U.S. v. McLennan

• Decision Date: 19 October 1977
• Docket Number: No. 76-2365,76-2365
• Parties: 2 Fed. R. Evid. Serv. 750 UNITED STATES of America, Plaintiff-Appellee, v. Philip A. McLENNAN and Fred H. Bender, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 943

563 F.2d 943

2 Fed. R. Evid. Serv. 750

UNITED STATES of America, Plaintiff-Appellee, v. Philip A. McLENNAN and Fred H. Bender, Defendants-Appellants.

No. 76-2365.

United States Court of Appeals Ninth Circuit.

Oct. 19, 1977.

Leslie M. Roberts, Norman Sepenuk, Portland, Or., argued for defendants-appellants.

Marc Blackman, U. S. Atty., Portland, Or., argued for plaintiff-appellee.

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

Before DUNIWAY, ELY and CHOY, Circuit Judges.

DUNIWAY, Circuit Judge:

Defendants McLennan and Bender appeal from judgments convicting them of (1) making false statements in a matter within the jurisdiction of a department or agency of the United States, (2) making false statements for the purpose of influencing the action of the Department of Housing and Urban Development (HUD), and (3) conspiring to make such false statements and to defraud the United States, all in violation of 18 U.S.C. §§ 371, 1001, and 1010 (1970). We affirm.

FACTS

During the years 1971 through 1975, defendants, through two non-profit corporations, applied for loans from HUD under the College Housing Act of 1950, 12 U.S.C. §§ 1749 et seq. (1970), for the purpose of designing and constructing seven college dormitory facilities in four states. The Act provided for loans covering "project costs" incurred by a borrower and concurred in by HUD and prohibited profit-making by a borrower. Architectural costs were limited to those actually "necessary" for the construction of the particular project being funded.

From October, 1971, to April, 1975, the defendants received a total of $961,282 from HUD, which they repeatedly represented in loan applications, through owner-architect agreements, in fund requisitions and in final project costs decertifications, as being paid or payable to the project architect, Charles Dahlen. In reality, Dahlen was not an independent contractor as HUD was led to believe, but rather a salaried employee of the defendants. After paying Dahlen's salary and expenses, the defendants divided the remainder of the money received from HUD for architect's fees, roughly $600,000, between them. These criminal charges resulted from their false statements that this money was to pay or was paid to the architect. Defendants' primary defense was that they acted in good faith, thus lacking the specific intent required to violate the applicable statutes. As part of that theory, they claimed that at all times they had acted on the advice of their counsel and accountants.

On this appeal, the defendants raise two issues: ¹ (1) whether certain testimony was inadmissible hearsay and irrelevant; and (2) whether the district court erred in its instruction to the jury concerning the dismissal of part of the indictment.

I. The Alleged Hearsay Statement.

Defendants challenge the admission of certain testimony of their former attorney on the grounds that it was (1) inadmissible hearsay, and (2) irrelevant. ²

The defendants' former attorney, Burnett, testified about the advice which he had given them. The statement made by Burnett, which is now being challenged, was elicited in the following exchange on direct examination by the government.

Q. Now, were you aware, in 1971, that funds were being paid from an account in the name of Charles Dahlen to Mr. Bender and Mr. McLennan?

A. No.

Q. Were you aware of that in 1972?

A. No.

Q. Did you become aware of that in 1973?

A. In late 1973, yes.

Q. When you did learn from Mr. Bender about these transfers, do you specifically recall what it was that you said to him?

A. Yes.

Q. And what was it?

A. "For Christ's sake, I told you that was illegal." (Reporter's Transcript 407, 409)

Defendants claimed that their good faith reliance upon the advice of counsel negated the fraudulent intent that was an essential element of the charge. Advice of counsel is no defense unless the defendant gave his attorney all of the facts, and unless counsel specifically advised the course of conduct taken by the defendant. Bisno v. United States, 9 Cir., 1961, 299 F.2d 711, 719-20, cert. denied, 1962, 370 U.S. 952, 82 S.Ct. 1602, 8 L.Ed.2d 818.

Under these rules, the questions and answers about Burnett's awareness of the facts in 1971, 1972, and 1973 were clearly relevant. Moreover, because Burnett was speaking of what he knew, and when, his answers were not hearsay. Defendants do not disagree.

They concentrate their fire on the last answer quoted above. It was clearly relevant and damaging to their defense of good faith reliance upon their attorney's advice. The issue is whether it was admissible. Judge Skopil in his order denying the defendants' motion for a new trial concluded that the statement was not hearsay because it was offered to prove something other than the truth of what was said, Fed.R.Evid. 801(c), and therefore was admissible. He was right.

In late 1973, defendants' auditors raised questions about what defendants had done and were doing with the moneys that, according to defendants' certifications to HUD, were to go to the architect. One of the defendants thereupon called in Burnett, and the incident that is quoted resulted. At that time, moneys were still to be received from HUD, and thereafter the defendants again certified to HUD that a named percentage of the moneys claimed were to go to the architect. Two of the counts in the indictment, Counts VII and VIII, relate to those false certifications.

The exclamation was not a mere assertion by the attorney that he had told the defendants something in the past. In the circumstances in which it was made, the attorney having been called in for advice, and one of the defendants having just told him what they were really doing, the statement would clearly tell the defendants: "I'm telling you now that is illegal," or so a jury could find. The reference to the previous advice, and the attorney's obvious surprise and dismay strongly reinforce his opinion, making his statement even stronger than if he had merely said, "That is illegal." The statement was relevant as present notice; it was not merely an assertion of past notice to the defendants.

Moreover, the statement was not offered or admitted to prove the truth of what Burnett said that defendants' actions were illegal or that in the past he had told them "That is illegal" but simply to show that the statement concerning illegality had been made. When the defense is advice of counsel, the advice given, whether correct or not, and whether recitals in it are true or not, is always admissible. Usually the defense of advice of counsel is raised where the conduct involved is illegal. Thus, almost by definition the advice relied upon will have been erroneous but given and relied upon in good faith. The words spoken are the advice given. Advice is customarily given in words, and when advice is the question, the words which constitute the advice are classic examples of verbal acts, admissible because they were spoken, whether true or false. Such verbal acts are not hearsay. They come in to bring home notice to the defendant in a case like this. United States v. Kutas, 9 Cir., 1976, 542 F.2d 527, 528. See also Phillips v. United States, 9 Cir., 1965, 356 F.2d 297, 301, cert. denied, sub nom. Walker v. United States, 1966, 384 U.S. 952, 86 S.Ct. 1573, 16 L.Ed.2d 548. Thus, if the attorney had added: "I told them that I had discussed this with several attorneys expert in these matters, and that they all agreed with me that that is illegal," that too would be admissible, whether or not the witness' statement of what he had done and what he had been told was true. It would still be a statement by the attorney of the advice he had given.

United States v. Freeman, 9 Cir., 1975, 519 F.2d 67, also supports this conclusion. In that case, Freeman was appealing her conviction for "bail jumping" which was based upon her failure to appear in district court on a specific date. A major issue in the district court was whether she knew that she had been ordered to appear on that date. Her attorney was asked, under oath, whether he had previously stated to the court that he had told his client when she was scheduled to appear. We said:

Counsel was not asked whether he had advised appellant of the order that she appear on May 20th; instead, he was asked whether, on that date, he had stated to the court that he had done so. An affirmative response to the former question, insofar as it constituted evidence of utterances and writings offered to show the effect on the hearer or reader, would not have been subject to attack as hearsay. See, e. g., McCormick, Evidence § 249 (2d ed. 1972), 519 F.2d at 69.

In Freeman, the statement was not elicited to show its effect upon the court but rather to show that Freeman knew the date of the court appearance. The statement was relevant only if it showed that the attorney did tell Freeman, his client, when to appear. At issue was the very truth of the matter asserted. Here, the statement was offered to show its effect upon the defendants. Here, it is the fact that the statement was made, not its truth, that is relevant and material. That is precisely the distinction recognized by the court in Freeman, supra. Our case is like the case that would have been before the court in Freeman if in that case "(c)ounsel was . . . asked whether he had advised appellant of the order that she appear on May 20th . . . . An affirmative response to (that) question . . . would not have been subject to attack as hearsay."

Moreover, the fact that the statement was made was also compelling evidence that before November, 1973, Burnett was not aware that the defendants had been personally appropriating the architect's fees. It shows the attorney's lack of knowledge about the defendants' activities. From this the jury could conclude that the defendants had not fully informed their lawyer of all the material facts when they were soliciting his advice, thus...