State v. Duffy

• Decision Date: 18 September 1979
• Docket Number: No. 1,CA-CR,1
• Citation: State v. Duffy, 124 Ariz. 267, 603 P.2d 538 (Ariz. App. 1979)
• Parties: STATE of Arizona, Appellee, v. Ken DUFFY, Appellant. 3423.
• Court: Arizona Court of Appeals

Page 538

603 P.2d 538

124 Ariz. 267

STATE of Arizona, Appellee, v. Ken DUFFY, Appellant.

No. 1 CA-CR 3423.

Court of Appeals of Arizona, Division 1, Department A.

Sept. 18, 1979.

Rehearing Denied Nov. 16, 1979.

Review Denied Dec. 4, 1979.

[124 Ariz. 269] Robert K. Corbin, Atty. Gen., by William J. Schafer, III, Chief Counsel, Crim. Div., Philip J. MacDonnell, Director, Sp. Prosecutions Div., and Mark E. Aspey and Barnett S. Lotstein, Asst. Atty. Gen., Phoenix, for appellee.

David M. Lurie, Phoenix, for appellant.

OPINION

CONTRERAS, Judge.

Appellant, in two counts of a 95-count indictment issued by the grand jury, was charged with the crimes of grand theft through false pretenses, pursuant to former A.R.S. §§ 13-661(A)(3) and 13-663(A)(1) along with conspiracy in the second degree pursuant to former A.R.S. § 13-331(B). A jury found appellant guilty on both counts and he was sentenced to not less than eight nor more than ten years' imprisonment on Count I (grand theft through false pretenses) and not less than three nor more than four years' imprisonment on Count II (conspiracy), to run concurrently. We affirm the conviction and sentence.

By way of background, the State Grand Jury, on August 31, 1976, returned a 95-count indictment against fifteen former officers, employees and associates of Combined Equity Assurance Company. The subsequent prosecution was based on the thesis that principals of Combined Equity (an insurance company and later a real estate development company) and Prescott Valley, Inc. (another real estate development company) had over a period of seven years conspired to defraud (1) investors throughout the United States and various foreign countries who purchased real estate lots in the Concho Lakelands Subdivision located near Show Low, Arizona, and (2) investors who purchased securities consisting of lot purchasers' promissory notes and mortgages along with "loan packages" collateralized by lot purchasers' promissory notes and mortgages.

After the return of the indictment, all fifteen defendants were arrested, arraigned and released on their own recognizance or on bond. Over the following 17 months, 13 of the 15 defendants entered pleas of guilty to various charges and received sentences ranging from probation to imprisonment. The speedy trial provision of Rule 8 of the Arizona Rules of Criminal Procedure was suspended with the net result that appellant and a codefendant, Clyde Dinnell, were scheduled for trial on January 16, 1978. Trial commenced and after the testimony of four of the state's expected witnesses, appellant's codefendant pled guilty to 11 felony charges. (Dinnell was subsequently sentenced to 9 to 10 years in the Arizona State Prison). As a result of Dinnell's plea after the commencement of trial, appellant's motion for a mistrial was granted and trial with appellant as the sole defendant commenced on March 6, 1978. The trial extended over a period of four weeks and the jury returned a verdict of guilty on both counts. After denial of appellant's motion for a new trial and following sentencing, appellant filed a timely notice of appeal.

Appellant's appellate counsel (who did not represent appellant at trial) has presented a number of issues on appeal. For the sake of clarity, these issues, after a statement of the facts supported by the evidence, will be discussed under appropriate and separately designated headings.

THE FACTUAL BACKGROUND

The evidence presented at trial showed that in 1967, Marvin Schallman (a codefendant under the indictment) formed an insurance company called Pyramid Planners Assurance Company, the name of which was changed in 1972 to Combined Equity Assurance Company (and will hereafter be referred to as Combined Equity). This company was subject to regulatory control by the Arizona Department of Insurance including periodic audits to determine financial stability. Combined Equity experienced continued financial difficulties and in an effort to avoid bankruptcy, Combined Equity decided to remain an insurance company but to also enter the land development business by subdividing undeveloped land and selling it to purchasers throughout the United States and several foreign countries. Pursuant to this decision, Combined Equity acquired a subdivision known as Concho Lakelands from Prescott Valley, Inc., a land development company. Concho Lakelands is located in northern Arizona between the cities of St. Johns and Show Low. Concho Lakelands was described at trial as being "barren", "treeless", covered with "volcanic ash" and resembling the surface depicted in photographs of astronauts "walking upon the moon".

After acquiring the property and in order to establish and develop its land sales program, Combined Equity hired Clyde Dinnell, the former land sales director for Prescott Valley. Dinnell in turn hired appellant who had been one of his associates at Prescott Valley and placed him in charge of out-of-state land sales with the title of vice-president. Appellant's office and personal secretary were located in the company's headquarters in Phoenix and it was from this office that appellant supervised, implemented and controlled the activities of Combined Equity's salesmen throughout the United States.

The evidence establishes that two basic methods were utilized by Combined Equity to generate income. The first involved the direct sale of land itself contained in Concho Lakelands. In this regard, the testimony and exhibits admitted in evidence disclose that numerous purchasers were induced to purchase Concho Lakeland subdivision lots based upon numerous misrepresentations by sales personnel employed by Combined Equity. These misrepresentations were made both orally and through written sales brochures provided by Combined Equity. The second method engaged in by Combined Equity to generate income, stated in a simplistic fashion, involved the fraudulent sale of "securities". At the time that a subdivision lot was sold, the purchaser would execute a promissory note, a land purchase contract and a realty mortgage. This "package" of documents which was generated as a result of a sale of land would then be sold or assigned to investors in Combined Equity.

Although these two methods resulted in the generation of considerable income, the overall financial status of Combined Equity continued to decline until, ultimately in September of 1974, Combined Equity was placed in receivership by the Arizona Department of Insurance with an impairment in excess of $3.5 million. The evidence established that Combined Equity had expended a substantial portion of income for its corporate officers and personnel on such items as expensive cars, gifts, luxurious homes, race horses, generous expense accounts, and inflated salaries. The collapse of Combined Equity caused its policyholders, investors and lot purchasers to lose millions of dollars.

The count relating to the crime of grand theft through false pretenses charged appellant with defrauding Mr. and Mrs. Robert Miller of Elkhart, Indiana. The Millers first met appellant at a dinner party sales presentation held by Combined Equity in Elkhart. At this presentation, promotional literature was distributed and slides were shown which purportedly depicted property at Concho Lakelands in the "White Mountain" area of Arizona. The following evening at the Millers' home, appellant persuaded the Millers to purchase three lots at Concho Lakelands. The Millers issued a check in the sum of $4,543.08, payable to Combined Equity, which represented the down payment and one year's advance payment on all three lots. The Millers' check, along with the completed paperwork, was mailed to Phoenix for processing and acceptance. The contract was accepted by Combined Equity in Phoenix, Arizona, and the check deposited to Combined Equity's checking account.

The evidence further discloses that in securing the sale of these three lots to the Millers, appellant represented that Combined Equity was an extremely large Arizona insurance company with $75 million in reserves. He further represented that, because of such extensive reserves, the subdivision being developed was assured to be of high quality. Appellant told the Millers that their promissory notes and realty mortgages would not be sold. Appellant also stated that each of the three lots purchased could be subdivided at no additional cost into three lots making a total of nine lots and that Combined Equity would sell the lots for them at no extra charge. Appellant also assured the Millers that they would be able to cancel the contracts and receive a full refund if, within one year of the purchase date, they personally inspected their property and did not find it to their satisfaction.

In May of 1974, five months after the sale, the Millers came to Arizona to inspect their property and evaluate their investment. Although the Millers were flown over their property by a representative of Combined Equity, they were discouraged from inspecting the property at ground level. Although they were disappointed in the land as seen from the air, they signed an "Inspection Notice" indicating they were satisfied with the property. They reluctantly signed the Notice because of the vast "investment potential" which appellant had portrayed to them.

After returning to Indiana and in August of 1974, the Millers sat in on an additional dinner meeting presented by a different Combined Equity sales crew. A slide presentation similar to that seen by them during the first dinner presentation was shown to prospective buyers. The Millers were immediately able to determine that some of the slides were not of Concho Lakelands.

Combined Equity was placed in receivership in September of 1974 and in December of 1974, the Millers learned of the receivership. They also learned that the notes and mortgages they had signed had been sold or assigned. In addition, and without the Millers' knowledge, one of the lots...