U.S. v. Snelling, 87-5325

• Decision Date: 01 September 1988
• Docket Number: No. 87-5325,87-5325
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Duane Francis SNELLING, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 150

862 F.2d 150

UNITED STATES of America, Plaintiff-Appellee, v. Duane Francis SNELLING, Defendant-Appellant.

No. 87-5325.

United States Court of Appeals,

Eighth Circuit.

Submitted May 13, 1988.

Decided Sept. 1, 1988.

Daniel M. Scott, Minneapolis, Minn., for defendant-appellant.

Donald M. Lewis, Asst. U.S. Atty., Minneapolis, Minn., for plaintiff-appellee.

Before LAY, Chief Judge, JOHN R. GIBSON, Circuit Judge, and PECK, ^* Senior Circuit Judge.

JOHN W. PECK, Senior Circuit Judge.

After a twelve day jury trial, defendant-appellant Duane Snelling was convicted on eleven counts of inducing interstate transportation in aid of a scheme to defraud in connection with his activities with Kitco, Inc., a business of which he was sole owner and manager from September 1981 to July 1982. Kitco's office was located in New Hope, a suburb of Minneapolis. Kitco sold plastic forming machines as part of a business opportunity package that included the training and marketing of plastic items produced by the machines. The machines sold by Kitco could be operated in the basement or garage of the owner's home. The machine heated a layer of plastic drawn by a vacuum over molds placed on the bed of the machine. The formed plastic was then cooled, trimmed and painted to produce embossed signs such as the kind displayed in commercial storefronts. The plastic could also be used to form paint can and roller trays, plaques and other items.

Snelling became involved in the plastic forming business in 1981 when he met Robert Velasco who was producing and marketing plastic signs in a business known as Distinctive Products. Snelling and an associate, John Farkas, worked for Velasco temporarily and then left to begin their own businesses. Snelling recruited several salesmen who worked on commission in various cities. Snelling adapted promotional material initially developed by Velasco and used it to assemble a "pitch book" or presentation book for Kitco salesmen. Advertisements were placed in area newspapers to attract customers. Interested investors were urged to travel to New Hope to meet with Snelling. If a sales contract was signed, the salesman would receive a 20 percent commission. The package sold for $23,865. Snelling authorized Kitco salesmen to tell potential investors that Kitco would provide the market for the products made on each machine. A newspaper advertisement declared: "contract work gives you $3,000 per month guaranteed income." Those who responded to the advertisement received a letter from Snelling that stated:

Our plan for you is time proven, effective and workable. With no previous experience on your part, you can be successful. You have your own company in this profitable and easy to manage business. We provide several years of successful experience in order to guarantee your success. We also provide all the necessary contract and retail outlets, so no selling is required by you, whatsoever, other than customer relations and business management.

A Kitco brochure stated:

Q: Is there any selling involved?

A: You will be a manufacturer, and as such must spend your time making the product. Your orders will come from manufacturers' representatives, dealers and distributors for the products you choose to manufacture. Your training will include the entire spectrum of marketing the many different types of products that can be made on this equipment. You do no actual selling yourself.

Q: How long before I start earning money?

A: This is a cash business and a turnkey type of operation. It can be arranged for your cash income to start from the first day your shop is set up.

Another promotional brochure proclaimed:

The list of products and product components that can be manufactured by our equipment, numbers in tens of thousands. Some examples would be:

indoor and outdoor identification displays

lighting products

blistering packaging containers

point of purchase displays

wall plaques

parts trays

module sign letters

plastic molds for plastercraft

Since it takes time to establish yourself in one of the many product lines, we have developed a tried and true system for starting you out profitably.

The day you open your doors you know you have the core of a sales dept. and the assurance that only thorough training and fine equipment can give you.

Our business opportunity program is basically concerned with production of a wide variety of ready to sell products which are sold both at the retail and wholesale level to every small and large business through representatives, manufacturers reps, dealers, distributors, and jobbers. Our program offers all the services necessary to assist you in attaining a profitable business level in the shortest possible time. Products which you will produce in your first weeks of operation will provide you with immediate income.

The operation of our equipment and systems has been perfected to such a degree that it is possible for us to make this opportunity available to individuals or groups who have no prior experience in the plastics industry. This is primarily due to the methods which we have developed to simplify the processing and basic preparation for production along with finishing procedures.

In April 1982, Snelling proposed to Shamrock Industries, a Minneapolis plastic processor, that Kitco's "subcontractors" would deliver "scrap" plastic to Shamrock and Shamrock would grind it and extrude it into recycled plastic. Kitco would then purchase the recycled plastic with an additional supply of virgin plastic, and have Shamrock ship it back directly to Kitco machine owners. The agreement was formalized on May 28, 1982. Kitco investors then received notices from Kitco to send their paint can trays to a new address. Unbeknownst to the investors, this address was that of the plastic reprocessor, Shamrock, not a distribution center for their products. All of their products were merely reprocessed into raw plastic and shipped back to Kitco operators.

In July 1982 Shamrock stopped supplying plastic to Kitco because it was not being paid. Kitco's operators were also complaining at that time that they were having difficulties obtaining payment for the products they had finished and shipped. They were not receiving money for the completed contract order and, in fact, were being shipped raw plastic which was debited from their accounts.

At approximately the same time the deal with Shamrock fell through, Snelling left Kitco and transferred the business to Farkas. Snelling was subsequently indicted by a federal grand jury on Feburary 4, 1987. He was charged with eleven counts of inducing interstate transportation in aid of a scheme to defraud in violation of 18 U.S.C. Sec. 2314. After ten days of trial, the jury returned verdicts of guilty on all eleven counts. Snelling was sentenced to 30 months imprisonment and to probation for a term of 5 years upon his release from confinement. The court also ordered Snelling to pay $10,000 in restitution to each of the eleven victims of the offense.

Defendant-appellant Snelling argues that Kitco was set up as a legitimate business opportunity with a quality machine, a qualified training force, and a support staff ready to answer questions. Snelling claims that the business was adequately capitalized but that its downfall was in not being able to "balance" an adequate manufacturing organization with the proper amount of orders to keep the manufacturers in business. Appellant...