Phillips v. United States, 19646.

Citation356 F.2d 297
Decision Date22 March 1966
Docket NumberNo. 19646.,19646.
PartiesJohn Milton PHILLIPS, Jr., Jack Cecil Cherbo and Richard Dale Walker, Appellants, v. UNITED STATES of America, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

COPYRIGHT MATERIAL OMITTED

E. F. Bernard, William E. Hurley, Bernard, Bernard & Hurley, Portland, Or., for appellant Richard Dale Walker.

W. H. Morrison, Robert R. Carney, Winfrid K. Liepe, Maguire, Shields, Morrison, Bailey & Kester, Portland, Or., for appellants John Phillips, Jr., and Jack Cherbo.

Sidney I. Lezak, U. S. Atty., Donal D. Sullivan, 1st Asst. U. S. Atty., Jack G. Collins, Asst. U. S. Atty., Portland, Or., for appellee.

Before CHAMBERS, HAMLEY and HAMLIN, Circuit Judges.

HAMLEY, Circuit Judge.

This is a mail fraud and conspiracy case involving asserted violations of 18 U.S.C. §§ 1341 and 371 (1958). The final form of the indictment contains fifteen counts charging mail fraud and one count charging conspiracy. Seven defendants were named in each count, namely: John Milton Phillips, Jr., Jack Cecil Cherbo, Richard Dale Walker, Maurice Arthur Hall, George Edward Isaacs, David Frank Koolish and Abraham Leonard Koolish. The named defendants were jointly tried before a jury. Phillips, Cherbo and Walker were convicted on all counts and join in this appeal. The other four defendants were acquitted on all counts.

Summarizing the first fifteen substantive counts relating to mail fraud, all seven defendants, in order to obtain money, by means of false representations induced various persons to purchase lots in a land subdivision called "Lake Valley," situated in Harney County, Oregon. They organized the Harney County Land Development Corporation for the purpose of acquiring, subdividing, advertising for sale and selling the land. The defendants inserted advertisements in newspapers to induce purchasers to remit five-dollar deposits together with a coupon clipped from one of the advertisements. Upon receipt of such a deposit and coupon, defendants sent back a brochure and other materials, together with a form of purchase contract. Those executing such a contract agreed to pay minimum monthly installments of five dollars towards the purchase price.

Further summarizing those counts of the indictment, the materials sent through the mails by the defendants were intended to deceive purchasers into believing that the land comprising Lake Valley was suitable land for residential, recreational and sound investment purposes, when in truth, the land did not possess such qualities. The advertisements used included photographs depicting mountains, lakes, valleys and recreational scenes which are miles from the land offered for sale and falsely pretended to describe the land offered without disclosing that Lake Valley is vacant desert land. Also, one of the maps in the advertisement depicted a swimmer and water skier near the area offered for sale, showing the proximity of the land offered to Malheur and Harney Lakes. This was done without disclosing that those lakes are shallow desert lakes, wholly unsuitable for any purpose suggested in the advertisement because of their chemical composition, tendency to dry up, and location within a restricted compound of the Malheur National Wildlife Refuge.

These counts of the indictment charge each of the defendants with making the following false representations, knowing at the time they were made that they were false: Lake Valley is rich, fertile land and is a fertile valley; purchasers would receive "all facts" and "a complete portfolio of facts and photographs," and "all current information"; Lake Valley has "everything"; "in addition, there's boating, water skiing, golfing, swimming"; the climate has "Four exciting seasons! 300 days of warm wonderful sunshine throughout the year!"; Lake Valley is an area of booming population; purchasers would receive an official surveyor's map exactly as recorded and which is a reduction of the map on record in the Harney County Courthouse; and Lake Valley is a sound investment opportunity.

Each of the first fifteen counts, relating to mail fraud, then concludes with an allegation that the defendants caused to be placed in the mail a letter containing advertising material addressed to a particular person, a different individual being named in each count.

In the conspiracy count it is alleged that the seven defendants knowingly, wilfully and feloniously conspired, combined, confederated and agreed with each other to commit mail fraud violations of the kind described in the other counts. According to this count defendants committed some fifteen separately described overt acts in pursuance of the conspiracy.

The evidence shows that two of the appellants, Phillips and Cherbo, operated Phillips & Cherbo, Inc., an advertising agency in Chicago, Illinois. The remaining appellant, Walker, was the manager of California Valley, a land development in San Luis Obispo County, California. Each of the appellants had stock ownership in the land development corporation. Phillips and Cherbo were to develop the advertising materials which were subsequently approved by an attorney. Walker was to handle the on-site development, including surveying, engineering, road grading, preparation and recording of plats and other administrative details.

The evidence further shows that Phillips and Cherbo's advertising firm prepared a "broadside" brochure which assertedly contained many false representations concerning the quality and desirability of the tracts being offered for sale. General newspaper advertising was then prepared assertedly containing additional false representations. Those who read the advertising were invited to clip and transmit to the land company an accompanying coupon with a five-dollar deposit. In this coupon the purchaser announced his desire to own land limited to no more than five one-acre tracts per family or investor.

The evidence shows that a customer who sent in such a coupon and a fivedollar deposit received through the mails a "sales kit" containing ten or twelve enclosures including the brochure referred to above. Among the other items enclosed in this kit was a "Lake Valley" land sale contract form. Many readers of the advertisements sent in the coupons and a five-dollar deposit, and many of those thereafter executed and returned a sales contract. If one who had returned the coupon together with a deposit failed to execute the contract, the five-dollar deposit was returned to him.

According to the evidence, advertising began in June, 1962, and continued into November, 1962. By November 14, 1962, the Oregon Real Estate Commission, the Federal Trade Commission, and the Post Office Department had commenced separate investigations of the Lake Valley promotion. The defendants had, by then, made approximately 1,394 sales. Defendants terminated the operation when the Post Office Department investigation came to their attention in November, 1962.

Appellants contend that the trial court erred in admitting into evidence certain documents assembled in exhibits 968 and 984. Exhibit 968 is a collection of ten cancellation letters from dissatisfied customers. Exhibit 984 is a group of fifty-five order coupons accompanied by special requests for lots on or near the lake. One of the letters in exhibit 968 (968-82) was read to the jury.1 The jury was not permitted to see the remaining documents comprising these two exhibits. Instead, the trial court summarized, for the jury, the contents of the letters in exhibit 968 and the requests sent along with the coupons in exhibit 984.

Appellants first argue that the documents in these two exhibits do not constitute evidence relevant to any issue in the case.

The documents in question were received in evidence not to prove that the advertising was in fact false, but for the jury's consideration in determining whether one or more of the defendants knew that the advertising was creating a false impression in persons who might be interested in the purchase of the property.

In considering the problem of relevancy we bear in mind that the trial court possesses wide latitude in the determination of the relevancy or materiality of evidence and its ruling thereon cannot be reversed in the absence of an abuse of discretion. Dege v. United States, 9 Cir., 308 F.2d 534, 536.

The Government had to prove, among other things, that the described transactions constituted a scheme to defraud. See Irwin v. United States, 9 Cir., 338 F.2d 770, 773. Proof that one or more of the appellants persisted in the venture after being made aware that their advertising was being misunderstood by those to whom it was directed would tend to show that such appellant or appellants were engaged in a scheme to defraud.

Evidence of this kind may take the form of written communications from prospective or actual purchasers, not otherwise inadmissible, complaining that the land, upon examination, did not live up to the advertising. See United States v. Press, 2 Cir., 336 F.2d 1003, 1011. So also, we think, evidence of this kind may take the form of written orders containing requests for tracts having special features or advantages not in fact available. The letters and coupons contained in exhibits 968 and 984 were of this kind, and are therefore relevant.2

But appellants further argue that, even if relevant, these documents were not admissible as evidence on the indicated issue because the Government failed to prove that the documents came to the attention of any of the appellants while the project was still in progress.

The principle which appellants here invoke is established in several of the cases referred to in note 2. In order to discuss this question it is necessary at this point to review the circumstances pertaining to the receipt and processing of these documents during the course of the land operation.

All of these items were sent through the mail by the...

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