U.S. v. Beecroft, Nos. 78-2190

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtBefore HUFSTEDLER and WRIGHT, Circuit Judges, and FERGUSON; EUGENE A. WRIGHT
Citation608 F.2d 753
Parties5 Fed. R. Evid. Serv. 539 UNITED STATES of America, Plaintiff-Appellee, v. Robert L. BEECROFT, Arthur T. Harrison, James F. Hennig, and Delbert L. Rogers, Defendants-Appellants.
Decision Date19 November 1979
Docket Number78-2235 and 78-3444,78-2203,Nos. 78-2190

Page 753

608 F.2d 753
5 Fed. R. Evid. Serv. 539
UNITED STATES of America, Plaintiff-Appellee,
v.
Robert L. BEECROFT, Arthur T. Harrison, James F. Hennig, and
Delbert L. Rogers, Defendants-Appellants.
Nos. 78-2190, 78-2203, 78-2235 and 78-3444.
United States Court of Appeals,
Ninth Circuit.
Nov. 19, 1979.
As Amended Dec. 14, 1979.

Page 755

Frank T. Vecchione, Michale J. McCabe, Joseph A. Milchen, Frank & Milchen, San Diego, Cal., for defendants-appellants.

Charles R. Hayes, Special Asst. U. S. Atty. (on the brief), Michael H. Walsh, U.S. Atty., Charles R. Hayes, Special Asst. U.S. Atty. (argued), San Diego, Cal., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of California.

Before HUFSTEDLER and WRIGHT, Circuit Judges, and FERGUSON, District Judge. *

EUGENE A. WRIGHT, Circuit Judge:

Defendants were officers in a company which helped inventors to promote and market their ideas. Approximately 1,800 clients paid fees of $1,500 to $1,800. Despite numerous representations of the company's success, no invention was ever marketed successfully.

On this appeal, each appellant claims the evidence was insufficient to sustain his conviction of mail fraud and conspiracy to commit mail fraud. In addition, appellant Harrison contends a Dun and Bradstreet report was improperly admitted against him, and appellant Beecroft asserts that the sentence imposed on him was improper. We disagree and affirm each conviction.

FACTS

Development and Marketing International, Inc. (DMI) was founded in 1971 by appellant Harrison and four others not involved in this appeal. DMI purported to develop, fund, manufacture, and market inventions or ideas. For a fee of either $1,500 or $1,800, the company was to provide the client a supposedly individualized portfolio with an extensive analysis of the product's marketability. Once the portfolio was completed, the client could sign a representation agreement whereby DMI's product brokers would attempt to place the invention with a manufacturer.

North American Associates, Inc. (NAA) was founded by Beecroft in late 1972 to purchase DMI and continue its business. NAA conducted the business in the same manner as had DMI. Later, in 1973, several other corporations, including Production and Marketing International, Inc. (PMI), were formed by those involved in DMI and NAA. The district court found these companies constituted a single operation which attempted to assist inventors in the development of ideas. The entire operation failed in January 1974.

DMI and the other entities 1 advertised their services to the public. These advertisements are in large part the basis for defendants' convictions.

The most inculpating piece of promotional literature was the company's first brochure which announced: "DMI One of the Best Friends an Idea Ever Had." It contained a photograph of the Union Bank Building in San Diego, in which the DMI office was located. The words identifying the building were removed, however, creating the false impression that the entire building housed DMI's headquarters.

The brochure also said that DMI was an international company with "every conceivable facility for developing an idea into a product," a staff experienced in patent and invention development, "seasoned veterans" who "have the knowledge and ability to

Page 756

present your product to the proper manufacturers for production and distribution," and "the capability of distribution on an international basis." Later brochures were essentially condensed versions of the first.

In a trial without a jury, the district court found that all representations that DMI was an international company were false. It found:

(1) that DMI did not have the facilities to develop an idea into a product because the only facility owned by DMI was a small machine shop which was never used to manufacture a product developed by DMI;

(2) that DMI's staff did not have experience in the patent and invention development field, and that the staff was not qualified or knowledgeable to present products to manufacturers for production;

(3) that DMI did not have officers in principal cities throughout the United States; and

(4) that the photograph of the Union Bank Building was intended to create, and did create, a false impression concerning the size, importance, and capacity of DMI.

The district court found also that the defendants made false representations in addition to those in the advertisements. The court found that an article in the San Diego Union financial section showing a payment of $10,000 to inventor Fred Fortado as "advance royalties" was deceptive and calculated to mislead the public. In reality, the money was for the rights to Fortado's invention and was used partly to offset the purchase of Fortado's machine shop.

The court also determined that in 1972 George Goff, DMI's first president, Rogers and Harrison falsified information for a Dun and Bradstreet report on DMI. Inventors were then given copies of "DMI References," urging them to see bankers or stock brokers for the Dun and Bradstreet report.

The court also found fraudulent a 1972 suit for rescission filed by NAA against DMI. A stipulation was entered into, rescinding the sale of DMI to NAA and relieving NAA from the obligations of DMI. The judgment included a $20,000 award to NAA on which DMI was liable as a corporation. The court found the suit calculated to deceive creditors and clients by giving the impression that DMI and NAA were independent organizations.

The court also found other aspects of DMI's sales approach fraudulently induced inventors to enter contracts with DMI. For example, the work done on the $1,500 and $1,800 contracts was identical, yet this fact was concealed from the salesmen. The company also accepted duplicate inventions from different inventors.

The court found that each defendant made, or permitted or encouraged others to make, false representations. It found that each defendant knew the false representations were being made to induce inventors to purchase DMI's services. Finally, it found that the evidence showed beyond a reasonable doubt that the defendants were involved in a scheme reasonably calculated to deceive persons of ordinary prudence and comprehension.

DISCUSSION

I.

SUFFICIENCY OF THE EVIDENCE

A. The Standard of Review.

In reviewing the contention that the evidence was insufficient to sustain their convictions for mail fraud and conspiracy to commit mail fraud, we consider the evidence in the light most favorable to the government. Glasser v. United States, 315 U.S. 60, 82, 62 S.Ct. 457, 86 L.Ed. 680 (1942); United States v. Valentin, 569 F.2d 1069 (9th Cir. 1978); United States v. Ramos, 476 F.2d 624, 625-26 (9th Cir. 1973). All reasonable inferences supporting the conviction must be drawn, including decisions regarding the credibility of witnesses. United States v. Nelson, 419 F.2d 1237, 1241 (9th Cir. 1969). The judgment must be sustained if there is substantial evidence to support it. United States v. Rojas, 458 F.2d 1355, 1356 (9th Cir. 1972).

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B. Elements of the Offense.

Under 18 U.S.C. § 1341, the essential elements of mail fraud are: (1) a scheme to defraud, and (2) a knowing use of the mail to execute the scheme. United States v. Kaplan, 554 F.2d 958, 965 (9th Cir. 1977); United States v. Goldberg, 455 F.2d 479, 480 (9th Cir. 1972).

When one acts, knowing that the use of the mails will follow in the ordinary course of business and the mails are in fact used, the actor causes the mails to be used and makes a knowing use of the mails within the meaning of Section 1341. Pereira v. United States, 347 U.S. 1, 8-9, 74 S.Ct. 358, 98 L.Ed. 435 (1953); United States v. Dondich, 506 F.2d 1009 (9th Cir. 1974). In the instant case, appellants knowingly used the mails to promote the enterprise. The issue is whether the government sustained its burden of proving a fraudulent scheme.

C. Proof of Fraud.

To prove a fraudulent scheme, the government must demonstrate specific intent to defraud. United States v. Payne, 474 F.2d 603 (9th Cir. 1973). Intent need not be established by direct evidence, but may be inferred from the defendant's statements and conduct. Elbel v. United States, 364 F.2d 127 (10th Cir. 1966).

One who acts with reckless indifference to whether a representation is true or false is chargeable with knowledge of its falsity. United States v. Love, 535 F.2d 1152 (9th Cir. 1976). Deceitful statements of half-truths or the concealment of material facts is actual fraud under the statute. Lustiger v. United States, 386 F.2d 132, 138 (9th Cir. 1967).

The government sustains its burden if it shows beyond a reasonable doubt either: (1) that the defendants knowingly made false representations or (2) that the scheme was reasonably calculated to deceive persons of ordinary prudence and comprehension. Irwin v. United States, 338 F.2d 770, 773 (9th Cir. 1964).

Each appellant asserts he had an honest belief that the company would eventually succeed. While good faith is a defense to mail fraud, an honest belief in the ultimate success of an enterprise is not, in itself, a defense. United States v. Diamond, 430 F.2d 688, 691 (5th Cir. 1970).

In addition, each appellant contends that some of the representations which were found fraudulent were not. The government need not prove each allegation of fraud. Proof of any one or more of the fraudulent representations is sufficient. United States v. Outpost Development Co., 552 F.2d 868, 869-70 (9th Cir. 1977).

D. Proof of Conspiracy.

To prove a conspiracy, the evidence must show that each of the appellants was involved. A meeting of the minds must be demonstrated. United States v. Peterson, 549 F.2d 654 (9th Cir. 1977). Mere association and activity with a conspiracy is insufficient. United States v. Basurto, 497 F.2d 781, 793 (9th Cir. 1974). However, a formal agreement between the appellants is not necessary. United...

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    ...Exchange Commission v. Lawrence Peska Associates, Inc., Civil Action 77-2436 (S.D. Fla., Filed: Aug. 8, 1977); United States v. Beecroft, 608 F.2d 753 (9th Cir. 1979) (upholding mail fraud convictions of defendant officers of a company which helped inventors promote and market their Attorne......
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    ...value of the hearsay against this risk, the trial court excluded the evidence. I-CA discusses United States v. Beecroft (9th Cir. 1979) 608 F.2d 753 (Beecroft ), in which the Ninth Circuit specifically discussed the admissibility of D & B reports. In Beecroft, a D & B report was admitted in......
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  • U.S. v. Zemek, Nos. 79-1536
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    ...value of the hearsay against this risk, the trial court excluded the evidence. I-CA discusses United States v. Beecroft (9th Cir. 1979) 608 F.2d 753 (Beecroft ), in which the Ninth Circuit specifically discussed the admissibility of D & B reports. In Beecroft, a D & B report was admitted in......
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