Source: http://il.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20061221_0000776.NIL.htm/qx
Timestamp: 2017-10-17 09:49:47
Document Index: 582611732

Matched Legal Cases: ['§1341', '§1346', '§1957', '§1512', '§1962', '§7206']

CONRAD M. BLACK, JOHN A. BOULTBEE, PETER Y. ATKINSON, MARK S. KIPNIS, AND THE RAVELSTON CORPORATION LIMITED, DEFENDANTS.
On August 17, 2006, a grand jury returned a seventeen-count third superseding indictment (the "Indictment") naming four individual Defendants -- Conrad M. Black, John A. Boultbee, Peter Y. Atkinson, Mark S. Kipnis -- and a corporate Defendant, the Ravleston Corporation Limited (collectively, "Defendants"). The Indictment charges that Defendants committed the following offenses: (1) mail and wire fraud, in violation of 18 U.S.C. §§1341, 1343, including the deprivation of the intangible right to honest services, in violation of 18 U.S.C. §1346, (2) money laundering, in violation of 18 U.S.C. §1957; (3) obstruction of justice, in violation of 18 U.S.C. §1512(c)(1); (4) racketeering, in violation of 18 U.S.C. §1962(c); and (5) criminal tax violations, in violation of 26 U.S.C. §7206(2). Defendants have filed a number of motions to dismiss and motions to strike challenging the legal and factual sufficiency of the Indictment. For the reasons discussed below, the Court denies those motions.
Fed. R. Crim. P. 12(b)(2) provides that "[a] party may raise by pretrial motion any defense, objection, or request that the court can determine without a trial of the general issue." When considering a motion to dismiss under Rule 12(b)(2), "a court assumes all facts in the indictment are true and must 'view all facts in the light most favorable to the government.'" United States v. Segal, 299 F. Supp. 2d 840, 844 (N.D. Ill. 2004) (quoting United States v. Yashar, 166 F.3d 873, 880 (7th Cir. 1999)). When viewed in that light, an indictment is sufficient if it satisfies three, constitutionally-mandated requirements. United States v. Anderson, 280 F.3d 1121, 1124 (7th Cir. 2002). "First, [an indictment] must adequately state all of the elements of the crime charged; second, it must inform the defendant of the nature of the charges so that he may prepare a defense; and finally, the indictment must allow the defendant to plead the judgment as a bar to any future prosecution for the same offense." Id. (citing United States v. Smith, 230 F.3d 300, 305 (7th Cir. 2000); further noting that "[t]he Fifth Amendment guarantees the right to an indictment by grand jury and serves as a bar to double jeopardy, while the Sixth Amendment guarantees that a defendant be informed of the charges against him."). In this regard, "[i]ndictments need not exhaustively recount the facts surrounding the crime's commission," United States v. Agostino, 132 F.3d 1183, 1189 (7th Cir. 1997), rather "when determining the sufficiency of an indictment, [a court] look[s] at the contents of the subject indictment 'on a practical basis and in [its] entirety, rather than in a hypertechnical manner.'" United States v. McLeczynsky, 296 F.3d 634, 636 (7th Cir. 2002) (quoting Smith, 230 F.3d at 305). In addition, "[a]n indictment, or a portion thereof, may be dismissed if it is otherwise defective or subject to a defense that may be decided solely on issues of law." United States v. Labs of Virginia, Inc., 272 F. Supp. 2d 764, 768 (N.D. Ill. 2003); see also United States v. Flores, 404 F.3d 320, 324 (5th Cir. 2005) ("[t]he propriety of granting a motion to dismiss an indictment under [Fed. R. Crim. P.] 12 by pretrial motion is by-and-large contingent upon whether the infirmity in the prosecution is essentially one of law or involves determinations of fact. If a question of law is involved, then consideration of the motion is generally proper." (citation omitted)).
Federal Rule of Criminal Procedure 7(d) provides that "[u]pon the defendant's motion, the court may strike surplusage from the indictment." Fed. R. Crim. P. 7(d). The related Advisory Committee Notes explain that the rule "introduces a means of protecting the defendant against immaterial or irrelevant allegations in an indictment . . . which may, however, be prejudicial." "Motion to strike portions of the indictment should be granted 'only if the targeted allegations are clearly not relevant to the charge and are inflammatory and prejudicial.'" United States v. Andrews, 749 F. Supp. 1517, 1518 (N.D. Ill. 1990) (citation omitted); see United States v. Williams, 445 F.3d 724, 733 (4th Cir. 2006) ("[A] motion to strike surplusage from the indictment should be granted only if it is clear that the allegations are not relevant to the charge and are inflammatory and prejudicial") (citations omitted); United States v. Michel-Galaviz, 415 F.3d 946, 948 (8th Cir. 2005). "Simply put, legally relevant information is not surplusage [and] due to the exacting standard, motions to strike information as surplusage are rarely granted." United States v. Bucey, 691 F. Supp. 1077, 1081 (N.D. Ill. 1988).
With these principles in mind, the Court turns to the merits of Defendants' Motions.
I. The Parties and Other Key Entities
Hollinger International, Inc. ("International") was a Delaware corporation with an office located in Chicago, Illinois. (R. 219-1, Indictment at 1, ¶1a.) International was a holding company that was publicly traded on the New York Stock Exchange. (Id.) Through its operating subsidiaries, International owned and published newspapers around the world, including the Chicago Sun-Times, The Daily Telegraph in the United Kingdom, the National Post in Toronto, Canada, the Jerusalem Post in Israel, and numerous community newspapers in the United States and Canada. (Id.) International maintained an audit committee (the "Audit Committee") consisting of three independent directors that functioned as International's independent director committee for purposes of reviewing and approving the fairness of "related party" transactions between International and its controlling shareholders, officers, and/or directors. (Id.)
Hollinger Inc. ("Inc.") was a Canadian corporation with its principal office located in Toronto, Canada. (Id. at 2, ¶1b.) Inc. was a holding company that was publicly traded on the Toronto Stock Exchange. (Id.) Inc's primary asset was its interest in International, which it held directly through various subsidiaries. (Id.) Inc. held approximately 30% of International's equity, but still controlled a majority of International's stock voting power. (Id.) This disproportionate voting power existed because most of Inc.'s shares in International were Class B common stock that had a 10-1 voting preference over the Class A common shares held by International's public shareholders. (Id.)
Defendant the Ravelston Corporation Limited ("Ravelston") was an Ontario, Canada corporation with its principal office located in Toronto, Canada. (Id. at 2, ¶1c.) Ravelston was a privately held corporation, with 98.5% of its equity owned by officers and directors of International and Inc., and 1.5% owned by the estate of a former Inc. director. (Id.) Ravelston's principal asset was its controlling interest in Inc., which it held directly and through various subsidiaries, and which was approximately 78% of Inc.'s equity during the relevant time period. (Id.) Ravelston, thus, was the controlling shareholder of International through its controlling interest in Inc. (Id. at 3, ¶1c.)
Defendant Conrad M. Black ("Black") is a trained attorney and was a Canadian citizen until 2000 when he became a member of the United Kingdom's House of Lords. (Id. at 3, ¶1d.) He resided in Toronto, London, and Palm Beach, Florida, and frequently stayed at an apartment owned by International in New York City.*fn1 (Id.) Black, through Conrad Black Corporation ("CBCC"), owned approximately 65.1% of Ravelston. (Id.) Through his controlling interest in Ravelston, Black indirectly owned approximately 51% of Inc., and through his ownership in Inc., Black indirectly owned approximately 15% of International. (Id.) Despite having only a minority ownership in International, Black maintained voting control over International through Inc.'s ownership of International's "super-voting" Class B Common Stock. (Id.) Black also served as Chief Executive Officer and Chairman of the Board of Ravelston, Inc. and International. (Id.)
Defendant John A. "Jack" Boultbee, ("Boultbee"), a Canadian citizen and a Chartered Accountant in Canada, owned through Mowitza Holdings, Inc. approximately 0.98% of Ravelston. (Id. at 3, ¶1e.) Boultbee also served as: (1) Chief Financial Officer of Ravelston; (2) Chief Financial Officer, Executive Vice President and a Director of Inc.; and (3) Executive Vice President and, for a period of time, Chief Financial Officer of International. (Id. at 3-4, ¶1e.)
Defendant Peter Y. Atkinson ("Atkinson"), a Canadian citizen and licensed attorney in Canada, owned 0.98% of Ravelston. (Id. at 4, ¶1f.) Atkinson also served as Vice President and General Counsel of Inc., and Executive Vice President of International. (Id.)
Defendant Mark S. Kipnis ("Kipnis"), a United States citizen and an attorney licensed in Illinois to practice law since 1974, served as Vice President, Corporate Counsel and Secretary of International. (Id. at 4, ¶1g.)
F. David Radler ("Radler"), a former Defendant who pled guilty in this case on September 20, 2005, was a Canadian citizen who resided in Vancouver, Canada. Radler, through FDR Ltd., owned approximately 14.2% of Ravelston. (Id. at 5, ¶1h.) Radler served as the President of Ravelston and also served as the Deputy Chairman of the Board of Directors, the President and the Chief Operating Officer of both International and Inc. (Id.)
Defendants Black, Boultbee, Atkinson, and Ravelston provided International with executive services,*fn2 along with certain accounting, financial reporting and other administrative functions pursuant to a management services agreement*fn3 between Ravelston and International.
(Id. at 5-6, ¶1i.)
II. Defendants' Motions To Dismiss the Honest Services Charges
A. The Charged Conduct
As is relevant for purposes of this Opinion, the Indictment alleges that, at times material to the charged honest services offenses, the following facts occurred:
Commencing in May of 1998 and continuing through 2001, International embarked on a business plan to sell off nearly all of its United States community newspaper assets. (Id. at 7, ¶1k.) In May 1998, an International subsidiary sold American Trucker and several other smaller publications to Intertec Publishing Company for a total amount of approximately $75 million. (Id.) From early 1999 through late 2000, International and its subsidiaries sold virtually all of International's United States community newspapers (except for those in the Chicago metropolitan area), in a series of sales to a variety of purchasers:
PurchaserTotal Amount (approx.)Closing Date Community Newspaper Holdings, Inc. ("CNHI")$472 million2/1/99 Horizon Publications Inc. ("Horizon")*fn4$43.7 million3/31/99 Forum Communications Inc. ("Forum")$14 million9/30/00 PMG Acquisition Corp. ("Paxton")$59 million10/2/00 Newspaper Holdings Inc.*fn5 ("CNHI II")$90 million11/1/00
Radler supervised the negotiations of the business terms of each of these transactions, and Kipnis participated in the documentation and closing of each transaction. (Id. at 7, ¶1l.) The closing documents for each of these transactions included a non-competition agreement signed by International, in which International promised not to acquire or establish a newspaper within a certain geographic distance from the newspapers it sold for a certain period of time after the sale at issue. (Id. at 7-8, ¶1m.) Such agreements are standard practice in the newspaper industry because newspaper purchasers buy not just the trade name of the newspaper, but also its subscriber and advertiser bases. (Id.) The Indictment asserts, however, that Defendants abused this standard practice to benefit themselves at the expense of International's shareholders by inserting themselves and Inc. as recipients of non-competition fees that should have, and otherwise would have, been paid exclusively to International. (Id.)
1. The Non-Competition Agreements
a. American Trucker
On May 11, 1998, International (through a subsidiary) sold American Trucker and Mine and Quarry Trader to Intertec Publishing Corp. for $75 million. (Id. at 10, ¶4.) The closing documents provided that $2 million would be paid to International to obtain a non-competition agreement. (Id.) Radler signed the asset purchase agreement and non-competition agreement on behalf of International. (Id.) Intertec did not request or receive a non-competition agreement from Inc. as part of the transaction. (Id.)
In January 1999, approximately eight (8) months after the sale, Black, Boultbee, and Radler decided to divert to Inc. the $2 million that International received for the American Trucker non-competition agreement. (Id. at 10, ¶5.) Consistent with this decision, Ravelston's agents caused the Executive Vice President of International's Community Newspaper Division to send a memorandum to International's Assistant Treasurer (and Radler) falsely stating that the $2 million "was actually for [Inc.] as compensation for the Non-Compete as specified in the American Trucker transaction." (Id.)
On February 1, 1999, Kipnis signed the $2 million check from International to Inc. (Id. at 10-11, ¶6.) These funds purportedly represented the entire $2 million non-competition payment from the American Trucker transaction to Inc. as compensation for Inc.'s assent to the non-competition agreement. (Id.) Ravleston's agents and Kipnis, however, knew that Inc. had never signed or been asked to sign a non-competition agreement in the American Trucker transaction. (Id.) Inc. did not present a competitive threat to any of the publications sold in this transaction because Inc. did not employ staff who could manage newspaper properties in the United States other than the staff already working for International, which was subject to the non-competition agreement. (Id.) Defendants Ravelston, Black, Boultbee, Radler and Kipnis did not disclose the $2 million payment from International to Inc. as a related-party transaction to International's Audit Committee. (Id. at 11, ¶7.)
b. CNHI I
On February 1, 1999, International sold certain newspaper assets to CNHI for approximately $472 million. (Id. at 11-12, ¶8.) The deal letter for the CNHI transaction, executed in December 1998, provided that International would sign a non-competition agreement in exchange for $50 million, presumably CNHI's actual valuation of International's non-competition. (Id.)
After that deal letter, in January 1999, Defendants Ravelston, Black, Boultbee, and Radler, decided to insert Inc. as a non-competition covenantor, and decided that Inc. would receive $12 million (or approximately 25%) of the $50 million originally slated for International's non-competition agreement. (Id. at 12, ¶9.) Defendants Black, Boultbee, Radler, and Kipnis knew that CNHI had not requested to add Inc. to the non-competition agreement. (Id.)
In late January 1999, just days ahead of closing the CNHI deal on February 1, 1999, Kipnis inserted Inc. into the closing documents as a non-compete covenantor. (Id. at 12, ¶10.) The final, executed covenant stated that "[CNHI] was not willing to enter into the Exchange Agreement and Lenders are not willing to provide financing to [CNHI] for the acquisition of the Newspapers unless Covenantors execute this Agreement." (Id.) Kipnis signed the asset purchase agreement and non-competition agreement on behalf of International, and Radler signed the non-competition agreement on behalf of Inc. (Id.) According to the Indictment, both Kipnis and Radler signed the non-competition agreements knowing that CNHI was willing to enter into the transaction without Inc.'s non-compete agreement. (Id.)*fn6 On February 1, 1999, Defendant Kipnis caused $12 million of the transaction proceeds to be wire transferred directly to Inc. instead of International. (Id. at 12, ¶11.)
According to the Indictment, the American Trucker and CNHI I transactions served as the "template" for Defendants' fraud scheme. (Id. at 13, ¶13.) In January 1999, Ravelston's agents, including Black, Boultbee, and Radler, decided that, in connection with all future sales of International's United States community newspapers, Inc. would become a non-compete covenantor as a matter of course, and would receive 25% of the proceeds allocated to the non-competition agreement in each transaction. (Id.) Defendant Kipnis was present at the time the decision to implement the template was made and characterized it as having been made by "Toronto" -- a reference to Ravelston's agents based in Toronto, Canada. (Id.) Defendants Ravelston, Black, Boultbee, and Kipnis all failed to disclose the plan to implement the template to International's Audit Committee. (Id.)
Black and Radler owned substantial interests in Horizon, a privately-owned newspaper company. (Id. at 14, ¶14.) In an agreement dated March 31, 1999, International agreed to sell certain publications to Horizon for $43.7 million. (Id.) Black, Boultbee, and Radler decided that the amount of the non-competition agreement accompanying the transaction would be $5 million -- with International and Inc. splitting it according to the template. (Id.) On June 30, 1999, Kipnis helped implement the template by including Inc. in the transaction documents, and causing $1.2 million to be wire transferred to Inc. in August 1999 when Horizon received the funding necessary to close the transaction. (Id. at 14, ¶15.) Kipnis signed the asset purchase agreement and non-competition agreement on behalf of International, and Radler signed the non-competition agreement on behalf of Inc. (Id.) As the Indictment describes this transaction, "in the Horizon transaction, Ravleston's agents, including Black, Boultbee, and Radler, had in essence negotiated an agreement with themselves (Inc.), not to compete against themselves (Horizon), resulting in them paying themselves (Inc.) approximately $1.2 million." (Id.)
d. Forum and Paxton
On September 30, 2000, International entered into an Asset Purchase Agreement to sell newspapers to Forum Communications Co. for $14 million, $400,000 of which was allocated to non-competition agreements. (Id. at 16, ¶17.) On October 2, 2000, International entered into an Asset Purchase Agreement to sell newspapers to Paxton for $59 million, $2 million of which was allocated to non-competition agreements. (Id.) At the time of these deals, Radler thought that Kipnis had included Radler, Black, Boultbee, and Atkinson as additional non-compete covenantors and that 3% of the proceeds from each transaction had been set aside to fund the non-compete payments to the International officers. (Id. at 17, ¶19.) In fact, these amounts had not been set aside. (Id. at 17, ¶20.) Thereafter, on April 9, 2001, Black, Boultbee, Atkinson, Radler, and Kipnis caused an International subsidiary to pay $600,000 to Black, Boultbee, Atkinson, and Radler, as "supplemental non-competition payments." (Id. at 17, ¶21.) None of Defendants, however, actually had signed a non-compete agreement. (Id.)
e. CNHI II
On November 1, 2000, International sold another batch of newspapers to CNHI, this time for $90 million. (Id. at 18, ¶22.) Pursuant to the "template" established by Ravelston's agents, Kipnis inserted Inc. into the CNHI asset purchase agreement as a non-compete covenantor. (Id.) The asset purchase agreement, dated September 28, 2000, allocated $3 million of the purchase price to International and Inc.' non-competition agreements -- $2.25 million to International (75%) and $750,000 to Inc. (25%). CNHI had not requested to include Inc. as a non-compete covenantor. (Id.)
In late October 2000, Kipnis asked CNHI to include Black, Boultbee, Atkinson, and Radler as additional covenantors, and CNHI did not object. (Id. at 18, ¶23.) Just prior to closing, Black directed Radler to allocate approximately $9.5 million of the transaction proceeds to the non-competition agreements for Black, Boultbee, Atkinson, and Radler, and Radler passed the directive on to Kipnis. (Id. at 19, ¶24.) As Defendants were aware, International otherwise would have received that $9.5 million as proceeds from the CNHI II transaction. (Id.) At the closing, on November 1, 2000, Kipnis signed the asset purchase agreement on behalf of International and the non-competition agreement on behalf of International, Inc., Black, Boultbee, Atkinson, and Radler. (Id.) Kipnis signed the non-competition agreement knowing that CNHI was willing to enter into the transaction without Inc. or the four individuals' non-compete agreement. (Id.)
On November 1, 2000, Kipnis, in addition to wiring $750,000 to Inc., tried to convince CNHI to wire the $9.5 million directly to Black, Boultbee, Atkinson, and Radler. (Id. at 19, ¶26.) CNHI refused in part because it had never heard of Boultbee or Atkinson, but allowed Kipnis to handwrite the names and disbursement amounts for the four International officers on the bank's wiring instructions. (Id.) Kipnis subsequently arranged to send the $9.5 million to American Publishing Company, a subsidiary of International, which later issued checks totaling $9.5 million to Black, Boultbee, Atkinson, and Radler. (Id. at 19-20, ¶27.) Kipnis also caused American Publishing Company to issue him a $100,000 bonus check. (Id.)
f. The February 2001 Payments from American Publishing Company
In February 2001, Black, Boultbee, Atkinson, Radler, and Kipnis fraudulently mischaracterized bonus payments to the four International officers as non-competition agreements. (Id. at 20, ¶28.) Black, Boultbee, Atkinson, and Radler decided that they would pay themselves, purportedly on behalf of International, a bonus of $5.5 million. (Id.) They labeled these payments as non-competition payments, rather than bonus compensation to take advantage of the potential tax benefits that genuine non-competition payments received under Canadian tax laws. (Id.) Kipnis prepared (and signed) non-competition agreements between American Publishing Company and Black, Boultbee, Atkinson, and Radler. (Id. at 20-21, ¶29.) Each executive agreed not to compete for three years after he left International's employ. (Id.) The agreements were backdated to December 31, 2000. (Id.) By the time Defendants executed the agreements, American Publishing owned only one community paper, a weekly newspaper in Mammoth Lake, California, that International was at the time trying to sell. (Id.) As the Indictment characterizes it, "Black, Boultbee, Atkinson, and Radler had signed a $5.5 million agreement not to compete in the newspaper business with a company that was, for all intents and purposes, no longer in the newspaper business." (Id.) In February 2001, Black, Boultbee, Atkinson, Radler, and Kipnis caused an American Publishing Company subsidiary to issue checks totaling $5.5 million to Black, Boultbee, Atkinson, and Radler. (Id.) Defendant Kipnis arranged for the delivery of the checks, which like the non-competition agreements, were backdated to December 31, 2000. (Id.)
g. CanWest
In early 2000, International sold to CanWest Global Communications Corp. hundreds of Canadian newspapers, an internet investment called Canada.com, and a fifty percent interest in the National Post. (Id. at 29, ¶2a.) International owned exclusively about 2/3 of the assets sold. (Id.) The purchase price was $2.1 billion, with $51.8 million allocated to non-competition agreements. (Id. at 29, ¶¶2a, 2b.) Defendant Black negotiated the transaction, and Defendants Boultbee, Atkinson, and Kipnis participated in reviewing and finalizing the transaction. (Id. at 29, ¶2b.) On July 28, 2000, Defendants Black, Boultbee, and Atkinson inserted Boultbee and Atkinson as non-compete convenantors. (Id. at 30, ¶5.) Prior to this date, CanWest had requested only that International, Ravelston, Black, and Radler sign non-competition agreements, and the transaction agreement had not allocated any of the sales proceeds to such agreements. (Id.) Defendants Black, Boultbee, and Atkinson agreed to insert Boultbee and Atkinson as non-compete covenantors and recipients of non-competition fees as a mechanism through which International would pay them a bonus. (Id. at 31, ¶6.) Until this time, International had never paid Boultbee or Atkinson a bonus; Ravelston had paid all of their compensation through its management fees. (Id.) Defendants decided to label these payments as non-competition payments, rather than bonus compensation, in order to take advantage of the potential tax benefits that genuine non-competition payments received under Canadian tax laws. (Id.) In addition, at Defendants' direction, the $51.8 million set aside for the non-competition payments decreased International's compensation for the newspapers it was selling to CanWest. (Id. at 31, ¶5.)
On September 1, 2000, Kipnis prepared and sent a memorandum to International's Audit Committee regarding the CanWest transaction. (Id. at 32, ¶7.) According to the Indictment, this memorandum mischaracterized the transaction in certain material ways. For instance, this memorandum stated that: (1) the transaction agreement allocated $32.4 million to non-competition payments, when the transaction agreement actually so allocated $51.8 million; (2) CanWest requested to include Atkinson and Boultbee as non-competition convenantors, when CanWest had not so requested; and (3) International would receive $2.6 million for its non-competition agreement, when International in fact received nothing. (Id.) At the Audit Committee meeting on September 11, 2000, Defendant Kipnis allegedly misrepresented other facts relating to the CanWest transaction. (Id. at 33, ¶8.) Among other items identified in the Indictment, Kipnis stated that CanWest had originally insisted on Black and Radler each receiving $16.8 million for their non-competition agreements, when CanWest never insisted that any non-compete covenantor receive any money. (Id.) The Audit Committee approved the non-competition payments, in part, based on these representations. (Id.) The CanWest deal closed on November 16, 2000, (id. at 34, ¶9), but neither International's Form 10-K nor its proxy statement (both filed in early 2001) disclosed the non-competition payments made to Ravelston, Black, Boultbee, Atkinson, and Radler. (Id. at 35, ¶11.)
In April 2001, an outside attorney discovered these payments in the course of due diligence in connection with a proposed loan to International. (Id.) That attorney opined that International needed to disclose these payments in a filing with the SEC. (Id.) In response to the lender attorney's inquiry, Defendants Black, Boultbee, Atkinson, and Kipnis decided to alter the paper record on which International approved the CanWest payments. (Id. at 35, ¶12.)
Defendants sought ratification of the payments from the Audit Committee and the Board of Directors based on a memorandum dated May 1, 2001 (the "May Memorandum"). (Id.) The stated purpose of the May Memorandum, which International's Audit Committee and Board of Directors reviewed, was to correct certain "inadvertent" inaccuracies in the information previously disclosed to these entities. (Id.) The May Memorandum, which Kipnis signed and Defendants reviewed, contained certain alleged misrepresentations, including that: (1) CanWest refused to consummate the deal without Boultbee and Atkinson signing non-competition agreements;*fn7 and (2) the non-competition payments reflected the actual value that CanWest attributed to the obligors' ...