U.S. v. Lutz

• Decision Date: 09 May 1980
• Docket Number: Nos. 78-2969,78-2978,78-2970 and 78-3008,s. 78-2969
• Citation: 621 F.2d 940
• Parties: 6 Fed. R. Evid. Serv. 283 UNITED STATES of America, Plaintiff-Appellee, v. Jerome P. LUTZ, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Jack D. STEWART, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Perry A. WHITE, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Larry ZITEK, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 940

621 F.2d 940

6 Fed. R. Evid. Serv. 283

UNITED STATES of America, Plaintiff-Appellee, v. Jerome P. LUTZ, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. Jack D. STEWART, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. Perry A. WHITE, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. Larry ZITEK, Defendant-Appellant.

Nos. 78-2969, 78-2978, 78-2970 and 78-3008.

United States Court of Appeals, Ninth Circuit.

May 9, 1980.

David S. Teske, Des Connell, Susan Elizabeth Reese, Tommy Hawk, Portland, Or., for defendants-appellants.

William Otis, Atty., U. S. Dept. of Justice, Washington, D. C., argued, Louis M. Fischer, Washington, D. C., on brief, for plaintiff-appellee.

Appeal from the United States District Court for the District of Oregon.

Before KILKENNY and WALLACE, Circuit Judges, and JAMESON, ^* District Judge.

WALLACE, Circuit Judge:

Lutz, Stewart, White, and Zitek appeal their convictions for mail fraud and wire fraud in violation of 18 U.S.C. §§ 1341, 1343, and 2. We affirm.

I.

In October 1975, Stewart and Lutz organized Nation-Wide Funding, Inc. (Nation-Wide), a loan-brokerage firm whose advertised goal was to find financial backing for high-risk borrowers. The evidence at trial established that Nation-Wide personnel obtained thousands of dollars in advance fees from prospective borrowers by promising instant or virtually guaranteed funding for the borrowers' projects, even though the Nation-Wide personnel knew that there was no chance of securing any funding. These fraud convictions resulted.

Stewart was Nation-Wide's President and Lutz its Vice-President. At various times during 1975, 1976, and 1977, Nation-Wide employed White, Zitek, David Haner, John Blay, and others as "loan officers" or salesmen. ¹

Nation-Wide obtained its clients principally through advertisements placed in the Wall Street Journal. Prospective borrowers who responded to these advertisements normally received a brochure written by Stewart and Lutz, which, among other things, "pledge(d)" to "only undertake assignments for which, in our opinion, there is a reasonable chance of funding." The brochure directed prospective borrowers to write, call, or wire Nation-Wide "to get acquainted."

Persons who responded to the brochure's appeal were next contacted by one of Nation-Wide's "loan officers." The "loan officer" routinely suggested an on-site inspection of the client's project to determine its suitability for funding. Nation-Wide charged the client for the "loan officer's" round-trip air fare, meals, and lodging. After the on-site inspection confirmed that the project was "viable," Nation-Wide charged an additional $2,500 to $2,700 for services rendered by the loan officer during the on-site visit to the project, Nation-Wide's preparation of a loan package for the client, and Nation-Wide's efforts in marketing this package to prospective lenders.

Nation-Wide had virtually no success in obtaining loan commitments for its clients. In its entire operation, Nation-Wide obtained only one funding, in May 1977, less than two months before the grand jury returned its indictment. The government's proof demonstrated that Stewart, Lutz, White, Zitek, and other Nation-Wide employees induced prospective borrowers to pay advance fees by misrepresenting Nation-Wide's past and anticipated achievements in obtaining client fundings, the type and terms of Nation-Wide's funding sources, Nation-Wide's ability to obtain large sums of money very quickly, and the expertise of Nation-Wide personnel. The government's witnesses included 35 individuals who contended that they had been bilked of amounts ranging from $1,500 to $2,750 and totaling over $67,000. They testified to oral and written misrepresentations by Stewart and Lutz, and oral misrepresentations by White, Zitek, Haner, and other "loan officers" during their on-site inspections.

The government also demonstrated that Stewart and Lutz, as part of the Nation-Wide scheme, referred clients to other mortgage brokers as primary loan sources notwithstanding that these brokers, like Nation-Wide, had no funds to lend. These referred brokers, in turn, demanded additional fees from Nation-Wide's clients. 15 government witnesses testified that they had received referral letters to a firm called London Investors. Other referred brokers included Citation Mortgage, and Underhill Associates.

II.

None of the defendants challenges the sufficiency of the evidence produced at trial. All argue, however, that the government's proof demonstrated the existence of several independent schemes, rather than the single, unitary scheme charged in the indictment. They contend that this constituted a prejudicial variance between the indicted offenses and the proof at trial. See, e. g., Kotteakos v. United States, 328 U.S. 750, 66 S.Ct. 1239, 90 L.Ed. 1557 (1946).

Although the indictment in this case charges a multi-party mail and wire fraud instead of a conspiracy, we may still rely on the principles governing variance in conspiracy cases. See United States v. Serlin, 538 F.2d 737, 746 (7th Cir. 1976); Friedman v. United States, 347 F.2d 697, 708 (8th Cir.), cert. denied, 382 U.S. 946, 86 S.Ct. 407, 15 L.Ed.2d 354 (1965). We have held in conspiracy cases that the existence of a unitary scheme matching that charged in the indictment is a question for the jury. United States v. Thomas, 586 F.2d 123, 132 (9th Cir. 1978). We apply the same rule here. Thus, if the jury could rationally have found that Stewart, Lutz, White, and Zitek engaged in a unitary mail or wire fraud scheme, there is no prejudicial variance. See, e. g., id. at 131-32; United States v. Perry, 550 F.2d 524, 531 (9th Cir.), cert. denied, 431 U.S. 918, 97 S.Ct. 2182, 53 L.Ed.2d 228, 434 U.S. 827, 98 S.Ct. 104, 54 L.Ed.2d 85 (1977).

We think there was ample evidence before the jury to support a finding that the defendants were engaged in a common scheme. The defendants particularly complain about the introduction of evidence relating to Nation-Wide's use of outside brokers, such as Underhill Associates and Citation Mortgage. But the involvement of these brokers materially aided the overall scheme by convincing clients that their loan packages were being aggressively marketed and referred to potential lenders. Clients were directed to keep Nation-Wide personnel advised of their subsequent dealings with these brokers. The impression given was that the referral was an important aspect of Nation-Wide's comprehensive funding strategy, and a significant step toward attaining funding. This false impression reinforced and perpetuated the defendants' previous misrepresentations.

The defendants urge similar prejudicial variance in the receipt of (1) evidence of Lutz's and Zitek's participation in Eleven-West Mortgage and Investment Co. (Eleven-West), a separate loan-brokerage enterprise previously the subject of indictments and convictions for mail fraud, and (2) testimony regarding White's participation in the formation and operation of All-States Funding, Inc. (All-States), whose activities have since been the subject of an indictment. But the evidence of the fraudulent fee scheme developed at Eleven-West was admitted pursuant to Fed.R.Evid. 404(b) to demonstrate Lutz's and Zitek's knowledge and intent regarding the fee structure at Nation-Wide. Similarly, evidence of fraudulent activity at All-States was probative of White's intent in his dealings with Nation-Wide customers.

At the close of trial, the district court instructed the jury to the effect that it had to find a single scheme at Nation-Wide involving each of the defendants it would convict. This instruction eliminated any confusion which might have arisen in the government's attempt to make sense out of a complex fraud. See, e. g., United States v. Griffin, 464 F.2d 1352, 1357 (9th Cir.), cert. denied, 409 U.S. 1009, 93 S.Ct. 444, 34 L.Ed.2d 302 (1972). Because there was sufficient evidence before the jury to support its finding that the single fraudulent scheme alleged in the indictment existed, and because the jury received appropriate instructions, we find that the proof at trial did not constitute a prejudicial variance from the offenses charged in the indictment.

III.

White urges that the district court abused its discretion in admitting the evidence regarding his participation in All-States. White claims that the prejudicial impact of this evidence outweighed its probative value.

At the beginning of trial, in response to various in limine motions objecting to the introduction of evidence concerning All-States, the government maintained that such evidence was admissible to show White's and Haner's participation in a fraudulent scheme similar to that charged in the indictment against Nation-Wide, as probative of their motive and intent while at Nation-Wide. The district court permitted the government to introduce the All-States evidence for this purpose.

At the close of the government's proof, the court granted Haner's motion for severance. See note 1 supra. Upon Haner's severance, the government moved to strike all of the All-States exhibits and testimony. The court did not immediately act upon the government's motion. Later in the trial, counsel for Lutz offered two witnesses who testified concerning All-States during cross-examination by the government. White objected to the eliciting of this evidence on cross-examination and moved to strike all references in the case to All-States, on the grounds that activities at All-States were irrelevant to issues in the Nation-Wide case, and additionally that the government's motion to strike all of the All-States testimony and exhibits was still pending. The court denied White's motion. Subsequently, the government indicated to the court that "we have . . . changed our minds with respect to the All-States Funding offer to strike we are reconsidering, we have now reconsidered...