U.S. v. Fendley, 74-3976

• Decision Date: 09 October 1975
• Docket Number: No. 74-3976,74-3976
• Parties: 75-2 USTC P 9754, 76-1 USTC P 9110 UNITED STATES of America, Plaintiff-Appellee, v. James Hall FENDLEY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 181

522 F.2d 181

75-2 USTC P 9754, 76-1 USTC P 9110

UNITED STATES of America, Plaintiff-Appellee, v. James Hall FENDLEY, Defendant-Appellant.

No. 74-3976.

United States Court of Appeals Fifth Circuit.

Oct. 9, 1975.

James L. Martin, Richardson, Tex., for defendant-appellant.

Frank D. McCown, U. S. Atty., Ft. Worth, Tex., William F. Sanderson, Jr., Richard H. Stephens, Roger J. Allen, Asst. U. S. Attys., Dallas, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before TUTTLE, GODBOLD and MORGAN, Circuit Judges.

TUTTLE, Circuit Judge:

James Hall Fendley was convicted by a jury of tax evasion and filing a false tax return in 1967 in violation of §§ 7201 and 7206(1) of the Internal Revenue Code, 26 U.S.C. § 7201, 7206(1). The defendant appeals.

Fendley was found by the jury to have embezzled large sums from his employer, the National Western Life Insurance Company. Fendley failed to report any of the monies which he was found to have embezzled, and this essentially is the basis for his conviction. The defendant does not dispute the rule that money misappropriated from one's employer is taxable as ordinary income, James v. United States, 366 U.S. 213, 81 S.Ct. 1052, 6 L.Ed.2d 246 (1961); United States v. Burrell, 505 F.2d 904 (5th Cir. 1974); rather the defendant attacks both the sufficiency of the evidence as well as certain specific business records admitted into evidence. We find the defendant's claims to be meritless, and accordingly we affirm his conviction.

Fendley was found by the jury to have devised a scheme whereby he and certain of his employees fraudulently induced Western Life Insurance Company to pay them commissions on sham policies of insurance. Fendley's scheme was based on Western Life's practice of paying advance commissions against future premiums to new agents during their first year of employment. When the company received an application for insurance with a first month's premium, it would pay the sales agent an advance of four and one-half times the premium, up to a maximum of $750.00 per month. Fendley would induce someone to purchase a policy by paying him the amount of the first month's premium; after forwarding the policy to the home office Fendley would then persuade the purchaser to cancel the policy. Thus he would receive commissions against premiums which would never be paid. To avoid the $750 ceiling, Fendley used a number of names other than his own as pretended agents. The 622 policies shown to have been shams produced commission advances of over $179,000 which were in essence unearned. Fendley was shown to have personally endorsed commission checks, made payable to him and to some 49 other agents, totalling $80,648.41.

The defendant first complains that the Government failed to adequately prove that he had in fact endorsed the 202 checks admitted into evidence against him. The defendant does not, however, challenge the expertise of the Government's expert witness who identified the signatures on each check as having been written by Fendley rather the defendant repeats the attacks first raised in cross-examination of the Government's handwriting expert as to the method by which he arrived at his opinion. The defendant's criticisms of the expert's method of comparing handwriting samples go solely to the weight of his testimony, not its admissibility, and in our view the jury was entitled to accept the expert's opinion.

The defendant argues that there was insufficient evidence for the jury to find that he wilfully embezzled funds from his employer, rather he claims that the commission advances were merely loans. After carefully reviewing the record, we have no doubt that this jury was fully justified in finding that Fendley wilfully embezzled the funds, and that there was no evidence whatever of any intention to repay them. Fendley received huge amounts of unearned commissions and banked them without any effort to return them to Western Life; Fendley was shown to have submitted sham policies in the names of non-existent agents in order to increase the amount of commissions he could obtain from Western Life; finally, the record shows that when Western Life attempted to investigate the business practices of the Fendley agency, Fendley attempted to persuade his employees to refuse to talk to company investigators. All these circumstances convincingly establish that Fendley misappropriated his employer's funds for his own use, and that accordingly these funds were properly taxable to him. See United States v. Burrell, supra.

The defendant also complains of three specific sets of records introduced against him at trial. All three sets of records were admitted under the Federal Business Records Act, 28 U.S.C. § 1732.

"Business records are admissible in federal courts as evidence of a transaction or occurrence if made in the regular course of business and if it was the regular course of business to make such records within a reasonable time of the transaction or occurrence."

United States v. DeFrisco, 441 F.2d 137, 139 (5th Cir. 1971). This Court has frequently had occasion to review the admissibility of business records under the Business Records Statute:

"The purpose of the federal Business Records Act is to dispense with the necessity of proving each and every book entry by the person actually making it. The theory underlying the Act is that business records in the form regularly kept by the company and relied on by that company in the ordinary course of its business have a certain probability of trustworthiness."

Louisville and Nashville Railroad Co. v. Know Homes Corp., 343 F.2d 887, 896 (5th Cir. 1965); United States v. DeFrisco, supra, 441 F.2d at 139.

The trial court has a broad zone of discretion in determining the admissibility of business records, and normally its ruling should be disturbed only when that discretion has been abused. United States v. Middlebrooks, 431 F.2d 299, 302 (5th Cir. 1970), Cert. denied, 400 U.S. 1009, 91 S.Ct. 56, 27 L.Ed.2d 622 (1971). In recently reviewing the standards for admissibility under the Business Records Act we concluded that the statute's primary purpose was to "provide a check on trustworthiness" and that business records are admissible if three conditions are met:

"(1) The records must be kept pursuant to some routine Procedure designed to assure their accuracy, (2) they must be created for Motives that would tend to assure accuracy (preparation for litigation, for example, is not such a motive), and (3) they must not themselves be mere accumulations of hearsay or uninformed opinion."

United States v. Miller, 500 F.2d 751, 754 (5th Cir. 1974).

The defendant objects to the admission of Government Exhibits 4-1 and 4-2 solely on the basis that the custodial witness who laid the foundation for the introduction of these exhibits was not himself in the employ of the company making the records at the time they were made. A witness laying the foundation for admissibility of a document as a business record need not have been the preparer of the document, United States v. Gremillion, 464 F.2d 901, 906 (5th Cir. 1972) for indeed this Court stated that:

"Section 1732 was adopted in part to eliminate the requirement that the entrant appear to authenticate the record."

United States v. Miller, supra, 500 F.2d at 754.

"(T)he person who actually keeps the books and records and makes the entries need not testify if a person does testify who is in a position to attest to the authenticity of the records." United States v. Dawson, 400 F.2d 194, 199 (2d Cir. 1968). These criteria were met in this case, and we find the exhibits to have been properly admitted.

Finally, the defendant objects to the introduction of Government Exhibit 9-108, a computer printout introduced as a business record of the Western Life Insurance Company. This printout showed the credit balances of each of the agents in the Fendley agency, and showed the aggregate total of $179,084.41 as being owed by the Fendley agency for unearned commission advances.

The defendant objected at trial to the introduction of this exhibit on these grounds:

"Then, Your Honor, we will renew our objection to Government's Exhibit 9-108-B (sic) on the basis that there is no accuracy shown that the instrument is accurate as to the figures it reflects;

And that the preparer was someone other than the witness here; that we cannot determine the accuracy of it, and therefore, it shouldn't be admitted;

Because it would be hearsay and, again, I cannot cross-examine the paper, obviously, without having the party assigned to compiling the figures on it before us.

We object on that basis."

It appears to us that this loosely formulated and imprecise objection at most comes to this: (1) that the document was hearsay; (2) that the witness laying the foundation for its introduction was someone other than the preparer; and (3) that the witness laying the foundation was unable to personally attest to the accuracy of the figures contained in the document. There was no objection on the only grounds which would have permitted the trial court to have required that a fuller foundation be laid for the admission of the exhibit that the printout was made and kept in the regular course of business, for regular business purposes and relied upon by the business, and finally that it was not "mere accumulations of hearsay or uninformed opinion." United States v. Miller, supra, 500 F.2d at 754.

The grounds asserted in the defendant's objection are clearly insubstantial. While obviously the document was hearsay, this in itself fails to state an objection as to whether the exhibit met the admissibility requirements of the Business Records Act. Similarly, nothing in the Business Records Act requires either that the foundation witness be able to personally attest to the accuracy of the information contained in the document, or that he have personally...