79 F.3d 1550 (11th Cir. 1996), 93-4063, United States v. Brown
|Citation:||79 F.3d 1550|
|Party Name:||UNITED STATES of America, Plaintiff-Appellee, v. David F. BROWN, Tore T. DeBella, Richard A. Reizen, Robert F. Ehrling, Defendants-Appellants.|
|Case Date:||April 16, 1996|
|Court:||United States Courts of Appeals, Court of Appeals for the Eleventh Circuit|
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Benedict P. Kuehne, Jon A. Sale, Miami, FL, Robert B. Fiske, Jr. and Carey R. Dunne, Davis Polk Wardwell, New York City, and Steven M. Edwards, Davis, Scott, Weber & Edwards, New York City, for David Brown.
Clark Mervis, Miami, FL, for Tore T. DeBella.
Richard Sharpstein, Miami, FL, for Richard Reizen.
Joel Hirschhorn, Coral Gables, FL, for Robert Ehrling.
Kendall Coffey, U.S. Attorney, Norman Moscowitz, Miami, FL, Linda Collins Hertz and Carol Herman, Asst. U.S. Attys., U.S. Attorney's Office, Miami, FL, for the U.S.
Appeals from the United States District Court for the Southern District of Florida.
Before KRAVITCH and EDMONDSON, Circuit Judges, and EISELE [*], Senior District Judge.
EDMONDSON, Circuit Judge:
This appeal is one by four defendants, formerly executives with General Development Corporation ("GDC"), who were convicted of defrauding and conspiring to defraud home buyers throughout the 1980's. Their guilt was not proved: insufficient evidence was presented that a scheme reasonably calculated to deceive persons of ordinary prudence and comprehension was devised. We reverse the convictions.
In the 1950's, GDC began buying huge tracts of undeveloped land throughout Florida. Over the years, the company created nine separate Florida communities. GDC first built the infrastructure (including over 3,700 miles of paved roads) necessary to permit residential development. Then, GDC sold lots and homes in these communities; it also permitted local businesses to build on lots purchased from GDC and to sell these lots in competition with GDC. To increase the attractiveness of the communities, GDC encouraged development; for example, the company helped persuade the New York Mets to build their spring training stadium in Port St. Lucie; GDC built and landscaped utility plants; it sold land to churches at below market value; and GDC donated land for schools. The company became the single largest developer in the entire state. Today over 250,000 people live in GDC's Florida communities.
By the 1980's, GDC was selling some of its homes at significantly higher prices than independently built homes within the same neighborhoods. 1 (For example, GDC offered a home it sold for between eighty-five and one hundred thousand dollars as a prize on the "Dream House" game show; the home was later appraised at under fifty thousand dollars.) GDC blamed its prices on higher expenses: the testimony was that independent builders had much lower overhead costs than GDC. Whatever the cause of the price disparity, attempting to sell homes of similar quality in the same neighborhood at a much higher price proved problematic for GDC.
GDC was, however, still able to sell Florida homes to certain customers, mostly those residing in "snowbelt" states. GDC marketed their communities as a great place to own a second home. 2 "One stop shopping" was available for non-residents: GDC buyers could initially purchase just a lot and later
trade in that lot, plus any "appreciation" in the price GDC charged for that lot, as a down payment on a home. And, GDC offered in-house financing through GDV, a wholly-owned subsidiary. Florida Home Finders, a property management subsidiary, was designed to help absentee owners rent and maintain Florida property. GDC did not inform its customers that they might be paying much more for these homes than they would for a largely identical one next door.
Customers intrigued by the home sales pitch, and especially those who had already purchased building lots, were encouraged to take a "Southward Ho" trip (a "SoHo"). 3 On SoHo trips, GDC would pay for the customer to travel to Florida and to visit a GDC community for a few days. SoHo travellers were shepherded about Florida by the southern salesforce, who took affirmative steps to "focus" customers on GDC homes only. If the customer remained interested, 4 GDC would have the customer enter an agreement to purchase.
GDC started prohibiting salespeople from recommending financing from entities other than GDV (the government alleged that 80 to 90 percent of buyers financed through GDV), and all financing was processed through GDV. GDV financing agreements, which were signed sometime after contracts to purchase had been made, would note that an appraisal of the property was done. This appraisal compared the home being purchased only with other homes GDC sold nationally, not those selling in the same area for less; thus, the appraisal would show GDV that the home was worth what was being paid. Never were customers shown these appraisals. 5
Official GDC policy forbade "investment selling," that is, encouraging people to purchase GDC homes as a way to make money as opposed to purchasing a home for use in Florida. And, official GDC literature and form agreements signed by buyers disclaimed the homes' investment potential; for example, a GDC customer "bill of rights" provided: "The land you are purchasing is being sold to you for future use and not as a business investment."
Despite this official policy, certain salesmen sometimes told purchasers that the homes were "safe investments." Some customers were told that rental income would exceed mortgage payments. Some salesmen falsely said that they, personally, owned GDC homes and were making money on them. And, they said that, if a customer would hang onto their homes for a year, the homes could be sold at a profit. Some of GDC's northern sales managers even encouraged these lies. 6 But, salesmen violating official company policy were supposed to be disciplined or fired. In fact, few were disciplined severely; several were retrained, fined, or demoted.
Due to the price disparity, GDC homes were not "good investments." Customers discovered that rental income was sometimes less than GDC's Florida Home Finders had promised. Some owners could find no tenants at all for significant periods. And, several GDC customers found that they could only sell their homes by asking for much less than they paid. In the mid-1980s, GDC established Housing Customer Service (HSC) to deal with customer complaints. Many "value complaints" (that is, complaints that homes were not worth as much as was paid for them) were received. Some customers also claimed that official sales tactics, such as the SoHo, put "blinders" on them.
And, the company received some complaints that the salesforce had lied about the investment or income potential of GDC homes. HSC sometimes negotiated settlements with complainants, especially those who had lawyers or were particularly persistent.
Several lawsuits were filed, and GDC received bad publicity. The U.S. Attorney's office began an investigation. GDC, itself, pled guilty to fraud and established a $169 million fund to pay customers; it also filed bankruptcy per Chapter 11. 7 But, the United States also indicted the upper echelon of GDC management for fraud and conspiracy on the sale of GDC homes between 1982 and 1989. At issue in this appeal is the trial of GDC's upper management.
David Brown, a lawyer, was instrumental in the 1985 public offering of GDC, which had been a subsidiary of City Investing. After the offering (which was midway through the indictment period), Brown became Chairman of the Board. Bob Ehrling became president of GDC in 1980 and was ultimately responsible for GDC marketing. Tore DeBella began working for GDC in 1971 after serving as a soldier in Vietnam. By 1981 he had become Senior Vice President of Marketing and oversaw GDC's salesforce. Rick Reizen was Vice President of Housing and active in the sale of homes.
Defendants were each charged with 73 total counts of mail fraud, interstate transportation of persons in furtherance of a fraud, and conspiracy. Their trial lasted nine months. Brown was acquitted on 72 counts but was convicted on one conspiracy count. He was sentenced to 5 years in jail. Ehrling was convicted on 39 counts and sentenced to 121 months in jail. DeBella was also convicted on 39 counts and was sentenced to 97 months. Reizen was convicted on one conspiracy count and sentenced to 5 years. Each was also ordered to pay $500,000 in restitution.
Defendants have appealed their convictions on a variety of grounds. They challenge the sufficiency of the indictment and the sufficiency of the evidence; they also challenge various rulings of the trial court. 8 We begin, and end, our discussion of this case with a review of the evidence against defendants. In general, a review of the evidence is limited to a determination of whether a reasonable juror could find guilt beyond a reasonable doubt. U.S. v. Funt, 896 F.2d 1288, 1292 (11th Cir.1990). All evidence should be viewed in the light most favorable to the government, with all reasonable inferences drawn in favor of supporting the verdict. Id.
In deciding this case, we will assume that the evidence establishes basically what the government says it does. First, we assume the evidence showed defendants, through their failure to discipline salespeople or otherwise, acted to authorize misrepresentations by salespeople to customers about value. 9 See U.S. v. Krohn, 573 F.2d 1382,
1386 (10th Cir.1978); U.S. v. Gibson, 690 F.2d 697, 701 (9th Cir.1982). These misrepresentations involved the investment potential of the homes, that is, the re-sale value of the homes or the rental income which could be derived from the...
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