U.S. v. Lyons, 04-50082.
| Decision Date | 17 July 2006 |
| Docket Number | No. 04-50082.,No. 04-50127.,04-50082.,04-50127. |
| Citation | 453 F.3d 1222 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. Timothy James LYONS, Defendant-Appellant. United States of America, Plaintiff-Appellee, v. Gabriel Sanchez, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
John H. Weston, Weston, Garrou & DeWitt, Los Angeles, CA; William J. Kopeny, William J. Kopeny & Associates, Irvine, CA, for the defendants-appellants.
Ellyn Marcus Lindsay, Assistant United States Attorney, Los Angeles, CA, for the plaintiff-appellee.
Appeal from the United States District Court for the Central District of California, David O. Carter, District Judge, Presiding. D.C. Nos. CR-02-00319-DOC-01, CR-02-00319-DOC-2.
Before SIDNEY R. THOMAS and M. MARGARET McKEOWN, Circuit Judges, and SAMUEL P. KING,* Senior Judge.
Rare is the person who relishes getting calls from those great patrons of the telephone, telemarketers.1 Yet many charities, especially small, obscure or unpopular ones, could not fund their operations without telemarketers. Some professional telemarketers take the lion's share of solicited donations, sometimes requiring and receiving commission rates of up to 85%. Most donors would probably be shocked or surprised to learn that most of their contributions were going to for-profit telemarketers instead of charitable activities. But the Supreme Court has held that, under the First Amendment, the bare failure to disclose these high costs to donors cannot, by itself, support a fraud conviction. Madigan v. Telemarketing Assocs., Inc., 538 U.S. 600, 606, 123 S.Ct. 1829, 155 L.Ed.2d 793 (2003). Evidence of high fundraising costs may, nonetheless, support a fraud prosecution when "nondisclosure is accompanied by intentionally misleading statements designed to deceive the listener." Id.
In this appeal we consider, among other things, under what circumstances the government may introduce high commission rates as evidence in a criminal fraud case. Timothy Lyons and Gabriel Sanchez challenge their convictions for mail fraud and money laundering on the basis that they never lied, and never asked the telemarketers in their employ to lie, about the fact that around 80% of donations to their charities were earmarked for telemarketing commissions.
Lyons and Sanchez did, however, misrepresent to donors how they spent contributions net of telemarketer commissions. Their undoing was not that the commissions were large but that their charitable web was a scam. Donors were told their contributions went to specific charitable activities when, in reality, almost no money did. We conclude that the government did not violate the First Amendment by introducing evidence that over 80% of donations went to telemarketers.
Lyons and Sanchez also claim non-constitutional error involving the admission of evidence and jury instructions. These claims lack merit. We affirm the convictions and order a limited remand pursuant to United States v. Ameline, 409 F.3d 1073, 1078-79 (9th Cir.2005) (en banc).
We first describe the scheme Lyons and Sanchez devised, and then turn to the specific representations made to potential donors through both telemarketers and promotional pamphlets, and how Lyons and Sanchez actually spent the funds they received.
Around early 1994, long-time friends Lyons and Sanchez decided to form a business in which Sanchez would run a church and Lyons would supervise telemarketers to raise money for the church. Sanchez formed the First Church of Life (FCL), which had no congregation, services or place of worship; its address belonged to the house of Sanchez's father. Lyons formed a fundraising company called North American Acquisitions (NAA).
In pursuit of their scheme, the pair created six charities under the FCL umbrella and selected names likely to attract sympathy and donations, including the AIDS Research Association, Children's Assistance Foundation, Cops and Sheriffs of America, Handicapped Youth Services, U.S. Firefighters, and U.S. Veterans League. None of these charities had infrastructure separate from FCL. The groups also had little if any actual contact with the people or causes they purported to support.
NAA outsourced most operations to third-party telemarketers to solicit donations on behalf of FCL's charities. Donors usually sent checks, made out to the various FCL charities, to the telemarketers. On average, the telemarketers took 80% of the donated funds as commission. NAA kept another 10%, and the last 10% was deposited into the respective accounts of the six FCL charities. We explain later in greater detail how funds were distributed.
As a registered fundraiser, NAA filed annual financial reports with the State of California and disclosed all funds collected and all fees that went to the third-party telemarketers and NAA. By December 1997, FCL had lost its tax-exempt status in California, so Sanchez registered a new church in Nevada, Christian Outreach Ministries, through which he ran the six charities originally under the FCL umbrella.
In 1997, a California newspaper published articles calling Sanchez's operation a scam. Sanchez left Christian Outreach Ministries and began to work for NAA. The operation of the charities fell to other co-schemers.
Lyons and Sanchez went to Nevada, where they incorporated yet another church, Mercy Ministries, later renamed Glory Ministries. The church became the umbrella organization for six new charities, which inherited money and similar-sounding names from the old charities.2
In 2000, Lyons sold the assets of NAA to Roger Lane. According to his employees, Lyons kept operational control of NAA. Although employees were told to regard him as a consultant, Lyons was still in charge and actively involved.
During the course of the scheme, Lyons and Sanchez raised over $6 million for the various causes. Out of these millions raised on behalf of the six FCL charities, very little was spent on charitable activities — according to the government, about $4,800.3 This amount is small, even as a percentage of the net donations received after paying telemarketers' commissions. Most of the charities' funds actually went to Sanchez's personal expenses — home rent, car payments, loan payments, legal expenses, medical expenses, and credit card payments.
Nevertheless, Lyons and Sanchez wrote scripts for telemarketers to read to would-be donors, as well as promotional pamphlets, that suggested otherwise.4 Every script and pamphlet mentioned a number of specific charitable activities purportedly funded by donors' contributions. We review in turn each of the six charities, what each charity promised, and what each charity actually delivered.
AIDS Research Association claimed that its goals were to "provide funds to local A.I.D.S. hospitals to help find a cure or at least to help funding of drug programs which may enhance or lengthen the life of A.I.D.S. patients," and to "provide funds to local A.I.D.S. patients by giving in-home care or just helping out families when a person dies of A.I.D.S." No evidence indicates that the Association ever gave funds to hospitals, AIDS patients or their families. According to the government, the association raised $261,257 in 1998 and 1999 but spent no money at all on charitable activities.
Children's Assistance Foundation claimed that its goal was to "eventually open a facility [for] ... long term care for children and their families," and that its activities included "relocat[ing] entire families" and "helping children and their families... by providing food, shelter, medical care, and simple family expenses." The group did not help multiple "families" or "children," though Sanchez himself provided exactly one woman and her child food and shelter for several months. The foundation raised $465,596 in 1998 and 1999, but could document spending just $100 on charitable activities.
Cops and Sheriffs of America claimed to finance "various crime prevention and drug awareness programs throughout the country" and provide police officers education on "state of the art" crime-fighting equipment and techniques. The group published a magazine annually containing paid advertisements. The charity changed its name to Police and Sheriff's Support Fund, which purported to provide free self-defense classes, financial support for neighborhood watch programs and "families of slain officers," and contributions to "The National Law Enforcement Officers Memorial." Of its advertised activities, the Fund offered only a single self-defense class attended by a few NAA or FCL employees. The group raised $828,928 in 1998 and 1999, with only $400 spent on charitable activities.
Handicapped Youth Services purported to help provide "wheelchairs, crutches, walkers or any other equipment that these children may need but financially cannot afford," and to take handicapped children to "fairs, museums, and amusement parks to give some cheer to their lives." In 1998 and 1999, the charity raised $602,643. The group documented spending no money at all on charitable activities.
The pamphlet for U.S. Firefighters said that it funded "various fire prevention and awareness programs throughout the country," including the education of "professional and volunteer firefighters" on "state-of-the-art equipment and techniques of firefighting and fire prevention." Apparently, one person went to low income houses in Orange County on behalf of the group, installed fire extinguishers and smoke detectors, left information, and gave away 50-75 fire extinguishers. Nothing in the record suggests that any firefighters were educated. In 1998 and 1999, the group raised $752,270 but could document only $3,015 spent on its charitable activities.
U.S. Veteran's League claimed to provide clothing,...
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