The opinion of the court was delivered by: Baylson, J.
Presently before this Court is the Government's Motion In Limine to Admit Evidence Pursuant to Federal Rule of Evidence 404(b) (Doc. No. 138) and Responses thereto from Defendants Kenneth Mitan, proceeding pro se, and Frank Mitan, represented by court-appointed counsel. The Motion concerns evidence of three additional allegedly fraudulent purchases of small businesses not charged in the Superseding Indictment and evidence from two prior arrests of Kenneth Mitan. A hearing on the Motion was held on August 26, 2009. For the following reasons, the Motion will be granted in part and denied in part.
I. Factual Background and Proposed Evidence
A. Background of Pending Criminal Charges
Defendants Kenneth Mitan ("Kenneth"), Frank Mitan ("Frank"), Bruce Atherton, and Charro Pankratz were indicted on December 18, 2008 (Doc. No. 1). Defendants Kenneth and Frank were indicted on five counts: conspiracy to commit wire and mail fraud (Count I), two counts of mail fraud (Counts II - III), and two counts of wire fraud (Counts IV - V). Kenneth was also indicted on a sixth count: use of a false name in a fraud scheme (Count VI). Defendants Atherton and Pankratz (who have since entered guilty pleas) were indicted solely on the conspiracy count (Count I). The Government added a perjury charge against Kenneth (Count VII) in the Superseding Indictment filed April 23, 2009 (Doc. No. 133).
Defendants are accused of defrauding four small businesses using a similar fraudulent
scheme as to each business. (Superseding Indictment ¶¶ 1, 13-16.) The scheme involved approaching the business under false pretenses, negotiating to buy the business, not paying the full amount of money due under the contract at closing, taking control of the business, and diverting its cash and accounts receivable for purposes other than the maintenance of the business. (Id. ¶¶ 8-12.) The four allegedly defrauded businesses named in the Superseding Indictment are: (1) Benny's Cheese Company, a food services company in Philadelphia, Pennsylvania, acquired around September 9, 2005; (2) Engel Corporation, a printing and copying business in Reston, Virginia, acquired around September 13, 2005; (3) Housewares Distributors, Inc., a home furnishing business in West Bend, Wisconsin, acquired around September 15, 2006; and (4) Pruscino Brothers Produce, a food services business in East Brunswick, New Jersey, acquired around October 19, 2007. (Id. at ¶¶ 13-16.) The Superseding Indictment also contains allegations that Kenneth Mitan used a corporate entity, Williams Fund, to facilitate takeover of three of the four named target businesses and used a false name, such as "John Adams" or "John Thompson," in negotiating the purchase of all four businesses. (Id. at ¶ 8, ¶¶ 13-15.)
B. Contested 404(b) Evidence
The Government seeks to introduce evidence concerning three additional business transactions involving each of the four Defendants. In addition, it seeks to introduce evidence gained during two prior arrests of Defendant Kenneth Mitan. This evidence is described below. Unless specifically disputed by Kenneth, all facts are taken from the Government's Motion in Limine.
Tuckahoe Enterprises is a family-owned egg processing business based in Richland, New Jersey. The Government alleges that Kenneth approached the company's owners in late summer 2007 to discuss buying the company and identified himself as "John Hill." The Government further alleges that Kenneth claimed to be a representative of the Metzger Investment Group, a group of three investors with $10 million to invest in East Coast food companies. The Government asserts that Kenneth provided the sellers with a stock purchase agreement to buy Tuckahoe for $1,325,000, with the broker's fee, an outstanding bank loan, and payment for outstanding inventory to be paid at closing. Kenneth asserts that in fact the stock purchase agreement was between Superior Foods, a company in formation, and the previous owners of Tuckahoe, not between Kenneth or Metzger Investment Group and the previous owners. (Def. Kenneth Mitan's Resp. 7, Ex. A.)
At the closing on November 19, 2007, the Government argues that Kenneth did not make any of the promised payments; instead Kenneth claimed that because it was late in the day, they could not create a promissory note, open an escrow account for the shares, or wire payment for the inventory, as called for in the agreement. Kenneth asserts that the broker's fee was not to be paid until January 2008, pursuant to the Finder's Fee Agreement, and that the inventory payment was also to be paid later, pursuant to the Closing Statement; in addition, the cash down payment was only to be paid in "good funds," automated clearinghouse, or wire transfer. Kenneth further argues that under the Payment Directive Letter, once $601,000 was paid to sellers or their assignees, the transaction was closed. He claims that a total of $607,017.33 was paid through four different checks between November 21, 2007 and December 20, 2007. (Id. Ex. B.) In addition, Kenneth claims that the sellers received a total of $1,081,000 (id. Ex. C), plus a promissory note for $530,000 collateralized by the plant's own equipment.
The Government further claims that Defendant Pankratz accompanied Kenneth to the closing and that Kenneth told the sellers that Pankratz was his financial analyst and would be running the company following closing. By contrast, Kenneth asserts that Superior Foods empowered Pankratz as the company's new Chief Executive Officer. (Id. Ex. D.)
Following the closing, the Government claims that Kenneth and Pankratz seized incoming receivables and cash. Tuckahoe began to acquire significant debt as Pankratz failed to pay suppliers and staff or paid with checks returned for insufficient funds. The seller advised Kenneth that the company was headed towards bankruptcy. In December 2007, the seller learned of Kenneth's true identity and confronted him. The Government asserts that the seller then contacted authorities to investigate. Kenneth argues, however, that the Tuckahoe sellers deceived the New Jersey police by stating that they had not been paid, when in fact they had, and then the sellers resorted to self-help in trying to retake control of Tuckahoe.
Kenneth, Pankratz, and Athertonare currently facing state criminal charges in New Jersey related to Tuckahoe. State of New Jersey v. Mitan, et al., 08-06-00110-S (N.J. Super. Ct.). In addition, the sellers instituted a civil action in New Jersey against Superior Foods, Pankratz, and Tuckahoe on December 10, 2007. (Def. Kenneth Mitan's Resp. Ex. D.) Kenneth asserts that the sellers' claims focus on mismanagement and criticism of Defendant Pankratz's conduct as CEO, not on fraud or fraudulent pretenses. Kenneth further denies any role in the operational problems of Tuckahoe.
Spectacular Sports is a family-owned sports travel company based in New Orleans. The company organizes all-inclusive trips to major sporting events such as the Super Bowl. Kenneth approached the company in the summer of 2005 to inquire about buying the company, identifying himself as John Adams of the Williams Fund. The Government contends that Kenneth claimed the Williams Fund was backed by Asian investors with over $10 million to invest. Kenneth argues that Spectacular Sports admits to doing background research about the Williams Fund and finding no information about the company, but, despite this, the sellers proceeded with the deal. The Government further asserts that under the stock purchase agreement, $260,000 was due at closing to cover broker and sellers' attorney costs; in addition, Williams Fund was to assume nearly $750,000 of the company's debt.
On December 19, 2005, the closing day, the Government claims that Kenneth did not have any of the promised payments but assured the sellers that the money would be forthcoming. However Kenneth asserts that the stock purchase agreement allowed until January 11, 2006 to close by the terms, although he points to no provision in the contract stating this. (Id. at 13.) Kenneth documents a wire transfer of $260,000 made January 3, 2006. (Id. Ex. M.) Kenneth further argues that the agreement states that purchase was subject to the company's debt, not that Williams Fund assumed the debt.
Based on his promises to pay, Kenneth took control of the business checking account. On December 20, 2005, Frank Mitan opened a Spectacular Sports account at Bank One in Michigan and deposited receivables and money from Spectacular Sports's previous operating account into this new account.
Kenneth hired C.M. to oversee operations at Spectacular Sports, and on January 9, 2006, C.M. took over management of Spectacular. C.M. realized shortly thereafter that Kenneth had total control of the company's money and was not paying debt, utilities, rent, and other bills. The Government contends that C.M. requested money from Kenneth for the company to purchase Super Bowl tickets to fulfill its existing commitments to customers who had already put down deposits for Super Bowl trips. However Kenneth argues that, prior to the sale of the company, the sellers had received money for the Super Bowl tickets but had diverted the money elsewhere. Kenneth further asserts that the Williams Fund sent a Letter of Default to the sellers regarding this matter and that the parties entered a settlement agreement to determine responsibility for the Super Bowl ticket deposits. (Id. Ex. O.) Kenneth argues that Spectacular Sports attempted to fulfill its ticket obligations but could not do so because of a large price increase.
On February 1, 2006, C.M. notified customers that Spectacular Sports could not fulfill its ticket commitments. On February 3, C.M. discovered Kenneth Mitan's real identity and confronted him. On February 6, C.M. received an email from "Frank Miller," believed to be Frank Mitan, rejecting his concerns about the Williams Fund's acquisition. On February 7, C.M. received another email from "Frank Miller" containing a Williams Fund report on its strategy for Spectacular Sports and rejecting Williams Fund's responsibility for the Super Bowl ticket debacle. On February 10, "Frank Miller" sent an email to C.M. and other Spectacular Sports employees laying them off.
C.M. was then informed that Defendant Bruce Atherton, the Williams Fund attorney, was handling the Spectacular Sports file. C.M. contacted Atherton on February 16 about money owed to him; Atherton responded that C.M. was merely a creditor and that Williams Fund intended to liquidate Spectacular Sports. Spectacular Sports went out of business in February 2006. In a civil lawsuit, a Louisiana state court on August 28, 2006 found that the Williams Fund had defaulted on its sales contract and its failure to perform was in bad faith. Kenneth asserts that the sellers filed an additional frivolous lis pendens suit, which forced Williams Fund to liquidate all of Spectacular Sport's real property at a significant discount and incur substantial legal fees.
Super-1 RV is a recreational vehicle dealership near Atlanta, Georgia. Kenneth approached the owners in summer and fall 2005 about purchasing the company, using the name "John Adams" as a representative of Williams Fund. The parties agreed to the sale price of $2,600,000, with $365,000 due at closing ($125,000 to the seller and $240,000 to the seller's business broker). On September 23, 2005, at closing, the Government asserts that Kenneth did not pay the promised amounts but assured the sellers that the money would be wired the following day. However Kenneth claims that $365,000 was paid the following day in three separate checks. (Id. 18, Ex. T.) As security for the balance of $2,235,000, Kenneth collateralized equipment and inventory at Benny's Cheese Company, Engel Corporation, McCreight Wholesale Florist, and Perma-Clad Inc. However, the Government argues that Kenneth did not have documents to collateralize these assets or demonstrate ownership of the assets at closing. The Government further alleges that the Mitan conspiracy had gained control of each of these businesses used as collateral under fraudulent pretenses in recent weeks. By contrast, Kenneth contends that the $2,235,000 note was fully secured by about $3,500,000 in assets, for which UCC financing statements had been filed. (Id. Ex. Y.)
On the day of closing, the Government asserts that Kenneth informed the former accounting manager, now Chief Financial Officer (CFO), to keep all financial information secret from everyone but Kenneth. Kenneth alleges that under the Operating Agreement, Williams Fund was entitled to all income from the Company on and after the date of Agreement. (Id. Ex. U.) Kenneth then had the seller sign the company's checks and took control of most of them, explaining to the CFO that he was giving the checks to an accounting company, Marsh & McConnell, who would assume check-writing responsibilities for the company. Upon later inquiry, Marsh & McConnell stated that they had never made such an agreement with Kenneth.
Following this, many Super-1 RV checks were returned for insufficient funds. In addition, Kenneth was sending large checks to Super-1 RV's CFO from his other recently-acquired companies, including Benny's Cheese and Engel, with instructions to deposit them. At the same time, Kenneth was writing checks from Super-1 to Benny's Cheese and Engel. Kenneth does not deny that funds between the three companies were intermingled. However, Kenneth argues that he was completely entitled to control Super-1 RV's finances.
In October 2005, the CFO informed Kenneth that Super-1 RV was in jeopardy of being overdrawn. Kenneth gave the CFO blank, signed checks from Benny's Cheese to be filled in later upon his instructions. On November 4, 2005, the seller was notified that employee payroll checks were not clearing. He and his wife withdrew $60,000 from their personal account to cover the payroll checks. The seller then began investigating the company's financial records and discovered that under Kenneth's direction the company had stopped paying its sales tax obligations, insurance, rent, and utilities since the time of purchase.
The seller than reasserted control of the business, attempting to rebuild its reputation.
However in November 2006, the company declared bankruptcy. The seller also had to declare personal bankruptcy in spring 2007 because of the amount of personal money he invested in attempting to save the business.
Kenneth claims that the seller filed a civil suit alleging fraudulent pretenses against Kenneth, Frank Mitan, Zack Williams, and two Asian investors of the Williams Fund, but that the court sent the case to arbitration, which the seller never pursued. Kenneth also asserts that it was the sellers who defaulted under the terms of the stock purchase agreement because of undisclosed liabilities and liquidated assets prior to closing and a misrepresentation as to the amount of floor plan financing (id. Ex. BB), whereas Williams Fund was current on its promissory note obligations.
On January 12, 2005, Kenneth Mitan was arrested in Redondo Beach, California, pursuant to a police investigation into alleged credit card fraud. Large amounts of documents and a computer were seized from Kenneth's car at the time of arrest. However, on July 23, 2009, this Court ruled on Kenneth and Frank Mitan's Motion to Suppress this evidence because no warrant had been obtained for the search and no exceptions to the warrant requirement applied (Doc. Nos. 240, 241). The Motion was granted in part and denied in part. 2009 WL 2195321. The Government now advises that it no longer wishes to use any of this evidence. (See Govt's Reply Mot. In Limine 2.)
5. Gretna, Louisiana Arrest
On May 26, 2004, Kenneth Mitan was arrested in Gretna, Louisiana, by the local police pursuant to a Governor's warrant from Michigan because he was a fugitive from the state at that time. Gretna police initially received a call from a business owner who stated that a man was attempting to use a false name, "John Smith." When the police approached Kenneth, he stated to them that his name was "John Smith." Kenneth then admitted his real name after being asked to show identification.
The Government does not seek to introduce evidence surrounding the circumstances of the Governor's warrant or the arrest. Instead, the Government requests to introduce the fact that Kenneth used an alias during his ...