U.S. v. Kimoto

• Decision Date: 02 December 2009
• Docket Number: No. 08-3731.,08-3731.
• Citation: 588 F.3d 464
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Kyle KIMOTO, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

588 F.3d 464

UNITED STATES of America, Plaintiff-Appellee, v. Kyle KIMOTO, Defendant-Appellant.

No. 08-3731.

United States Court of Appeals, Seventh Circuit.

Argued June 2, 2009.

Decided December 2, 2009.

Stephen B. Clark, Bruce E. Reppert (argued), Office of the United States Attorney, Fairview Heights, IL, for Plaintiff-Appellee.

Joel D. Bertocchi (argued), Hinshaw & Culbertson, Chicago, IL, for Defendant-Appellant.

Before POSNER, RIPPLE and KANNE, Circuit Judges.

RIPPLE, Circuit Judge.

Kyle Kimoto was charged with one count of conspiracy, in violation of 18 U.S.C. § 371, one count of mail fraud, in violation of 18 U.S.C. § 1341, and twelve counts of wire fraud, in violation of 18 U.S.C. § 1343. After a ten-day trial, the jury convicted Mr. Kimoto on all counts. Mr. Kimoto appealed. For the reasons set forth in this opinion, we affirm Mr. Kimoto's conviction and also affirm all aspects of his sentence except for the district court's enhancement for the number of victims. With respect to this one aspect of Mr. Kimoto's sentencing, we remand to the district court for further proceedings.

I BACKGROUND

Kyle Kimoto was president of Assail, Inc. ("Assail"), a telemarketing firm based in St. George, Utah. In 2001, Assail began marketing a financial package developed by another telemarketing company, Rockwell Solutions ("Rockwell"). The package included a pay-as-you-go debit card,¹ along with other promotional discounts, and was called "First Financial Solutions." After Assail ended its association with Rockwell, it began marketing an equivalent product developed by the Bay Area Business Council ("BABC"), which was owned and operated by Peter Porcelli.² Assail also marketed a similar product on its own, under the names Premier One, Advantage Capital and Capital First.

In making cold calls to consumers throughout the United States, Assail used "lead lists" with names of consumers who either had applied for credit and been turned down or had a less-than-perfect credit history. The program was designed to make individuals believe that the call was in response to a recent credit application and that their applications were now being processed or reconsidered. A telemarketer would call the prospective buyer and state: "Our records indicate that within the past 12 months, you filed an application for a credit card and you are now eligible to receive your Visa or a MasterCard." Gov't Ex. 2a. The telemarketer would proceed to ask about the individual's household and monthly income. The customer then would be put on hold for "computer authorization," which consisted merely of the telemarketer placing the individual on hold; no authorization actually was occurring. Tr. V at 18. When the telemarketer returned to the line, he would state: "Mr./Mrs. [Customer Name] based on your information you are guaranteed to receive a MasterCard that does not require a security deposit with an initial pay as you go limit of $2000." Gov't Ex. 2a. The consumer then would be informed that he would be charged a one-time processing fee of $159.95. The consumer was reminded that nothing "looks better on your Equifax credit report than a MasterCard." Id.

If the consumer agreed to purchase the package, she was transferred to a "verifier." The processing fee was a one-time debit of the consumer's bank account, based upon oral authorization, and therefore, a recording of the verification call was made.³ The consumer heard an automated disclosure mentioning the pay-as-you-go MasterCard and advising that there would be no credit on the card until a payment was made. If consumers asked questions of the verifier, the verifier attempted to give responses that confirmed the impression that the consumer would be receiving a credit card. Tr. V at 29-31.

Assail's programs spawned thousands of customer complaints about the cards received.⁴ For cards sold in connection with BABC, there were as many as one hundred thousand customer complaints during a seven-month period. For cards sold by Assail through its own programs, customer service was outsourced to Specialty Outsourcing Solutions ("SOS") in Waco, Texas. Assail provided "rebuttal" scripts for SOS representatives to use in addressing customer complaints. One of the methods that SOS used in assuaging customers was to inform them that keeping the card would improve their credit.⁵ At its height, SOS had approximately 150 customer service representatives fielding calls for Assail's programs; between eighty and ninety percent of those calls were complaints.

We begin with a prefatory note. Mr. Kimoto's contentions on this appeal focus on three aspects of the proceedings: the sufficiency of the evidence to support his convictions; the responsibilities of the Government with respect to the timely disclosure of exculpatory and impeaching evidence; and the fairness of the sentencing procedure. With respect to each, we shall state the facts pertinent to the issue and then discuss our assessment of the merits of Mr. Kimoto's submission on appeal.

II SUFFICIENCY OF THE EVIDENCE

Mr. Kimoto maintains that there was insufficient evidence to convict him on any of the counts of the indictment. He contends that the Government failed to establish his intent to defraud and that, with respect to the conspiracy count, the Government failed to show an agreement between he and Porcelli. We first summarize the evidence presented by the parties to the district court and then examine Mr. Kimoto's arguments in light of this evidence.

A. Background

Mr. Kimoto's telemarketing activities resulted in a criminal indictment being returned against him on June 20, 2007, in the Southern District of Illinois. Count 1 of the indictment charged Mr. Kimoto with conspiracy to commit mail fraud, wire fraud and money laundering. Count two charged Mr. Kimoto with mail fraud based upon the mailing of a "benefits package" to a victim in the district. Counts three through eight alleged wire fraud based upon the telemarketing calls to local victims. Finally, counts nine through fourteen charged Mr. Kimoto with wire fraud related to the debit transfer from the consumers's bank accounts to payment processors for the processing fee.

1.

Mr. Kimoto's trial commenced in late March 2008. The Government's theory of the case was that Mr. Kimoto defrauded hundreds of thousands of people by using deceptive scripts in the marketing of his financial products. See supra pp. 468-69. Government witnesses testified that both the language employed and the structure of the sales pitch were designed to make the consumers believe that they were purchasing a credit card. For example, Shawn Hatfield, who worked for Rockwell and helped develop the debit-card program marketed by Assail, testified that the intent of the sales script was to make consumers "perceive" that "they were being pitched a Master Card credit card with a credit limit." Tr. II at 181-82. Hatfield testified that he later worked with Mr. Kimoto on other programs developed by Assail and that Assail used "very similar" scripts for all of its programs; these were designed to "mislead[] the customer[s]" into believing they would "receive a credit card." Id. at 183. He also confirmed that, with respect to these programs, Mr. Kimoto was responsible for the "[f]ront end," meaning "sales, marketing, training." Id. at 184. Similarly, Porcelli testified that the sales script for the product marketed in conjunction with BABC was designed to "leav[e] the unmistakable impression in the customer's mind [that] they are going to get a credit card." Tr. III at 25. He further testified: "That was the way [Mr. Kimoto] told me it had to be sold and I went along with it." Id.

The Government proffered additional evidence that Assail, and specifically, Mr. Kimoto, knew that the scripts were deceptive because they developed "rebuttal" scripts for SOS to use in fielding customer complaints. See Gov't Ex. 40 & supra p. 469. The four scripted rebuttals were designed to re-sell the product to the unsatisfied customer. Customers were told that "having good credit is very important today and we want you to be able to benefit from this package." Gov't Ex. 40. Customers were reminded that they were getting "an unsecured master card, which we report to Equifax, that helps rebuild your credit in a short period of time." Id. Customers, who were still unconvinced of the worth of the product, were asked "what is it about improving your credit . . . that doesn't interest you?" Id. The "Final Effort" included informing the customer that

[t]he reason why we called you in the first place is because your credit isn't as good as it could be. With Advantage Capitals [sic] not only are you going to have a master card in case of emergencies, but also you are going to be able to rebuild your credit in a short period of time.

Id. Jay Lankford, principal of SOS, testified that Assail would do "test calls" "to make sure you [we]re using all of the rebuttals and make sure you were not giving up too easy on the sale, to try to save the sale." Tr. IV at 57. Lankford further stated that Assail would "demand[]" that, if a customer service agent failed to use all of the rebuttals, that agent be taken off the program. Id.

Finally, the Government produced evidence that Mr. Kimoto knew that the representations made in the rebuttal scripts also were false. Roger Howard, co-owner of Apex Merchant Services ("Apex"), which initially supplied debit cards to Assail, testified that he told Mr. Kimoto that the card supplied by Apex was "definitively not a credit card, that there was no credit worthiness" and that "there weren't any credit agencies that would report on it." Tr. VI at 141-42.

Mr. Kimoto defended his actions on the ground that he was engaged in the legitimate business of selling debit cards, that the scripts themselves were not deceptive, and that he did his best to ensure that employees who crossed the line—who affirmatively represented...