People v. Mendenhall
| Decision Date | 13 August 2015 |
| Docket Number | Court of Appeals No. 12CA1171 |
| Citation | 363 P.3d 758 |
| Parties | The PEOPLE of the State of Colorado, Plaintiff–Appellee, v. Michael Lee MENDENHALL, Defendant–Appellant. |
| Court | Colorado Court of Appeals |
Cynthia H. Coffman, Attorney General, Ethan E. Zweig, Assistant Attorney General, Denver, Colorado, for Plaintiff–Appellee.
Douglas K. Wilson, Colorado State Public Defender, Ryann S. Hardman, Deputy State Public Defender, Denver, Colorado, for Defendant–Appellant.
Opinion by JUDGE BERGER
¶ 1 Defendant, Michael Lee Mendenhall, appeals the judgment of conviction entered on jury verdicts finding him guilty of securities fraud and theft.
¶ 2 One of the elements of securities fraud under the Colorado Securities Act (CSA) is that the defendant engaged in fraud in connection with a "security." § 11–51–501, C.R.S. 2014. If there is no security, there cannot be securities fraud. The CSA defines "security" to include "any note." § 11–51–201(17), C.R.S. 2014. The principal issue presented in this appeal is whether the trial court correctly instructed the jury that "any note" is a "security." Because we conclude that sometimes notes are not securities, we hold that the court's instruction constituted error, and we reverse defendant's securities fraud convictions.
¶ 3 We address defendant's remaining arguments as they pertain to his theft convictions and, to the extent the issues may recur on remand, with respect to the securities fraud charges. These arguments are: (1) the trial court admitted irrelevant testimony from an investigator for the district attorney's office concerning the investigation of economic crimes generally, and the investigation that led to charges against defendant specifically; (2) the prosecutor engaged in prosecutorial misconduct in closing argument when he compared defendant to Bernie Madoff and called the victims members of the "greatest generation"; (3) the cumulative effect of the allegedly irrelevant testimony and the prosecutorial misconduct requires reversal; and (4) a remand is necessary because there is a discrepancy between the court's oral statements regarding the length of the aggregate sentence imposed and the mittimus.
¶ 4 While we agree with defendant that the trial court erred in a number of respects, we conclude that none of the errors, other than the erroneous instruction on the definition of security, requires reversal. Accordingly, we affirm defendant's theft convictions. Because we cannot discern what sentence the trial court intended to impose for the theft convictions alone due to the inconsistencies between the mittimus and the oral pronouncement of defendant's aggregate sentence, we vacate defendant's sentence in its entirety. We remand for a new trial on the securities fraud charges and for resentencing on the theft convictions.
¶ 5 Defendant was employed as a salesperson by an insurance company that specializes in low risk insurance products for retirement-age persons. Defendant also was licensed to sell securities through an affiliated broker-dealer. Through his employment, defendant met the victims, who were his customers or clients at the insurance company and the affiliated broker-dealer.
¶ 6 In 1999, defendant purchased a townhouse in a new development in Denver. During the early years of his ownership, the value of the townhouse increased significantly, persuading defendant to purchase additional units for investment in the same development. It appears that the additional units were purchased through money borrowed both against the original unit and the additional units.
¶ 7 When the rental income from the investment properties was insufficient to pay the mortgages and other carrying costs, defendant initially used his various lines of credit to cover the difference. But soon, the credit lines were exhausted and defendant began his criminal conduct. He asked his insurance company clients (without the knowledge or consent of the company and in violation of the company's rules) to "loan" him money. To induce his clients to give him this money (which ultimately totaled more than $1 million), he promised them a higher interest rate than was available on legitimate investments through the insurance company (or otherwise).
¶ 8 Defendant gave each victim a document entitled "promissory note" or "note." The basic terms of the notes were similar, stating the amount of money given to defendant, when the note was due, and the interest rate. The notes stated that the money was "for the purpose of [defendant's] recent residential real estate acquisitions [in the development]" and that the notes were purportedly secured by the equity defendant held in all four properties. But the collateral was worthless because defendant had no equity in the properties, a material fact that he neglected to disclose to his victims.
¶ 9 He also provided his victims with selective information on the townhouse development, much of which was misleading or incomplete. To at least some of the victims, he represented that there was no risk in these "loans." Defendant likewise did not disclose to his victims that he was using the victims' money for his personal living expenses and sometimes to pay the interest due on other victims' notes.
¶ 10 Not surprisingly, defendant failed to pay the notes when they came due. He convinced some victims to extend the terms of their notes, but he still did not pay the notes when they again came due. On occasion, he did pay some or all of the interest owed on a note, using monies from new or prior victims.
¶ 11 After defendant's actions came to light, he was indicted on twenty-seven felony counts, including seventeen counts of securitiesfraud (untrue statement or omission), in violation of section 11–51–501(1)(b) ; one count of securities fraud (fraud or deceit), in violation of section 11–51–501(1)(c) ; one count of theft of $15,000 or more, in violation of section 18–4–401(1)(b), (2)(g), C.R.S.2014; one count of theft of $20,000 or more, in violation of section 18–4–401(1)(b), (2)(h) ; two counts of theft (series of $15,000 or more), in violation of section 18–4–401(1)(b), (4) ; and five counts of theft (series of $20,000 or more), in violation of section 18–4401(1)(b), (4).
¶ 12 A jury convicted defendant on all of the counts presented to it (one count of securities fraud and one count of theft were dismissed by the prosecution). The court imposed a lengthy prison sentence, the exact length of which is unclear, but which the parties agree ranges from twenty-five to thirty-five years.
¶ 13 Defendant argues that not all notes are securities and that therefore the trial court erred in instructing the jury that "security means any note." We agree.
¶ 14 A trial court must correctly instruct the jury on all matters of law applicable to the case. People v. Lucas, 232 P.3d 155, 162 (Colo. App. 2009) ; People v. Pahl, 169 P.3d 169, 183 (Colo. App. 2006). "We review jury instructions de novo to determine whether the instructions as a whole accurately informed the jury of the governing law." Lucas, 232 P.3d at 162.
¶ 15 The jury was instructed on the elements of securities fraud, which included the element that defendant's fraudulent acts, statements, or omissions occurred "in connection with the offer or sale of any security ." (Emphasis added.) "Security" was defined as, among other things, "any note ..., investment contract, ... or, in general, any interest or instrument commonly known as a ‘security.’ " The term "note" was not further defined, but "investment contract" was defined as "an investment of money, in a common enterprise, with the expectation of a profit, based upon the essential managerial efforts of the promoter or a third party."
¶ 16 Defense counsel requested an additional jury instruction that "a note is not always a security," in reliance on the United States Supreme Court's decision in Reves v. Ernst & Young, 494 U.S. 56, 62–63, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990). In Reves, the Court held that the phrase "any note" in the federal Securities Exchange Act of 1934 (1934 Act) "should not be interpreted to mean literally ‘any note" ’ because not all notes are securities. Id. Defense counsel argued that without the supplemental instruction, the definition of security in the jury instructions, although correct as far as it went, was incomplete. The trial court declined to modify the definitional instruction or give any additional instructions, but permitted defense counsel to argue in closing that context needs to be taken into account in determining whether a particular note is a security.
¶ 17 Citing the contemporaneous objection rule, see People v. Douglas, 2012 COA 57, ¶ 59, 296 P.3d 234, the People argue that, by agreeing that the definition of security was correct, defense counsel approved or accepted the trial court's definitional instruction, thus precluding any review other than for plain error. The People's narrow reading of the record is unwarranted.
¶ 18 "The purpose of the contemporaneous objection rule is to ... alert[ ] the trial court to a particular issue in order to give the court an opportunity to correct any error" and "put the trial court on notice of [the party's] position." Pahl, 169 P.3d at 183. Read reasonably, the record establishes that defense counsel informed the court that the definition of note, although correctly phrased in the language of the statute, did not accurately reflect the law without additional instruction. This was sufficient to provide the court with the opportunity to consider defendant's position and decide whether to take any action in response.
¶ 19 Alternatively, the People argue that defendant did not preserve the error because he did not tender a proposed written instruction.
The People rely on Crim. P. 30, which states:
A party who desires instructions...
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