282 F.2d 421 (9th Cir. 1960), 16526, Bailey v. United States

Docket Nº:16526.
Citation:282 F.2d 421
Party Name:Richard G. BAILEY, Norman R. Eggimann, Laurel Macy, Appellants, v. UNITED STATES of America, Appellee.
Case Date:August 24, 1960
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 421

282 F.2d 421 (9th Cir. 1960)

Richard G. BAILEY, Norman R. Eggimann, Laurel Macy, Appellants,

v.

UNITED STATES of America, Appellee.

No. 16526.

United States Court of Appeals, Ninth Circuit.

August 24, 1960

Page 422

Howard R. Lonergan, Portland, Or., for appellants.

C. E. Luckey, U.S. Atty., Robert C. Snashall, Asst. U.S. Atty., Portland, Or., for appellee.

Before STEPHENS, HAMLEY and MERRILL, Circuit Judges.

MERRILL, Circuit Judge.

Appellants, following indictment and jury trial, were found guilty, on 26 counts, of the crime of mail fraud. 18 U.S.C. § 1341. They have consolidated their appeals from judgment of conviction and have assigned error in nine respects.

Appellants were among eight persons originally indicted in connection with the fraudulent scheme here involved. Three of those persons pleaded guilty. Two others were acquitted by court order during the course of trial. These three appellants remain. Appellant Bailey received a four-year sentence. Appellants Eggimann and Macy received six-month sentences upon one count. Upon the other 25 counts sentence was suspended and they were placed on probation for a period of three years, such probation to commence upon completion of the term of imprisonment.

The government's evidence showed that Bailey Lumber Company was a corporation operating a wholesale lumber business at Eugene, Oregon, of which Appellant Bailey was president and owner of approximately one-half of the capital stock. Until about June, 1953, the company purchased lumber from various mills and suppliers in the Eugene area and shipped the same by railroad to purchasers in California and other parts of the country.

Early in 1953, Appellant Bailey became interested in a mill located at Willow Creek, California. The Willow Creek Corporation was formed with Bailey serving as president and owning approximately one-half of the capital stock. By June, 1953, Bailey Lumber Company was dealing almost exclusively with Willow

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Creek as a supplier. A drop in the price of lumber and a decision to rebuild and rehabilitate the Willow Creek mill resulted in a substantial drain upon Bailey's financial resources.

To facilitate its operations, Bailey Lumber had in 1950 opened a lumber line of credit with The First National Bank in Eugene. The bank agreed to lend the company 80% Of the face value of invoices on loads of lumber which the company had actually shipped to customers. At no time did the bank agree to lend on unshipped orders for lumber.

When this line of credit had originally been established, the company practice was to ship by railroad in carload lots. The bank, under this practice, received not only the original invoices but also copies of the railroad bills of lading as evidence of the fact of shipment. The company practice later changed to shipment by truck and the bank at first accepted only the invoice. In March, 1953, the bank instituted the requirement that after each loan the company furnish a memorandum bill of lading or trucker's receipt with reference to such shipment. In September, 1953, the bank instituted the requirement that the bill of lading must accompany the invoice and be in the hands of the bank at the time the loan was made.

Due to the circumstances already mentioned, the lumber company at this time was dependent upon bank credit for its continued operations. It had ample orders but insufficient funds for producing the lumber with which to fill those orders. The scheme which the government's evidence established was one whereby the bank loans, unknown to the bank, would be obtained in advance of shipment so that the funds thus secured could be used to produce the lumber for such shipment. Until the bank requirement of a memorandum bill of lading became effective, the scheme was carried out by presenting invoices on unfilled orders. When the bank demanded proof of actual shipment, some further deception became necessary. The government produced testimony to the effect that Bailey and two other co-conspirators hit upon the plan of presenting false bills of lading. This practice was inaugurated. By the latter part of 1953, it had developed into a volume operation.

The government's evidence disclosed that the procedure would normally commence with a request by Bailey at Willow Creek for funds to meet payrolls, construction costs or other needs at Willow Creek. The personnel at the Eugene office would then prepare the necessary fictitious invoices and false memorandum bills of lading for presentation at the bank with promissory notes for each invoice. The fictitious invoices were kept in a separate file in the Eugene office and a memorandum slip representing each false invoice was kept on a spindle on the desk of the invoice clerk in Eugene. The fictitious sales were not taken up in the purchase and sale record of the company until such time (if at all) as the lumber was actually shipped.

This scheme was soon extended to apply not only to advance loans on actual shipments, but to cover loans in absence of any shipment whatsoever. In this respect the company involved itself in a type of kiting operation with loan number two providing the funds with which to meet loan number one. The company would secure a loan on fictitious invoice and bill of lading. With this sum it would send a check to a customer requesting that customer to send its check to the bank to pay off an earlier loan on a specified invoice. The bank was thus kept unaware of the fact that the earlier loan had related to no sale or shipment whatsoever.

In December, 1953, a new lumber line of credit was established at the Douglas County State Bank at Roseburg, Oregon. Within three weeks 86 invoices were presented to this bank, upon which approximately $60, 000.00 was borrowed. No lumber was ever shipped on any of these invoices.

On January 10, 1954, a similar line of credit was established with the Bank of

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California in Portland. Within a week $55, 000.00 was borrowed. Approximately $50, 000.00 covered invoices upon which no lumber was shipped.

On January 15, 1954, the banks learned of the fraud. Outstanding loans based upon fictitious instruments then aggregated approximately $250, 000.00.

In the District Court the defense of each appellant in substance was that he had not participated in the fraudulent scheme. Upon this appeal, as the first assignment of error, each contends that the record is devoid of substantial evidence of participation.

As to Bailey the evidence of participation is overwhelming. Many witnesses testified that he was the actual operator of the lumber company and fully cognizant of the procedures being followed.

Appellant Eggimann had worked for the lumber company as bookkeeper and accountant until January, 1953. Thereafter, as public accountant, he had continued to handle company books in various respects. He admitted having knowledge of the fictitious invoice practice as early as July, 1953. As to his participation there is evidence that he set up the clearing account in the ledger to handle the exchange of checks with customers by which matured invoices were picked up. On behalf of the company and with knowledge of the fraudulent scheme, he continued to sign promissory notes to the bank to accompany invoices. He continued to sign checks in blank on behalf of the company, some of which were used in the exchange-of-check practice. While his involvement does not appear to be of a very high level, there is ample evidence of participation.

Appellant Macy was the bookkeeper at the company office in Eugene. On many occasions she received telephone calls from Bailey at Willow Creek requesting funds. She would then confer with Bailey's brother (one of the defendants...

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