U.S. v. Nance, 74-1047

Decision Date12 September 1974
Docket NumberNo. 74-1047,74-1047
Citation502 F.2d 615
PartiesUNITED STATES of America, Appellee, v. Donald R. NANCE, II, and Thomas N. Tileston, Appellants.
CourtU.S. Court of Appeals — Eighth Circuit

Theodore F. Schwartz, Clayton, Mo., for appellants.

J. Patrick Glynn, Asst. U.S. Atty., St. Louis, Mo., for appellee.

Before LAY, HEANEY and ROSS, Circuit Judges.

ROSS, Circuit Judge.

This is a joint appeal by Donald R. Nance, II, and Thomas N. Tileston from a jury verdict finding them guilty of seven of the fifteen charged counts of mail fraud in violation of 18 U.S.C. 1341. In each of the fifteen counts of the indictment Nance and Tileston were charged with use of the mail for the purpose of executing a fraudulent scheme involving the sale of distributorships for merchandise marketed on wire rack displays. Guilty verdicts were returned on seven of those counts, specifically, 2, 4, 5, 6, 7, 12, and 13. Respecting each of those verdicts, Nance and Tileston argue that the evidence was insufficient to sustain a guilty verdict; that the court prejudicially refused to give the jury their 'position' instruction; that the voir dire of the jury was prejudicially curtailed by the court; and that the jurors discussed the case among themselves before the final submission of the case, depriving defendants of a fair trial. We affirm the judgment of conviction as to counts 2, 12, and 13. We reverse as to counts 4, 5, 6, and 7.

Sufficiency of Evidence.

Nance and Tileston organized Nance and Associates, Ltd., and other corporations, to serve as a vehicle in the marketing of rack distributorships. Under the marketing concept adopted for the corporation, the two defendants negotiated to obtain distribution rights from the manufacturers of retail products: Tootsie Toys, manufactured by Strombecker Corporation; and Bardahl, manufactured by Bardahl Petroleum Products. Those manufacturers agreed to ship their products to the dealers procured by Nance and Associates, Ltd., upon receipt of advance apyment from Nance and Tileston. The products were packaged by the manufacturers for dispaly and sale on wire racks.

The solicitation of prospective dealers was accomplished by publishing offers to sell distributorship franchises in various newspapers. After a prospective dealer answered an advertisement, a letter by one of the defendants was generally sent to him acknowledging his inquiry. Thereafter a sales representative from Nance and Associates, Ltd., contacted the prospective dealer and delivered a sales pitch wherein it was represented that high quality sales locations would be obtained and continuous operations assistance and a brief training course would be provided to dealers. Interested prospective dealers were then required to deposit $800, as earnest money, presumably to secure the dealership. Procurement of the dealership was eventually confirmed by mail. Under the contract between the dealers and the defendants, the latter were to promptly ship the inventory and racks and arrange for the locations in retail outlets. The route was to be established by the defendants' 'marketing engineers' or location men. The dealer was to service the racks regularly and supply regular sales reports to Nance and Associates. All profit from the rack sales was to be retained by the dealer, with a commission payment retained by the retail outlet. The annual profit projections represented to the dealers by the defendants ranged from $5,000 to $10,000 and were set out in the advertisements and the sales manuals. The dealers were to reorder their inventory in the same fashion as the initial sale, by paying the defendants in advance, and the defendants were to have the merchandise shipped directly to the dealers.

At first the business functioned without serious problems. With the inception of a truck strike, however, in April, 1970, causing delays in shipment of inventories and racks, problems began to develop. By midsummer shipment schedules were considerably behind, partially, at least, because of the problems created by the strike. However, the evidence does not establish any deliberate failure to ship merchandise at that time. Beginning early in November, nevertheless, there is proof that cash payments were being received and not immediately applied to merchandise orders. By January, 1971, the Strombecker representative testified, Nance and Associates stopped sending checks altogether and the dealers no longer were receiving their original orders or reorders for which they had paid Nance and Associates in full.

The United States alleged in count 1 of the indictment, as false and fraudulent statements of material facts, that:

(a) Merchandise would be shipped to the dealer promptly after receipt of payment for the dealership.

(b) The dealers would receive substantial earnings promptly after commencement of the dealership.

(c) The dealers were guaranteed that their merchandise would be repurchased.

(d) The dealers would be assisted by trained personnel in establishing a merchandising business.

(e) The dealers would receive continuous operations assistance.

(f) That dealers were selected only after screening.

(g) Marketing specialists would obtain good locations for the sale of rack merchandise.

(h) Earnest money was required to reserve existing dealership route location.

Those allegations were incorporated by reference in each of the subsequent counts which charged violations of 18 U.S.C. 1341 for each of the fifteen separate mailings to fifteen separate dealers. Nance and Tileston do not challenge the sufficiency of the indictment, but they do maintain that the proof was insufficient to sustain a conviction.

The essential elements of a violation of 18 U.S.C. 1341 have been enunciated as '(1) a scheme conceived by appellant for the purpose of defrauding . . . by means of false pretenses, representations or promises, and (2) use of the United States mails in furtherance of the scheme.' Gold v. United States, 350 F.2d 953, 956 (8th Cir. 1965). See also Pereira v. United States, 347 U.S. 1, 8, 74 S.Ct. 358, 98 L.Ed. Ed. 435 (1954). 'Scheme' to defraud within the purview of this section involves some connotation of planning and pattern. Fabian v. United States, 358 F.2d 187, 193 (8th Cir.), cert. denied, 385 U.S. 821, 87 S.Ct. 46, 17 L.Ed.2d 58 (1966). Thus, intent to defraud is an essential element. It may be inferred by all the facts and circumstances surrounding a transaction. United States v. Porter, 441 F.2d 1204, 1210 (8th Cir. cert. denied, 404 U.S. 911, 92 S.Ct. 238, 30 L.Ed.2d 184 (1971). The 'use of the mails' requirement has similarly been judicially construed. To bring the scheme within the ambit of the mail fraud statute, the mails must be used for the purpose of executing the scheme, Kann v. United States, 323 U.S. 88, 93, 65 S.Ct. 148, 89 L.Ed. 88 (1944); must be employed before the scheme reaches fruition, United States v. Maze, 414 U.S. 395, 94 S.Ct. 645, 38 L.Ed.2d 603 (1974); yet, need not be contemplated as an essential element of the scheme, Pereira v. United States, supra, 347 U.S. at 8, 74 S.Ct. 358.

We have examined the entire record recognizing that the verdict must be sustained if there is substantial evidence, taking the view most favorable to the government, to support it. Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 86 L.Ed. 680 (1942). In our opinion there was not sufficient evidence, as a matter of law, to sustain the government's position that a scheme to defraud was devised and implemented from the outset of the business operations of Nance and Associates. To be sure there were representations made which were likely to be misinterpreted by the individuals who purchased dealerships. But the government failed to produce evidence of specific misrepresentations indicating guilty knowledge and fraudulent intent at the outset of the business or immediately thereafter on the part of Nance and Tileston.

Viewing all of the evidence in the light most favorable to the government, including the permissible inferences flowing therefrom, we conclude that the government did prove a scheme to defraud on the part of Tileston and Nance but that such scheme was not proven to have originated at least until early November of 1970. This timing becomes important because the letters which are the subjects of counts 4, 5, 6, and 7 were all mailed prior to the time the scheme was shown to have originated and those letters therefore cannot be said to have been for the purpose of executing the scheme or in furtherance of it. The convictions on those counts must be reversed. As to the remaining counts the evidence was sufficient. Count 2 specifies a letter mailed by Tileston to a Mr. Douglass on March 21, 1971. It related to an original order from Douglass which was never forwarded to Strombecker and never received by Douglass despite payment in full to Nance and Associates in advance. Count 12 specifies a letter mailed by Tileston to a Mr. Pace on February 11, 1971, in regard to reordering Bardahl products. Pace testified that he paid $301.48 in advance for additional Bardahl products but never received them. Count 13 specifies a letter dated November 10, 1970, from Nance to a Mr. Schultz encouraging Schultz to become a Bardahl dealer. Schultz bought a Bardahl dealership, paying the balance of $2,752.88 on January 4, 1971, and received nothing in return. His request for a refund was ignored.

The fact that Nance and Tileston did not personally authorize each mailing by the other is not significant. In Isaacs v. United States, 301 F.2d 706 (8th Cir.), cert. denied, 371 U.S. 818, 83 S.Ct. 32, 9 L.Ed.2d 58 (1962), a mail fraud case, this Court said:

Each participant in a scheme to defraud is responsible for the use of the mails and wire used to execute and carry out the scheme.

"Where two or more persons jointly devise and...

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