Blue v. United States

• Decision Date: 14 October 1943
• Docket Number: No. 9241-9243.,9241-9243.
• Citation: 138 F.2d 351
• Parties: BLUE et al. v. UNITED STATES. CLARK et al. v. SAME. PARDEE et al. v. SAME.
• Court: U.S. Court of Appeals — Sixth Circuit

138 F.2d 351 (1943)

BLUE et al. v. UNITED STATES.

CLARK et al. v. SAME.

PARDEE et al. v. SAME.

Nos. 9241-9243.

Circuit Court of Appeals, Sixth Circuit.

October 14, 1943.

COPYRIGHT MATERIAL OMITTED

Edwin Judy and Victor A. Ketcham, Jr., both of Columbus, Ohio, Grant E. Mouser, Jr., of Marion, Ohio, and Matthew L. Bigger, of Columbus, Ohio, for appellants.

Calvin Crawford, of Dayton, Ohio, Ray J. O'Donnell, of Columbus, Ohio, and Robert E. Marshall, of Cincinnati, Ohio, for the United States.

Before HICKS, SIMONS, and McALLISTER, Circuit Judges.

McALLISTER, Circuit Judge.

Appellants were indicted for using the mails in furtherance of a scheme to defraud, and for criminal conspiracy to commit the same offense. Some were convicted on the mail fraud charge; others, on both charges. Numerous errors are claimed, based on erroneous admission of evidence; prejudicial conduct of the trial court and of the district attorney; abuse of discretion; and denial of motions to quash the indictment, to require a bill of particulars, and for separate trials. It is further claimed that there was no proof of conspiracy or use of the mails in furthering the alleged fraud; that the verdict of the jury was against the weight of the evidence; and, on behalf of certain of the appellants, it is contended that the Statute of Limitations is a complete defense to the claimed illegal acts. As charged by the Government, the fraud consisted of a scheme in which cemetery lots were sold to the public for purposes of investment.

The history of the case commences with the coming of Robert Marshall to Marion, Ohio, in the fall of 1933. Marshall was a former Salvation Army worker and bible salesman, preacher, and graduate of a theological seminary. Before his arrival in Marion, he had been engaged as a sales manager in a cemetery project in which lots had been sold for purposes of interment, as well as for investments. In selling the cemetery lots for investments in that project, purchasers were promised that their money would be doubled. A few months before Marshall came to Marion to organize his cemetery, he left the other project, in which purchasers had been promised double their money back in listing agreements with the cemetery company. At that time, the company was "floundering on the rocks," as Marshall expressed it.

Marshall averred that his purpose in coming to Marion was to undertake the development of a cemetery for the benefit of poor people, whereby they could secure cheap and respectable burial and avoid the potter's field. He denied that he was primarily interested in profit for himself. In order to carry out his purported objective, he took an option on 71.38 acres of land on the outskirts of Marion, at $100 per acre — or a total of $7,138. He then caused two corporations to be organized — Forest Glen Memorial Park Association, a nonprofit corporation, and Forest Glen, Incorporated, a corporation for profit. A contract was then entered into between the two corporations, whereby Forest Glen, Inc., was made the exclusive sales agent of Forest Glen Memorial Park Association. By the terms of this contract, Forest Glen, Inc., was to retain 90% of the money received from the public in the sale of cemetery lots, and was to purchase and improve the property; the remaining 10% was to be paid to Forest Glen Memorial Park Association, as a fund for perpetual care of the cemetery. By the terms of another contract, between Forest Glen, Inc., and Marshall, he was to receive 50% of all money received from sales, for services of supervision and selling expenses.

Within a month after the new cemetery was organized as a corporation, sales of burial lots commenced. In November, 1933, sales at wholesale "for investment," brought in $7,112.68, and deeds for the lots were issued to purchasers, although nothing had yet been paid on the option for the land so sold. In December, 1933, $19,413.74 had been collected in exchange for deeds of cemetery lots; and as yet nothing had been paid on the option. In January, 1934, $35,385.88 had been similarly collected from the public. But at this time, only $2,500 had been paid on the option, and the title to the land was still in the optionor. All of these sales had been to "investors." The first lots sold for burial purposes were in January, 1934, and the total receipts therefrom amounted to $150; and at this time, there had been paid back to the so-called investors, a total of $7,092. As is obvious, these "profits" were paid out of the same money that the public had paid in as investments, there having been no earnings of any kind resulting from the project.

In addition to the first cemetery, Forest Glen Memorial Park Association, there were subsequently formed two more cemeteries — Glen Haven Memorial Park Association, near Springfield, Ohio, and Glen Rest Memorial Estate, near Columbus, Ohio, — and contracts were executed similar to those between Forest Glen Memorial Association, Forest Glen, Inc., and Marshall. All sales, for investment and for "utility," in the three cemeteries, were centered in the office of Forest Glen, Inc., under the management of Robert Marshall.

In explanation of the scheme, Marshall testified that sales of the cemetery lots were made on two plans: for investment, and for "utility" — or for burial purposes. To investors, lots were sold in blocks at a price of $50 per lot. For utility, they were sold for $125 per lot. When lots were sold for investment, Forest Glen, Inc., simultaneously agreed to resell the lots for the investors at $100 per lot — or 100% profit — within a three-year period; and this was the compelling inducement for purchase, made by the company, acting through Marshall.

Assurance of such returns to investors was allegedly based upon the great profits resulting from sales of individual lots for utility. Out of the sum of $125 per lot, to be received on utility sales, the investor was to be repaid $100, thus doubling his investment and leaving a profit for Forest Glen, Inc. The reason given by Marshall as to why he and his associates agreed to resell the lots to the public for burial purposes at such a great increase in price, was that Forest Glen, Inc., would, from the purchase price paid by the investor, make a pro rata expenditure of $15 per lot, in the building and improvement of the cemetery. Such an expenditure, it was claimed — together with sales energy and supervision — would cause the lot sold at $50 to the investor, to bring $125 on resale. Furthermore, it was insisted by Marshall that such a cemetery lot, after the pro rata expenditure of $15 per lot, would leap in value 10% per year over the retail price.

On May 16, 1938, as a result of legal proceedings, the projects were placed in the hands of trustees, and the operation of Forest Glen, Inc., was ended. Bankruptcy thereafter ensued. It was time. Three cemeteries had actually been built and partially developed. They included structures on the premises, consisting of chime towers, "cathedral lounges," and caretakers' lodges, together with lakes, winding roads, trees, and shrubbery. The total expenditure for purchase and improvement of the cemeteries was $424,365. 59. But $1,840,582.81 had been taken from the investors for these projects. Of this amount, $803,950.73 was returned to investors, under the designation of profits, listing fees, premiums, and so on. This resulted in a loss, out of pocket, to investors, as of the above date, of $1,036,432. 08 (many of whom were left, however, with great batches of cemetery lots on hand). During the life of the venture, the company had received a total of only $344,568.36 through the sale of lots for burial purposes — and in repaying to investors $803,950.73, had distributed, as profits, $459,382.37 more than had been received from the sales for burial purposes. They were, therefore, repaid this amount out of the same money which they had paid in for their investment.

As of May 16, 1938, when the trustees were appointed, the perpetual-care funds, into which $130,672.03 was paid, had been reduced by dissipation to $2,117.69 in cash. Accounts payable for cemetery lots, mortgage notes, and odds and ends of other securities, had been deposited when the cash was withdrawn from the perpetual-care funds. The total of such substituted collateral, as carried on the books of the company, was $151,376.44, an undetermined amount of which was worthless. The value of accounts owed Forest Glen, Inc., for lots sold for burial purposes, was appraised at $272,726.68 by Government experts, as of the above date.

On the same date, Forest Glen, Inc., owed its investors $2,141,439.

It had on hand a cash balance of $390.61.

In a sense, the project was similar to the scheme of Ponzi — familiar to the courts, and to all acquainted with the lore and study of criminal fraud — who represented that "he was able to make, within a very short time, 100 per cent, on all money intrusted to him, and was generously sharing this astounding profit with investors who should furnish him the money to enable him to do the business on a large scale. * * * His scheme was simply the old fraud of paying the earlier comers profits out of the contributions of the later comers." Lowell v. Brown (In re Ponzi), D.C.Mass., 280 F. 193, 196. "He was always insolvent; as time went on he became more and more so, as his business succeeded * * *". Cunningham v. Merchants' Nat. Bank (In re Ponzi), 1 Cir., 4 F.2d 25, 26, 41 A.L.R. 529. The evidence amply sustained the conclusion of the jury that the scheme was fraudulent.

We come, then, to the question of the association of appellants in the project. Necessarily, the scheme called for a large number of salesmen. These were of two classes: salesmen of lots for investment, and salesmen of lots for utility. The chief inducement to the investor was the promise of doubling his money. To instill confidence, and give the impression that such promises could...