-page, 31-count indictment in the Northern District of Ohio in July 2015, charging all four of the above-named defendants—Jackson, Donohue, Schureck and DeCiancio—with numerous offenses allegedly committed between November 2007 and May 2013, including conspiracy, mail fraud, wire fraud, securities fraud, and money laundering. The charges were premised on allegations that defendants, in soliciting investments for development and marketing of the Sharps Terminator device: falsely represented the status of FDA premarket approval proceedings, the market-readiness of the Sharps Terminator, and the use to which invested funds would be applied; and failed to disclose material information to prospective investors about Jackson's prior convictions.
A joint jury trial was conducted in April and May 2016 and culminated in verdicts on May 6, 2016, finding all four defendants guilty of almost all charged offenses. All four defendants were sentenced on October 25, 2016, to various prison terms: Jackson to 188 months, Schureck to 108 months, DeCiancio to 70 months, and Donohue to 46 months. The judgments of sentence were entered on November 1, 2016, and each defendant timely filed notice of appeal. The judgments were followed by a restitution order on January 5, 2017,ordering all four defendants, jointly and severally, to pay restitution in the amount of $9,825,917.41. Amended judgments, incorporating all terms and conditions of the sentences, were entered on February 6, 2017. None of the defendants filed notice of appeal from his amended judgment.
On appeal, defendants challenge: the district court's denial of Jackson's pretrial motion in limine (to exclude evidence of his prior convictions), the sufficiency of the evidence to support the verdicts, and the sentences imposed as procedurally and substantively unreasonable. None of the claims presents reversible error.
There is no dispute that the court has jurisdiction to decide defendants' challenges to their original judgments, which represent final appealable judgments under 18 U.S.C. § 3742(a) (final sentence) and 28 U.S.C. § 1291 (final judgment), even though the district court had deferred determination of the restitution amount to a later date. See Manrique v. United States, 137 S. Ct. 1266, 1272-73 (2017) (citing Dolan v. United States, 560 U.S. 605, 617-18 (2010)). The government contends, however, that defendants' appellate objections to the amount of restitution imposed must be dismissed due to their failure to file notice of appeal challenging their amended judgments ordering restitution. Not strictly a matter of jurisdiction, this issue is addressed below in Part III.D.2.
Prior to trial, Jackson filed a motion in limine, asking the court to prohibit the government from introducing evidence of his prior convictions and the SEC judgment against him. Jackson asserted that such evidence had no relevance to the charged offenses, would not beadmissible for a legitimate purpose under Fed. R. Evid. 404(b) (), and therefore would be introduced only for the inadmissible purpose of proving his character to show that the charged conduct was in conformity therewith. Jackson also asked the court to prohibit the use of such evidence to impeach him, should he testify. He argued that because his convictions and release from prison occurred more than ten years ago, such evidence would not be admissible under Fed. R. Evid. 609(b), because its probative value would not substantially outweigh its prejudicial effect.
The government opposed the motion, contending the evidence of his prior convictions and the SEC judgment was not Rule 404(b) evidence at all. Rather, it was said to be "direct proof"' of the crimes with which Jackson and his coconspirators were charged, i.e., evidence of material information that Jackson and the others fraudulently failed to disclose to investors. Further, the government argued the evidence represented proper impeachment material whose probative value outweighed its potential for unfair prejudice. Notably, Jackson did not file a reply brief in support of his motion.
Without a hearing, the district court denied the motion in limine in a summary docket-entry order, essentially adopting the government's position:
Order [non-document] as to Kenneth Jackson: Defendant's Motion in Limine To Exclude Any Evidence Relating To Other Crimes, Wrongs, Or Bad Acts is DENIED. The Court agrees with the Government that a 404(b) analysis is unnecessary. The prior...
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