U.S. v. Pappert

• Decision Date: 24 January 1997
• Docket Number: No. 95-3071,95-3071
• Parties: 97 CJ C.A.R. 165 UNITED STATES of America, Plaintiff-Appellee, v. John J. PAPPERT, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1559

104 F.3d 1559

97 CJ C.A.R. 165

UNITED STATES of America, Plaintiff-Appellee, v. John J. PAPPERT, Defendant-Appellant.

No. 95-3071.

United States Court of Appeals, Tenth Circuit.

Jan. 24, 1997.

Tanya J. Treadway, Assistant United States Attorney (Randall K. Rathbun, United States Attorney, with her on the brief), Kansas City, KS, for Plaintiff-Appellee.

Daniel E. Monnat, Wichita, KS, for Defendant-Appellant.

Before TACHA, COFFIN, ^* and LUCERO, Circuit Judges.

LUCERO, Circuit Judge.

Defendant-appellant John J. Pappert, principal in an office equipment business, appeals from his conviction for three counts of mail fraud, four counts of wire fraud, and two counts of submitting false documents to a federally insured financial institution. See 18 U.S.C. §§ 1341, 1343, 1014. Pappert challenges (1) the district court's rulings on jury instructions involving good faith and materiality; (2) the sufficiency of the evidence of intent to commit fraud, use of the United States mails, and knowledge of submission of false documents to a federal bank; and (3) several sentence enhancements. Our jurisdiction arises under 28 U.S.C. § 1291 and Fed.R.App.P. 4(b). We affirm in part, and reverse in part.

I

Pappert was the president and majority shareholder of Century Office Products, Incorporated ("COPI"), a business that leased, sold, and serviced photocopier machines and other office equipment from its inception in 1980 until its demise in 1993. Pappert managed the finances and day-to-day operations of COPI, and was in charge of leasing.

COPI's leasing operation worked as follows: a representative of the company would initiate a leasing agreement with a customer, and Pappert would usually close the deal. Many of these customers were schools and school districts. Pappert sold most leases to banks or other financing sources, sometimes through a lease broker. These financing sources would pay COPI in exchange for the rights to income from the lease and to the equipment itself. If the transaction took place through a broker, the broker would pay COPI and execute a second assignment to the financing source.

COPI's practice of assigning leases was a key issue at trial. Each lease agreement contained a provision allowing COPI to assign the lease to third parties, and permitting reassignment. COPI was not obligated to notify customers of assignments, and Pappert often did not do so. In some instances, he would tell customers that he would not sell their lease, then would proceed to do so. Although Pappert claims that customers were given the choice to pay either COPI or the financing source, some customers testified that they were simply told to pay COPI and never learned that their leases had been assigned.

Periodically, Pappert would offer to replace his customers' old machines with new equipment. He convinced the customers that he would "pay off" the old leases if the customer would take out new leases on better, more up-to-date equipment. If a customer agreed to enter into a new lease, Pappert would substitute the new equipment for the old. However, his practice was to take over the installments without paying off in full the old lease. It was in this fashion that customers unwittingly became liable on multiple leases.

Pappert also misled lending institutions by replacing equipment and taking over the customers' payments on their old leases without informing the lenders. Many creditors thought that the original equipment was still in place and the customers were still making payments. Representatives of the financial institutions testified that if they had known of Pappert's repossession, they would have at least reevaluated the creditworthiness of the transaction. Most indicated that they would not have accepted the new arrangement because COPI did not have the good credit of their school district customers.

Ultimately, Pappert's operation began to implode. As he fell behind on more and more payments, several financing institutions began to call in Pappert's debt. This led him to submit forged leases through his lease broker to another bank, Superior National Bank, in an attempt to bring in cash. When that bank notified the lessees of their delinquency, the lessees discovered Pappert's ruse.

Nonpayment on the customers' many leases eventually led the financing sources to seek payment directly from the lessees. A slew of lawsuits ensued. The government tells us that 39 entities lost over $5.5 million, and Superior National Bank was put into receivership as a result of Pappert's conduct.

II

Pappert makes two arguments challenging the trial court's jury instructions. "The appropriate standard of review for challenges to jury instructions is whether the jury, considering the instructions as a whole, was misled." United States v. Smith, 13 F.3d 1421, 1424 (10th Cir.), cert. denied, 513 U.S. 878, 115 S.Ct. 209, 130 L.Ed.2d 138 (1994). Only where the reviewing court has "substantial doubt that the jury was fairly guided" will the judgment be disturbed. Id. (quoting United States v. Mullins, 4 F.3d 898, 900 (10th Cir.1993)). We review de novo to determine the propriety of a jury instruction to which objection was made at trial, and for plain error where no objection was made. Id.

A

Pappert first contends that the court was wrong to instruct the jury that "it is no defense to a charge of mail fraud or wire fraud that the defendant honestly believed in the ultimate success of his business," Appellant's Partial App. at 53 (Instruction No. 22), while failing to instruct them that "good faith" in one's representations is a defense. At trial, the court overruled Pappert's request that the court give "the good faith instruction as I commented in chambers." Tr. at 748. No record is available of the conference in chambers. Pappert did not object to the inclusion of the "honest belief" instruction.

Applying de novo review, we conclude that the lack of an instruction on good faith, considered in light of the entire set of instructions, was not misleading. Although Pappert insists that the good faith instruction was essential to his defense, a defendant is not entitled to such an instruction without a reasonable factual predicate. United States v. Grissom, 44 F.3d 1507, 1512 (10th Cir.), cert. denied, 514 U.S. 1076, 115 S.Ct. 1720, 131 L.Ed.2d 579 (1995).

There is sufficient factual support for this defense "when the jury could reasonably find ... that the defendant in good faith believed that the plan would succeed, that the promises made would be kept and the representations carried out." United States v. Hopkins, 744 F.2d 716, 718 (10th Cir.1984) (en banc). The record indicates that Pappert misled customers to think that he would pay off the loans in their entirety, sometimes sending written guarantees that loans would be paid off by a certain date, and on at least one occasion sending a copy of a check with which he falsely claimed a customer's loan had been paid off. In addition, he submitted falsified leases to financing sources. Finally, Pappert admitted to improprieties when called to task on his overdue debts, once referring to his own conduct as a "scam." In light of this record, we find that the jury could not reasonably have found that the defendant believed his own promises in good faith. Because there was not adequate factual support for the good faith defense, the district court properly refused to give a "good faith" instruction.

Because objection was not made to the "honest belief" instruction at trial, we review the district court's instruction for plain error. United States v. Smith, 13 F.3d 1421, 1424 (10th Cir.), cert. denied, 513 U.S. 878, 115 S.Ct. 209, 130 L.Ed.2d 138 (1994). "Plain error, in this context, is error that affects the defendant's right to a fair and impartial trial." Id. The court, in its instruction, accurately stated the law. United States v. Reddeck, 22 F.3d 1504, 1507 (10th Cir.1994) (" 'even though a defendant may firmly believe in his plan, his belief will not justify baseless or reckless representations' " (quoting United States v. Themy, 624 F.2d 963, 965 (10th Cir.1980))). The evidence supported giving such an instruction. Therefore, the district court did not commit plain error.

B

Pappert next asserts that the court erred in instructing the jury on the offense of submitting false documents to a federally insured financial institution. The court properly instructed the jury that materiality was an element of the offense, but added:

You are further instructed that whether the statement was material is a question for the Court, and that the Court has determined that the statements in question were material as a matter of law.

Appellant's App. at 55-56 (Instruction No. 24). Although Pappert did not object to this instruction at trial, he claims that the court's failure to submit the element of materiality to the jury was reversible error under United States v. Gaudin, 515 U.S. 506, 115 S.Ct. 2310, 132 L.Ed.2d 444 (1995), decided after this case was tried.

The first question before us is whether the district court erred. Materiality is an element of § 1014. United States v. Smith, 838 F.2d 436, 439 (10th Cir.1988), cert. denied, 490 U.S. 1036, 109 S.Ct. 1935, 104 L.Ed.2d 407 (1989). Although we have held that materiality is a question of law, see United States v. Haddock, 956 F.2d 1534, 1550 (10th Cir.1992), we have been overruled by Gaudin, 515 U.S. at ---- - ----, 115 S.Ct. at 2314-15 (rejecting argument that materiality is a purely legal question). We now hold that materiality is a mixed question of law and fact that must ordinarily be submitted to the jury. It follows that the district court committed error in this case. ¹

After oral argument was heard in this case, the court on its own motion consolidated this case with two others, United States v. Wiles, No. 94-1592 and United States v. Schleibaum, 95-1022, to hear two issues en banc: (1) "whether the failure to...