301 F.3d 1000 (9th Cir. 2002), 01-10087, U.S. v. Finley

Docket Nº:01-10087.
Citation:301 F.3d 1000
Party Name:UNITED STATES of America, Plaintiff-Appellee, v. Richard Joseph FINLEY, Defendant-Appellant.
Case Date:August 20, 2002
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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301 F.3d 1000 (9th Cir. 2002)

UNITED STATES of America, Plaintiff-Appellee,


Richard Joseph FINLEY, Defendant-Appellant.

No. 01-10087.

United States Court of Appeals, Ninth Circuit

August 20, 2002

        Argued and Submitted Dec. 3, 2001.

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[Copyrighted Material Omitted]

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        J. Toney, Woodland, CA, for the appellant.

        John K. Vincent, United States Attorney, Norman Wong, Assistant United States Attorney, Thomas E. Flynn, Assistant United States Attorney, and Mark J. McKeon, Assistant United States Attorney, Sacramento, CA, for the appellee.

        Appeal from the United States District Court for the Eastern District of California; William B. Shubb, District Judge, Presiding. D.C. No. CR-98-00460-WBS.

        Before: BRIGHT,[*] B. FLETCHER, and FISHER, Circuit Judges.

        BRIGHT, Circuit Judge.

        On July 9, 1999, the government filed a second superceding indictment against Richard Joseph Finley charging him with one count of making a false claim against the United States in violation of 18 U.S.C. § 287, one count of attempting to interfere with the administration of the Internal Revenue Service in violation of 26 U.S.C. § 7212(a), and three counts of bank fraud in violation of 18 U.S.C. § 1344.

        A jury trial began on December 21, 1999. In the middle of the defendant's presentation of his expert psychological witness, the government objected to the witness' testimony and requested that the testimony be struck as a sanction for the defendant's violation of Federal Rule of Criminal Procedure 16(b)(1)(C). After lengthy discussions outside the presence of the jury and after the district court conducted a hearing pursuant to Daubert, v. Merrell Dow Pharm., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), the district court excluded the entirety of defense expert's testimony as a sanction for violation of Rule 16 and as unreliable and irrelevant under Federal Rule of Evidence 702.

        On January 5, 2000, the jury returned guilty verdicts on all but one bank fraud count. The court dismissed the one remaining bank fraud count based upon the jury's inability to reach a verdict.

        Finley appeals his conviction and forty-eight-month sentence of imprisonment. Finley raises the sole issue of whether the trial court abused its discretion by excluding the entirety of his psychological expert's testimony.

        We REVERSE and REMAND on this record determining that the trial court erred in striking all expert testimony presented by Finley that corroborated his defense.


        A. Facts

        Finley owned a law bookstore and ran a bar review course for students of non-accredited law schools. In 1992, Finley began looking for investors to assist him in opening a chain of approximately twenty bookstores across the United States. Finley could not obtain traditional bank financing because of a dispute he had with the IRS over a large tax claim.

        In November 1995, a customer mentioned that he had attended an investment seminar in Montana run by Leroy Schweitzer.1 Inspired by this suggestion, on December 22, 1995, Finley went to Schweitzer's farmhouse in rural Montana to attend the so-called investment seminar. Schweitzer explained that he possessed recorded

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liens against Norwest Bank of Montana, other banks, and individuals, and that he could draw on these accounts by issuing negotiable instruments.

        At the conclusion of the seminar, each attendee received a five-minute audience with Schweitzer to explain the attendee's needs. When he met with Schweitzer, Finley explained his business plan to open a chain of bookstores. Finley also told Schweitzer that he owed the IRS about $180,000 and that he owed a mortgage on his condominium with Great Western Bank.

        Schweitzer gave Finley several documents that looked like financial instruments and were entitled, "Comptroller's Warrants" and "Certified Banker's Checks." Schweitzer made one document payable to Finley and the Bank of America for $6,125,000, Finley's estimate of the cost of starting his bookstore chain. Schweitzer made the second document out to Finley and Great Western Bank for $150,000, or about twice the remaining amount Finley owed on his mortgage. The third instrument named the IRS and Finley as payees for $360,000, twice the amount Finley owed in taxes. Although nothing existed in writing, Finley understood that Schweitzer would receive thirty-five percent of the profits from the bookstores.

        Finley returned to Sacramento, California with the documents and prepared to open his new bookstores. He attempted to deposit the $6 million document with the Bank of America in late December 1995 and again in August 1996. Finley gave the Bank of America document to an officer who had handled Finley's business accounts for several years. The bank began processing the instrument, but it was returned marked "fictitious check" with a separate notice that indicated "please resubmit when corrections are made." (Appellant's Br. 6) The bank also contacted the post office and received a "fraud alert" addressing similar instruments from Schweitzer. The bank gave a copy of the alert to Finley. Nonetheless, Finley attempted to negotiate the instrument a second time in August 1996. This time Finley told the bank to send it to a designated address, but the item came back unpaid again.

        Similarly, on January 2, 1996, Finley attempted to use the $152,000 document to pay off his real estate mortgage with Great Western Bank. Finley included a note indicating the failure to refund the excess amount would constitute criminal conversion. Great Western did not negotiate the instrument because the bank had prior knowledge of fraud alerts regarding Schweitzer's instruments.2

        On January 5, 1996, the chief of the fraud section of the Office of the Comptroller of the Currency wrote Finley stating that the Schweitzer document was "not a valid obligation of the federal government; the special account number is not an account for redemption of payment of such an instrument; the format is not one used by the federal government" and advised Finley to contact the FBI. (Appellant's Br. 8).

        Undeterred by this information, Finley mailed the $360,000 document to the IRS Center in Ogden, Utah on January 17, 1996. Finley included a letter requesting "immediate refund for overpayment" in the amount of $180,000. The IRS did

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not credit the amount to Finley's balance because of its prior knowledge of Schweitzer's instruments. The IRS had received more than two hundred requests for refunds totaling $64,000,000 and IRS workers knew that no refunds should be issued.3 Finley submitted the IRS document on a total of three separate occasions.

        After determining that the IRS and the banks would not honor his documents, Finley embarked on an eight-month quest to learn why the government agencies would not honor what he believed to be valid financial instruments. Finley contacted in person or via mail, facsimile, or telephone several state and federal agencies in an attempt to learn how to negotiate the instruments. Every response indicated that the instruments were the subject of a fraud alert, deemed without value, and should not be honored.

        In mid—1996, Finley prepared a "media packet" detailing his efforts to cash the instruments. He entitled the document "Robin Hood and the 9 Hoods" and portrayed various government officials as "bad guys" for not cashing the documents. (Appellant's Br. 9). He distributed this packet to numerous network news programs and national newspapers. No media responded to his packets.

        In April 1996, the FBI arrested Schweitzer and others, but not Finley, on multiple charges of fraud based on Schweitzer's seminars and instruments. Around this time, Finley ceased his pursuit to have the instruments honored.

        In June 1998, Finley testified at Schweitzer's trial in Montana. In his testimony he stated that the government had not prosecuted him for attempting to cash the instruments. This trial resulted in a hung jury. Prior to his testifying in the second trial of Schweitzer in October 1998, the government notified Finley that it would indict him. A grand jury formally indicted Finley on November 6, 1998.

        B. Trial Proceedings

        On August 18, 1999, Finley's counsel filed a notice under Fed.R.Crim.P. 12.2(b), informing the government that it intended to introduce testimony "relating to a mental disease or defect or any other mental condition" relevant to guilt. The government made a discovery request for information about the expert testimony. In response, on October 1, 1999, Finley's attorney sent a letter to the government summarizing the expert opinions of Dr. John J. Wicks. Dr. Wicks, a licensed clinical psychologist in California, had examined Finley. This letter represented that Finley "has an atypical belief system, a system which is very rigid." The letter also stated, "While Mr. Finley presents some indications of Shared Psychotic Disorder (Folie a Deux), Dr. Wicks does not at present make that diagnosis. Mr. Finley is not suffering under any mental condition which is reported in the DSM-IV."4

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        In a second letter dated October 25, 1999, Finley's counsel once again represented their intent to call Dr. Wicks at trial. In pertinent part, that letter reads:

        Mr. Finley's mental condition, as set forth by Dr. Wicks, will be presented at trial to show that Mr. Finley did not have the intent to defraud, the requisite mens rea for the crime. The case of United States v. Rahm [,] 993 F.2d 1405 (9th Cir. 1993) contains a very similar fact pattern and is legal authority...

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