U.S. v. Gibson, 81-1450

• Citation: 690 F.2d 697
• Decision Date: 19 October 1982
• Docket Number: No. 81-1450,81-1450
• Parties: 11 Fed. R. Evid. Serv. 1427 UNITED STATES of America, Plaintiff-Appellee, v. Wilford R. GIBSON, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 697

690 F.2d 697

11 Fed. R. Evid. Serv. 1427

UNITED STATES of America, Plaintiff-Appellee, v. Wilford R. GIBSON, Defendant-Appellant.

No. 81-1450.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 9, 1982.

Decided Oct. 19, 1982.

Michael Tryon, McGroder, Pearlstein, Peppler & Tryon, Phoenix, Ariz., for defendant-appellant.

John D. Lyons, Jr., Asst. U. S. Atty., Phoenix, Ariz., for plaintiff-appellee.

Appeal from the United States District Court for the District of Arizona.

Before KENNEDY, POOLE and REINHARDT, Circuit Judges.

REINHARDT, Circuit Judge:

Wilford R. Gibson was found guilty of violating 18 U.S.C. §§ 1341, 1343 and 2314 (1976)-respectively, mail fraud, wire fraud, and inducing people to travel in interstate commerce for purposes of fraud. He asserts various errors. We affirm his conviction.

Background and Proceedings

In 1973, defendant incorporated Gibson Marketing International, Inc. (GMI), named himself president and chairman of that entity, and retained its entire capital stock. From its Phoenix, Arizona headquarters, GMI began a business of selling franchises and franchise distributorship rights ("area distributorships") to fast food restaurants which it called either "Burgher Haus" or "Kelly's Basket."

GMI's selling procedure was as follows. The company placed advertisements in newspapers and certain circulars for single unit franchises. Prospective investors dialed the toll free number printed in the ads and received an invitation to come to the Phoenix headquarters for a "personal interview." At these "personal interviews," GMI salesmen, sometimes including Gibson, urged investors to purchase "area distributorships" rather than the less expensive, single unit franchises. GMI personnel also outlined the "Burgher Haus" and/or "Kelly's Basket" programs. They promised that GMI would provide certain business services including personnel training, local advertising, site location and approvals and discounted national material purchasing accounts. Certain investors were treated to characterizations of "Burgher Haus" as "the next McDonalds." At the end of these meetings, GMI persuaded investors to leave a $1,000 earnest money deposit to secure their distributorships or franchises. Investors forwarded the balance due within a few weeks.

Unfortunately, GMI did not provide certain of the promised business services. For example, in the course of its "site approval" service, for which it charged some investors a $1,000 fee, GMI approved a piece of unimproved underwater swamp land submitted as a test by a wary New York investor. Advertisements promised by GMI to franchisees and area distributors did not appear in local markets. Only two national purchasing accounts were opened. The personnel training program lasted roughly three days, as compared to the eight-week period at another fast food chain. In addition, the evidence showed that Gibson spent substantial amounts of GMI's money in various Las Vegas gambling spots. From Las Vegas, he telephoned GMI's bookkeeper who transferred corporate funds to his gambling account. At one time, he had a $500,000 loan outstanding from the company. Investors testified that they received no response to their telephone calls and letters to Gibson. There was evidence that Gibson instructed GMI personnel to convey false information to complaining investors.

Gibson does not question the fact that he knowingly caused the mails and wires to be used in GMI's contacts with the investors listed in the indictment. A scheme to defraud and knowing use of the mails or wires are the essential elements of the section 1341 and 1343 crimes.

On September 7, 1978, a grand jury indicted GMI and Gibson. The trial ended in a mistrial in August, 1979, when, after seven days of deliberation, the jury remained deadlocked. Before retrial, in an unpublished memorandum disposition, we affirmed the district court's denial of Gibson's motion to dismiss the indictment on double jeopardy grounds. In the second trial, the jury convicted Gibson and GMI on 14 of 15 counts in the indictment. The district court entered a judgment and sentence from which Gibson appeals.

The Hearsay Argument

Gibson contends that the district court erred in admitting the testimony of investors regarding statements made by GMI's employees/salesmen. Gibson argues that the testimony was hearsay as to him since the trial court failed to make a preliminary finding either that (a) Gibson had authorized the statements, or (b) he was present when the statements were made. Gibson also claims that the admission of these "hearsay" statements violated his confrontation clause rights. We reject both arguments.

The Federal Rules of Evidence define hearsay as: "(A) statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." Fed.R.Evid. 801(c). The government argues that the disputed testimony was not "offered in evidence to prove the truth of the matter asserted."

In their testimony, the investors related their discussions with GMI personnel. One witness testified that Gibson's brother, a GMI employee, told her that there were over 80 "Burgher Haus" restaurants in operation. Another witness said a GMI employee told him that GMI would finance 80% of his building and equipment costs. Other witnesses related assurances from GMI salesmen and officials regarding, inter alia, GMI's financial assets, the allegedly low failure rate of the restaurants, and the projected financial return on a franchise investment.

The investors' testimony was offered to prove the existence of a scheme; the statements were not offered for their truthfulness. The purpose of the testimony was solely to establish the fact that the salesmen and employees had made the statements. That fact was relevant to support the government's allegation that a scheme existed. ¹

Other courts have found similar statements to be non-hearsay. In United States v. Krohn, 573 F.2d 1382 (10th Cir.) cert. denied, 436 U.S. 949, 98 S.Ct. 2857, 56 L.Ed.2d 792 (1978) the Tenth Circuit held that, in a mail fraud prosecution, the admission of conversations between alleged victims and participants in the scheme did not raise an "actual hearsay question," id. at 1386, because the testimony was not offered for its veracity. The Fifth Circuit applied similar reasoning to reach the same result in United States v. Toney, 605 F.2d 200, 207 (5th Cir. 1979) cert. denied, 444 U.S. 1090 100 S.Ct. 1055, 62 L.Ed.2d 779 (1980). The commentators support this construction of the rule. ²

We hold that these statements were not hearsay and did not violate Gibson's confrontation clause rights. ³ Moreover, even if the testimony did fall within the hearsay definition, it would be admissible under either Rule 801(d) (2)(D) (statements by an agent) or Rule 801(d)(2)(E) (statements by a co-conspirator). See United States v. Federbush, 625 F.2d 246, 253-54 (9th Cir. 1980); cf. United States v. Papia, 560 F.2d 827, 836 n.3 (7th Cir. 1977) (admitting such statements under Rule 801(d)(2)(E)).

The more important question is whether the statements made by GMI's salesmen were admissible to show Gibson's participation in, and intent regarding, the scheme to defraud these investors.

The Second, Fifth and Tenth Circuits have considered the issue of the admissibility of similar testimony. In the leading case, United States v. AMREP Corp., 560 F.2d 539 (2d Cir. 1977), cert. denied, 434 U.S. 1015, 98 S.Ct. 731, 54 L.Ed.2d 759 (1978), the Second Circuit held that statements of salesmen could be admitted against corporate officers charged with engaging in a business fraud scheme even if the salesmen were not proven to be knowing participants in the fraudulent scheme. The court said:

(W)here, as here, the proof shows that corporate officers participated in setting up a fraudulent sales program, trained and instructed the salesmen, prepared sales pitches widely and consistently used, and monitored the results thereof, the statements and representations made by the sales representatives in furtherance of the scheme are admissible against the officers. This is so, even though the salesmen themselves are not participants in the fraudulent scheme.

Id. at 545 (citations omitted). Similarly, in Krohn, the Tenth Circuit held that:

(t)he nature of a scheme to defraud by false representations may be shown by accumulated evidence of action of agents and subsequent conduct and correspondence of the company involved demonstrating a course of business, an important feature of which is systematic misrepresentation by agents.

573 F.2d at 1387 (citation omitted). The Second Circuit's reasoning was also followed by the Fifth Circuit in Toney, 605 F.2d at 207 (salesmen's statements admissible to show "that there existed a scheme to hype the product in a certain prescribed manner").

We find the reasoning of the other circuits persuasive and adopt it here. We note that a corporate officer cannot be convicted on the basis of the statement of any salesman; the prosecution must show that the corporate officer "expressly or impliedly authorized or ratified" the representations. Krohn, 573 F.2d at 1386; cf. Toney, 605 F.2d at 208 (proof that defendant was an "active and knowing" participant in the scheme is sufficient). The authorization may be found from the scope of the scheme or the facts and circumstances of the particular case. Krohn, 573 F.2d at 1386. ⁴

Viewing the evidence in the light most favorable to the government, Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942), we find evidence in the record that Gibson authorized and ratified the making of these statements. There is evidence that he formed GMI's sales strategy, instructed salesmen and monitored their progress. Following AMREP, Krohn, and Toney, we hold that the salesmen's statements were admissible against Gibson.

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