U.S. v. Ranney

• Decision Date: 01 August 2002
• Docket Number: No. 01-2531.,No. 01-1912.,No. 01-1913.,01-1912.,01-2531.,01-1913.
• Citation: 298 F.3d 74
• Parties: UNITED STATES of America, Appellee, v. William RANNEY, Sr. Defendant, Appellant. United States of America, Appellee, v. Dennis Cioffi, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 74

298 F.3d 74

UNITED STATES of America, Appellee, v. William RANNEY, Sr. Defendant, Appellant.

United States of America, Appellee, v. Dennis Cioffi, Defendant, Appellant.

No. 01-1912.

No. 01-2531.

No. 01-1913.

United States Court of Appeals, First Circuit.

Heard June 13, 2002.

Decided August 1, 2002.

COPYRIGHT MATERIAL OMITTED

Miriam Conrad, with whom Terrance J. McCarthy was on briefs, for appellants.

Joshua S. Levy, Assistant United States Attorney, with whom Michael J. Sullivan, United States Attorney, was on brief for appellee.

Before TORRUELLA and LIPEZ, Circuit Judges, and SCHWARZER,^* Senior District Judge.

SCHWARZER, Senior District Judge.

Defendants William Ranney, Sr. ("Ranney") and Dennis Cioffi ("Cioffi") (collectively, "defendants") were named in a twenty-five-count indictment charging conspiracy to commit mail and wire fraud, along with several substantive counts of mail and wire fraud. Following a jury trial, Ranney was convicted of conspiracy in violation of 18 U.S.C. § 371, four counts of wire fraud in violation 18 U.S.C. § 1343, and one count of mail fraud in violation of 18 U.S.C. § 1341. Cioffi was convicted of one conspiracy count and two wire fraud counts.

On appeal, defendants press four contentions, the first by both defendants and the others by Ranney alone. First, defendants challenge the court's denial of their motion for a hearing pursuant to Franks v. Delaware, 438 U.S. 154, 98 S.Ct. 2674, 57 L.Ed.2d 667 (1978). Second, Ranney contends that the court's jury instructions improperly lessened the government's burden of proof. Third, Ranney argues that the court committed clear error in calculating the loss attributable to the fraud. Fourth, Ranney challenges the district court's denial of his motion to correct the judgment under Rule 36.

PROCEDURAL BACKGROUND

On December 17, 1998, a magistrate judge signed a search warrant authorizing the search of the premises occupied by Big Top Gumball, a company engaged in the marketing of the "Big Top" gumball vending machine. In support of its search warrant application, the government submitted a thirty-page affidavit by F.B.I. agent Geoffrey Kelly, detailing how Big Top had defrauded twelve customers. Pursuant to this warrant, the government seized several boxes of business records, including promotional materials, telephone sales scripts, customer files, invoices, customer waiting lists, a customer "temperature" list (indicating a customer's degree of irritation), and related records. This evidence was eventually received at defendants' trial.

On July 14, 2000, defendants moved for a Franks hearing, alleging that the government had intentionally misled the magistrate judge in seeking this warrant. On December 1, 2000, the court held a hearing on the Franks motion. Defendants argued that the affidavit wrongly implied that Quick Silver Development Corporation ("Quick Silver"), the manufacturer of the machines, held a patent on an essential element of the machine and that it failed to disclose bias on the part of Greg Malavazos, a Quick Silver employee. When the court inquired further, the government acknowledged that it had taken no steps to confirm the patent's existence.

On December 4, 2000, the court denied the motion, and the government filed a report stating that it had discovered that Quick Silver did not own the patent at issue. The court then denied defendants' motion for reconsideration.

After a thirteen-day trial, defendants were convicted on all counts. The court sentenced Ranney to fifty-seven months' imprisonment and three years' supervised release and ordered him to pay restitution of $407,647. It sentenced Cioffi to twenty-four months' imprisonment and three years' supervised release and ordered restitution of $309,090.

Following entry of judgment Ranney filed a Rule 36 motion to amend the judgment to deduct losses incurred before the inception of the conspiracy and by one customer who had received an incomplete machine. The amendment would have reduced Ranney's Guideline range from 57-71 months to 51-63 months. The court denied the motion.

Defendants now appeal. We have jurisdiction pursuant to 28 U.S.C. § 1291 and 18 U.S.C. § 3742, and affirm.

FACTUAL BACKGROUND

Defendants were convicted of running a telemarketing fraud operation using their company, Big Top Gumball ("Big Top"). In April 1996, Big Top contracted with Quick Silver to manufacture vending machines. By the time Quick Silver began full-scale production in September 1996, Big Top had approximately 200 unfilled orders. Quick Silver manufactured roughly 250 machines before halting production in December 1996. In February 1997, when Quick Silver canceled its contract, Big Top found itself without a manufacturer. Nonetheless, Big Top continued to market its product, soliciting new orders and promising delivery within six to eight weeks. By July 1997, Big Top owed 175 machines to more than 60 customers who had already paid deposits. Twenty-one customers on this list had paid in full, but had not received their machines. Big Top continued to solicit new orders until the end of 1998 despite never having secured new production capacity.

The Kelly affidavit, apart from chronicling the activities of the defendants' scheme, related the experiences of eighteen of Big Top's customers who had paid 50-100% of the purchase price but never received delivery despite Big Top's repeated promises of imminent delivery. The affidavit also contained information regarding Big Top's lack of access to production capacity and Quick Silver's alleged patent on certain parts. Specifically, paragraphs 14 and 21 of the affidavit contained the following information:

[Malavazos] advised me that Big Top lacks the patented computer hardware necessary to manufacture [the] machines themselves. Thus, for nearly two years, even though it has not purchased any machines from its supplier and it does not apparently have the capability to manufacture these gumball machines on its own, Big Top has solicited orders and accepted money based, in part, on the representation of guaranteed delivery within six to eight weeks.... The only way that Big Top could manufacture such a machine themselves would be if [it was] able to secure another manufacturer for these computer electronics board [sic], which have been patented by Quick Silver.

DISCUSSION

I. DENIAL OF FRANKS MOTION

We review the court's denial of the Franks hearing for clear error. United States v. Grant, 218 F.3d 72, 76 (1st Cir.2000).

A Franks hearing is warranted where the defendant makes a "substantial preliminary showing" that (1) a false statement,(2) knowingly and intentionally, or with reckless disregard for the truth, was included in the warrant affidavit, and (3) the allegedly false statement is necessary to the finding of probable cause. Franks, 438 U.S. at 155-56, 98 S.Ct. 2674. As the government conceded below, the affidavit contained a factual error; Quick Silver in fact held no patents to parts of the machines so as to preclude Big Top's securing another manufacturer. Because defendants do not allege the statement to have been made with actual knowledge of its falsity, we consider only whether it was made with reckless disregard for the truth and, if it was, whether it was necessary to the finding of probable cause.

A. Reckless Disregard for the Truth

To prove reckless disregard for the truth, the defendant must prove that the affiant "in fact entertained serious doubts as to the truth" of the allegations. United States v. Williams, 737 F.2d 594, 602 (7th Cir.1984) (internal quotations omitted) (agreeing with United States v. Davis, 617 F.2d 677, 694 (D.C.Cir.1979) holding that the First Amendment definition should be applied by analogy in the Franks setting); see also Beard v. City of Northglenn, 24 F.3d 110, 116 (10th Cir.1994) (same). Recklessness may be inferred "from circumstances evincing obvious reasons to doubt the veracity of the allegations." Williams, 737 F.2d at 602 (internal quotations omitted).

Defendants' principal contention is that Kelly should have checked whether Quick Silver actually had the patent Malavazos claimed it had. Although Kelly could have made such an investigation, defendants have shown no circumstances indicating that he had reason to doubt the patent's existence. Under the circumstances, his failure to probe further does not amount to reckless disregard. United States v. Dale, 991 F.2d 819, 844 (D.C.Cir.1993) ("failure to investigate fully is not evidence of an affiant's reckless disregard for the truth.").

Defendants also argue that Kelly should have entertained serious doubts as to Malavazos's credibility because he had provided different estimates of Big Top's debt to Quick Silver in three interviews. We agree with the government that these discrepancies are tangential, and that Kelly rightly focused on Malavazos's chief assertion, that Big Top had no production capacity to manufacture machines after February 1997, constituting the heart of the fraud. This assertion was corroborated by information Kelly obtained from Big Top customers who had purchased machines after February 1997, but had never received them.

B. Probable Cause

Even had defendants been able to clear the reckless disregard hurdle, they failed to make the requisite substantial preliminary showing that absent the false information the affidavit contained insufficient evidence to support a finding of probable cause. Franks, 438 U.S. at 171-72, 98 S.Ct. 2674.

They contend that in the absence of the false patent ownership statement, the allegations in the affidavit of Big Top's conduct amounted to no more than "poor customer service" or "puffing" regarding anticipated delivery time, not sufficient to support a probable cause finding of mail fraud. But these statements, far from being mere opinion or puffing, were specific factual representations about product shipment schedules.

Moreover, the undisputed...