Unpublished Disposition, 852 F.2d 1290 (9th Cir. 1988)

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US Court of Appeals for the Ninth Circuit - 852 F.2d 1290 (9th Cir. 1988)

No. 86-5286.

United States Court of Appeals, Ninth Circuit.

Before NELSON and BRUNETTI,*  Circuit Judges, and ALAN C. KAY, District Judge.** 


Quincy appeals from his conviction of one count of

conspiracy, one count of RICO, thirty-six counts of mail

fraud, two counts of wire fraud, and one count of interstate

transportation of stolen property. Quincy's convictions

arose out of his activities as the head of marketing of a

"right to use" time share venture. Quincy contends that his

conviction should be reversed because (1) the admission of

certain testimony violated the hearsay prohibition; (2) the

government failed to prove sufficiently the continuity

requirement necessary to establish a pattern of racketeering

activity under RICO and failed to establish the existence of

an entity separate and apart from the acts alleged; (3) the

grand jury and FTC deposition testimony of Michael Stern

should have been admitted as former testimony; (4) counts

3-81 of the indictment should have been dismissed because

they did not sufficiently describe the alleged scheme to

defraud; (5) witness Weiswasser testified in violation of

Quincy's attorney- client privilege; (6) Quincy's motion

for mistrial should have been granted after the jury was

exposed to previously excluded evidence; and (7) the

district court did not comply with the sentencing procedures

required by Fed. R. Crim. P. 32(c) (3) (A) & (D). We affirm the

conviction on all counts and remand to the district court

for resentencing.

This court reviews a district court's ruling to admit evidence over a hearsay objection for abuse of discretion. United States v. Cowley, 720 F.2d 1037, 1040 (9th Cir. 1983), cert. denied, St. Clair v. United States, 465 U.S. 1029 (1984).

Quincy contends that the district court erred in admitting hearsay of acquitted co-defendants, Paradise Palms salespeople, and persons unconnected to any defendant. Quincy's first argument is that the court erroneously admitted statements of acquitted co-defendants as admissions of co-conspirators. However, the district court specified that these statements were admissible as statements of agents or employees under Fed.R.Evid. 801(d) (2) (D). Most of the statements cited by Quincy as instances of hearsay were made by agents or employees of Paradise Palms. The statements consisted of details of the operation as well as misrepresentations and improprieties involved in the venture, therefore clearly falling within the scope of agency or employment.

More importantly, the statements listed by Quincy are not hearsay at all. See Fed.R.Evid. 801(c). These statements are not hearsay because they were not admitted for the truth of the matter asserted, but were admitted to establish that the statement was made or to demonstrate the effect the statement had on the hearer. United States v. Anfield, 539 F.2d 674, 678 (9th Cir. 1976). For example, statements of salespersons misrepresenting the program were admissible to prove that the misrepresentations were made, not to prove the truth of what the salespersons stated. Likewise, statements of television newspeople were admissible to demonstrate the reasons for the witness' actions. Because the statements were admissions pursuant to Fed.R.Evid. 801(d) (2) (D) and were not hearsay, the district court did not abuse its discretion by admitting the statements.

Quincy contends that the government failed to prove a violation of RICO because it (1) failed to prove a "pattern" of racketeering activity and (2) failed to establish an enterprise "separate and apart" from the pattern of activity. Both contentions are without merit.

Quincy argues that the government failed to establish the requisite pattern of racketeering activity under RICO because all of the alleged acts of mail and wire fraud related to a single scheme to defraud, the Paradise Palms venture. This argument is without merit because this circuit recently held that predicate acts may constitute a pattern of activity under RICO even though only a single scheme is involved. See Sun Savings & Loan Ass'n v. Dierdorff, 825 F.2d 187, 191-94 (9th Cir. 1987); California Architectural Building Products, Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1469 (9th Cir. 1987).

Quincy also argues that the government failed to establish an enterprise separate and apart from the alleged acts of racketeering activity. The government has sufficiently alleged the existence of an enterprise. Although the circuits are divided on the requirements for proof of an enterprise under United States v. Turkette, 452 U.S. 576, 582-83 (1981), under either test, the existence of a corporation fulfills the requirements of an ascertainable structure apart from the predicate racketeering activity. Bennett v. Berg, 685 F.2d 1053, 1060-61 (8th Cir. 1982), cert. denied, Prudential Insurance Co. v. Bennett, 464 U.S. 1008 (1983); see "United Energy Owners Committee, Inc. v. United States Energy Management Sys., Inc., Nos. 86-6050 & 86-6404, slip. op. at 147-48 (9th Cir. Jan 8, 1988)." Here, the government presented evidence of several legal entities existing separately from the racketeering activities, including Paradise Palms Vacation Club, Inc., Paradise Palms Vacation Club Sales, Inc., W.P.M.K., and L.S.Q. Marketing.

Because the government has sufficiently proved a pattern of racketeering activity and an enterprise separate and apart from the pattern of activity, we affirm Quincy's RICO conviction.

The district court's decision to exclude hearsay evidence is reviewed for abuse of discretion. United States v. Layton, 720 F.2d 548, 558 (9th Cir. 1983), cert. denied, 465 U.S. 1069 (1984).

Quincy asserts that the district court erred in excluding the testimony of Michael Stern, an unavailable witness. Quincy contends that Stern's testimony was crucial to his defense that Stern and his investors, rather than Quincy, were responsible for the failure of Paradise Palms because they looted the venture. Stern testified on two prior occasions: (1) in a civil deposition with the Federal Trade Commission, and (2) at a federal grand jury proceeding associated with the present action. The district court excluded both instances of former testimony.

Under Fed.R.Evid. 804(b) (1), once a hearsay declarant is deemed unavailable, testimony from another hearing in the same proceeding or a deposition is admissible in two instances: (1) if the party against whom the testimony is now offered had an opportunity or similar motive to develop the testimony; or (2) in a civil action or proceeding, if a predecessor in interest had an opportunity and similar motive to develop the testimony.

Here, witness Stern was unavailable because he asserted his fifth amendment privilege against self incrimination. Quincy could not offer the testimony under the second prong because the rule applies only to testimony offered in a civil action or proceeding. Even if this court were to find, as Quincy urges, that the U.S. attorney's office and the FTC are the same party for purposes of Rule 804(b) (1), the testimony would not be admissible because the government did not have a similar motive to develop Stern's testimony in the two proceedings. No criminal proceeding was pending at the time of the FTC deposition, and the FTC was attempting to elicit responses for a civil trial. The motive to develop such elements as criminal intent or specific criminal conduct was not present.

The district court excluded Stern's former testimony from the grand jury proceeding because the government never had the opportunity to develop the testimony. Because Stern threatened to assert his privilege against self incrimination, the government and Stern reached an agreement that Stern would testify only concerning limited circumstances.

This exclusion was an abuse of discretion. Although Rule 804(b) (1) requires that the party against whom the testimony is offered had an opportunity to develop the testimony, it does not protect a party who, as here, makes a tactical decision not to exercise the opportunity to develop testimony. Any person developing testimony in a hearing faces the risk that the witness will invoke his fifth amendment privilege. The government has the further advantage of being able to offer limited immunity from prosecution to witnesses in order to obtain testimony. See United States v. Klauber, 611 F.2d 512, 516 (4th Cir. 1979), cert. denied, 446 U.S. 908 (1980).

Even though the district court abused its discretion by excluding Stern's grand jury testimony, the error does not warrant reversal. The standard for determining harmless error in constitutional criminal cases is whether the error was harmless beyond a reasonable doubt. Chapman v. California, 386 U.S. 18, 24 (1967); see United States v. Owens, 789 F.2d 750, 761-62 (9th Cir. 1986). Quincy's convictions are based on a scheme to defraud and numerous fraudulent mailings. The Stern testimony concerns the financial welfare of Paradise Palms, but does not negate the commission of the fraudulent transactions in any way. Because the excluded testimony does not apply to Quincy's commission of fraudulent activities, we hold that the error was harmless beyond a reasonable doubt.


Quincy contends that the district court should have granted his motion to dismiss counts 3-81 of the indictment because the indictment did not sufficiently apprise him of the elements of the mail fraud allegations against him such that he could adequately prepare his defense. Quincy's claim is without merit. The indictment is sufficient because it describes the objects and means of the scheme to defraud with great specificity. See United States v. Buckley, 689 F.2d 893, 897 (9th Cir. 1982), cert. denied, 460 U.S. 1086 (1983). Moreover, the indictment closely tracks the language of 18 U.S.C. § 1341, and is therefore sufficient. United States v. Livengood, 427 F.2d 420, 423 (9th Cir. 1970).

Quincy argues that the district court should not have allowed Theodore Weiswasser to testify because Weiswasser represented Quincy at two depositions before the Federal Trade Commission concerning Paradise Palms. Weiswasser was an attorney involved in the venture who accepted a plea bargain with the government.

Quincy misconstrues the nature of the attorney-client privilege. The privilege is not a blanket one, but applies only to specific communications. A defendant cannot assert a general attorney-client privilege but must make a specific objection to particular questions calling for privileged information. United States v. Gurtner, 474 F.2d 297, 299 (9th Cir. 1973). Failure to object at trial constitutes a waiver of the privilege. Id. Because Quincy did not make the proper objection at trial, we find that there was no violation of the attorney-client privilege.

Even if Quincy had validly asserted the privilege, the testimony would have been admissible because Weiswasser was an active member of the Paradise Palms venture in a business capacity, and his testimony concerned that activity. See Sedco Int'l, S.A. v. Cory, 683 F.2d 1201, 1205 (8th Cir. 1982), cert. denied, 459 U.S. 1017 (1982). Quincy points to no testimony by Weiswasser that revealed a confidential communication resulting from his legal representation of Quincy.


At pretrial motions, Quincy moved to exclude evidence of his involvement with a venture called Stanley Hotel. The district court determined that the witnesses could refer to the "similar project without going into the fact that the project didn't work out." At trial, a witness referring to Stanley Hotel stated that "both cases resulted in difficulties for the consumer" and that "Quincy had had difficulties with his developer relationships in both Stanley and also Harbor Village." The court granted Quincy's motion to strike the statement and instructed the jury to disregard the comment. Quincy moved for a mistrial, contending that the statement was evidence of other crimes, wrongs or acts, inadmissible under Fed.R.Evid. 404(b). Quincy argues that the admission of these acts was so prejudicial that he did not receive a fair trial.

When evidence of others crimes, wrongs, or acts deemed inadmissible by the district court nonetheless is exposed to the jury, and the district judge gives a curative instruction, the reviewing court must weigh the following factors to determine whether reversal is warranted: (1) who elicited the inadmissible testimony; (2) how forceful and effective was the curative instruction; and (3) how prejudicial was the testimony. United States v. Johnson, 618 F.2d 60, 62 (9th Cir. 1980).

Here, the witness' comments concerning the Stanley Hotel were unsolicited by the prosecution. The district court quickly granted Quincy's motion to strike and clearly instructed the jury to disregard the statements. Most importantly, the witness' statements were not highly prejudicial to Quincy. We hold that the district court properly determined that reversal was not warranted by the witness' statements concerning Stanley Hotel.

Quincy argues that a remand for resentencing is required because the district court failed to follow the procedures mandated by Fed. R. Crim. P. 32(c) (3) (A) and (D) when Quincy disputed the loss amount in the presentence report in his sentencing memorandum. Quincy stated that because the loss amount was less than $500,000, the severity rating should have been a five rather than a six, and he set out the specific figures supporting his calculation. At sentencing, Quincy's counsel began to present his argument disputing the severity index. The court stopped counsel and indicated that he agreed with Quincy's corrections and consented to change the severity index from a six to a five. Subsequent to sentencing, however, the court decided not to reduce the severity rating, stating:

Since the time of the sentencing I have reviewed the guidelines and their criteria and I have discovered that I would have to find, as you have indicated, that Quincy was responsible for a loss of less than $500,000.00 to rate a 5, which I cannot in good conscience do.

Fed. R. Crim. P. 32(c) (3) (A) requires the court to "afford the defendant and the defendant's counsel an opportunity to comment of the report and, in the discretion of the court, to introduce testimony or other information relating to any alleged factual inaccuracy contained in it." Because the district court stopped Quincy's counsel by stating his agreement, the court did not comply with the mandate of Rule 32(c) (3) (A). Although this rule does not require an evidentiary hearing, the court must afford the defendant an opportunity to rebut the challenged information in the presentence report. We have stated that " [a]t the court's discretion this opportunity to rebut could be granted by allowing defendant and his counsel to comment on the report or to submit affidavits or other documents, or by holding an evidentiary hearing." United States v. Petitto, 767 F.2d 607, 611 (9th Cir. 1985).

The district court also failed to follow the requirements of Rule 32(c) (3) (D). Following a challenge to the information in the presentence report, the district court must (1) make a finding concerning the disputed information or make a determination that the disputed material will not be considered in sentencing, and (2) append a written record of the findings or determination to the presentence report. United States v. Edwards, 800 F.2d 878, 881 (9th Cir. 1986). Strict compliance with Rule 32(c) (3) (D) is required and a failure to comply with the Rule will result in remand. Petitto, 767 F.2d at 610.

The government's contention that a remand is not mandated when the disputed findings relate to the severity rating is incorrect. The severity rating, by the government's own admission, assists the Parole Commission in its parole determinations. The purpose of Rule 32(c) (3) (D) is to ensure that sentencing decisions by the Bureau of Prisons and the Parole Board are based on accurate information. Petitto, 767 F.2d at 610. In addition, the Rule attempts to eliminate uncertainty on appeal regarding what information the trial court relied on in sentencing. Id. Here, it is unclear from the district court statement what loss information was relied on during sentencing.

The district court failed to follow the procedures mandated by Rule 32(c) (3) (A) and (D). The judge did not afford Quincy an opportunity to comment on and rebut disputed information in the report. The judge did not make a determination as to what the disputed figures should be, nor state that the disputed matter would not be taken into account during sentencing. The judge also did not append finding or determinations to the presentence report. Therefore, under Petitto and Edwards, this case is remanded to the district court for resentencing.



Judge Brunetti was drawn to replace Judge Kennedy. He has read the briefs, reviewed the record and listened to the tape of oral argument held on No. 86-5286


The Hon. Alan C. Kay, United States District Judge for the District of Hawaii, 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 Ninth Circuit Rule 36-3