Greenbaum v. United States, 7695.

• Decision Date: 19 December 1935
• Docket Number: No. 7695.,7695.
• Citation: 80 F.2d 113
• Parties: GREENBAUM et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — Ninth Circuit

80 F.2d 113 (1935)

GREENBAUM et al. v. UNITED STATES.

No. 7695.

Circuit Court of Appeals, Ninth Circuit.

October 28, 1935.

Rehearing Denied December 19, 1935.

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Alexander B. Baker, Louis B. Whitney, and Lawrence L. Howe, all of Phœnix, Ariz., and Theodore E. Rein, of Chicago, Ill., for appellants.

Clifton Mathews, U. S. Atty., and F. E. Flynn, Asst. U. S. Atty., both of Phœnix, Ariz.

Before WILBUR, GARRECHT, and DENMAN, Circuit Judges.

DENMAN, Circuit Judge.

It is apparent from the argument here that certain evidence, which we find required to support conviction, may not have been produced by the appellee, because it may not have seemed necessary in view of an erroneous assumption of the lower court regarding the admissibility of certain books of account. The facts are involved and cover transactions and accounting in the establishing and development of a large and widely spread business organization, during twenty months of its existence. We, therefore, have undertaken the labor of an extended consideration of the evidence and law for guidance in the new trial, which, from the record here, it appears that justice requires.

Appellants were indicted under section 215 of the United States Criminal Code (18 USCA § 338) for having devised a scheme to defraud sundry persons and, for the purpose of executing the scheme, causing to be placed a letter in the United States Post Office in Phœnix, Ariz. The letter, mailed April 9, 1930, and claimed as an incident to the scheme, was innocuous in itself. The plan charged was an elaborate one involving a number of persons other than the appellants and included the organization of and the sale of shares of stock of an Arizona corporation, "The Clarence Saunders Stores, Inc.," formed to establish a chain store grocery business in Arizona, under a peculiar system licensed by Clarence Saunders, which stock was falsely represented to be of greater value than the financial position of the corporation warranted. It was further charged that the appellants, in furtherance of the sale of the stock, fraudulently intended falsely to represent and did represent that the business of the corporation was being conducted under the guiding hand of Clarence Saunders, whereas the appellants knew that Saunders had no guiding hand in the management or supervision of the business.

The corporation several times changed its name and is hereinafter called the Stores Company. There was a demurrer to the indictment on the ground that in describing such an artifice to defraud there had been in reality two offenses alleged, one consisting of the sale of the stock by misrepresentation of its value, and the other the fraudulent conversion of the assets after the stock was sold. The demurrer also claimed vagueness, indefiniteness, and uncertainty in the charges. However, the indictment describes the scheme as a single one for the defrauding of the prospective stockholders, and the fact that it states one or more incidents of the scheme which might constitute separate crimes in themselves, apart from the use of the mails to promote the scheme, does not convert it into two separate offenses under section 215 of the United States Criminal Code. McLendon v. United States (C. C. A.) 14 F. (2d) 12, 13; Sunderland v. United States (C. C. A.) 19 F.(2d) 202, 205, 207; Worthington v. United States (C. C. A.) 64 F. (2d) 936, 938; Scheib v. United States (C. C. A.) 14 F.(2d) 75, 77.

The scheme was charged with ample particularity to apprise defendants of what they would have to meet on the trial. This is sufficient. Hagner v. United States, 285 U. S. 427, 431, 52 S. Ct. 417, 76 L. Ed. 861; Wheeler v. United States (C. C. A. 9th) 77 F.(2d) 216, 218. The assignments of error in the overruling of the demurrers are not well taken.

The proof that appellants mailed the indictment letter of April 9, 1930, in furtherance of a scheme to defraud the purchasers of the stock was entirely circumstantial; that is to say, such a scheme would have to be inferred beyond a reasonable doubt from acts circumstantial in nature occurring long after the incorporation of the Stores Company in October, 1928. There was no evidence, either in writing or in oral statements of appellants, of an express intent to defraud. The prosecution's evidence in this regard could be divided into two classifications: First, proof offered to show a scheme to defraud by representing to prospective purchasers of stock that Clarence Saunders would and did have a guiding hand in connection with the business, whereas it was asserted that Saunders gave and would give no such guidance. Second, proof offered of representation to such purchasers of the profitable conduct of the grocery business, whereas it was conducted at a loss known to appellants.

First. The prosecution claims that the appellants represented such guidance by Clarence Saunders in a letter to a prospective purchaser from the Bond & Mortgage Corporation, a corporation they controlled. The language of the indictment concerning such guidance is: "That the business of said Clarence Saunders Stores, Inc., was being conducted under the `Guiding hand' of Clarence Saunders; when in truth and in fact, as the defendants then and there well knew, Clarence Saunders had no hand in the management or supervision of the business of said corporation." The guidance portion of the letter is as follows: "With Clarence Saunders' guiding hands over the different stores to be established under his name, we can only say one thing and that is, within a few years you will find Clarence Saunders Stores the outstanding food distribution stores in the world."

This letter with its statement of the guiding hand over the stores "to be" established was dated August 12, 1930, four months after the crime was alleged to be committed by the mailing of the indictment letter on April 9, 1930. At most it is a representation not that Clarence Saunders had been guiding, but that he would guide, future established stores.

To support the verdict as far as it rests on this alleged fraud, we would be required to find a rational inference warranting the jury in believing beyond a reasonable doubt (a) that appellants' letter contained a deceitful assertion of Clarence Saunders' guidance; (b) that appellants knew its falsity; and (c) that, if false, the statement made four months after the alleged commission of the crime evidenced a scheme to defraud at the time the indictment letter was mailed.

(a) Concerning the absence of Clarence Saunders' guiding hand in the business of selling the groceries, the testimony offered by the prosecution to maintain its burden of proof is as follows: The Stores Company, in a manner hereafter described, obtained a license or concession from Clarence Saunders which provided for the establishment in Arizona and New Mexico of not less than twenty-five stores prior to January 1, 1931, of which license the following are pertinent portions:

"To install such standard store equipment in detail in each store to be operated under this agreement as may be required by licensor the same to be purchased from Licensor at standard prices which shall be in effect at the time of shipment, except those items which the Licensor shall instruct to be purchased elsewhere by the Licensee.

"To have placed in each store in the particular way and position as shall be directed by the Licensor, a large sign of the dimensions as shall be designated by the Licensor, on which shall appear the trade-name `Clarence Saunders, Sole Owner of My Name,' as prescribed by the Licensor. * * *

"The Licensor shall have authority through any of its representatives at any time to inspect any store operated hereunder, including its merchandise, and shall have the further authority to inspect and audit the records of the Licensee and obtain therefrom such information and reports as may seem desirable to the Licensor.

"To pay the Licensor promptly, according to its terms of sale, for all merchandise and/or store equipment sold by it to the Licensee from time to time. * * *

"Plans and specifications for each store building; instructions as to all changes and the remodeling that shall be required in each instance; design for the color scheme to be put on each store front; design for the trade-name that shall be inscribed on show windows and on the walls of the building; a detailed list with a standard description of all fixtures that shall be required for each store, and a price of each item at which the Licensor will sell it to Licensee; a floor plan showing the position of, and instructions for the installation of each store fixture; arrangement plan for the display of all merchandise; standard advertising copy that shall be used for the opening announcement of the first store that shall be established; advertising copy and instructions as to its use in the operation of the stores; a list describing the merchandise assortment that shall be handled by each department of a store; information as a guide for the purchasing of merchandise, how to assemble and distribute; instructions as to the means and methods that shall be used in accounting, and for keeping all necessary records in merchandising and store operation; instructions as to the standard rules and regulations that shall govern in the establishment, maintenance and operation of the stores, and instructions as to all other standard rules and regulations which are contemplated by this agreement."

Here we have a peculiarly licensed set of fixtures used in retailing groceries and instructions as to the detail of the merchandising. It is obvious that the compliance by the Stores Company with the instructions of the above concession or license would warrant the statement that it was conducted under the guiding hand of Clarence Saunders. To support its burden of proof that there was no such guidance, the prosecution offered no evidence to show that the business...