U.S. v. Krohn, s. 76-2176

• Citation: 573 F.2d 1382
• Decision Date: 05 June 1978
• Docket Number: 76-2177,Nos. 76-2176,s. 76-2176
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Paul Stanley KROHN, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. William G. HAHN, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 1382

573 F.2d 1382

UNITED STATES of America, Plaintiff-Appellee, v. Paul Stanley KROHN, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. William G. HAHN, Defendant-Appellant.

Nos. 76-2176, 76-2177.

United States Court of Appeals Tenth Circuit.

Argued and Submitted Jan. 23, 1978.

Decided April 3, 1978.

Certiorari Denied June 5, 1978.

See 98 S.Ct. 2857.

Joseph F. Dolan, U. S. Atty., Denver, Colo. (Richard S. Vermeire, Asst. U. S. Atty., Denver, Colo.) (Cathlin Donnell, U. S. Atty. (Interim), Denver, Colo., on the brief), for plaintiff-appellee.

Robert M. Vockrodt, Aurora, Colo., for defendant-appellant Krohn.

Daniel J. Sears, Federal Public Defender, Denver, Colo., for defendant-appellant Hahn.

Before HOLLOWAY, BARRETT and DOYLE, Circuit Judges.

HOLLOWAY, Circuit Judge.

Defendants appeal their convictions and sentences ¹ after adverse jury verdicts on a five count indictment for mail fraud in violation of 18 U.S.C. § 1341 (1976). ² Viewing the evidence most favorably to the Government as we must in considering these appeals after convictions, United States v. Twilligear, 460 F.2d 79, 81-82 (10th Cir.), the record tends to show the following facts.

Sometime in January, 1972, defendants created Rocky Mountain Enterprises of Denver, Inc. (RME). Defendant Hahn held the title of "President" and defendant Krohn held the title of "General Manager and Secretary." (R. VII 37). The purpose of the company was to sell distributorships for wholesale distribution of various products: Wallfrin automotive accessories, Triumph Smokes (a non-nicotine cigarette) and Crown Sporting Goods. RME would then purchase merchandise from these manufacturers and sell it to their distributors.

In order to sell distributorships RME placed ads in newspapers throughout the country. Salesmen trained by RME would follow-up responses to these ads and offer exclusive distributorships to a given territory. After a distributorship was sold, RME "account coordinators" were to come to the territory and secure high-volume locations for the products. RME had the responsibility for finding suitable merchandise locations as well as providing product advertising. Merchandise was to be placed at these locations on consignment, the distributors servicing them. ³ Distributors were to make money through profit on those goods sold at the locations they serviced.

The Government's proof tended to show, inter alia, that the defendants had a scheme to defraud the buyers of distributorships in that defendants knew when representations were made to the buyers that those representations were false as to the supply and quality of merchandise, the success of the distributorship business, and the various forms of assistance to marketing of the products which was supposed to be furnished, and that in carrying out the scheme the defendants caused the mails to be used in RME's contacts with the five buyers listed in the five counts of the indictment. The defendants each vigorously contend that they did not engage in such a scheme asserting, inter alia, that they made no false representation or any statement about the business which they knew was untrue. Further they maintained in the trial court, and assert on appeal, that the Government's case is fatally defective, primarily because it was based on allegedly inadmissible hearsay statements attributed to RME salesmen and the defendants, in violation of the Confrontation Clause, and on unauthenticated documents erroneously admitted by the trial court.

The evidence will be detailed as necessary in discussing the appellate contentions, to which we now turn.

I

First, both defendants argue that there is insufficient evidence because their convictions rest on erroneously admitted hearsay, violative of the Confrontation Clause, and on other improper evidence. More specifically, defendants say that the trial court erred in admitting in evidence statements attributed to various representatives of RME. Hahn points particularly to statements by Cole Curtis as related by witnesses claiming to be victims of the scheme. Hahn also attacks admission of testimony relating statements by defendant Krohn and admission of a letter purportedly signed "Bill" for William G. Hahn, and other correspondence. Hahn says that at the time of admission of such evidence, and throughout the trial, no conspiracy or scheme and no agency basis for admission of the evidence was established.

Krohn similarly complains that evidence of hearsay statements by RME employees Charles Morelli and Curtis was improperly admitted without any foundation, that the record showed that Hahn and not Krohn trained sales personnel, including Morelli and Curtis, that there was no proof that Morelli and Curtis were members of a conspiracy or had any knowledge of any illegal purposes of the venture, that numerous hearsay and unauthenticated documents consisting of complaint letters and contracts were admitted, and that no limiting instruction was given at the time of the admission of such evidence as is required by Lutwak v. United States, 344 U.S. 604, 619, 73 S.Ct. 481, 97 L.Ed. 593.

The main issue underlying these contentions is whether there was sufficient proof to establish that a fraudulent scheme existed and that both defendants participated therein. While the argument is framed as a hearsay and confrontation proposition, actually this is not the problem as to the essential parts of the evidence which are in controversy. The statements and representations complained of were not offered to prove the truth of the matters stated, and indeed the Government says the statements were essentially untrue. Since the Government sought to prove the making of the statements but not the truth of the matters asserted by them, there is no actual hearsay question, Anderson v. United States, 417 U.S. 211, 219, 94 S.Ct. 2253, 41 L.Ed.2d 20; see Rule 801(c), F.R.E., nor a confrontation issue. See Dutton v. Evans, 400 U.S. 74, 88, 91 S.Ct. 210, 27 L.Ed.2d 213. There is, however, a parallel problem whether these defendants are responsible for the acts and statements of each other as participants in a fraudulent scheme and for the acts and statements of agents or employees of a fraudulent enterprise. Thus we will consider cases speaking in those terms, and also cases applying similar principles as hearsay rules and exceptions where a conspiracy or an unlawful enterprise of two or more parties is involved.

The governing rules are well settled. Under principles similar to hearsay rules applied in conspiracy cases, ⁴ participants in a multi-party mail fraud scheme have been held responsible for communications which other participants caused to be mailed in execution of the scheme, although a conspiracy was not charged. United States v. Joyce, 499 F.2d 9, 16-17 (7th Cir.); United States v. AMREP Corp., 560 F.2d 539, 545 (2d Cir.), (cert. pending). Furthermore, statements and representations by salesmen which are expressly or impliedly authorized or ratified by the person against whom they are offered may be admitted, although the salesmen are not alleged to be parties to the fraudulent scheme. See Beck v. United States, 305 F.2d 595, 600-601 (10th Cir.), cert. denied, 371 U.S. 890, 83 S.Ct. 186, 9 L.Ed.2d 123; United States v. AMREP Corp., supra, 560 F.2d at 545. And the authorization by the defendant of such statements by a salesman may be found in the circumstances of the particular case, in the scope of the plan or scheme, or from other pertinent facts. Beck v. United States, supra, 305 F.2d at 600; Fabian v. United States, 358 F.2d 187, 191-92 (8th Cir.), cert. denied, 385 U.S. 821, 87 S.Ct. 46, 17 L.Ed.2d 58.

It is often difficult to prove fraudulent intent by direct evidence and it must be inferred in such cases from a pattern of conduct or a series of acts, aptly designated as badges of fraud. United States v AMREP Corp., supra, 560 F.2d at 546. The 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. Beck v. United States, supra, 305 F.2d at 600-601. But for such proof of the statements and acts of other participants in the scheme or of agents acting for them to be admissible against a particular defendant, there must be independent evidence of his own participation establishing that he was a member of the conspiracy or scheme. See Tripp v. United States, 295 F.2d 418, 422 (10th Cir.); United States v. AMREP Corp., supra, 560 F.2d at 545.

However, the order of proof is within the sound discretion of the trial judge. Evidence of the acts and statements of other participants in the fraudulent enterprise or their agents may be admitted prior to demonstrating participation in the scheme by the objecting defendant, so long as the foundation is subsequently laid. Beckwith v. United States, 367 F.2d 458, 460 (10th Cir.). In the final charge the trial court did clearly instruct the jury here as to the required foundation for consideration of such evidence against the defendants (R. IX, 10): ⁵

So, if a defendant or any other person with understanding of the unlawful character of a plan, knowingly encourages, advises, or assists for the purpose of the furthering of the undertaking or scheme, he thereby becomes a wilful participant.

In determining whether an unlawful scheme or plan existed, the jury should consider the actions and declarations of all of the alleged participants. However, in determining whether a particular defendant was a member of such plan or scheme, if any, the jury should consider only his actions and statements. He cannot be bound by the actions or declarations of other participants until it is established that a common plan or scheme existed, and that he was one of its members.

We must consider the...