U.S. v. Dabbs, 95-2914

CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)
Citation134 F.3d 1071
Docket NumberNo. 95-2914,95-2914
Parties11 Fla. L. Weekly Fed. C 1045 UNITED STATES of America, Plaintiff-Appellee, v. Susan DABBS, William Paul Dabbs, John E. Floyd, Thomas E. Moorehead, Defendants-Appellants.
Decision Date06 February 1998

Page 1071

134 F.3d 1071
11 Fla. L. Weekly Fed. C 1045
UNITED STATES of America, Plaintiff-Appellee,
Susan DABBS, William Paul Dabbs, John E. Floyd, Thomas E.
Moorehead, Defendants-Appellants.
No. 95-2914.
United States Court of Appeals,
Eleventh Circuit.
Feb. 6, 1998.

Page 1073

Andrea Anna Wilson, St. Petersburg, FL, for Susan Dabbs.

Marvin P. Jackson, Tampa, FL, for William Paul Dabbs.

Murdoch J. Hertzog, St. Clair Shores, MI, for John E. Floyd.

Page 1074

Atlee W. Wampler, David R. Cassetty, Wampler, Buchanan & Breen, Miami, FL, for Thomas E. Moorehead.

Jeffrey J. Del Fuoco, Tamra Phipps, LaTour Lafferty, Asst. U.S. Attys., Tampa, FL, for Plaintiff-Appellee.

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

Before HATCHETT, Chief Judge, BARKETT, Circuit Judge, and PROPST *, Senior District Judge.

HATCHETT, Chief Judge:

A jury in the Middle District of Florida convicted Susan Dabbs, William Dabbs, Thomas Moorehead and John Floyd for a bank fraud scheme involving fraudulent credit card billing. In this appeal, the appellants challenge their convictions and sentences on various grounds. We affirm.


Susan Dabbs, William Dabbs and Moorehead owned and managed P.S.T. Ltd., Inc. (PST). Susan Dabbs served as president of the enterprise, William Dabbs served as vice-president and Moorehead served as secretary/treasurer. They shared equal responsibility and decision-making authority over the operation. PST represented itself as a telemarketing company engaged in the sale of travel packages and cosmetics. PST mailed certificates at random to prospective customers declaring that the recipient was eligible to receive one of four allegedly valuable awards. The certificate directed the "winner" to call for additional details. A PST representative would subsequently attempt to coerce the caller into purchasing PST products. 1

As with most telemarketing businesses, PST relied almost exclusively on credit card purchases and informed callers that it preferred payment via credit card. An accurate recitation of the underlying facts requires an explanation of retail credit card transactions and the telemarketing industry.

In order to conduct credit card sales, a business must first enter into a merchant account agreement with a bank (merchant bank) pursuant to which the merchant bank agrees to process future credit card transactions. The business then opens an account (merchant account). In most retail credit card sale transactions, the business provides the merchant bank with a sales slip (draft) representing the customer's credit card information and signature authorizing the charge. The business deposits the draft in its merchant account. The merchant bank subsequently transfers the balance of the charge into the business's merchant account. 2 The business may then draw from that amount and transfer money to separate commercial accounts. The merchant bank thereafter contacts the issuer of the customer's credit card (issuing bank), presents the sales draft and requests reimbursement.

The card-issuing bank bills the customer for the purchase. If the customer returns the purchased item or challenges the validity of the charge without a dispute from the merchant bank, a "charge-back" results and the issuing bank credits the customer's account and asks the merchant bank for a refund. The merchant bank is only entitled to recoup its loss from the business. If the business refuses, lacks sufficient funds or is no longer a functioning enterprise, the merchant bank absorbs the loss.

The nature of telemarketing companies makes it difficult for those businesses to find merchant banks willing to accept their credit card transactions. Because these businesses conduct sales over the telephone, telemarketers cannot provide merchant banks with a signed sales slip or other documented customer authorization for a sale. Moreover, studies have shown that telemarketing companies generate a substantially greater risk of charge-backs. As a result, VISA-associated

Page 1075

banks prohibit telemarketers from directly depositing credit card transactions.

This policy led to the development of "factoring." The telemarketer uses a third-party, non-telemarketing business (factoring merchant) as a conduit for depositing credit card sales. The factoring merchant processes the transaction either through an existing merchant account or through a separate merchant account created for the telemarketing company. The merchant bank processes the transaction as a standard credit card sale and deposits the amount of the sale into the factoring merchant's account. The factoring merchant then retains a fee for the use of the account and disburses the remainder to the telemarketer. VISA-affiliated banks include a provision in their merchant account contracts forbidding factoring.

In 1991, PST began to enlist third parties to establish merchant accounts with First Interstate Bank of South Dakota (First Interstate) without notifying First Interstate that the accounts would be used for factoring. 3 Cherry Payment Systems (Cherry Systems), an independent sales organization that First Interstate hired to locate suitable merchant accounts, facilitated the creation of these accounts. Floyd, an associate of one of PST's suppliers, submitted a fraudulent merchant account application to First Interstate on behalf of New European Research Laboratories (New European). PST began to deposit drafts into the account, which First Interstate credited. PST deposited a total of $148,427.41 into the merchant account, resulting in a loss of $80,289.44 to First Interstate.

In December 1991, Floyd submitted a second false application to First Interstate in the name of Discount Furniture Warehouse (Discount Furniture). Upon approving the application, First Interstate established two merchant accounts for Discount Furniture. From December 18, 1991, until January 31, 1992, PST used these accounts to factor $559,622.74 in credit card charges. First Interstate lost $509,427.07 from these merchant accounts.

In January 1992, First Interstate became suspicious of Floyd's merchant accounts and reluctant to extend its relationship with him. First Interstate rejected two merchant account applications, in the names of Safety Marine Products and F & K Laboratory, Inc., which Floyd submitted. First Interstate subsequently terminated all of Floyd's merchant accounts.

Floyd thereafter discontinued his relationship with PST. Moorehead, William Dabbs and Susan Dabbs began to look for additional factoring sources and submitted fraudulent merchant account applications on their own. In February 1992, William Dabbs applied for a merchant account with First Interstate under his own name. First Interstate denied the application. William Dabbs also submitted applications under the business names PST and Cee-Dee. First Interstate opened a merchant account for Cee-Dee and transferred $29,929.05 into William Dabbs's commercial account. First Interstate lost $12,140.35 from the Cee-Dee account. In February and March 1992, Moorehead convinced a friend to submit two merchant account applications, on behalf of CAD, Inc. and Alyssa Jewelers, to First Interstate. Before the friend changed his mind and closed the accounts, PST deposited $4,299.21 into the CAD account, later transferring $2,735.95 into a separate commercial account, and deposited $3,184.00 into the Alyssa Jewelers account, transferring $1,170.73 into a separate commercial account. First Interstate did not incur any losses from these accounts.

In March 1992, Moorehead used Cherry Systems to apply for a merchant account using the name A. Thomas and Company. PST amassed $36,610 in credit card sales in the account. First Interstate transferred $29,487.22 into a commercial account and lost $8,528.68. Moorehead also applied for merchant accounts under the names PST Tours and CD Promotions. First Interstate accepted the applications, losing $21,095.30 on the PST Tours account and $17,931.51 on the CD Promotions account. In April 1992, Susan

Page 1076

Dabbs induced an acquaintance to open a merchant account with First Interstate for Nick's Systems, Inc. through Cherry Systems. PST deposited $60,326.00 into the account, and First Interstate lost $14,044.47.

In early 1992, the United States Postal Inspection Service (USPIS) initiated an investigation into factoring. As part of the investigation, USPIS set up an undercover operation. A postal inspector posed as the owner of J & H Sales (J & H), a company with a merchant account at a Barnett Bank (Barnett) located in Tampa, Florida. J & H enlisted an informant who had previously participated in factoring schemes to spread the word that J & H sought to perform factoring services. A business associate of PST advised the informant to contact the company. Moorehead spoke to the informant and called J & H.

The businesses thereafter agreed that J & H would factor PST's telemarketing sales through J & H's merchant account in exchange for a seventeen percent fee. Each of the principals of PST demonstrated their knowledge of this factoring scheme through their conversations with the postal inspector. Moorehead supplied the inspector with the credit card sales for processing and told the inspector where to send the money. Moorehead also admitted to the inspector that PST could not obtain a merchant account for its credit card sales, and instructed the inspector to lie to Barnett about where the sales originated because Barnett would freeze the merchant account if it knew of the factoring arrangement. Moreover, Moorehead warned the inspector that depositing a substantial amount of sales in a single day or depositing a significant number of sales using the same dollar amount would arouse suspicion at Barnett.

The inspector also engaged in telephone conversations with William Dabbs and Susan Dabbs about the scheme. William Dabbs identified himself to the...

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