Blachly v. United States

• Decision Date: 11 July 1967
• Docket Number: No. 23574.,23574.
• Citation: 380 F.2d 665
• Parties: Howard A. BLACHLY and Robert L. McMillen, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

380 F.2d 665 (1967)

Howard A. BLACHLY and Robert L. McMillen, Appellants, v. UNITED STATES of America, Appellee.

No. 23574.

United States Court of Appeals Fifth Circuit.

July 11, 1967.

COPYRIGHT MATERIAL OMITTED

John Sheldon Toomer, Lake Charles, La., James W. Schwing, New Iberia, La., for appellants.

E. V. Boagni, Asst. U. S. Atty., Edward L. Shaheen, U. S. Atty., Shreveport, La., for appellee.

Before BROWN, MOORE,^* and BELL, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

These are appeals from convictions by a jury of 18 counts of mail fraud, 18 U.S.C.A. § 1341.¹ The original indictment charged Blachly, McMillen and Hockensmith² with use of the mails to effect sales of water softeners under a fraudulent referral selling plan to various persons in the area of Morgan City, Louisiana. Hockensmith pleaded guilty. Blachly, charged as a direct principal, was convicted on 17 counts of mail fraud and sentenced to 3 years' imprisonment on one count, sentencing on the remaining counts suspended with 5 years' supervised probation. McMillen, in 2 counts charged in effect as an aider and abettor, 18 U.S.C.A. § 2(a),³ was convicted on only one count and sentenced to one year imprisonment. Both appeal.

Substantively, Blachly questions whether the mechanics of the referral selling plan here involved constitutes a mail fraud within the meaning of § 1341, specifically whether any intent to defraud was shown. He denies the requisite causal connection between use of the mails and carrying out the scheme. Various procedural errors are also urged. McMillen's asserted errors relate to the District Court's actions in denying his motion for severance, for acquittal following the close of the Government's case, and for new trial after the verdict of guilty had been rendered. We find all of these contentions without merit and affirm.

The nature of the offense here involved and the questions presented make it necessary to set out in some detail the factual background of the alleged scheme to defraud and its method of execution. We do this in the light of what the jury could, and from the verdict of guilty presumably did, infer.

The events which form the basis for the indictment occurred in and around Morgan City, Louisiana, between February or March and October of 1964. Blachly operating under the trade name of Pioneer Products or Pioneer Marketing, Inc., employed McMillen and Hockensmith as salesmen to assist him in selling water softeners under a "Referral Selling Plan" (Plan). The jury could assume, in the face of a silent record, that the Plan was originally set in motion by using some method to select potential purchasers who were then contacted by telephone to arrange an appointment for a demonstration of the product. The key was this "potential purchaser." But the moment the Plan worked, he was no longer a "potential" purchaser. By then he had bought. From that point on, the mechanics of the Plan rendered the scheme self-perpetuating, and a steady flow — indeed, an overflow — of further customers was assured.⁴

Ordinarily the appointments with these potential purchasers were arranged for evenings so that both husband and wife could be present. At that time a demonstration of the product was given by means of a miniature model of the water softener, and the advantages of using the treated, demineralized water in the home were explained. At the conclusion of the demonstration the parties who expressed an interest were then informed of the mechanics of the Plan. They were told that as a result of a promotional advertising plan of the manufacturer, the family — i. e., the potential purchaser — could not only acquire the water softener at no cost to themselves but also would have the opportunity to earn a profit. This was possible, it was said, since, under the Plan, each sale thereafter made to a prospective customer whose name had been supplied by the potential purchaser would entitle such purchaser to a referral sales commission of $40. No limit was placed on the number of referred parties that the purchaser could give. The right to an additional $40 sales commission also extended to secondary sales, i. e., each sale to a third level customer whose name had been given by the prospective customers of the potential purchaser (see note 4, supra, 6, infra).

At this point, two steps remained to effectuate the Plan. First, the sale had to be consummated by the execution of three instruments. The first was the Commission Agreement, the existence of which was recognized and acknowledged by all the witnesses. It set out the cash sales price, including tax, of $610,⁵ and provided for payment in 36 monthly installments of $23.04, a total of $829.44 as a time price. Also included were provisions for sales commissions on referrals.⁶ The agreement was to be signed by the husband and wife and witnessed by the salesman.

In this first step two other instruments had to be signed by the husband and wife. One was a promissory note, the other a real estate mortgage. The note was for the amount of the installment time price, $829.44, and was witnessed by two persons and notarized.⁷ While some of the purchasers testified that they knowingly executed the note, the majority disclaimed such knowledge. Their story was that it was represented to them that their signatures on the other papers were merely for purposes of record keeping or for obtaining credit references.

The mortgage was a real estate mortgage on the purchaser's home, and contained a clause waiving any homestead rights that might exist under Louisiana law. The instrument was signed in blank, and later filled in with the description of the mortgaged property, witnessed, and notarized (but in the absence of the mortgagors). The purchasers uniformly testified that at no time had they known, or for that matter had it been represented to them, that they were executing a real estate mortgage on their home to secure the note.⁸

The second step was to obtain the names of further prospective customers. This was an essential, integral part of every transaction, and was quite involved itself. The potential purchaser was furnished a number of duplicated letters⁹ written in nice, readable handwriting which referred to "an advertising program that has increased both our family's income and standard of living," and advising the recipient that he would be contacted to arrange an appointment. It was represented as a "wonderful opportunity * * * to earn some extra money" and that "no cash investment" was required. The predrafted letters required only the insertion of the name — personalized of course — of the reference and the signature of the purchaser. The potential purchaser was urged to add a brief postscript to the letter adhering to the same general theme, the representation being that this would increase the possibility of a successful sale and hence their commissions. Along with the letter, the potential purchaser was requested to fill in a "memo slip" which besides the name of the purchaser contained the name of the specified referred party, his address, telephone and occupation.¹⁰ The letter, completed with postscript (if any), and memo slip were then inserted in an envelope addressed to the referred party. But the envelope was left unsealed. The letters were not to be mailed by the potential purchaser, but were either picked up by one of the salesmen or mailed in a large envelope to the office of Pioneer Products in Morgan City.¹¹

It bears emphasis that no limit was placed on the number of referred parties whose names could be furnished by the potential purchaser. The potential purchaser was admonished, however, that should any of the referred parties attempt to make a direct contact (as, e. g., a telephone call) regarding the "program" mentioned in the letter, they should explain nothing but rather leave this to the salesman. This, it was implied, if not expressed, would give a better chance of consummating a sale. At the office of Pioneer Products, the memo slips were removed and filed, the names of referred parties presumably checked to minimize duplications, and the selected envelopes sealed and mailed. The mailing of the letter was followed up shortly by a telephone call by Blachly or one of the salesmen to arrange an appointment to demonstrate the water softener and present the Plan. The circle was complete. But more so, if it worked again the circle was repeated. And so on and on and on.

The promissory notes were discounted to a third-party finance company¹² without recourse. The mortgages were completed and placed of record. Some of the purchasers received commissions as a result of referral sales. But the most received by any one of them was $200 — not even enough to cover the interest and carrying charges of the installment sale. Most received nothing.

As his activities bear upon challenges here made, it is appropriate to point out that the postal investigation was under the direction of Inspector L. W. Robertson, a specialist in mail fraud cases. Inspector Robertson's preliminary investigation included backtracking the public records which disclosed the recorded mortgages in favor of the finance company.

In subsequent interviews with many of the purchasers, he gathered most of the documentary evidence that was introduced at the trial. His preliminary investigation also included an interview with Blachly at his office in Morgan City on October 1, 1964.

I. Blachly's Appeal

At this late date no need exists to more than capsulate severely the elements of an offense under the mail fraud statute, 18 U.S.C.A. § 1341. They are (1) the forming of a scheme to defraud and (2) use of the mails for the purpose of executing the scheme. Pereira v. United States, 1953, 347 U.S. 1, 8, 74 S.Ct. 358, 362, 98 L.Ed. 435, 444; Adjmi v. United States, 5 Cir., 1965, 346 F.2d 654, 657; Milam v. United States, 5 Cir., 1963, 322 F.2d 104, 109, cert. denied sub nom. Kimball v. United States, ...