US v. Pemberton

• Decision Date: 31 July 1997
• Docket Number: No. 96-3417,96-3527.,96-3498,96-3417
• Citation: 121 F.3d 1157
• Parties: UNITED STATES of America, Appellee, v. Alfred PEMBERTON, also known as Tig, Appellant. UNITED STATES of America, Appellee, v. Daniel BROWN, Appellant. UNITED STATES of America, Appellee, v. Harold FINN, also known as Skip, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

121 F.3d 1157

UNITED STATES of America, Appellee, v. Alfred PEMBERTON, also known as Tig, Appellant.

UNITED STATES of America, Appellee, v. Daniel BROWN, Appellant.

UNITED STATES of America, Appellee, v. Harold FINN, also known as Skip, Appellant.

Nos. 96-3417, 96-3498, 96-3527.

United States Court of Appeals, Eighth Circuit.

Submitted May 19, 1997.

Decided July 31, 1997.

Rehearing and Suggestion for Rehearing denied September 4, 1997.

Rehearing and Suggestion for Rehearing denied September 8, 1997.

COPYRIGHT MATERIAL OMITTED

Bruce H. Hanley, Minneapolis, MN, argued (Lisa D. Dejoras, Minneapolis, MN, on the brief), for Alfred Pemberton.

Kevin J. Short, Minneapolis, MN, argued, for Daniel Brown.

Douglas A. Kelley, Minneapolis, MN, argued (Steven E. Wolter, Minneapolis, MN, on the brief), for Harold Finn.

Before RICHARD S. ARNOLD, Chief Judge, and BOWMAN and MORRIS SHEPPARD ARNOLD, Circuit Judges.

Rehearing and Suggestion for Rehearing En Banc denied in No. 96-3417 September 4, 1997.

Rehearing and Suggestion for Rehearing En Banc denied in No. 96-3498 September 8, 1997.

BOWMAN, Circuit Judge.

Alfred "Tig" Pemberton, Daniel Brown, and Harold "Skip" Finn appeal their convictions on various charges related to the insurance arrangements of the Leech Lake Band of Chippewa Indians (the Band) in the late 1980s and early 1990s. Pemberton and Finn also appeal their sentences. We affirm the judgments of the District Court.¹

I.

Because of the complexity of this case and the many fact-specific arguments raised by the defendants, we relate the facts of this case in somewhat more detail than is customary. Pemberton, Brown, and Finn are enrolled members of the Band. This tale begins in 1985, when Pemberton was secretary-treasurer of the Leech Lake Reservation Business Committee (LLRBC), the five-member governing body of the Band.² At the time, Brown was one of three district representatives on the LLRBC, and Finn was the Band's legal counsel.³

Before 1985, the Band routinely purchased property-casualty and liability insurance to cover the risks associated with several buildings owned by the Band and several businesses operated by the LLRBC on behalf of the Band. In 1985, however, a crisis in the insurance market threatened to make insurance too expensive for the Band to afford; the only company willing even to quote a premium for the year beginning July 1, 1985 would have increased the previous year's property-casualty premium from $122,000 to $254,000 and the previous liability premium from $31,000 to $187,000. Because of the prohibitive cost, the Band went without insurance for a time in 1985.

At a meeting of the LLRBC on October 1, 1985, Finn and an LLRBC staff member presented a possible solution. As Finn described it, the Band could "self-insure" by depositing funds annually in a segregated bank account and paying claims out of that account. Several individuals present at the October 1 meeting testified that Finn stated that the Band would own any funds not used to pay claims, as is typical of self-insurance programs. Finn suggested that he administer the program by collecting the contributions and managing the payment of claims. Witnesses disagreed whether Finn proposed to retain a portion of the contributions as an administrative fee or whether he would render his services pursuant to his retainer agreement with the Band. Because of the possibility that the Band might suffer a large loss in the early years of the plan, before any significant reserves could be developed, Finn suggested that the LLRBC purchase excess insurance coverage from a traditional insurance company. The LLRBC voted unanimously to approve the self-insurance program as described by Finn, and adopted a resolution establishing a corporation named Reservation Risk Management, Inc. (RRM) as "a corporate sub-entity of the Leech Lake Reservation Business Committee." LLRBC Resolution No. 86-26 (Oct. 1, 1985). RRM's charter stated that the company was formed under the authority of the Minnesota Chippewa Tribe (of which the Leech Lake Band is one of six constituent bands) to manage the Band's self-insurance program.

During the next few weeks, it became apparent that insurance companies were unwilling to provide excess insurance coverage to the Band at affordable rates. Finn reported this development at an LLRBC meeting on October 29. At that meeting, the LLRBC voted nevertheless to proceed with the self-insurance program, which was to be administered by RRM, and the LLRBC authorized its chairman and secretary-treasurer to execute the necessary documents. Throughout the next several months, several key documents were executed by LLRBC Chairman Hartley White and Pemberton on behalf of the LLRBC and by Finn on behalf of RRM. For ease of reference, we will refer to these documents as the Subscription Agreement, the Debenture Agreement, the Shareholders' Agreement, and the Insurance Agreement. White testified that he did not believe that all of his purported signatures on these documents were genuine, and he clearly stated that he did not understand the import of any of these agreements when he signed them. Instead, he relied on the advice of Finn, whom he considered to be a trustworthy and loyal member of the Band.

The Subscription Agreement gave 25% of the shares in RRM to the LLRBC and 75% of the shares to Finn. In the Debenture Agreement, Finn and his law partner, Kimball Mattson, pledged to tender as much as $450,000 to RRM if necessary to avoid a shortfall in "Fund C," the fund from which RRM was to pay claims. RRM was obligated to repay any sums advanced by Finn and Mattson, who also had the option to cancel the agreement on ninety days' notice and receive 20% interest per annum on any balance owed to them by RRM. In exchange for their standby promises to contribute to RRM, Finn and Mattson were to receive 15% of the premiums collected by RRM. The Debenture Agreement was executed by Finn on his own behalf and on behalf of RRM; the LLRBC was not a party to this contract.

The Shareholders' Agreement between the LLRBC and Finn described the internal workings of RRM. Fifteen percent of premiums received were to be deposited in Fund A and paid annually to debenture holders, as described above. The other 85% of each premium payment was to go into Fund B, to be used for operating expenses, which Finn had previously estimated at $100,000 per year. Any excess in Fund B was to be regularly transferred to Fund C, from which claims would be paid. The Shareholders' Agreement stated that the "reserves in Fund C shall belong to the shareholders of RRM" but were not to be distributed to the shareholders except on the dissolution of RRM. Shareholders' Agreement ¶ 3(b) (Jan. 14, 1986). In addition, if the LLRBC withdrew from the insurance program any time before October 31, 1990, the LLRBC would forfeit any claim to the assets of RRM, and those assets would be distributed among the other shareholders.

The Insurance Agreement set up a ten-year insurance program at premiums beginning at $300,000 per year and escalating to $450,000 per year (subject to upward adjustment if deemed necessary by the directors of RRM). RRM agreed to seat two persons nominated by the LLRBC on the board of directors of RRM. Pursuant to this agreement, RRM issued to the LLRBC an insurance policy providing on its face more than $8 million in property-casualty coverage and $300,000 in liability coverage.

The government's risk-management expert testified that, in combination, these documents created a program that was neither insurance (because RRM did not assume the risk of loss) nor self-insurance (because persons other than the LLRBC had ownership interests in funds remaining after the payment of losses). In particular, the expert testified, the Shareholders' Agreement "essentially took the Band money and gave it to Mr. Finn." Tr. at 475. To demonstrate the workings of the program, she calculated what would have happened if the RRM arrangement had lasted one year, during which the LLRBC suffered no losses, and Finn had waived the forfeiture provision and allowed the LLRBC to retain its equity despite the early cancellation. The LLRBC would have paid $300,000 to RRM, of which 15% ($45,000) would have gone to Finn and his partner pursuant to the Debenture Agreement and another $100,000 (or 33%) would have gone to administrative expenses (essentially to Finn, his firm, and RRM's board members). Of the $155,000 remaining in Fund C, the LLRBC would receive one-fourth ($38,750) when the program was cancelled. Thus, even without any claims or losses (i.e., the best-case scenario from the perspective of the LLRBC), the LLRBC would receive only 13% of its payment back at the end of the year. Not surprisingly, then, the expert concluded that "the RRM documents effectively deprive the Band of what the benefits of self-insurance should have been" and that "the terms of the transaction as a whole were commercially unreasonable in the realm of self-insurance, risk management and insurance." Tr. at 453-54.

In January 1987, the LLRBC appointed Pemberton and Brown as its two representatives on the board of RRM. Shortly thereafter, Pemberton was elected secretary-treasurer and Brown vice-president of RRM. (Finn previously had been named president and was a board member.) Finn's wife and Pemberton's wife also were elected to the five-member board, and each of them gave a proxy to Finn, giving him effective control of the company. Finn soon transferred some of his equity ownership of RRM to Pemberton and Brown in exchange for their investment of $18,000 and $12,000, respectively, giving Pemberton approximately 7% and Brown approximately 5% ownership of the company.⁴

Later in 1987, an auditor began to audit the Band on behalf of the Department of the Interior for fiscal year 1986. RRM immediately became an issue because the LLRBC's October 1985 resolution established the company as a tribal...