United States District Court, D. Minnesota
Gregory G. Brooker, Interim United States Attorney, and
Benjamin F. Langner, Lola Velazquez-Aguilu, and Surya Saxena,
Assistant United States Attorneys, UNITED STATES
ATTORNEY'S OFFICE, for plaintiff.
C. Conard, JOHN C. CONARD PLLC, for defendant Jerome C.
T. Rundquist and William J. Mauzy, MAUZY LAW PA, for
defendant W. Jeffrey Taylor.
C. Engh, for defendant Lawrence W. Miller.
J. Short, for defendant Lawrence T. Hagen.
MEMORANDUM OPINION AND ORDER
R. TUNHEIM Chief Judge United States District Court
Jerome Ruzicka, W. Jeffrey Taylor, Lawrence Miller, and
Lawrence Hagen have been charged in connection with the
alleged embezzlement of funds from Starkey Laboratories. The
Government and Defendants have brought motions in limine in
advance of trial to resolve a number of evidentiary disputes.
The Court issues this Opinion and Order to address those
all times relevant to the Indictment, Starkey Laboratories
Inc. (“Starkey”) was a Minnesota Corporation that
developed, manufactured, and distributed hearing aids in the
United States. (2d Superseding Indictment
(“Indictment”) ¶ 2, Sept. 21, 2016, Docket
No. 215.) A majority of Starkey was privately owned by
William F. Austin, who served as CEO, Chairman, and sole
member of the Board of Directors. (Id. ¶
3.)Starkey was the primary U.S.-based customer
of Sonion A.S. (“Sonion”), a Denmark corporation
that manufactured and sold hearing-aid components.
(Id. ¶ 6.)
were employees of Starkey and Sonion. Defendant Jerome
Ruzicka was the President of Starkey, entrusted by Austin
with the management of Starkey's operations.
(Id. ¶¶ 7, 12.) Defendant Scott Nelson was
the Chief Financial Officer of Starkey. (Id. ¶
8.) Defendant Lawrence Miller was Senior Vice President of
Human Resources of Starkey. (Id. ¶ 9.)
Defendant Lawrence Hagen was an employee of Starkey.
(Id. ¶ 11.) Defendant William Jeffrey Taylor
was President of Sonion U.S. - the U.S. subsidiary of Sonion
A.S. (Id. ¶ 10.)
are alleged to have conspired to embezzle and misappropriate
money and business opportunities from Starkey and Sonion
worth at least $20, 000, 000. (Id. ¶ 64.)
during or before 2006, Ruzicka and Taylor founded Archer
Consulting, Inc. (Id. ¶ 20.) Ruzicka allegedly
caused Starkey to begin paying Archer Consulting a commission
on sales of hearing-aid components from Sonion to Starkey,
without Austin's knowledge. (Id. ¶ 22.)
Taylor submitted invoices to Starkey for commission payments,
which Ruzicka approved. (Id. ¶ 23.) After
receiving payment from Starkey, Taylor and Ruzicka allegedly
split the proceeds. (Id. ¶¶ 23, 25.) In
2010, Ruzicka and Taylor signed a Consulting Services
Agreement whereby Starkey hired Archer Consulting to provide
“consulting services for the purchase of transducers,
” including opinions on “technology, price, and
delivery.” (Id. ¶ 24.) Between 2006 and
2015, Ruzicka and Taylor allegedly stole $7, 650, 000 from
Starkey using fraudulent invoices. (Id. ¶ 26.)
Claris Investments and Archer Acoustics
Sometime around 2002, Ruzicka and Hagen founded Claris
Investments, which Taylor later joined as an equal member.
(Id. ¶ 28.) Ruzicka, Taylor, and Hagen
represented to Sonion that Claris was owned and controlled by
Starkey to obtain Starkey's discounted pricing on
hearing-aid components. (Id. ¶ 27.) Taylor
arranged for Sonion to sell these discounted components to
other hearing-aid manufacturers. (Id. ¶ 29.)
Claris then invoiced these manufacturers for
“commissions” based on these sales.
(Id.) Ruzicka, Taylor, and Hagen each allegedly
received a share of proceeds from Claris. (Id.)
in 2009, Taylor and Ruzicka founded Archer Acoustics.
(Id. ¶ 31.) Taylor represented to Sonion that
Archer Acoustics was affiliated with Starkey in order to take
advantage of Starkey's discounted pricing on hearing-aid
components. (Id. ¶ 32.) Ruzicka, Taylor, and
Hagen each allegedly received a share of proceeds from Archer
Acoustics, totaling approximately $600, 000. (Id.
2002, Austin founded Northland LLC to acquire and operate
hearing-aid retailers. (Id. ¶ 35.) In 2006,
allegedly without Austin's approval, Ruzicka and Nelson
created Northland Hearing Centers, Inc., and transferred most
of Northland LLC's assets to Northland Hearing Centers.
(Id. ¶ 36.) To accomplish this transfer,
Ruzicka and Nelson allegedly forged Austin's signature on
certain documents. (Id.) Ruzicka and Nelson issued
100, 000 shares of stocks in Northland Hearing Centers,
including 51, 000 shares to themselves and J.L. as restricted
stock. (Id. ¶ 37.) In 2013, Ruzicka and Nelson
caused Northland Hearing to purchase their unvested
restricted stock for approximately $15, 000, 000.
(Id. ¶¶ 38-40.) Nelson allegedly
“grossed up” the payments to ensure that Starkey
would cover the collective $7, 000, 000 tax liability of
Ruzicka, Nelson, and J.L. (Id. ¶ 40.) In 2014,
Ruzicka and Nelson allegedly made additional payments to
themselves and J.L. to cover additional tax liabilities
related to the stock purchase. (Id. ¶ 42.)
2006, Ruzicka signed an employment agreement with Miller,
guaranteeing Miller a “long-term services and loyalty
bonus” of $50, 000 each year from 2006 to 2015.
(Id. ¶ 45.) In total, Miller received $88, 250
in “loyalty” bonuses from 2006 to 2015, exceeding
the allotted $50, 000 per year. (Id.)
Ruzicka's 2006 employment agreement, Ruzicka was eligible
to receive a bonus of $250, 000 in any year in which Starkey
grew by more than 10%. (Id. ¶ 49.) In 2015,
Ruzicka allegedly sent Miller a falsified profit and loss
statement, requesting that Miller process a bonus for Ruzicka
in the amount of $250, 000. (Id. ¶ 50.)
Additionally, it is alleged that Ruzicka's bonus was
“grossed up” by an additional $140, 000 to cover
Ruzicka's tax liability, even though the employment
contract did not call for such an adjustment. (Id.
2014, Nelson had Starkey's accounting department issue a
$200, 000 check to an Edward Jones account owned by Ruzicka.
(Id. ¶ 59.) Nelson recorded the payment as an
“insurance” expense but Ruzicka used the money to
pay his personal state and federal income taxes.
(Id.) Neither Nelson nor Ruzicka recorded the $200,
000 payment as compensation to Ruzicka. (Id. ¶
2010, Starkey purchased a 2011 Jaguar vehicle for $119,
188.77 for Ruzicka's use. (Id. ¶ 62.)
Starkey paid the fees, insurance premiums, and other costs
associated with the Jaguar from 2010 to 2015. (Id.)
In July 2015, Ruzicka transferred ownership of the Jaguar
from Starkey to himself without paying Starkey for the
vehicle. (Id. ¶ 63.)
conceal bonus payments and other benefits, Miller, Ruzicka,
and Nelson allegedly manipulated Starkey's descending
gross payroll reports. (Id. at ¶¶ 46-48.)
have been charged with various counts of Conspiracy to Commit
Mail Fraud and Wire Fraud (18 U.S.C. § 1349), Mail Fraud
(18 U.S.C. § 1341), Wire Fraud (18 U.S.C. § 1343),
Transactions Involving Fraudulent Proceeds (18 U.S.C. §
1957), and Making and Submitting a False Return (26 U.S.C.
§7206(1)). All five defendants initially pleaded not
guilty. On December 19, 2017, pursuant to a plea agreement,
Nelson changed his plea to guilty to one count of Conspiracy
in violation of 18 U.S.C. § 371. (Nelson Plea Hr'g,
Dec. 19, 2017, Docket No. 264; Nelson Plea Agreement, Dec.
19, 2017, Docket No. 266.)
19, 2017, the Court issued an order denying Brady
requests for materials held by Starkey and its private
investigator, Waypoint, because the Court does not have
authority to order the Government to seek an ex parte order
for additional materials. (Order (“Brady
Order”), May 19, 2017, Docket No. 162.)
Soundpoint, Audiometrix, and Hearing Fusion
Court must decide whether to permit the introduction of
evidence of interrelated conduct not explicitly mentioned in
the Indictment - particularly conduct involving Soundpoint
Audiology and Hearing Services LLC
(“Soundpoint”), Audiometrix LCC, and Hearing
Fusion. (Gov. Trial Mem. & Mots. in Limine (“Gov.
MILs”) at 20-21, Dec. 14, 2017, Docket No. 244.)
Defendants argue that this evidence is barred by (1) Rule 404
and (2) their Sixth Amendment constitutional rights.
(Ruzicka's Resp. to Gov. MILs (“Ruzicka
Resp.”) at 1-7, Dec. 21, 2017, Docket No. 270.)
404(b)(1) states, “Evidence of a crime, wrong, or other
act is not admissible to prove a person's character in
order to show that on a particular occasion the person acted
in accordance with the character.” But Rule 404(b) does
not “bar evidence that completes the story of the crime
or explains the relationship of the parties” or
intrinsic evidence of “crimes or acts which are
‘inextricably intertwined' with the charged
crime.” United States v. Aldridge, 561 F.3d
759, 766 (8th Cir. 2009) (quoting United
States v. Adams, 401 F.3d 886, 899 (8th Cir.
2005)). As the Eighth Circuit has elaborated:
[W]here evidence of other crimes is ‘so blended or
connected, with the one[s] on trial as that proof of one
incidentally involves the other[s]; or explains the
circumstances; or tends logically to prove any element of the
crime charged, ' it is admissible as an integral part of
the immediate context of the crime charged. When the other
crimes evidence is so integrated, it is not extrinsic and
therefore not governed by Rule 404(b).
United States v. Phelps, 168 F.3d 1048, 1057-58
(8th Cir. 1999) (alterations in original) (quoting
United States v. Swinton, 75 F.3d 374, 378
(8th Cir. 1996)).
United States claims that Ruzicka and Hagen co-owned
Soundpoint, which was purchased by Starkey for $850, 000.
(Gov. MILs at 15-16.) Ruzicka allegedly received $230, 000
from the sale but reported on his 2010 tax return that he
only received $100, 000. Count 27 of the indictment alleges
that Ruzicka provided materially false information on his
2010 tax return. (Indictment ¶¶ 71-72.) In
Aldridge, the Eighth Circuit concluded that evidence
of a pyramid scheme was admissible because the scheme was
“inextricably intertwined” with the filing of
false tax returns. 561 F.3d at 766. The Court finds
Aldridge to be instructive and concludes that
Ruzicka's dealings with Soundpoint are intertwined with
the charge of filing a false tax return.
United States claims that Ruzicka used his position as
Starkey's president to obtain consulting fees from
Audiometrix and Hearing Fusion. (Gov. MILs at 18.) Although
the alleged fraud stemming from Audiometrix and Hearing
Fusion is not contained within the Indictment, the Court
finds this fraud substantially similar to the fraudulent acts
actually alleged. The Eighth Circuit's decision in
United States v. Holliman is analogous. 291 F.3d 498
(8th Cir. 2002). In Holliman, the
indictment alleged that the defendant had stolen thirteen
vehicles, and the defendant was ultimately convicted of
conspiracy to transport stolen vehicles in interstate
commerce. Id. at 500-01. The district court admitted
evidence that he had stolen other vehicles during the
conspiracy beyond the thirteen alleged in the indictment.
Id. at 501-02. The Eighth Circuit held that the
evidence “did not concern ‘other crimes, wrongs,
or acts' under Rule 404(b), ” but was
“admissible under the doctrine of res gestae,
as this evidence was sufficiently connected to the charged
crimes that it tended logically to prove elements of these
crimes.” Id. at 501-02 (citing United
States v. Riebold, 135 F.3d 1226, 1229
(8thCir. 1998)). Like the additional vehicles in
Holliman, the Court finds that evidence of
Ruzicka's scheme with respect to Audiometrix and Hearing
Fusion is sufficiently connected to the crime of Conspiracy
to Commit Mail Fraud and Wire Fraud.
Court must also decide whether the admission of this evidence
would run afoul of Defendants' Sixth Amendment rights
“to be informed of the nature and cause of the
accusation” against them. The Indictment makes no
mention of Soundpoint, Audiometrix, or Hearing Fusion.
“An indictment is sufficient if it contains the
elements of the offense charged, lets the defendant know what
he needs to do to defend himself, and would allow him to
plead a former acquittal or conviction if he were charged
with a similar offense.” United States v.
Whitlow, 815 F.3d 430, 433 (8th Cir. 2016).
“Usually an indictment that tracks the statutory
language is sufficient.” Id. The Court
concludes that the indictment meets these threshold Sixth
Amendment requirements. See id.
Court will therefore grant the Government's motion to
permit the introduction of evidence of interrelated
fraudulent conduct. Correspondingly, the Court will deny
Ruzicka's motion to exclude evidence of Hearing Fusion.
(Ruzicka's Mot. in Limine (“Ruzicka MILs”) at
30-32, Dec. 14, 2017, Docket No. 250.)
Austin and Sawalich
Court must decide whether to exclude certain evidence about
Austin and Brandon Sawalich's conduct. (Gov. MILs at
Court must decide whether to exclude impeachment evidence
that female employees were awarded bonuses, employment
contracts, compensation packages, or insurance contracts, to
quell harassment complaints against Austin and Sawalich. The
Court cannot ascertain the relevance of this evidence without
first viewing it. The Court will order Defendants to produce
the evidence related to harassment for the Court's in
Austin's Divorce Settlement
Court must decide whether to exclude evidence related to
Austin's divorce settlement. The Court cannot ascertain
the relevance of this evidence without first viewing it. The
Court will order Defendants to produce the evidence related
to the settlement for the Court's in camera
Donated Hearing Aids
Court must decide whether to exclude evidence that the
Starkey Foundation provided defective hearing aids to
impoverished individuals in other countries. The Court cannot
ascertain the relevance of this evidence without first
viewing it. The Court will order Defendants to produce
evidence related to the donated hearing aids for the
Court's in camera review.
Court must decide whether to exclude two statements made by
Austin. First, Austin allegedly said, “The only mistake
that the Nazis made was keeping records.” (Gov. MILs at
22.) While the Court acknowledges that this statement
contains some probative value about Austin's views on
recordkeeping, the Court finds that this probative value is
outweighed by unfair prejudice resulting from the
outrageously anti-Semitic nature of the comment. See
Fed. R. Evid. 403. Of course, Defendants are otherwise
permitted to question witnesses about Austin's views on
Austin allegedly said, “Everyone deserves a good
f[uc]king once in a while.” (Gov. MILs at 22.)
Defendants have not explained why this statement is
probative, and the Court cannot ascertain to what issue it
relates. Nevertheless, the Court concludes that this
statement is highly prejudicial despite whatever probative
value it may have. See Fed. R. Evid. 403.
the Court will grant the Government's motions to exclude
both of these statements made by Austin.
Austin's Mental State
Court must decide whether to exclude evidence that Austin
believed that he had one or more conversations with wildlife,
angels, or other ethereal beings. “[A] tendency to
hallucinate is so like a direct physical impairment [to the
witness's perception] as to fall well within the
old-fashioned rule, ” and therefore “a court must
not keep such evidence from the jury.” United
States v. Pryce, 938 F.2d 1343, 1346 (D.C. Cir. 1991).
The Government argues that these are not hallucinations but
rather religious beliefs and are inadmissible as impeachment
evidence. See Fed. R. Evid. 610. The Government has
stretched the definition of “religious beliefs”
further than it may go. Not all of these purported
hallucinations relate to religious beliefs. For example,
Defendants claim that “Austin has told multiple people
that he has had back-and-forth conversations in English with
deer that he shot dead while hunting.” (Ruzicka Resp.
at 4.) The Court finds that the evidence the Government seeks
to exclude is not prohibited by Rule 610. The Court will
therefore deny the Government's motion to exclude
evidence of Austin's discussions with wildlife, angels,
or other ethereal beings.
Statements By Non-Testifying Witnesses
Court must decide whether to permit the introduction of
e-mails and documents from non-testifying witnesses “to
demonstrate the effect of those communications on the
particular defendant involved in the communication, to
provide context for the defendant's responses, and to
show the defendant's knowledge, intent, and lack of
mistake.” (Gov. MILs at 25.) Generally, e-mails sent by
non-testifying witnesses are not hearsay so long as the
statements are not offered for the truth of the matter
asserted. See, e.g., United States v.
Cooke, 675 F.3d 1153, 1156 (8th Cir. 2012).
The Government, however, has not provided any such e-mails or
documents to the Court, so the Court cannot evaluate whether
these statements (1) are relevant, (2) are ...