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United States v. McQuarrie

United States District Court, E.D. Michigan, Northern Division

January 11, 2018

UNITED STATES OF AMERICA, Plaintiff,
v.
SCOTT MCQUARRIE, et al, Defendants.

          ORDER DENYING MOTION FOR SEVERANCE, DENYING MOTION FOR A PRETRIAL HEARING ON THE ADMISSIBLITY OF COCONSPIRATOR STATEMENTS, AND GRANTING IN PART MOTIONS FOR BILL OF PARTICULARS

          THOMAS L. LUDINGTON, United States District Judge

         Scott McQuarrie was indicted on June 13, 2016, with six counts alleging that he made false statements and converted collateral pledged for a loan he received from the Farm Service Agency (FSA). ECF No. 1. On June 8, 2017, a superseding indictment was returned which charged Scott McQuarrie with twelve counts and which named his parents, David Allen McQuarrie and Yvonne Evelyn McQuarrie, as co-Defendants in two counts. Earlier this month, a second superseding indictment was issued which charged the three Defendants with an additional two counts, for a total of fourteen counts. ECF No. 42. On January 10, 2018, less than a month before the jury trial is scheduled to begin, a third superseding indictment was issued. ECF No. 76. The third superseding indictment specified an additional overt act in Count 12 (the conspiracy Count).

         The first six counts charge Scott McQuarrie with making misrepresentations to the FSA while obtaining a renewal of his loans in July 2011 and with converting pledged property. Count 3 alleges that Scott McQuarrie converted livestock, Count 4 involves a jib plow, Count 5 involves a dozer, and Count 6 involves the sale or conversion of corn and soybeans. The sales of the FSA collateral allegedly occurred between 2011 and 2014. Counts 7, 8, 9, and 10 charge Scott McQuarrie with making false statements under oath in connection with his bankruptcy proceeding. Specifically, Count 7 charges him with testifying that he had not sold farm equipment. Count 8 charges McQuarrie with failing to disclose his interest in the Alpena General Store. Count 9 charges him with failing to disclose a $21, 000 payment to Cheboygan Cement Products. And Count 10 contends that McQuarrie prepared false bankruptcy schedules that failed to disclose asset sales. Counts 11 and 12 charge Scott McQuarrie's parents with conspiring with their son to commit bankruptcy fraud. Finally, Counts 13 and 14 charge Scott McQuarrie and his parents with mail fraud and wire fraud. In Count 13, the Government alleges that Defendants engaged in a scheme to obtain fraudulently obtain fire insurance proceeds. In Count 14, the Government charges the Defendants with a false scheme to transfer funds.

         By way of background, Scott McQuarrie sought Chapter 7 (liquidation) bankruptcy protection on September 25, 2014. Bankruptcy Case No. 14-22152. The petition was filed with the assistance of legal counsel Nancy A. Ward, an attorney practicing law in Alpena, Michigan. The Petition (signed under penalty of perjury by Scott McQuarrie) was accompanied by 45 pages of bankruptcy schedules reflecting total assets of $332, 127.99 and liabilities of $693, 221.01. The Farm Services Agency was Scott McQuarrie's largest creditor, and their relationship originated in 2001. Amended Schedules were filed on December 18, 2015, with the assistance of counsel Henry Knier, Jr. Bankruptcy Case No. 14-22152, ECF No. 39. In the interim (on October 28, 2014), Scott McQuarrie stipulated to provide FSA relief from the automatic stay to complete foreclosure proceedings on a number of parcels of his real estate.

         On February 27, 2015, the United States Trustee, represented by Sean Cowley, filed an adversary proceeding, pursuant to 11 U.S.C. § 727(a)(2) and (4), seeking a denial of discharge. Case No. 15-02024, ECF No. 1. That was followed by a second adversary proceeding, filed on March 5, 2015, by Assistant United States Attorney Kevin Erske on behalf of the United States Department of Agriculture. Bankruptcy Case No. 15-02027. In that second adversary proceeding, the Department of Agriculture sought a declaration that Scott McQuarrie's debts owed to the FSA (in the amount of "not less than $190, 750, " were nondischargeable pursuant to 11 U.S.C. §§ 523(a)(6) and (a)(2)(b). The initial adversary proceeding was dismissed by stipulation on February 10, 2016, and Scott McQuarrie received a discharge on his debts on that date. The later adversary proceeding has been stayed without date.

         On December 7 and 8, 2017, the Defendants filed a number of motions in this criminal proceeding. Yvonne McQuarrie has filed a motion to dismiss Counts 11, 13, and 14, of the second superseding indictment or, in the alternative, for a bill of particulars. ECF No. 60.[1] Scott McQuarrie has also filed a motion for a bill of particulars related to Counts 3, 6, 10, 11, 13, and 14. ECF No. 62. David McQuarrie has filed a motion to sever Counts 1 through 6, 7 through 12, and 13 through 14, respectively, for separate trials. ECF No. 62. Finally, Scott McQuarrie has filed a motion requesting that the Government identify "any and all information relative to any un-indicted witnesses if they intend to introduce hearsay" statements of coconspirators, and further requesting that the Court hold a pretrial hearing on the admissibility of any such statements. ECF No. 62.

         For the following reasons, the motion to sever and the motion for a pretrial hearing on the admissibility of coconspirator statements will be denied. The two motions for a bill of particulars will be granted in part.

         I.

         A.

         David McQuarrie, joined by Yvonne McQuarrie, has moved for severance of the counts in the second (now third) superseding indictment. David and Yvonne, Scott's parents, are charged only in Counts 11, 12, 13, and 14. As explained above, first six counts charge Scott McQuarrie with making misrepresentations while renewing his FSA loans in July 2011 and with converting property pledged as security for those loans. Counts 7 through 10 charge Scott McQuarrie with making false statements during the pendency of his bankruptcy proceedings. Counts 11 and 12 charge all three Defendants with conspiracy to commit bankruptcy fraud by concealing assets. Counts 13 and 14 charge all three Defendants with mail fraud and wire fraud in connection with an alleged scheme related to a claim for fire insurance proceeds.

         All Defendants in this prosecution were originally joined pursuant to Federal Rule of Criminal Procedure 8(b), which permits joinder of defendants "if they are alleged to have participated in the same act or transaction, or in the same series of acts or transactions, constituting an offense or offenses." The fourteen counts were joined in the same indictment pursuant to Federal Rule of Criminal Procedure 8(a). That Rule permits joinder of offenses if they "are of the same or similar character, or are based in the same act or transaction, or are connected with or constitute parts of a common scheme or plan." Id. "For the sake of promoting efficiency and avoiding the potential for inconsistent verdicts, joint trials of defendants who are indicted together are actually encouraged rather than discouraged." United States v. Cope, 312 F.3d 757, 779 (6th Cir. 2002). The public interest in joint trials is especially strong "when two defendants are accused of participating in a conspiracy or joint scheme." Id. at 780.

         Federal Rule of Criminal Procedure 14(a) provides that "[i]f the joinder of offenses or defendants in an indictment, an information, or a consolidation for trial appears to prejudice a defendant or the government, the court may order separate trials of counts, sever the defendants' trials, or provide any other relief that justice requires." However, "[s]everance is required 'only if there is a serious risk that a joint trial would compromise a specific trial right of one of the defendants, or prevent the jury from making a reliable judgment about guilt or innocence.'" United States v. Walls, 293 F.3d 959, 966 (6th Cir. 2002) (quoting Zafiro v. United States, 506 U.S. 534, 539 (1993)). "Mutually antagonistic defenses are not prejudicial per se, " especially because limiting instructions by the district court can often cure any prejudice. Zafiro, 506 U.S. at 538-39. "To prevail on a request for severance the defendant must show compelling, specific, and actual prejudice." Thomas v. United States, 849 F.3d 669, 675 (6th Cir. 2017).

         Defendants allege that severance is appropriate because the third superseding indictment charges "at least three very distinct groups of offenses." Mot. Sever at 6, ECF No. 61. And it is true that logical distinctions can be made between the types of offenses charged. But, considering the strong public interest in judicial efficiency and in limiting the risk of inconsistent verdicts, more must be shown to justify severance. The Government's theory, as reflected in numerous status conferences and in their response to Defendants' motion for severance, is that David and Yvonne McQuarrie were intimately involved in Scott McQuarrie's alleged misfeasance. The Government contends that the evidence at trial will demonstrate that "Scott McQuarrie used livestock and equipment that he and his parents now claim actually belonged to David McQuarrie to make it appear to FSA employees that Scott McQuarrie in fact owned the . . . collateral." Gov. Resp. Mot. Sever, at 3-4, ECF No. 66. In fact, the Government alleges that "David McQuarrie at times facilitated the conversion of collateral" and even "was the recipient of the converted collateral." Id. at 4.

         As regards the bankruptcy counts, the Government asserts that the three Defendants cooperated in a similar manner. Specifically, the Government contends that Scott McQuarrie concealed certain transactions during the bankruptcy proceedings "by conducting some of the transactions in David McQuarrie's name." Id. The Government further believes "that Scott McQuarrie's parents received and concealed the proceeds of the sales in their financial accounts until the sale proceeds were dispersed according to Scott McQuarrie's directives." Id.

         Finally, the Government has charged all three Defendants with wrongdoing related to Scott McQuarrie's claim for proceeds from his fire insurance policy. The Government alleges that David and Yvonne McQuarrie were both actively involved in the fraud. According to the Government, Scott McQuarrie's home was "pledged as collateral for a FSA loan and insurance through David McQuarrie's insurance agency." Id. at 6. The house was destroyed in a fire, and Scott McQuarrie collected $30, 000 directly from his father's insurance company for the lost contents of the house. Scott McQuarrie then allegedly convinced the FSA to pay him $30, 000 "for lost contents out of the joint insurance check sent by mail to FSA and Scott McQuarrie to replace the structure, rather than the contents." Id. at 6-7. The $30, 000 check sent by the FSA was transferred through financial accounts held by David and Yvonne McQuarrie, and then Yvonne McQuarrie wrote a $28, 000 check to FSA on Scott McQuarrie's behalf to prevent foreclosure on the FSA loans. The Government further alleges that "the McQuarries also falsely claimed to FSA that Scott McQuarrie had obtained the $28, 000 by selling cattle to David McQuarrie and thereby kept FSA from liquidating the cattle (FSA's collateral)." Id. at 7.

         Joinder was appropriate here. The third superseding indictment charges distinct groups of offenses, but the Government is alleging a course of conduct that included all three Defendants which can fairly be described as a "series of acts or transactions." Rule 8(b). According to the Government, David and Yvonne have facilitated consistent efforts by Scott McQuarrie to conceal the location and ownership of assets which were pledged as collateral to the FSA and/or were part of the bankruptcy estate. The Government alleges that "many of the overt acts alleged in the conspiracy charge in count 12 are also acts which constitute proof of the substantive offenses charged ... in counts 1 through 10." Id. at 6. Indeed, if true, the allegations throughout the second superseding indictment contextualize David and Yvonne's conduct by providing motive. Id. at 7.

         David and Yvonne McQuarrie are only charged in four of the fourteen counts, and thus there is some risk that the jury's consideration of the remaining counts might impact its consideration of the charges against David and Yvonne. But more must be shown to justify severance. See United States v. Causey, 834 F.2d 1277, 1287-88 (6th Cir. 1987) ("The presentation of evidence applicable to more than one defendant is simply a fact of life in multiple defendant cases."). All offenses charged "are of the same of similar character": financial transactions and representations meant to shield Scott McQuarrie from financial and legal obligations. Rule 8(a). The Government contends that David and Yvonne have actively facilitated the financial obfuscation which forms the basis for all fourteen counts. If true, then all Defendants are involved in the "same series of acts or transactions." Rule 8(b). To the extent David and Yvonne may experience some prejudice through the joinder, that prejudice can be alleviated by a limiting jury instruction.[2] The motion for severance will be denied.

         B.

         Defendants also request an order for the Government to disclose all coconspirator hearsay statements which it anticipates relying upon at trial in accordance with Federal Rule of Evidence 801(d)(2)(E). That Rule allows admission of statements (that would otherwise be considered hearsay) if it is a statement made "by the party's coconspirator during and in furtherance of the conspiracy." Id. Defendants correctly assert that, before such statements may be introduced at trial, the Court must find "(1) that the conspiracy existed; (2) that the defendant was a member of the conspiracy; and (3) that the co-conspirator's statements were made in furtherance of the conspiracy." United States v. Wilson, 168 F.3d 916, 920 (6th Cir. 1999). This analysis is referred to as an Enright finding. See United States v. Enright, 579 F.2d 980, 986-87 (6th Cir. 1978).

         Defendants argue that the Enright finding should occur in advance of trial and thus the Government should be compelled to identify any statements it intends to offer under Rule 801(d)(2)(E) prior to trial. However, the pretrial, mini-hearing which Defendants request is not the only option. In the Sixth Circuit, district courts may proceed in one of three ways: hold the "mini-hearing" prior to trial; "require the government to meet its initial burden by producing the non-hearsay evidence of conspiracy first prior to making the Enright finding"; or "admit the hearsay statements subject to later demonstration of their admissibility by a preponderance of the evidence." United States v. Vinson, 606 F.2d 149, 152-53 (6th Cir. 1979).

         The mini-hearing procedure which Defendants request has been "criticized as burdensome, time-consuming and uneconomic" and would be so here. Id. at 152. The other two permissible procedures identified in Vinson properly balance the need for efficiency while minimizing the risk of improper evidence being admitted.[3] If, at trial, any Defendants intend to challenge the admissibility of statements under Enright, a decision on which procedure to adopt will be made. But litigating the admissibility of any co-conspirator statements in advance of trial would require, essentially, another trial. That is not necessary because Defendants' rights can be adequately protected without pretrial disclosure of any hearsay statements the Governments intends to rely on. For that reason, the motion for pretrial disclosure of coconspirator statements will be denied.

         C.

         1.

         Finally, the two motions for a bill of particulars will be granted in part. Yvonne McQuarrie has requested a bill of particulars related to Counts 11, 13, and 14. ECF No. 60. Scott McQuarrie has requested a bill of particulars related to Counts 3, 6, 10, 11, 13, and 14. ECF No. 62. David McQuarrie has joined in Yvonne McQuarrie's motion. ECF No. 64.

Pursuant to Federal Rule of Criminal Procedure 7(f),
The court may direct the government to file a bill of particulars. The defendant may move for a bill of particulars before or within 14 days after arraignment or at a later time if the court permits. The government may amend a bill of ...

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