U.S. v. Hathaway

Citation798 F.2d 902
Decision Date20 August 1986
Docket NumberNo. 85-1520,85-1520
Parties21 Fed. R. Evid. Serv. 436 UNITED STATES of America, Plaintiff-Appellee, v. James Harrison HATHAWAY, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)

James E. VanderRoest argued, Vlachos, Jerkins & Hurley, Kalamazoo, Mich., for defendant-appellant.

Charles E. Chamberlain, Jr. argued, Asst. U.S. Atty., Grand Rapids, Mich., for plaintiff-appellee.

Before ENGEL, KENNEDY and MILBURN, Circuit Judges.

MILBURN, Circuit Judge.

Defendant appeals his convictions of twenty-eight counts of mail fraud, six counts of wire fraud, and six counts of interstate transportation of securities taken by fraud, in violation of 18 U.S.C. Secs. 2, 1341, 1343, and 2314. For the reasons that follow, we affirm.

I.

On August 7, 1984, a fifty-count indictment was returned against defendant. 1 In the indictment, defendant was charged with thirty-seven counts of mail fraud under 18 U.S.C. Sec. 1341, seven counts of wire fraud under 18 U.S.C. Sec. 1343, and six counts of interstate transportation of securities taken by fraud under 18 U.S.C. Sec. 2314. These charges stem from defendant's involvement in a firm known as First National City Funding, Inc. ("FNCF"). FNCF dealt in what the government characterizes as deferred delivery contracts offering investors an opportunity to speculate in precious metals.

In the indictment, the grand jury alleged that defendant engaged in a scheme to defraud the investing public from whom FNCF had obtained approximately $440,000.00. The grand jury further charged that defendant failed to protect customer investments as promised, misrepresented FNCF employee qualifications and training, misstated trade prices of metals, assessed unexplained charges to accounts, failed to maintain and furnish accurate account information, engaged in stalling tactics to avoid paying on accounts, represented that FNCF would maintain a segregated bank account into which customer remittances would be placed for protection, made substantial unexplained cash withdrawals from these segregated accounts, used customer funds for personal expenditures, and used the corporate attorney to intimidate customers.

Defendant's trial began on March 5, 1985, and concluded on April 15, 1985. Two days after the conclusion of the trial, the jury returned its verdict finding defendant guilty on forty counts. Defendant was sentenced on June 5, 1985.

ISSUES ON APPEAL

Defendant's appeal raises seven issues: whether the trial court erred in admitting out-of-court statements of FNCF employees; whether the trial court erred in admitting FNCF business records; whether the trial court erred in admitting evidence as to how defendant used customer funds for personal purposes; whether the trial court erred in instructing the jury that statements made with reckless indifference as to their truth or falsity would satisfy the misrepresentation element of mail and wire fraud; whether the district court erred in instructing the jury that it is not necessary that the alleged scheme actually succeeded in defrauding anyone; whether the trial court properly instructed the jury regarding the fact that a scheme to defraud had to consist of misrepresentations; whether the trial court constructively amended the indictment by instructing the jury that under 18 U.S.C. Sec. 2314 the government could prove that the securities at issue were either stolen, converted, or taken by fraud when the indictment alleged such characteristics in the conjunctive.

II.
A. Hearsay

Although FNCF began as a two-man operation, it eventually employed several "account executives" or sales people. At trial, FNCF customers testified to what they had been told by FNCF "account executives." Defendant objected to this testimony arguing that the statements offered by the witnesses were inadmissible hearsay. The government argued that the statements were not inadmissible hearsay for two reasons. First, the government argued that the statements were not being offered for the truth of the matter asserted and thus were not hearsay as that term is defined in Rule 801(c) of the Federal Rules of Evidence. Second, the government argued that the statements in question fell within the scope of the Rule 801(d) provision of statements which are not hearsay. The district court held that the statements were admissible.

The testimony in question falls into one of two categories: statements offered to prove the falsity of the matter asserted and statements offered neither for the truth nor falsity of the matter asserted. 2

Prior to the adoption of the Federal Rules of Evidence, the Supreme Court noted:

Out-of-court statements constitute hearsay only when offered in evidence to prove the truth of the matter asserted. The [out-of-court testimony at issue], however, was not admitted into evidence ... to prove the truth of anything asserted therein. Quite the contrary, the point of the prosecutor's introducing those statements was simply to prove that the statements were made so as to establish a foundation for later showing, through other admissible evidence, that they were false. The rationale of the hearsay rule is inapplicable as well. The primary justification for the exclusion of hearsay is the lack of any opportunity for the adversary to cross-examine the absent declarant whose out-of-court statement is introduced into evidence. Here, since the prosecution was not contending that anything [in the out-of-court statements] was true, the other defendants had no interest in cross-examining them so as to put their credibility in issue.

Anderson v. United States, 417 U.S. 211, 219-20, 94 S.Ct. 2253, 2260, 41 L.Ed.2d 20 (1974) (footnotes omitted). The definition of hearsay as including only those statements offered for the truth of the matter asserted was included in the Federal Rules of Evidence. Fed.R.Evid. 801(c).

When statements are offered to prove the falsity of the matter asserted, there is no need to assess the credibility of the declarant. Since there is no need to assess the credibility of the declarant of a false statement, we know of no purpose which would be served by extending the definition of hearsay to cover statements offered for the falsity of the matter asserted. We therefore join those courts which have concluded that statements offered to prove the falsity of the matter asserted are not hearsay. See United States v. Wellington, 754 F.2d 1457, 1464 (9th Cir.) (false representation made to an investor not hearsay because probative value was independent of truth), cert. denied, --- U.S. ----, 106 S.Ct. 592, 593, 88 L.Ed.2d 573 (1985); United States v. Adkins, 741 F.2d 744, 746 (5th Cir.1984) (holding that statements introduced to prove falsity of matter asserted not hearsay), cert. denied, --- U.S. ----, 105 S.Ct. 2113, 85 L.Ed.2d 478 (1985).

With regard to the second category of statements--those offered to prove neither the truth nor the falsity of the matter asserted--we hold that the statements were not inadmissible. Just as is the case with statements offered to prove the falsity of the matter asserted, when a statement is offered to prove neither the truth nor falsity, there is no need to assess the credibility of the declarant. The significance lies entirely in the fact that the words were spoken. Thus, the statement does not fall within the Rule 801(c) definition of hearsay nor would the purposes of the hearsay rule be served by treating it as hearsay. See United States v. Shepherd, 739 F.2d 510, 514 (10th Cir.1984) (hearsay rule inapplicable to statement which was, by its nature, neither true nor false).

B. FNCF Business Records

Defendant's next argument is that the district court erred in admitting into evidence certain records seized from FNCF offices. The documents in question included transaction statements (the documents FNCF sent to customers confirming orders), trade tickets CF forms reflecting a customer's order,advertising materials, copies of cancelled checks, client files (documents on which FNCF retained data regarding customers, correspondence, and client account agreements.

The government argues that these documents were admissible under two theories. The government argues first that the documents were not offered for the truth of the matters asserted and, thus, were not hearsay under Rule 801(c). Alternatively, the government argues that if the records were hearsay, they were admissible under the business records exception set out in Rule 803(6). The district court admitted the records under Rule 803(6).

1. Admissibility Under Rule 803(6)

Defendant's attack on the district court's conclusion is twofold. First, defendant points out that in order to lay the requisite foundation for the evidence to be admissible under Rule 803(6), the government relied in part on the testimony of an FBI agent. Defendant asserts that the use of this testimony was impermissible because the agent was "not ... the proper custodian of the record as contemplated by Rule 803(6)." To support his argument, defendant relies heavily on Calhoun v. Baylor, 646 F.2d 1158 (6th Cir.1981), where, in affirming the district court's exclusion of evidence, we stated: "Rule 803(6) is inapplicable because the witness ... played no role in the creation or compilation of the records and was therefore in no position to attest to their reliability." 646 F.2d at 1162. From that, defendant argues that in this circuit only those individuals who play a role in the creation or compilation of records can be used to lay the requisite foundation under Rule 803(6). While this argument is not without some appeal, we are unable to accept it.

To accept defendant's interpretation of the passing statement in Calhoun would put this circuit at odds with every other circuit and commentator known by this court to have addressed the issue. Similarly, for us to have held in Calhoun that only those who play a role in the...

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