U.S. v. Farkas, 90-5251MN

• Decision Date: 31 July 1991
• Docket Number: No. 90-5251MN,90-5251MN
• Citation: 935 F.2d 962
• Parties: 33 Fed. R. Evid. Serv. 237 UNITED STATES of America, Appellee, v. John Elmer FARKAS, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 962

935 F.2d 962

33 Fed. R. Evid. Serv. 237

UNITED STATES of America, Appellee, v. John Elmer FARKAS, Appellant.

No. 90-5251MN.

United States Court of Appeals,

Eighth Circuit.

Submitted Feb. 11, 1991.

Decided June 11, 1991.

Rehearing and Rehearing En Banc

Denied July 31, 1991.

Deborah Ellis, St. Paul, Minn., for appellant.

Patricia Cangemi, Asst. U.S. Atty., Minneapolis, Minn., for appellee.

Before MAGILL, BEAM and LOKEN, Circuit Judges.

MAGILL, Circuit Judge.

John Elmer Farkas appeals his convictions for unlawful use of an access device to obtain cash in excess of $1,000, in violation of 18 U.S.C. Sec. 1029(a)(2) (1988); and unlawful possession of fifteen or more unauthorized access devices, in violation of 18 U.S.C. Sec. 1029(a)(3) (1988). Farkas argues that the district court ¹ improperly admitted evidence that violated his sixth amendment right to confront the witnesses against him; that there was insufficient evidence to support either conviction; and that the district court abused its discretion when it ordered him to make restitution to Riverside Community Bank (Riverside) even though the jury had acquitted him of committing fraud on the bank. Because all of Farkas' claims are without merit, we affirm.

I.

Farkas owned several telemarketing businesses that were involved in this credit card scam. Farkas' companies would make unauthorized charges to consumers' credit cards and then deposit these credit slips in a merchant account at a bank. The unauthorized use of this information formed the basis for the charges against Farkas for credit card fraud. Gerovital, one of Farkas' companies, used the credit card information to make unauthorized charges of $200-300 for vitamins. The unauthorized charges were made in one of three ways Farkas' employees either charged consumers for items they explicitly refused to purchase; they prematurely charged consumers who were promised a free, no-risk trial period; or they charged unsuspecting consumers without even bothering to notify them. When consumers discovered the unauthorized purchases, they usually had the charges removed from their credit cards. Many consumers wrote protest letters to Gerovital and the Better Business Bureau complaining about the unauthorized charges.

Riverside was among several banks that gave Farkas a merchant account. With a merchant account, Farkas could deposit charge slips into the account and receive immediate credit for them, allowing him to make withdrawals as if the charges were cash. When a customer demanded a chargeback, the reverse of a charge, it was deducted from the merchant account. Farkas was able to make a profit from the unauthorized charges because the delay between an unauthorized charge and a chargeback could be as long as six months. Therefore, even assuming that all of the unauthorized charges were debited from Farkas' account via a chargeback, he would still have wrongful possession of the money while the chargeback was being processed.

The president of Riverside was aware that Farkas was using the account for telemarketing businesses and was told by Farkas to expect approximately 3-5% in chargebacks. Farkas opened his account at Riverside in June 1984; by January 1985, chargebacks to Gerovital reached 20-30%. In February 1985, all business records of Gerovital and Continental Pen, another Farkas enterprise, were seized by the United States Department of Health and Human Services. In May 1985, Riverside closed Farkas' account because of excessive chargebacks and insufficient funds to cover the chargebacks.

On September 20, 1989, a federal grand jury indicted Farkas on one count of wire fraud, in violation of 18 U.S.C. Sec. 1343, and two counts of credit card fraud, in violation of 18 U.S.C. Sec. 1029(a)(2) and 18 U.S.C. Sec. 1029(a)(3). Riverside Community Bank was the alleged victim in the wire fraud charge.

In the first credit card fraud count, the government accused Farkas of "knowingly and with intent to defraud traffic[king] in or us[ing] one or more unauthorized access devices during any one-year period, and by such conduct obtain[ing] anything of value aggregating $1,000 or more during that period." 18 U.S.C. Sec. 1029(a)(2). ² In support of this charge, the government called witnesses who testified that Farkas' companies had made unauthorized charges whose aggregate exceeded $2,000. The government offered seventy-five complaint letters which had been seized pursuant to the February 14, 1985, search warrant. Farkas objected to the letters on the ground that they were hearsay. The judge overruled the objection and admitted them as evidence of an ongoing scheme. The judge gave the jury a limiting instruction on the letters directing the jury not to use them as substantive evidence of guilt on any of the charges.

In the second credit card fraud charge, the government accused Farkas of "knowingly and with intent to defraud possess[ing] fifteen or more devices which are counterfeit or unauthorized access devices." 18 U.S.C. Sec. 1029(a)(3). The government used the same witness testimony and exhibits to support this charge as well.

The jury convicted Farkas on both credit card fraud charges but acquitted him on the wire fraud charge. The district court sentenced Farkas to four years' imprisonment and ordered him to pay Riverside $76,545.44 as restitution. This appeal followed.

II.

Farkas raises three issues on appeal. First, he claims that the district court improperly admitted hearsay evidence, thereby violating his sixth amendment confrontation right. Second, he claims that there was insufficient evidence to support either of his credit card convictions. And third, he claims that the district court abused its discretion when it ordered him to make restitution to Riverside after the jury acquitted him of committing wire fraud on the bank.

A. The Admission of the Seventy-five Complaint Letters

The Federal Rules of Evidence define hearsay as an out-of-court statement "offered in evidence to prove the truth of the matter asserted." Fed.R.Evid. 801(c). While the government had hoped that the letters would be admitted as evidence without restrictions, the district court admitted them for the limited purpose of providing background for the scheme and knowledge elements of the indictment. Toward this end, the district court issued a cautionary instruction to the jury stating:

[T]hese letters are not being received for the facts contained in them. They are being received so that you can see that there was an alleged scheme or device to defraud, and it is only evidence to give you background. It is not evidence of the facts themselves.

Tr. II at 104-05.

Farkas claims that even the limited admission of letters deprived him of his sixth amendment right to confront his accusers. In Ohio v. Roberts, 448 U.S. 56, 100 S.Ct. 2531, 65 L.Ed.2d 597 (1980), the Supreme Court stated that before hearsay evidence can be admitted, there must be a showing that the hearsay declarant is unavailable and that the hearsay statement bears adequate indicia of reliability. Id. at 66, 100 S.Ct. at 2539. Farkas, relying on this two-part test, argues that the admission of the letters violated his confrontation right because there was no showing of unavailability of the letters' authors and because there was no showing that the letters had the requisite indicia of reliability.

The government responds that since the letters were only admitted for the limited purpose of providing background, their admission did not violate the prohibition against hearsay evidence. The government also claims that the letters could have been admitted without restrictions under the business records exception to the hearsay rule or as admissions against interest.

Farkas' sixth amendment argument fails because it assumes, without proving, that the admission of the complaint letters violated the hearsay rule. The district court did not rule that the complaint letters were hearsay. Rather, it stated that they were "probably" hearsay and issued the limiting instruction to ensure that there would be no violation of the hearsay rule. See United States v. Nicholson, 815 F.2d 61, 63 (8th Cir.1987) (letters from attorney to insurance company not hearsay since they "were used to show the existence of a scheme and artifice to defraud").

Farkas claims that even with the cautionary instruction, the jury could not help but use the letters as substantive evidence of credit card fraud. Farkas fails to offer a persuasive reason why we should assume that the jury ignored the cautionary instruction which limited the use of the letters. Therefore, we hold that the limited admission of the letters did not violate the hearsay rule.

Without a hearsay violation, Farkas' sixth amendment claim fails. His reliance upon Roberts assumes a hearsay violation that raises confrontation clause questions. Because such a violation is lacking, his analysis is unpersuasive, if not irrelevant.

B. Insufficient Evidence Claims

Farkas challenges both of his convictions on the ground that there was insufficient evidence to support them. In reviewing sufficiency claims, we must affirm convictions if there is substantial evidence to support the jury's verdict, viewing the evidence in the light most favorable to the government. United States v. Meirovitz, 918 F.2d 1376, 1380 (8th Cir.1990) (citing Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942)).

1. 18 U.S.C. Sec. 1029(a)(2) Conviction

Farkas first argues that, at most, the evidence at trial showed only that his telemarketing employees obtained and illegally used access devices. As Farkas was the owner of the telemarketing companies and the only person with control over the account at Riverside Community Bank, it is incredible that his attorney even attempted to argue that he was not responsible for his employees' actions. Viewing Farkas' position in the telemarketing schemes in the light most...