Rice v. United States, 3051.

• Decision Date: 15 May 1945
• Docket Number: No. 3051.,3051.
• Citation: 149 F.2d 601
• Parties: RICE v. UNITED STATES.
• Court: U.S. Court of Appeals — Tenth Circuit

149 F.2d 601 (1945)

RICE v. UNITED STATES.

No. 3051.

Circuit Court of Appeals, Tenth Circuit.

May 15, 1945.

H. A. Kiker, of Santa Fe, N. M. (Manuel A. Sanchez, of Santa Fe, N. M., and George R. Craig and Allen Tonkin, both of Albuquerque, N. M., on the brief), for appellant.

Howard F. Houk, U. S. Atty., of Santa Fe, N. M. (Fred E. Strine, Sp. Asst. to Atty. Gen., on the brief, for appellee.

Before BRATTON, HUXMAN, and MURRAH, Circuit Judges.

BRATTON, Circuit Judge.

C. T. Rice, Parquay Royalty Company, Inc., Parquay Operating, Inc., and Federated Acceptance Corporation were indicted in twenty-six counts. Counts one to twenty-one, inclusive, each charged the use of the mails in furtherance of a scheme to defraud, in violation of section 315 of the Criminal Code, 18 U.S.C.A. § 338; and counts twenty-two to twenty-six, inclusive, each charged the use of the mails to defraud fraud in the sale of securities, in violation of section 17 of the Securities Act, 15 U.S. C.A. § 77q.

Rice owned two patents, one relating to a revolving top building and the other to a controlled parking system. Both were adaptable for use in the operation of grocery stores. The scheme laid in the indictment was that the three corporations would be organized; that Rice would manage and control them; that one of them would acquire from him the exclusive rights in the patents in certain states; that the three corporations would constitute an integrated grocery system, constructing and operating revolving top grocery stores with the controlled parking system; that capital stock of the corporations would be sold to the public; and that money would be obtained in the sale of such stock by false and fraudulent pretenses, representations, and promises in respect to the enterprise. The false and fraudulent representations charged in the indictment concerned the number of stores which would be constructed, the volume of business being done, the financial condition of the integrated system, the profit being earned by one store in operation, the dividends which had been and would be paid, and an offer made by a grocery chain of national scope to purchase the exclusive rights under the patents for a very large sum. Omitting reference to the other defendants, Rice was found guilty on nine counts; and from the sentence imposed, he appealed.

The action of the court in admitting in evidence a letter written by H. C. Donohoe and Guy Bailey is challenged. Rice was in charge of the sale of the stock issued by the corporations, and Donohoe and Bailey, among others, were engaged in the selling of the stock under his direction. Donohoe's services terminated by a letter of resignation, and Bailey's services were also terminated. Donohoe testified in the case as a witness for the Government. Bailey was not present at the trial and did not testify. The letter of resignation was introduced in evidence in connection with the cross examination of Donohoe. No reference was made in the cross examination to the letter in question. The letter was introduced at the conclusion of the cross examination. It was written after the services of Donohoe and Bailey were terminated and at a time when they were no longer connected in any manner with the integrated business of the corporations. It was stated in the letter that its purpose was to make a record of the reasons which prompted Donohoe and Bailey to sever their connections with the organization after several weeks of conferences and discussions; that their action in severing their connections with the organization could not be considered as hasty or premature for the reason that the points at issue between Rice and them had been discussed on numerous occasions; that certain misrepresentations made by Rice were the origin of sharp differences between them; and it listed the misrepresentations. They were his statement that the store at Roswell, New Mexico, did a business of ten thousand dollars on its opening day; his statement that construction of a store at Clovis, New Mexico, would begin at a certain time; his statement that more than four hundred thousand automobiles had used the parking lot connected with the store at Roswell, or an average of more than twenty-two hundred per day; his statement that Parquay had notes in excess of one hundred and forty thousand dollars representing balances due by stockholders on their stock purchases; the statement in a folder that Parquay had grown to five hundred thousand dollars in combined assets; and the statement on the face of the folder that Parquay was America's fastest growing grocery system. The letter reviewed discussions had between Rice and Donohoe and Bailey concerning the number of stores to be started, the existence of an operating deficit at the time Rice was making certain statements, and the establishment of offices in Albuquerque, New Mexico, at the expenditure of several thousand dollars. It stated that Donohoe and Bailey desired to make it a matter of record that they wanted no part in it, as they realized that those things would never pay dividends to Parquay stockholders. It made reference to "medicine show" methods of raising capital; asserted that the records when stripped of all ballyhoo and conversation would reveal the fact that changes were necessary if the business was ever to be operated on a profitable basis; and concluded by saying that if their action would serve to bring Rice to the full realization of his vital responsibility to those who had invested in Parquay, they would gladly stand the loss of his kind feelings, the loss of months of hard work, and...