U.S. v. Kilbride

• Citation: 584 F.3d 1240
• Decision Date: 28 October 2009
• Docket Number: No. 07-10534.,No. 07-10528.,07-10528.,07-10534.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Jeffrey A. KILBRIDE, Defendant-Appellant. United States of America, Plaintiff-Appellee, v. James Robert Schaffer, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

584 F.3d 1240

UNITED STATES of America, Plaintiff-Appellee, v. Jeffrey A. KILBRIDE, Defendant-Appellant.

United States of America, Plaintiff-Appellee, v. James Robert Schaffer, Defendant-Appellant.

No. 07-10528.

No. 07-10534.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 8, 2009.

Filed October 28, 2009.

Gary Jay Kaufman (argued), Dana Milmeister, and Colin Hardacre, The Kaufman Law Group, and Gregory A. Piccionelli (argued) and Robert Sarno, Piccionelli & Sarno, Los Angeles, CA, for the defendants-appellants.

Jill Trumbull-Harris (argued), Assistant United States Attorney, United States Attorney's Office for the Northern District of Indiana, Hammond, IN, and Bonnie L. Kane, Trial Attorney, Criminal Division, United States Department of Justice, Washington, DC, for the plaintiff-appellee.

Appeal from the United States District Court for the District of Arizona, David G. Campbell, District Judge, Presiding. D.C. No. CR-05-00870-DGC-2, D.C. No. CR-05-00870-DGC-3.

Before: PROCTER HUG, JR., B. FLETCHER and MICHAEL DALY HAWKINS, Circuit Judges.

BETTY B. FLETCHER, Circuit Judge:

Defendants-Appellants Jeffrey Kilbride and James Schaffer ("Defendants") appeal their convictions and sentences for fraud and conspiracy to commit fraud in connection with electronic mail, interstate transportation and interstate transportation for sale of obscene materials, and conspiracy to commit money laundering. We affirm, but remand for a clerical correction.

Defendants' convictions arose from conduct relating to their business of sending unsolicited bulk email, popularly known as "spam," advertising adult websites. See United States v. Kelley, 482 F.3d 1047, 1055 & n. 2 (9th Cir.2007) (Thomas, J., dissenting) (discussing origins of "spam" label). Defendants argue that 1) the district court committed reversible error in its jury instructions defining obscenity; 2) 18 U.S.C. § 1037, which criminalizes fraud in connection with electronic mail, is unconstitutionally vague as applied to Defendants and on its face; 3) the district court committed a clerical error in its written judgment by labeling as felonies Defendants' convictions for fraud in connection with electronic mail; 4) Defendants' money laundering conspiracy convictions should be reversed because the required related activity charged in the Indictment was not shown beyond a reasonable doubt to be unlawful as defined in 18 U.S.C. § 1462; and 5) the district court erred in applying an obstruction of justice enhancement to Kilbride's sentence. We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291.

I. Background

A. Defendants' Bulk Email Advertising Business

Defendants began their bulk email advertising business in 2003. They initially operated the business through an American corporation, using servers in Arizona. In response to new legislation regulating email communication, the Defendants shifted the operation of their business overseas, running it through Ganymede Marketing ("Ganymede"), a Mauritian company, and using servers located in the Netherlands. Although Defendants used a business structure preventing a direct link to Ganymede, Defendants were its true owners and operators. If a recipient of Defendants' emails signed on to the advertised website and paid a fee, Defendants earned a commission from the entity promoted. The advertisements appearing in Defendants' emails included sexually explicit images, two of which formed the basis for the obscenity convictions.

Defendants had their employees place fictitious information in the headers¹ of their bulk emails. Defendants' employee Jennifer Clason created nonsensical domain names and matched them with generic user names to generate a series of different email addresses that were almost certainly nonfunctional. These were placed in the "From" field of the headers of each email sent out.² Another employee of Defendants, Kirk Rogers, designed a program utilized by Defendants that generated non-functioning email addresses in the "From" field by combining the domain name used to send each email with the recipient of the email's user name. In addition, the email address appearing in the "From" field and "Return-Path" field of the headers of Defendants' emails differed, indicating at least one was false.

Defendants also falsified information appearing in the registration of the domain names they used. The registrant for each of the emails was listed as Ganymede Marketing. The correct physical address for Ganymede was listed, but the contact person and phone number listed were false. The email listed in the registration was never tested for functionality, though the evidence indicates that at some point it became invalid. A reverse look-up of the internet provider address appearing in the email headers came back to a different entity, Kobalt Networks, registered in the Netherlands.

B. Indictment and Trial

On August 25, 2005, Defendants were indicted for conspiracy to violate 18 U.S.C. § 1037(a)(3) through fraud in connection with electronic mail (Count 1), violation of § 1037(a)(3) and (a)(4) through such fraud (Counts 2 and 3), interstate transportation of obscene materials in violation of 18 U.S.C. § 1462 (Counts 4 and 5), interstate transportation of obscene materials for sale in violation of 18 U.S.C. § 1465 (Counts 6 and 7); conspiracy to commit money laundering in violation of 18 U.S.C. § 1956 (Count 8), and failure to meet record keeping requirements in violation of 18 U.S.C. § 2257 (Count 9). Jennifer Clason was indicted as a co-conspirator. She pled guilty and testified against Defendants.

Defendants were convicted on all counts following a three-week jury trial. The two sexually explicit images forming the basis of the obscenity charges were introduced. Jennifer Clason testified to sending these images on behalf of Defendants using the Defendants' bulk email interface. Evidence was presented at trial as to the obscenity of the two images. The Government called eight witnesses from various parts of the country who had complained to the Federal Trade Commission ("FTC") about Defendants' emails. These witnesses testified to the circumstances under which they received Defendants' emails, their reactions to and attitude towards the images sent by Defendants, and their views on pornography generally. Some of the witnesses did not specifically recall receiving the two images at issue. The Government also presented evidence of over 662,000 complaints received by the FTC from around the country concerning Defendants' emails, including the text of some of the complaints. Defendants called Jay Pirouznia, a private investigator, who testified as to various digital video discs containing images similar to those at issue that he purchased in the Phoenix metropolitan area and other counties in Arizona.

Prior to the reading of the jury instructions at trial, Defendants objected to instructions relating to Counts 1 through 7 on various grounds, some of which are raised in this appeal. Following their convictions, Defendants filed a motion for judgment of acquittal or a new trial raising grounds not at issue in this appeal. The motion was denied, but a separate motion to dismiss Count 9 was granted.

C. Sentencing

Jeffrey Kilbride ("Kilbride") was sentenced to 78 months and Robert Schaffer ("Schaffer") was sentenced to 63 months. The district court determined that Defendants' convictions under Counts 1, 2, and 3 were misdemeanors under the terms of § 1037 because the jury had not been asked to make the necessary findings under the statute to render Defendants' convictions felonies. However, despite referencing the misdemeanor penalty provisions of § 1037, the written judgments for Defendants designated these convictions as felonies.

Over Kilbride's objection, the district court applied a two-level obstruction of justice enhancement to his sentence. The enhancement was based on Kilbride's attempts to prevent Laval Law, an officer of Ganymede, from testifying. Law traveled to the United States from Mauritius to testify for the Government in Defendants' trial.³ On June 8, 2007, several days prior to Law's testimony, Defendant Kilbride filed an action in the courts of Mauritius against Law and other entities, alleging the illegal disclosure of Ganymede documents. He obtained a temporary injunction prohibiting Law and the other respondents from testifying concerning the affairs of Ganymede and related entities and beneficiaries. Kilbride filed his action shortly prior to the time for Law's scheduled testimony, despite the fact that the Ganymede documents at issue in the action were obtained by the Government in 2005, and had been disclosed in discovery, and the fact that the Government had made arrangements in May 2007 for Law to travel and testify. In addition, in filing the action, Kilbride asserted an interest in Ganymede in contradiction to his attempts at trial to distance himself from Ganymede. Law subsequently declined to testify out of fear that he would be held in contempt in Mauritius. On June 11, 2007, in light of the injunction, the Government filed an emergency motion requesting that the district court enter a protective order determining the scope of Law's testimony. When confronted by the district court at a hearing on the matter, Kilbride's trial counsel agreed to take action that eventually led to the lifting of the injunction as to Law, allowing Law to testify. Rejecting Kilbride's explanations for obtaining the order, the district court found that Kilbride filed the action as an intentional tactical maneuver to prevent Law from testifying and, therefore, merited application of the obstruction of justice enhancement.

II. Discussion

A. Challenge to Jury Instructions Defining Obscenity

The Defendants challenge their convictions on Counts 4 through 7 on the ground that the district court erred in instructing the jury as to the definition of obscene expression...