Unpublished Disposition, 921 F.2d 281 (9th Cir. 1990)Annotate this Case
UNITED STATES of America, Plaintiff-Appellee,v.Keith GRIMES, Defendant-Appellant.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted July 12, 1990.Decided Dec. 12, 1990.
AFFIRMED IN PART; VACATED AND REMANDED IN PART.
Before REINHARDT and CYNTHIA HOLCOMB HALL, Circuit Judges, and RE* , Chief Judge.
Keith A. Grimes ("Grimes") timely appeals his conviction on twenty counts of mail fraud in violation of 18 U.S.C. § 1341. We affirm his conviction but remand for a hearing on restitution.
* Keith Grimes incorporated International City Investors (ICI), a precious metals telemarketing organization, in 1984. ICI advertised in newspapers and employed telephone sales people to solicit investors. Initially, ICI offered delayed delivery contracts which allowed an investor to receive a return of profit without actually taking physical delivery of the metal. Grimes later changed the contract to comply with federal security laws and required customers to make full payment on the contract and take physical delivery of the metal before the customer could realize a profit.
By the summer of 1985, ICI was suffering from an extreme cash flow problem and was operating at a net loss. In addition, ICI closed its only hedge account. Throughout this period, Grimes continued to induce investors to purchase precious metals. He falsely represented that ICI was in sound financial condition and was capable of honoring its contracts. Grimes used money from new investors to pay off old investors and meet operating expenses.
In July of 1986, the Postal Inspection Service raided ICI. When ICI was eventually closed, over 160 investors had lost their money. On February 10, 1987, a superseding indictment charged Grimes and his co-defendants with thirty counts of mail fraud. The counts included three types of mailings: 1) transaction statements, 2) payment checks, and 3) complaint and reply letters. Grimes was eventually convicted of twenty counts of mail fraud.
Grimes was sentenced to twelve years in prison on three counts and to probation on the remaining seventeen counts, with restitution a condition of probation. He was also required to pay a special assessment fee of $1,000. During the sentencing hearing, Grimes disagreed with the accuracy of the amount of loss suffered by the investors as specified in the presentence report. The judge replied that the exact terms of the probation and amounts of restitution could be determined at a later proceeding.
Grimes now appeals, arguing that there is insufficient evidence to uphold his conviction and that the district court erred in failing to apply Fed. R. Crim. P. 32(c) (3) (d) when he alleged an inaccuracy in the presentence report.
Grimes first contends that there is insufficient evidence to support his conviction of mail fraud. We disagree. There is sufficient evidence to support a conviction if, reviewing the evidence in the light most favorable to the prosecution, " 'any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.' " United States v. Adler, 879 F.2d 491, 495 (9th Cir. 1988) (quoting Jackson v. Virginia, 443 U.S. 307, 318-19 (1979)). In addition, we review the legality of a criminal sentence de novo. See United States v. Pomazi, 851 F.2d 244, 247 (9th Cir. 1988) (citation omitted).
The elements of mail fraud are 1) a scheme or artifice to defraud, and 2) use of the mails, 3) for the purpose of executing the scheme. See United States v. Utz, 886 F.2d 1148, 1150 (9th Cir. 1989), cert. denied, 58 U.S.L.W. 3817 (U.S. June 25, 1990) (No. 89-1870); United States v. Brutzman, 731 F.2d 1449, 1454 (9th Cir. 1984).
* To establish that there was a fraudulent scheme, there has to be a specific intent to defraud. United States v. Bohonus, 628 F.2d 1167, 1172 (9th Cir.), cert. denied, 447 U.S. 928 (1980). Specific intent is shown if the scheme was " 'reasonably calculated to deceive persons of ordinary prudence and comprehension.' " Id. (quoting Irwin v. United States, 338 F.2d 770, 773 (9th Cir. 1964), cert. denied, 381 U.S. 911 (1965)). A person acts with the intent to execute a scheme of fraud when he has the intent to obtain money or property from the victims of the deceit. Utz, 886 F.2d at 1151. Alternatively, the first element can be established if the victim was actually deprived of money or property. Id.
It is evident that Grimes had the specific intent to defraud since he continued soliciting investors even when ICI could no longer honor its contracts. He misrepresented that ICI was financially stable and began using money obtained from new investors to pay off the old ones. There was clearly a scheme to defraud since 160 people were deprived of their money.
Grimes asserts that since ICI began as a legitimate business, it cannot be considered a fraudulent scheme. He further argues that because the government considered ICI's business activities to be fraudulent when the finances became unstable, it is effectively positing a rule that troubled businesses must declare bankruptcy or else risk criminal prosecution for fraud. These contentions are of course meritless. The fact that ICI began legitimately did not necessarily preclude it from later becoming a fraudulent scheme. Furthermore, the government has not suggested that all companies experiencing financial difficulties should file for bankruptcy; it has only stated, quite appropriately, that whatever else a troubled business might do to reverse its fortunes, it cannot violate the criminal law by making misrepresentations to its clients. If in a given situation bankruptcy remains the only legal, viable option, then so be it. We of course express no opinion whether this was such a case.1
The second requirement of "use of mails" is also satisfied. A person causes the mails to be used when he "does an act with the knowledge that the use of the mails will follow in the ordinary course of business, or where such use can reasonably be foreseen, even though not actually intended." Pereira v. United States, 347 U.S. 1, 8-9 (1954).
There is sufficient evidence of the use of the mails here since it was stipulated that except for two counts, the items listed in the indictment were delivered through the United States mails. Furthermore, a rational jury could infer that Grimes caused this use of the mails or could reasonably have foreseen the use of the mails in the ordinary course of ICI's business. Id.
There is also sufficient evidence to satisfy the third element of mail fraud, whether the mailing was "for the purpose of executing the scheme." Brutzman, 731 F.2d at 1454. "Letters mailed after the defrauders have received their money may be in furtherance of the fraudulent scheme and letters mailed by victims to the defrauder can be mailings in execution of a fraud." Id. (citations omitted). Hence, even if the mailings concerned were posted after investors had paid for the precious metals or were mailed by the investors themselves, the jury could have reasonably found that those mailings were in furtherance of the scheme.
Grimes contends that there is insufficient evidence to support his conviction because transaction statements reflecting the customer's contractual arrangement with ICI were not in furtherance of a scheme to defraud. This contention is meritless.
In United States v. Sampson, 371 U.S. 75 (1962), the Supreme Court stated that although the defendant had already obtained money from his victims pursuant to his fraudulent promises to obtain loans and sell businesses, the mailing of accepted applications with form letters to the victims for the purpose of lulling them by representing that the defendants would perform the promised services was in furtherance of the fraudulent scheme. Id. at 78. In this case, the jury could have reasonably decided that ICI sent the transaction statements in order to lull the victims into believing that the transactions were legitimate and that ICI intended to honor its contracts.
In a more recent case involving fraudulent sale/leaseback transactions, we stated that even if notices of lease payments were truthful or were mailed after the agreements were signed, the mailings can still be considered part of the lulling scheme. See United States v. Jones, 712 F.2d 1316, 1320 (9th Cir.), cert. denied, 464 U.S. 986 (1983). "In such a scheme, the mailing reassures the victim that all is well, discouraging him from investigating and uncovering the fraud." Id. at 1321 (citing Sampson, 371 U.S. at 80-81). Similarly, even though the transaction statements here were truthful, the jury could have decided that they were sent to reassure the buyers that ICI was a legitimate business and to discourage them from discovering the fraud.
Some of the counts involved mailings of payment checks from the investors to ICI. These mailings were also in furtherance of the scheme to defraud.
In United States v. Bernhardt, 840 F.2d 1441 (9th Cir.), cert. denied, 109 S. Ct. 389 (1988) we indicated that mailings required by private agreement, wherein one of the parties intends to defraud the other, can be said to have been sent in furtherance of the scheme. See id. at 1447. Clearly, receipt of payment checks was in furtherance of the scheme to defraud investors of their money.
The rest of the mailings involved complaint letters from investors to ICI and a reply letter from Grimes.
The jury could rationally have decided that the complaint and reply letters were in furtherance of the scheme to defraud because the letters were an integral part of the lulling aspect of Grimes' scheme. See Sampson, 371 U.S. at 78; Brutzman, 731 F.2d at 1454. Grimes had developed a method of keeping track of customer complaints in order to pay or console those customers who threatened to go to the authorities. When investors complained of late shipments of metals, Grimes reassured them that deliveries would be made.
In Schmuck v. United States, 109 S. Ct. 1443 (1989), the Supreme Court said that "it is sufficient for the mailing to be 'incident to an essential part of the scheme.' " Id. at 1447. Hence, even if the complaint letters were not an essential element of the scheme, they were incidental to an essential element which was the reassuring and lulling of the complaining investors. Therefore, the complaint letters were part of the execution of the fraud.2
Grimes next contends that the district court erred in failing to resolve his challenge to the amount of loss set forth in the presentence report as required by Federal Rule of Criminal Procedure 32(c) (3) (d). This rule requires that the sentencing court make either a finding as to any allegation of factual inaccuracy in the presentence report or else a determination that such a finding will not be necessary because the controverted matter will not be taken into account in sentencing. Failure to comply with this rule constrains us to vacate the sentence and remand for resentencing. See United States v. Fernandez-Angulo, 897 F.2d 1514, 1516 (9th Cir. 1990) (en banc). Rule 32(c) (3) (D) also requires the sentencing court to append its findings or determination to the presentence report; but if the only violation of the rule is this technical one, the district court will be ordered to cure it without first having to resentence the defendant. Id. at 1517.
At the sentencing hearing, appellant's attorney took issue with the presentence report's list of the amounts lost by the victims of Grimes' fraud during a discussion about the judge's intention to order restitution as a condition of probation on certain of the counts upon which Grimes had been convicted:
And that list of victims and amounts, I am not sure I can accept that as accurate. (R.T. at 6)
And my point, your honor--I do not wish to belabor it--as to the restitution is solely going to be limited to the counts charged in the indictment is that Mr. Grimes is not willing to accept the accuracy of that list. (R.T. at 9)
The district court's response was neither to resolve the allegation of factual inaccuracy nor to conclude that the amount of loss suffered by Grimes' victims would play no role in Grimes' sentence. Instead, the court stated that the problem could be sorted out in a later proceeding:
Restitution is down the line a ways. The custody will be followed by probation with restitution as a condition of probation. So there is time to work that out. So perhaps today I could just make a general order relative to restitution and we can have a further proceeding and work out the exact terms and the victims and the amounts and so forth. (R.T. at 13)
At a later point in the hearing, when pronouncing Grimes' sentence, the court suggested that the probation officer would fix the details of restitution:
[Grimes] is ordered to make restitution as ordered by the probation officer; and I leave that very general at this time.... You can take that up in more detail at a later time. I am leaving that open at this time. (R.T. at 43)
We conclude that the district court failed to comply with the mandate of Rule 32(c) (3) (D). The court conceded that the amount of loss was relevant to the restitution component of Grimes' sentence, yet failed to resolve the alleged inaccuracy as required by the rule. This was not merely a matter of postponing a determination that should have been made at the time of sentencing. For by suggesting that the probation officer could fix the amount of restitution, the district court abdicated its own responsibility. We have consistently held that the sentencing court itself must determine the appropriate amount of restitution, whether the order of restitution is entered pursuant to the Federal Probation Act ("Probation Act"), 18 U.S.C. § 3651, or the Victim And Witness Protection Act (VWPA), 18 U.S.C. §§ 3663, 3664. See, e.g., United States v. Barany, 884 F.2d 1255, 1259 (9th Cir. 1989) (Probation Act), cert. denied, 110 S. Ct. 755 (1990); id. at 1260-61 (VWPA).
The court also stated generally when imposing sentence on Grimes that "I take into account the amount of the loss, which was great...." (R.T. at 40) It is impossible to tell whether this statement applied to the terms of imprisonment imposed on Grimes for three counts, as well as on the restitution ordered as a condition of probation on the remaining seventeen counts. Therefore, Grimes' entire sentence must be vacated, including the terms of imprisonment imposed pursuant to counts one, two, and three.3
For all of the foregoing reasons, we AFFIRM the judgment of conviction but VACATE appellant's sentence and REMAND for resentencing, including a restitution hearing.
The Honorable Edward D. Re, Chief Judge, United States Court of International Trade, sitting by designation
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3
In support of his broad proposition that business begun legitimately cannot devolve into fraud, Grimes cites United States v. McDonald, 576 F.2d 1350 (9th Cir.), cert. denied, 439 U.S. 830 & 927 (1978). His reliance on this case is completely misplaced. In McDonald, a defendant who had no knowledge of another's fraud at the time it was committed took action to cover his own losses once the fraud was exposed. Although we indicated that this action might have been "unfair" to McDonald's former customers who were also exposed to losses as a result of the fraud, we concluded that this was insufficient to constitute a specific intent to defraud within the meaning of the mail fraud statute. Id. at 1359. We never disclaimed that contracts entered into legitimately might later result in mail fraud
Grimes' reliance on United States v. Otto, 742 F.2d 104 (3rd Cir. 1984), cert. denied, 469 U.S. 1196 (1985), is misplaced. In Otto the Third Circuit held that a letter sent from a disgruntled victim to the defendant unilaterally demanding that the defendant honor a check was not in furtherance of the defendant's scheme to defraud. Id. at 109. But the court made clear that this was only so because the defendant had done nothing to impliedly invite the letter in the way of lulling the victim. See id. Indeed, the court indicated that a second letter mailed to the defendant by a different victim was in furtherance of the fraudulent scheme because the defendant could reasonably foresee the mailing as a consequence of his own attempts to mollify his victim. See id. at 109. In the instant case, Grimes impliedly invited complaint letters by assuring its customers that all was well and that ICI remained financially viable, able to honor its contracts
We note that the district court was not obligated to take the amount of loss into account when arriving at the terms of imprisonment pursuant to counts one, two, and three. The statute under which Grimes was convicted, 18 U.S.C. § 1341, did not obligate the district court to consider the amount of loss suffered by the victims of the defendant's fraud upon sentencing. Although the federal sentencing guidelines do impose such an obligation upon sentencing courts, see Sentencing Guidelines Sec. 2F1.1(b) (1), Grimes was convicted and sentenced prior to the effective date of the guidelines