Butler v. United States

• Decision Date: 04 June 1963
• Docket Number: 16948-16952.,16942,16945,No. 16918-16927,16918-16927
• Parties: Lester E. BUTLER et al., Appellants, v. UNITED STATES of America.
• Court: U.S. Court of Appeals — Eighth Circuit

317 F.2d 249 (1963)

Lester E. BUTLER et al., Appellants, v. UNITED STATES of America.

Nos. 16918-16927, 16942, 16945, 16948-16952.

United States Court of Appeals Eighth Circuit.

May 10, 1963.

Rehearing Denied June 4, 1963.

COPYRIGHT MATERIAL OMITTED

Sam Houston Allen, Van Nuys, Cal., for Lester E. Butler, and others, appellants.

Julius Lucius Echeles, Chicago, Ill., for Dodson Benedec, and others, appellants; and Frank W. Oliver, Chicago, Ill., on the brief.

Robert Vogel, Sp. Asst. Atty. Gen., Mandan, N. D., for appellee.

Before JOHNSEN, Chief Judge, MATTHES, Circuit Judge, and HARPER, District Judge.

MATTHES, Circuit Judge.

An indictment in 33 counts was returned and filed in the United States District Court for the District of North Dakota on October 24, 1960, charging Lenders Service Company, Inc., a corporation, and 36 individual defendants with violation of the mail fraud statute, 18 U.S.C.A. § 1341.¹

The scheme forming the basis for the mail fraud violations involved advance fee payments and fraudulent activities similar to those described in Wolpa v. United States, 8 Cir., 86 F.2d 35 (1936), cert. denied, 299 U.S. 611, 57 S.Ct. 317, 81 L.Ed. 451 (1937), the more recent case of Goodman v. United States, 8 Cir., 273 F.2d 853 (1960), and is almost identical to the scheme described in the indictment in United States v. Sampson, 371 U.S. 75, 83 S.Ct. 173, 9 L.Ed.2d 136 (1962).²

Count 1 of the indictment alleged that on or about June 1, 1959, and continuing to on or about June 1, 1960, defendants devised and intended to devise a scheme or artifice to defraud and for the purpose of obtaining money by means of false and fraudulent pretenses, representations and promises from numerous persons, many of whom were named in the indictment. The details of the fraudulent scheme were described in Count 1, and incorporated by reference in the other 32 counts. In each of the 33 counts, a separate letter, mailed or caused to be mailed by defendants on a certain date for the purpose of executing the scheme, was alleged in the words of 18 U.S.C.A. § 1341.³

The corporate defendant entered a plea of nolo contendere, 4 of the individuals named as defendants were not apprehended, and 2 of the named defendants died prior to trial. The remaining 30 defendants were tried by jury before the Honorable George S. Register, Chief Judge of the District Court for North Dakota. The trial commenced on March 14, 1961, the case was submitted to the jury on July 31, and verdicts were returned on August 9, 1961, finding 10 defendants not guilty and 20 defendants guilty. Eighteen of the convicted defendants filed notices of appeal from the judgments of conviction entered pursuant to the verdicts; however, John A. Miller subsequently abandoned his appeal. Donald W. Majerus and F. Bennett Spencer, also found guilty, did not appeal.

The 17 appellants will, for the purpose of this appeal, be placed in two groups. Eleven of them, namely, Lester E. Butler, Charles S. Herndon, Laurence J. Brandon, Veit A. Hain, Jr., Harvey S. Cova, Martin H. Rye, H. Eugene Gilbert, Alan C. Springer, William E. Mitchell, Kalman T. Taggart and John E. Ringger, hereinafter sometimes referred to as Butler, et al., are represented on appeal by Sam Houston Allen, an attorney of Van Nuys, California. Mr. Allen represented appellants Harvey S. Cova and Martin H. Rye and defendant Samuel Vizzini, who was acquitted in the trial of the case. The remaining 6 appellants, namely, Dodson Benedec, Sidney L. Schwarz, Robert Eakins, Leonard Ostrowsky, Jerome Stadin and Peter J. Wangberg, hereinafter sometimes referred to as Benedec, et al., are represented on appeal by Julius Lucius Echeles and Frank W. Oliver, attorneys of Chicago, Illinois. Neither of these attorneys represented any defendant in the court below.

The sufficiency of the evidence to establish — 1) the formation and existence of the scheme or artifice to defraud, and 2) that the mails were used for the purpose of executing such scheme, is not challenged. Indeed, on oral argument Mr. Allen and Mr. Echeles conceded there was an adequate evidentiary basis to establish these elements of the offense. Nonetheless, because of the nature of the contentions of error, we have examined the voluminous record with painstaking care.⁴

Defendant Lenders Service Company, Inc. (Lenders) was a nation-wide corporation, having its general offices in Little Rock, Arkansas. It purchased the assets and took over the business of Lenders Service Corporation of Los Angeles, California, which apparently was engaged in a similar type of business. Purportedly, Lenders was organized for the purpose of assisting small business firms in obtaining needed financing. It began operation on or about June 1, 1959, ceased doing business on May 27, 1960, and became the subject of bankruptcy proceedings. The company operated from its home office and seven regional offices located in Los Angeles, California, Denver, Colorado, Dallas, Texas, Atlanta, Georgia, Cleveland, Ohio, Chicago, Illinois, and New York City, New York. The individual defendants were the officers, regional directors and field representatives or salesmen.⁵

Using telephone directories to secure the names and addresses of potential customers, appellants caused millions of solicitation letters to be mailed to small business men throughout the entire nation. The business men who responded were shortly thereafter contacted by a field representative (salesman). Armed with an attractive and pictorialized "sales kit" containing information about Lenders and statements from supposedly satisfied customers, the field representative resorted to one of at least three distinct approaches to collect an advance fee and to obtain the prospect's signature on a "financial service agreement" with Lenders.⁶ On occasion the field representative would lead the prospect to believe that Lenders itself was a lending agency and that it would make the loan in consideration for the advance fee and a completion fee to be paid when the transaction was closed. Other field representatives, making frequent reference to an ambiguous clause in the contract that provided a refund would be made if the contract were not accepted by Lenders, would promise the prospect that he would either receive a loan or a refund of the advance fee. Other prospects were told that they couldn't lose because Lenders would not accept a contract unless it was virtually assured of obtaining a loan for the prospect.

Signed contracts were forwarded to a Lenders' office for approval, where in virtually every instance the contract was accepted, in apparent disregard of the financial feasibility of attempting to secure a loan for the applicant. Approximately 4,200 contracts were accepted and over $1,250,000 was collected in advance fee payments.

Dealing almost exclusively with business men who were borderline cases and whose financial qualifications for the loans they desired were unattractive, Lenders' superficial efforts to procure financing were foredoomed to failure — a failure that in actuality is reflected in the procuring of loans for less than one per cent of applicants from whom an advance fee had been obtained. Although this ratio existed from the inception of the operation, appellants continued by use of the mails to solicit prospects, continued to advertise their success as financial consultants and loan placement experts, and continued to inviegle the unsuspecting and unwary small business firms into payment of the advance fees.

After the advance fee had been paid, and the contract accepted, the applicant was besieged with forms to be completed and was repeatedly assured that Lenders was in the process of obtaining the loan. The pattern of operation pursued by appellants was designed to and did lull the applicant into feeling that the loan would soon be forthcoming. But in regard to substantially all of the accepted contracts, the ultimate result was "no loan and no refund."

Some dissatisfied applicants became very irate and continued their efforts to obtain refunds from appellants. Others apparently accepted their fate after receiving a standard response to their complaints in which they were informed that they should have read their contracts more carefully; or that the field representatives were independent contractors and Lenders could not be responsible for any exaggerated or false claims made by such salesmen; or that the applicants had not complied with the contracts by not providing exact and accurate information.

In summary, even assuming that Lenders was initially motivated by legitimate purposes, it became apparent very early in the venture that fraudulent and deceptive means were being pursued in securing the advance fee payments. However, instead of initiating effective corrective measures to alleviate the fraudulent practices, appellants followed a course which actually intensified the wrongdoing. Exemplifying the limits to which the scheme was extended is the following statement made by one of the appellants at a sales training session held in mid-October, 1959, "Gentlemen, we're giving you a license to steal." As Mr. Echeles and Mr. Oliver aptly and candidly stated in their brief on this appeal:

"When neither loan nor refund was forthcoming, the complaining would-be borrower was put off with lulling letters. * * * The records introduced into evidence by the government showed the ratio of actual loans to applications so infinitesimal as to impel the conclusion that whatever the state of knowledge of the Lenders\' representative when he called on the borrower, the persons responsible for the good faith execution of the contract never intended to perform according to its ostensive spirit."

CONTENTIONS OF ERROR

I

Although Benedec, et al. do not challenge the proof of the fraudulent scheme nor the use of the mails pursuant thereto, they do contend that the Government's evidence failed to identify them as...