Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 1 of 14. PageID #: 608

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1 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 1 of 14. PageID #: 608 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO EASTERN DIVISION UNITED STATES OF AMERICA, ) Case No.: 1:09 cr 547 ) Plaintiff, ) JUDGE DAN POLSTER ) vs. ) ) TIMOTHY R. DUNAGAN, ) DEFENDANT S ) SENTENCING MEMORANDUM ) Defendant ) Now come Defendant Timothy R. Dunagan, by and through counsel, and respectfully submit his sentencing memorandum for the Court s consideration. Sentencing is scheduled for May 18, 2012 Introduction On December 29, 2009, the defendant was charged in an eleven count indictment alleging conspiracy to commit mail fraud, wire fraud, interstate transportation of stolen monies and money laundering, and ten counts of money laundering. The defendant pleaded guilty to Count 1, conspiracy. Specifically, as outlined in the plea agreement, the defendant admitted to conspiring with David Ekers to overcharge Ajax Manufacturing by $64, for tie-rod press design drawings.

2 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 2 of 14. PageID #: 609 Plea Agreement The government and the defendant have stipulated applicable sentencing guidelines for purposes of a sentencing recommendation to the Court. The Plea Agreement provides, in pertinent part, that the parties recommend a stipulated base offense level of six, U.S.S.G. 2B1.1(a)(2) and that six additional levels are added pursuant to 2B1.1(b)(1)(D), for a loss greater than $30,000 but less than $70,000, for an adjusted offense level of 12. Id. at p. 5. The Plea Agreement further provides that the government has no reason to believe that the defendant will not affirmatively accept responsibility for his actions in this case. Id. at p.6. Assuming the Court finds that the defendant has accepted responsibility pursuant to 3E1.1(a), the resulting total offense level would then be level 10. Finally, the Plea Agreement recognizes the defendant s settlement in a related case, Park- Ohio Industries, et al. vs Timothy R. Dunagan, et al., Case No 1:06 cv 2247, and that the settlement satisfies any requirement of restitution in this matter. Plea Agreement at p. 3. In summary, the plea agreement recommends a guideline level of 10, with a sentencing range of six to twelve months, from which the government and the defendant have agreed that they will not seek departures. Because the recommended guideline level is in Zone B, the defendant is eligible for probation with conditions of home detention. 5B1.1(a)(2), and 5C1.1(c)(3) and (e)(3). The Presentence Report The initial Presentence Investigation Report (PSR) took issue with the adjusted base offense level of 12 (before a departure for acceptance of responsibility), as set forth in defendant s plea agreement. The PSR related the writer s contention that the defendant s role in the offense required an additional two levels pursuant to 3B1.3, and two levels for obstruction of justice pursuant to 2

3 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 3 of 14. PageID #: 610 3C1.1. Accordingly, the PSR suggests an adjusted offense level of 16, prior to consideration of acceptance of responsibility. PSR at p By letter dated April 27, 2012 the defendant through counsel objected to the findings in the PSR. Role in the Offense The PSR includes an adjustment for role in the offense because the defendant, as president of Ajax, abused a position of trust. The writer bases this adjustment on information from the Park- Ohio general counsel who claimed that the defendant was in the position to sign off on checks, authorize payments, and hire and retain vendors or consultants. The Chief Financial Officer did not question his decisions, and there was very little supervision of the defendant in his position. Id. at p. 8. Contrary to the claims of the Park-Ohio general counsel, the bill to Park-Ohio for the tie-rod design drawings was submitted in the regular course of business, and the check issued was signed by Ekers, countersigned by the Ajax controller, Richard Wiecek, and then deposited in the MR Consultants account. (See Exhibit A, Ajax Manufacturing Company Check No. 2211, April 8, 2004, payable to MR Consultants, appended hereto). Thus, Dunagan s position did not significantly or substantially enable him to obtain the payment in issue. Because the payment in question was processed in the ordinary course of business with attendant checks and balances, his position did not provide him any opportunity that was not available to others at Ajax Manufacturing. Thus, he should not receive an adjustment for abuse of a position of trust. See United States v. Williams, 993 F.2d 1 References to page numbers in the PSR are based on the April 10, 2012, first disclosure of the Presentence Investigation Report. 3

4 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 4 of 14. PageID #: 611 th 1224 (6 Cir. 1993). Further, Ekers, who received and signed the check as opeerations manager did not receive an adjustment for abuse of a position of trust at his sentencing, and neither should the defendant. Obstruction of Justice The PSR also calculates a two level adjustment for obstruction of justice. Id. at p. 8. This suggested adjustment is premised on the offense alleged in Case No. 1:11 cr 547, to be dismissed at the time of sentencing. The charge in that case was based upon two documents the defendant submitted to the government to demonstrate that Park-Ohio was on notice of his outside companies and his independent dealings with Park-Ohio and its subsidiaries, which differed from other versions found on his laptop. But a number of problems exist with that theory. First, the hard drive of the defendant s laptop, where different versions of the documents were found, was not copied completely by Park- Ohio or if it was, a complete copy was not delivered to the government. Therefore, it cannot be determined whether or not the complete documents the defendant submitted to the government were actually on the defendant s hard drive, or for that matter, whether they were created on different computers. Second, the files were copied by Park-Ohio employees from the defendant s laptop. Although representatives of Park-Ohio claimed that the files copied from the defendant s laptop onto a CD were not accessed, altered or modified in the three months between the time copies were made and the time a CD containing them was delivered to the FBI, expert analysis of that CD shows that it was accessed in June, July and August, 2006, before it was turned over to the government. (See Exhibit B, February 10, 2012 Report of Damon Hacker, Vestige Ltd.). 4

5 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 5 of 14. PageID #: 612 Third, although an additional CD containing the partial copy of the defendant s laptop hard drive was provided by the government, it too shows numerous anomalies suggesting, at a minimum, unreliability, or, at the worst, falsification of evidence by representatives of Park-Ohio. (See Exhibit C, April 30, 2012, Supplemental Findings - Second CD-R, Damon Hacker, Vestige, Ltd). Finally, included in the discovery provided by the government in the obstruction case was an FBI Computer Analysis Review Team FD-302 by Special Agent John Boyer of the FBI Cleveland Field Office. Agent Boyer s report noted that the metadata on the copy of the hard drive provided to the government by Park-Ohio was not conclusive because, a) the laptop computer s complete hard drive was not copied; and, b) because the file was copied to disk. Thus, government itself noted the questionable chain of custody of the evidence and its unreliability. (See Exhibit D, October 14, 2010 FD-302 Report of Special Agent John Boyer). Because evidence of obstruction of justice in this matter is not reliable, it should not be considered by this Court in calculating the defendant s sentence; As set forth in the following presentation of facts and authorities, the defendant urges the Court to adopt the adjusted offense levels set forth in the plea agreement, as negotiated between the government and the defendant, and respectfully requests the Court to sentence the him at a level 10, Zone B, and to impose a period of probation. Sentencing Procedure In United States v. Booker, 543 U.S. 220 (2005), the Supreme Court held that the sentencing guidelines are advisory only, not mandatory, and that the factors set forth in 18 U.S.C. 3553(a) must be considered when fashioning an appropriate sentence. See: Booker, 543 U.S. 220, 264 (sentencing guidelines are but one of many statutory concerns that federal courts must take into account during 5

6 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 6 of 14. PageID #: 613 sentencing determination). As a result of Booker, 18 U.S.C is again a viable consideration for sentencing courts: No limitation shall be placed on the information concerning the background, character, and conduct of a person convicted of an offense which a court of the United States may receive and consider for purposes of imposing an appropriate sentence. See, Pepper v United States, 562 U.S., 131 S.Ct. 1229, 1240 (2011). District courts are permitted to vary from the guidelines in fashioning a sentence fitting the mandate of 18 U.S.C. 3553(a). See also, Gall v. th United States, 552 U.S. 38, 128 S.Ct. 586 (2007); United States v. Borho, 485 F. 3d 904, 908 (6 Cir. 2007). These factors include: (1) The nature and circumstances of the offense and the history and characteristics of the defendant; (2) The need for the sentence imposed (A) (B) (C) (D) to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense; to afford adequate deterrents to criminal conduct; to protect the public from further crimes of the defendant; and to provide the defendant with needed education or vocational training, medical care or other correctional treatment in the most effective manner; (3) The kinds of sentences available; (4) The advisory guidelines range; (5) Any pertinent policy statements issued by the Sentencing Commission; (6) The need to avoid unwarranted sentence disparities; 6

7 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 7 of 14. PageID #: 614 (7) The need to provide restitution to any victims of the offense. Booker, 543 U.S. at 260, (Appendix to Opinion, quoting 18 U.S.C. 3553(a)(omissions without ellipses by the Court)). After Booker, district court judges are once again empowered to exercise judgment, and not mere calculations, in the imposition of sentences, and: fashioning a just sentence cannot be reduced to a mere arithmetical exercise [and that] reliance solely on numbers, quantities, offense levels, criminal history categories, and matrices produces an illusory precision that obscures the fact that sentencing, in the end, must involve the exercise of judgment. United States v. Bihein, 356 F. Supp 2d 589 (E. D. Va. 2005). Finally, in Gall v. United States, the Supreme Court held that imposition of a sentence of probation in a case which, under a guideline application required a term of incarceration, was appropriate given the sentencing court s procedure in using the guidelines as a starting point, and, then, consideration of 3553(a) sentencing factors to make an individualized assessment. Thereafter, deviation from the guidelines must justify the degree of variation and must be explained to allow meaningful review. Application of Relevant 18 U.S.C. 3553(a) Considerations Nature and Circumstances of the Offense In 1994, the defendant was hired by Ed Crawford as Executive Vice President of Ajax Manufacturing. Ajax was a subsidiary of The Crawford Group. In 1995, Park-Ohio Industries bought Ajax and he became President of that company. In 1996, Park-Ohio Transportation Group assumed Ajax s operations and he became Group Director of Marketing. In 2002, Dunagan was named President of Southwest Steel Processing and Ajax 7

8 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 8 of 14. PageID #: 615 Manufacturing, divisions of Park-Ohio. Southwest Steel Processing was a start up company to be located in Newport, Arkansas. From the beginning, Southwest Steel had problems, including the diversion of its 7,000 ton press to another Ajax customer instead of to Southwest Steel. The CEO of Park-Ohio, Ed Crawford, told Dunagan, That is your problem. Fix it. However, Crawford gave Dunagan no help or funding to replace the press and, without an adequate alternative press or revised strategy, Southwest Steel would fail without opening its doors. Having learned from Mr. Crawford for many years and having observed him profit from his outside business interests, many of which did business with Park-Ohio, the defendant decided to establish outside companies to complete the work necessary to get Southwest Steel up and running, and profitable. Dunagan created three companies: Albion Engineering, MR Consultants and Jackson Industrial Development. MR Consultants was created to complete the designs on a 6,000/7000 ton tie rod frame press design for Southwest Steel. A second press would entitle Southwest Steel to more than $1,000,000 in additional Arkansas state grant money and serve as a back-up press to fulfill a requirement for an exclusive supply contract with Amsted Rail. David Ekers, Operations Manager at Ajax Manufacturing, and Dunagan billed Ajax $234,000 for the design work. The plan was to complete the design, provide the engineering drawings to Ajax, and to invest the monies received for later use on major repairs at the American Lantern Building. The American Lantern Building was owned by Jackson Industrial Development and leased space to Ajax Manufacturing and Southwest Steel Processing. The charges for the tie rod press design were estimated without researching the cost of the design in the industry. Dunagan was reckless in that regard and overcharged for the design work by approximately $64,000. Therein lies the basis for the defendant s plea and offense of conviction. 8

9 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 9 of 14. PageID #: 616 Relevant History and Characteristics of the Defendant Timothy Dunagan is forty-seven years old, married, with four children. he married his his current wife, Beki Dunagan in Ms. Dunagan also has an adult son. Ms Dunagan is the Deputy Director of the Arkansas Division of Children and Family Services, and they reside in Searcy, Arkansas with her daughter. The defendant experienced unnecessary hostility in his divorce from his first wife, Marydenise who, thereafter, manipulated their son, Calhan, age nineteen, against his father. However, Dunagan maintains a relationship with his daughters, Katie, age seventeen, Ciara, age sixteen, and Kensley, age thirteen, through a shared parenting arrangement. Dunagan has custody of his daughters three weekends per month, and on holidays and during summer months. The defendant maintains his former marital residence in Solon, Ohio for that purpose and commutes between Arkansas and Ohio, a total of 1700 miles round trip, to be with his daughters. He pays $ per month in child support and is current on his payments. The extent of Timothy Dunagan s devotion to his children was expressed to the PSR writer when, in regard to his career goals he said, that, My aspirations are to spend as much time as possible with my daughters. I have been a division president since The thrill of all that is all gone. I would like to have more time to spend with my daughters. Id. at p. 14. Currently, Timothy Dunagan is a division president of Amsted Rail, a supplier of railroad car components, where he has been employed since As part of his responsibilities, he is required to commute to company headquarters in Chicago, Illinois and travel on company business, tasks he has curtailed because of the present case. 9

10 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 10 of 14. PageID #: 617 The defendant has no prior record and is a Criminal History Category I. The Need for the Sentence Imposed The Court is well aware of the tortured history of this case. The defendant notes that the truth finally came to light only after defense experts opined on the value of the tie-rod design drawings and the unreliability of the evidence of alleged obstruction of justice evidence. This evidence too should weigh into this Court s sentencing considerations and supports acceptance of the recommendations in the Plea Agreement. Section 3553(a)(2)(A) sets out seriousness of the offense, promotion of respect for the law and just punishment as factors for consideration. Given the defendant s actual offense of conviction and the amount of the fraud reflected in the Plea Agreement, a term of incarceration hardly promotes further respect for the law, nor would it serve as a just punishment. Likewise, a sentence as a deterrence of crimes by others is unnecessary in this matter. 3553(a)(2)(B). Clearly this is not a case of great public interest, nor one that will send a message to the community or the public at large about the defendant s lapse of judgment which led him to the matter at hand. In addition, under subsection (C), the defendant is unlikely to re-offend and the public is not in need of protection from his acts. A term of incarceration will serve no beneficial purpose to the community nor the defendant. Indeed, incarceration will have a deleterious effect on the defendant, his children, their relationship and the remaining family structure. Conversely, a period of probation during which the defendant can continue to work and support his children would strengthen his family bonds and avoid additional parental alienation. [T]he punishment should fit the offender and not merely the crime. Williams v. New York, 10

11 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 11 of 14. PageID #: U.S. 241, 247 (1949). If rehabilitation is to play any role in this matter, so should the defendant s current family and employment situation. Incarceration of the defendant is unnecessary and, in light of his need to meet family obligations and his post-offense rehabilitation, incarceration would only serve to send the wrong message to the community. In conclusion, a period of probation would have a lasting and positive result for the defendant, his children and the community at large. The Kinds of Sentences Available Because the defendant seeks a sentence within guideline level 10 range, he is eligible for probation with a condition of home detention and work release. As noted above this sentence would provide the defendant with the continuing ability to commute and spend time with his children and maintain his employment while satisfying the guideline requirement of an alternative to incarceration. Guidelines Sentencing Range Although the guidelines sentencing range applicable to the defendant is six to twelve months, as demonstrated above, incarceration is both unnecessary and counter-productive. Under U.S.S.G. 5C1.1(c)(3), the minimum term may be satisfied by sentence of probation that includes intermittent confinement, community confinement or home detention. Under subsection (e) one day of home detention will substitute for one day of imprisonment. The Need to Avoid Unwarranted Sentences Co-defendant David Ekers received a sentence of probation. Although the defendant s negotiated range of sentences falls within level 10 of the guideline, because it is within Zone B, a period of home confinement with work release to fulfill his family obligations would meet the 11

12 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 12 of 14. PageID #: 619 parity envisioned by the guidelines and Section 3553(a) sentencing factors. The Need for Restitution The Plea Agreement acknowledges that the defendant has made restitution and further restitution is not required in this matter. Id. at p. 3; PSR at p. 5. Post-Offense Rehabilitation Although acceptance of responsibility is the usual guidelines method of rewarding rehabilitation, U.S.S.G. 3E1.1, extraordinary efforts at rehabilitation are recognized as a form of post-offense rehabilitation, beyond ordinary cases in which acceptance of responsibility is usually th granted. See, United States vs. Rudolph, 190 F. 3d 720, (6 Cir. 1999); United States vs. th DeShon, 183 F.3d 888, (8 Cir. 1999); United States vs. Jones, 158 F.3d 492, th (10 Cir. 1998)(Changed attitude and conduct may constitute exceptional post-offense rehabilitation). Timothy Dunagan s wife, Beki, expressed his character to the probation officer, when she said, He is always taking care of others. Whether at home with us [in Arkansas], and taking care of things at home. Or here [in Ohio], waiting on kids, hand and foot. She went on to say that they Do lots of family stuff...i think he is a wonderful father and stepfather. and He travels great distances to be with his kids. The defendant has made restitution to Park-Ohio and its subdivisions in the form of payment of a substantial amount of money. In addition, as part of the settlement of the companion civil action, the defendant signed over his interest in the American Lantern Building. This latter action enabled Park-Ohio to continue its Southwest Steel operations in Newport, Arkansas, and to profit by through its business activities. The American Lantern Building is now on the market for sale at an asking price of more that $3,

13 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 13 of 14. PageID #: 620 Conclusion At the end of the day, this Court is called upon to impose a sentence sufficient, but not greater than necessary, to comply with the purposes of section 3553(a)(2). United States v. th Foreman, 436 F.3d 638, 644 and Note 1 (6 Cir. 2006). Those purposes include the imposition of a just punishment, promoting respect for the law, deterring further crime, protecting the public from the defendant, and providing the defendant with, among other things, needed instruction and medical care in the most efficient manner possible. As demonstrated above, those considerations have long been satisfied. This defendant is unlikely to re-offend, given his lifetime of abiding by the law and postoffense rehabilitation. The public is at no risk from him. He has voluntarily cooperated and has paid restitution. The nature and circumstances of this case and the defendant s history and characteristics warrant probation with conditions of home confinement and work release. Respectfully submitted, /s/ Mark R. DeVan MARK R. DEVAN ( ) mdevan@bgmdlaw.com BERKMAN, GORDON, MURRAY & DeVAN 55 PUBLIC SQUARE, SUITE 2200 CLEVELAND, OH (216) (telephone) (216) (facsimile) Attorney for Defendant Timothy R. Dunagan 13

14 Case: 1:09-cr DAP Doc #: 72 Filed: 05/11/12 14 of 14. PageID #: 621 CERTIFICATE OF SERVICE I hereby certify that on May 11, 2012, the foregoing Defendant s Sentencing Memorandum was filed electronically. Notice of this filing will be sent to all parties by operation of the Court s electronic filing system. Parties may access this filing through the Court s system. /s/ Mark R. DeVan MARK R. DeVAN ( ) BERKMAN, GORDON, MURRAY & DeVAN Attorney for Defendant Timothy R. Dunagan