U.S. v. Ballard, s. 79-5268

• Decision Date: 10 December 1981
• Docket Number: Nos. 79-5268,79-5506 and 80-5752,s. 79-5268
• Citation: 663 F.2d 534
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Walter L. BALLARD, James R. Clark, Ronald B. Pruitt, and John L. Burns, Defendants-Appellants. UNITED STATES of America, Plaintiff-Appellee, v. Raymond F. GRANLUND, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Walter BALLARD, Defendant-Appellant. . Unit B *
• Court: U.S. Court of Appeals — Fifth Circuit

Page 534

663 F.2d 534

UNITED STATES of America, Plaintiff-Appellee, v. Walter L. BALLARD, James R. Clark, Ronald B. Pruitt, and John L. Burns, Defendants-Appellants.

UNITED STATES of America, Plaintiff-Appellee, v. Raymond F. GRANLUND, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. Walter BALLARD, Defendant-Appellant.

Nos. 79-5268, 79-5506 and 80-5752.

United States Court of Appeals, Fifth Circuit.

Unit B ^*

Dec. 10, 1981.

Bruce S. Rogow, Nova University Law Center, Fort Lauderdale, Fla., for Ballard.

Ellis C. McCullough, Houston, Tex., Robert C. Josefsberg, Miami, Fla., for Clark.

Olney G. Wallis, Houston, Tex., for Pruitt and Burns.

G. Ernest Caldwell, Houston, Tex., for Burns.

K. Charles Peterson, Joe H. Reynolds, James R. Leahy, Houston, Tex., Bernard C. Silver, Tampa, Fla., for Granlund.

Judy S. Rice, W. Christian Hoyer, Asst. U. S. Attys., Tampa, Fla., for plaintiff-appellee.

Appeals from the United States District Court for the Middle District of Florida.

Before MARKEY ^**, Chief Judge, and HILL and HENDERSON, Circuit Judges.

JAMES C. HILL, Circuit Judge:

The five appellants in these consolidated cases have been convicted in jury trials of conspiracy and mail fraud violations in connection with oil transactions that occurred in 1973-74 while the Federal Emergency Petroleum Allocation Act was in effect. Briefly, we hold that the theory upon which the appellants were successfully prosecuted was incorrect as a matter of law; based upon the evidence presented, we reverse the convictions of four of the appellants and remand the case involving the remaining one.

I. The Facts

The underlying facts in these cases are rather complex, but they arise from a relatively simple situation: oil pricing laws allowed no seller to make the maximum profit a free market might have provided because a seller could not charge the highest price that a purchaser was willing to pay.

Essentially, each of the appellants worked for enterprises which bought and sold oil. In the transactions here under consideration, the appellants caused these businesses to align themselves in what has been characterized as a "daisy chain." Each sold oil, at its maximum allowable price (and profit) to another which, taking its maximum profit, sold to still another in the chain. The several enterprises each realized its maximum profit before the oil was sold to the ultimate consumer, Florida Power Company. In the complex laws and regulations then controlling the marketing of oil, none prohibited this practice. The prosecution asserts no violation of the Emergency Petroleum Allocation Act ("the Act"). If criminal conduct occurred, it was the commission of mail fraud and conspiracy to do so.

Florida Power Corporation ("FPC"), the buyer at the end of the daisy chain, is a large electric utility company. Though its basic fuel for generating electricity had been number six oil, FPC had begun to use number two oil in late 1972 or early 1973. ¹ During 1973, FPC's demand for number two oil increased greatly, and its demand problem was exacerbated by the widespread oil shortage. Under the Act, which dictated that certain amounts of oil be sold on an historical basis, FPC was assured of only ten percent of its number two requirements. Unable to fulfill its needs through the supply assured by long-term contracts, FPC was forced to buy oil in the spot market.

Appellant Ray Granlund, apparently the master-mind and executioner of the daisy-chain scheme, was a consultant employed by FPC to assist in its search for oil. Angel P. Perez, who had been President and Chief Executive Officer of FPC until his retirement in 1973, had negotiated the original FPC-Granlund consulting agreement in 1971. The contract had been renewed annually after 1971 and was in effect during the resale scheme.

During 1973 and 1974, Willard Simonds was the fuel manager of FPC and had the primary responsibility for negotiating purchases of all its fuel. Whenever Granlund located a supply of oil, he would call Simonds and tell him the available quantity and price. When Simonds could not obtain needed oil on the spot market at a better price, he would discuss the Granlund offers with Richard Raymond, who was the vice-president of FPC in charge of fuel acquisition and Simond's direct supervisor. Though Simonds often accepted offers relayed by Granlund, he did reject offers on several occasions.

Both prior to and during his employment by FPC, Granlund also worked as a consultant for a subsidiary of Signal Oil and Gas Company ("Signal"). ² Granlund sought buyers of oil for Signal and reported to appellant Walter Ballard, an executive vice-president in charge of marketing. FPC knew when it hired Granlund that he was a consultant with Signal, and Signal knew Granlund was consulting with other companies.

Over the years preceding the Act, including 1973, Signal had purchased oil from Charter International Oil Company ("Charter")-a subsidiary of Charter Oil Company-under a private contract. When the allocation program went into effect in June of 1973, Charter was obligated to sell a certain portion of its oil to Signal based on these historical sales.

Appellant John L. Burns was the Executive Vice-President of Supply and Distribution with Charter and was responsible for, among other things, selling number two oil. Though Charter officials did not know it, Burns also owned stock in Larcon Petroleum Corporation ("Larcon"), an oil marketing company which sometimes bought and sold oil with Charter. Apparently, Burns was not in a policy-setting position with Larcon, but appellant James R. Clark served as Larcon's President during 1973 and 1974. Appellant Granlund also dealt with Larcon and was paid commissions on oil transactions that he brought in. The evidence indicated that Larcon was nearly defunct before it participated in the daisy-chaining.

Appellant Ronald B. Pruitt, a lawyer, assisted Larcon in legal and financial matters. Pruitt also owned part of Matrix Properties ("Matrix"), a corporation originally formed by J. Godfrey and Pruitt in the spring of 1973 to deal in real estate and oil. Burns, Pruitt and Clark were investors in some of the real estate partnerships handled by Matrix, though Burns and Clark were never officers, employees, or shareholders of Matrix itself. Pruitt, who was in charge of Matrix's oil deals, had the profits from all such deals transferred to the Pruitt and Monshaugen ("P & M") trust account, a bank account containing funds held in trust by attorneys Pruitt and Monshaugen. The P & M funds also contained commissions paid by Larcon.

The scheme which involved all of the appellants or their employers was first manifested in April of 1973, when Granlund told Perez and Raymond that he saw an opportunity to make some money in the oil business and that he wanted a letter from FPC authorizing him to accept commissions from oil suppliers that would sell to FPC. Perez told Raymond to compose the letter and to get the necessary approval from the FPC legal department. At some point, Granlund told Perez and Raymond that he would share his profits with them. During September 1973 the letter authorizing Granlund to accept commissions from suppliers was prepared by Raymond, transmitted through FPC's legal department and routed to both the general counsel and the president of FPC. The approved letter, sent to Granlund on September 19, 1973, provided as follows:

Pursuant to our consulting agreement with you dated March 2, 1973, and Mr. Perez's and my conversations with you in St. Petersburg on April 23, 1973, it is now recognized that Florida Power Corporation's requirements for petroleum products greatly exceed our previous estimates, and because of the U.S. energy shortage with the resulting tightness of product, more time and work will be required to locate sources of supply to meet our increased requirements.

We recognize that you are under contract to Petroleum Heat and Power, a Signal Oil Company subsidiary, and your first obligation is to them.

It is therefore agreed that after you have fulfilled your obligations to Petrol, you will continue to use your best efforts to locate additional products for Florida Power Corporation. You will submit all offers of supply with costs to our fuel department for its first refusal and/or acceptance. We further confirm that you may accept compensation from supplying companies without creating a conflict of interest under our consulting agreement with you. (emphasis added).

Two subsequent letters to Granlund dated February 19, 1974, and March 6, 1975, reiterated the terms of the original commission authorization.

This prosecution centers on oil transactions that occurred after Granlund had received FPC's authorization to receive commissions from suppliers. At trial the government established a series of oil sales involving the business entities that have been discussed. The basic flow of oil (along with the appellants related to the businesses) was established as follows: Charter (Burns) to Signal (Ballard) to Matrix (Pruitt) to Larcon (Clark and Burns) to FPC. ³ Also included in the transactions in this case were sales to Florida Power by Tauber Oil Company ("Tauber"), Mitsui, and Reidy International Oil Company ("Reidy"). ⁴

Granlund received a commission from his supplier on each of the spot purchases by FPC. ⁵ Commissions were paid to Granlund individually by Matrix; Larcon, Tauber, and Reidy paid both Granlund and Rotary Oil, a company owned by Granlund. The commissions paid by Larcon and Matrix represented fifty percent of their profits, and commissions to Granlund or Rotary from all these sources totalled $2,331,968.10.

The government has attempted to connect the appellants to the daisy-chaining scheme primarily by virtue of payments which they received from the legitimate profits realized in the oil transactions. The first payment was made on October 30, 1973, when Granlund met with Perez...