State v. Markham

Decision Date12 March 1985
Docket NumberNo. 5349-III-1,5349-III-1
Citation40 Wn.App. 75,697 P.2d 263
Parties, Blue Sky L. Rep. P 72,227 STATE of Washington, Respondent, v. Lawrence David MARKHAM, Appellant.
CourtWashington Court of Appeals

Phelps R. Gose, Axtel, Karademos, Briggs & Gose, Spokane, for appellant.

Donald C. Brockett, Prosecuting Atty., Fred J. Caruso, Chief Deputy Pros. Atty., Spokane, for respondent.

MUNSON, Judge.

Lawrence D. Markham appeals his convictions of conspiracy to commit securities fraud, conspiracy to commit first degree theft, fraud in connection with the offer and sale of a security (9 counts), first degree theft (9 counts), and sale of unregistered securities. He contends: (1) RCW 21.20.010 is void for vagueness; (2) a certain attorney opinion letter should have been admitted into evidence; (3) the jury should have been instructed intent to permanently deprive is an element of any form of first degree theft; (4) the jury should have received the WPIC instruction on criminal intent; (5) the court should have given Markham's proposed instruction to the effect mismanagement is not a crime when one is merely "visionary in his plans"; (6) the accomplice instruction should not have been given; (7) a principal-agent liability instruction should not have been given; (8) hearsay was improperly injected into the case; and (9) there was prosecutorial misconduct in the form of leading questions, constantly forcing Markham to object, and eliciting testimony about crimes not charged. We affirm.

Between April 1979 and February 1980, Markham held varying interests in four corporations. Money Vendors Corporation began as a sole proprietorship of Markham and was incorporated in November 1978. The purpose of Money Vendors was to supply vending and other machines to Lease Funding, Ltd., at a 100- to 100-percent markup. Money Vendors was to obtain locations for the machines and lessees to run them. Markham and Money Vendors assured the lessees they could have their lease deposits returned and leases canceled if not satisfied. Lessees were also told they need not make any payments until all machines covered by a lease were in place.

Lease Funding, Ltd., began as a partnership between Harold Kunz and Markham. It was incorporated in November 1979, with Markham owning 49 percent and Kunz 51 percent. The purpose of Lease Funding was to find investors to purchase vending and other machines from Money Vendors. The investors paid a 10 percent fee to Lease Funding in addition to the purchase price of their machines. The purchasers would then act as lessors of the machines. Lease Funding advertised a 20 percent return on its leases, and provided computer printouts showing projected profits and tax deductions. Lease Funding was to collect payments from the lessees, deduct sales tax, and remit the balance to the lessors. Markham and Money Vendors provided personal and corporate guaranties of the lease payments. The purchaser-lessors did not meet the lessees; the leases and documents acknowledging receipt of the machines were signed by the lessees before presentation to the purchaser-lessors. Markham attended at least one "seminar" for prospective buyers and approved a Lease Funding sales presentation.

Each Lease Funding transaction involved six documents: (1) bill of sale signed by Markham as president of Money Vendors; (2) UCC-1 form; (3) delivery and acceptance receipt signed by a lessee; (4) lease agreement signed by a lessee and then a lessor; (5) personal and corporate guaranties and hold harmless agreement, signed by Markham as president of Money Vendors; and (6) certificate of insurance.

Kunz requested a "no action" letter from the securities division of the Washington Department of Licensing. The securities division declined to issue such a letter. Markham was a formerly licensed securities salesman and wished to comply with securities laws. Markham consulted an attorney, who apparently told him the transaction was not a security.

Markham Corporation was incorporated in June 1979. Markham owned 75 percent and Kunz 25 percent. Its purpose was to manage Money Vendors and Lease Funding.

COMSY, Inc., was a computer company which was incorporated in December 1979. Some employees provided printouts of the potential income and tax advantages to Lease Funding investors. Markham purchased the local Olivetti franchise and was preparing to go into the computer leasing business when the four corporations went into receivership.

The leasing enterprise collapsed, primarily because Markham and alleged co-conspirators Kunz and Phillip Stephan diverted Lease Funding monies to their personal use and to run Markham Corporation rather than purchase machines. Furthermore, lessors received payments even though their machines were not yet in place and the lessees had not commenced making payments. Funds invested for machines were thus used for salaries, day-to-day expenses (including payments for airplanes and boats, a Mercedes and other automobiles, a motorhome, and clothing), and for lease payments to previous investors. Markham and Kunz had been repeatedly warned not to "bleed" the companies with high salaries and not to pay operating expenses out of the money invested to buy machines. They were also frequently told various business accounts were overdrawn. At one point, Markham laughed and said it would be easier to get more money than to cut down on expenses.

Kunz and Stephan 1 each pleaded guilty to one count of securities fraud. Markham was convicted by a jury of one count of conspiracy to commit fraud in connection with the offer and sale of a security, one count of conspiracy to commit first degree theft, nine counts of securities fraud, nine counts of first degree theft, and one count of sale of unregistered securities. Markham appeals.

Markham first contends RCW 21.20.010 2 is void for vagueness because he could not know he was violating the securities law until the jury returned its verdict. He appears to argue in the alternative both facial invalidity and invalidity as applied. He bases his contention on the fourteenth amendment to the United States Constitution and on article 1, section 3 of the Washington Constitution. 3 He does not argue a different analysis under the state constitution; therefore, the analysis will be based on federal due process principles. State v. Richmond, 102 Wash.2d 242, 243 n. 1, 683 P.2d 1093 (1984).

To withstand a vagueness challenge, a statute must have two components: (1) it must give adequate notice of prohibited conduct so that a person of ordinary intelligence would not have to guess at its meaning, and (2) it must have adequate standards to prevent arbitrary enforcement. State v. Maciolek, 101 Wash.2d 259, 264-65, 676 P.2d 996 (1984). A statute is presumed constitutional and the party challenging it has the burden of proving it unconstitutional beyond a reasonable doubt. State v. Maciolek, supra at 263, 676 P.2d 996.

If the statute is alleged to be invalid on its face then the court looks only to the statute; the defendant's conduct is irrelevant. If, however, the defendant alleges the statute is only unconstitutional in part, or the court finds the statute is not vague on its face, but potentially vague, then defendant's conduct must be examined to see if it lies within the constitutional "core" of the statute. State v. Maciolek, supra at 262-63, 676 P.2d 996. A sufficiently specific prior judicial construction can save a statute from unconstitutional vagueness. State v. Richmond, supra, 102 Wash.2d at 245, 683 P.2d 1093.

The 1933 4 and 1934 5 federal securities acts have both withstood vagueness challenges. United States v. Persky, 520 F.2d 283 (2d Cir.1975); Speed v. Transamerica Corp., 99 F.Supp. 808 (D.Del.1951). The federal statutes employ much of the same language found in RCW 21.20.

"While it is true that the language of [the section] uses general terms, its provisions, while perhaps falling short of the standards of immutability followed by the laws of the Medes and the Persians, are definite enough according to the canons of Anglo-American law.

"Subjecting the words ... to critical scrutiny, we find no fatal ambiguity or indefiniteness, such as might prove a pitfall to any person, in the language of the appellants, 'attempting to obey the law.' No honest and reasonable citizen could have difficulty in understanding the meaning of 'untrue,' 'material fact,' 'any omission to state a material fact,' 'in light of the circumstances under which they were made,' or 'misleading.' All these terms, it is true, call for interpretation in accordance to the facts of a given case. So do the terms 'malice,' 'probable cause,' 'self-defense,' 'negligence,' 'fraud,' 'duress,' 'justification,' and thousands of other expressions well established in the law."

United States v. Persky, supra at 287 (quoting Coplin v. United States, 88 F.2d 652, 657 (9th Cir.), cert. denied, 301 U.S. 703, 57 S.Ct. 929, 81 L.Ed. 1357 (1937)).

Markham was charged with offering or selling a security in the form of an investment contract. While an "investment contract" is not defined in the statute, it has long been the subject of judicial construction. The seminal case is Securities & Exch. Comm'n v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244, 163 A.L.R. 1043 (1946), which defined an investment contract as follows:

[A]n investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.

Securities & Exch. Comm'n v. W.J. Howey Co., supra at 298-99, 66 S.Ct. at...

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