U.S. v. Stout, 91-1679

• Decision Date: 04 June 1992
• Docket Number: No. 91-1679,91-1679
• Citation: 965 F.2d 340
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Kevin B. STOUT, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 340

965 F.2d 340

UNITED STATES of America, Plaintiff-Appellee, v. Kevin B. STOUT, Defendant-Appellant.

No. 91-1679.

United States Court of Appeals Seventh Circuit.

Argued Dec. 6, 1991.

Decided June 4, 1992.

Rodger A. Heaton, Asst. U.S. Atty. (argued), Office of the U.S. Atty., Springfield, Ill., for plaintiff-appellee.

Mitchell K. Shick (argued) and David Y. Eberspacher, Heller, Holmes, Hefner & Eberspacher, Mattoon, Ill., for defendant-appellant.

Before BAUER, Chief Judge, EASTERBROOK, and KANNE, Circuit Judges.

BAUER, Chief Judge.

If, as a society, one of the criterion by which we are judged is how we treat our elderly, we can only hope that the facts of this case will be viewed as the exception rather than the norm. Defendant-appellant Kevin B. Stout appeals from his conviction on four counts of mail fraud relating to the sale of life insurance policies to three women in their seventies and eighties. From our opening sentence, it should come as no surprise that we affirm.

I.

In 1986 and 1987, Stout, a state licensed insurance agent, sold insurance through Randy Coonce & Associates, an insurance agency in Charleston, Illinois. The agency's president, Randy Coonce, purchased referral, or lead cards from the National Association of Retired Persons ("NARP"). The cards contained the names, addresses, and phone numbers of NARP members interested in financial investments that would provide a certain return. Stout obtained a number of the cards and then contacted the persons named thereon with the intent to sell them a universal life insurance policy offered by Inter-State Assurance Company ("IAC"), called the Flexlife II.

Flexlife II, like all basic life insurance policies, paid a benefit to the named beneficiary on the death of the insured, and accumulated a cash value based on the premiums paid and the insurance in force. In addition, assuming that a certain ratio were maintained between the cash value of the policy and the death benefit that it provided, Flexlife II offered several tax benefits for policyholders. These benefits included deferral of income tax on the 9.5 percent interest earned on the cash value of the policy, the ability to borrow against the cash value of the policy tax-free, the ability to withdraw cash from the policy's cash value on a first in, first out basis, and a tax-free death benefit to the beneficiary. Although the IAC policy offered certain investment aspects, IAC never authorized it for sale as a pure investment program. For persons up to eighty-five years, IAC required a physical examination before it would issue a Flexlife II policy. But, the higher the age of the insured, the higher the cost of the insurance, and the lower the return on the investment features of the policy. Further, the older the insured, the longer it would take for the policy to reach the "break-even" point. This is the point at which the cash value of the policy is equal to the amount of premiums paid. Indeed, for the more elderly insured the policy would never break-even because the high cost of the insurance exceeded the portion of the premium left to accrue interest.

Stout was successful in selling the IAC policy to approximately 30 people, the majority of whom were fifty-five years old and older. He admitted that he targeted senior citizens, claiming they were more readily available during daytime hours. To service younger customers employed during the daytime, Stout would have to work evening hours. Among the persons Stout sold IAC policies to were Theo Bridges, Zola Wolfe, and Gladys Robinson. When IAC issued the policies, it sent them their copies through the United States mail.

Theo Bridges, seventy-eight at the time of trial, is a retired school teacher. In response to a mailing from the NARP, she returned one of the lead cards requesting more information about investment programs that offer tax benefits. That card found its way to Stout, who found his way to Bridges's house in March of 1987. He told Bridges he was selling an investment. Stout described a program under which Bridges could earn 9 percent interest tax-free, and that would allow her to withdraw her money at any time. As she remembered it, Stout did not mention insurance at all; moreover, she did not want, or need, any life insurance. Bridges filled out an application, which she thought was the required paperwork for this investment, and gave Stout $1000 to get started.

Stout forwarded the application to IAC, who denied coverage. Undaunted, Stout contacted Bridges to inform her that although she did not personally qualify, she could still invest her money in an IAC policy on her daughter. Bridges agreed, and her initial $1000 payment to Stout went toward the policy on her daughter. Of that amount, Stout received $500 as his commission. At the end of the first year Bridges owned it, this policy had a cash value of $437.

In October 1987, Bridges contacted Stout when a certificate of deposit she owned matured. She wanted to add the money, $16,500, to her investment with IAC. Instead of purchasing more insurance from IAC, however, Stout used Bridges's money to purchase a policy from Pioneer Life Insurance Company. Bridges neither completed an application for this policy, nor did she authorize Stout to do so. He did it nonetheless, using information he obtained from Bridges for the IAC policy. He had no personal information on her daughter, so he filled out the form with incorrect data. Then he forged both of their signatures, disguising his handwriting, and signed the application as a witness to the signatures of the two women.

Stout explained at trial that he decided to use Bridges's money to purchase the Pioneer policy rather than the IAC because he feared Randy Coonce would not forward the $16,500 to IAC. He admitted, however, that his commission from Pioneer was greater than what he would have received from IAC. He also admitted he never informed Bridges of his unilateral decision to use her money to buy the Pioneer policy.

In April 1987, Zola Wolfe, an eighty-five year old retired school teacher, also received a house call from Stout. He told her he sold life insurance and was interested in selling her a policy. She responded that she did not need or want any insurance. She could not recall discussing investments with Stout. Nonetheless, Stout came away from this meeting with Wolfe's signature on an application for Flexlife II insurance, which called for an annual premium of $4000. When IAC denied coverage, Stout, without authorization from Wolfe, submitted an application for a policy on Wolfe's daughter. Once again, Stout filled in incorrect information for the insured Wolfe's daughter, and forged both women's signatures on the application.

Gladys Robinson, an eighty-three year old retired office worker, also filled out one of the NARP lead cards. Stout visited her in September 1987. He offered to sell her a tax-free investment that offered a 9.5 percent return. Having her interest piqued, Robinson gave Stout a check for $1000 for this investment. Stout said nothing to her during this meeting about life insurance. (If he had, he would have learned Robinson neither wanted nor needed any life insurance.) Stout, however, did ask her some questions involving her health that she believed were related to the investment opportunity. A month later, Robinson gave Stout an additional $4000 for this investment. For her $5000, Robinson purchased $41,916 worth of life insurance that after a year would have a cash value of only $654. Because of her age, her policy would never reach the break-even point.

In time, the Illinois State Police began investigating the fraudulent sales of insurance policies by Randy Coonce & Associates insurance agency. In April 1988, Ned A. Bandy, then an investigator with the Fraud and Forgery Division, interviewed Stout. Other interviews with law enforcement agents followed. During those interviews Stout admitted that he believed some of his customers, specifically Bridges, Wolfe, and Robinson, did not understand that they were buying insurance. (At trial, however, he testified that he believed they all understood they were buying insurance.) He admitted to the agents that he forged Bridges's and her daughter's signatures, and that he knew he should not have bought the Pioneer policy with her money without talking to her about it.

One result of this investigation was that Bridges, Wolfe, and Robinson all got their money back from IAC. Another result was that a federal grand jury sitting in Danville, Illinois, indicted Stout on four counts of mail fraud, in violation of 18 U.S.C. §§ 1341 and 1342, for his fraudulent conduct in the sale of insurance policies to seven individuals. Subsequently, a seven-count superseding indictment issued. Prior to trial, the government voluntarily dismissed counts three and six. The matter was tried without a jury. The testimony of two of the elderly witnesses, Wolfe and Robinson, was presented by way of videotaped evidence depositions. At the trial's conclusion, the trial judge found Stout not guilty on count seven, but guilty on counts one (Bridges), two (Bridges), four (Wolfe), and five (Robinson). After a hearing, the judge sentenced Stout to ten months imprisonment on counts one, two, and four, and twenty-four months probation on count five, to run consecutive to his prison term. As a condition of probation, the judge ordered Stout to pay $984 restitution to the Pioneer Life Insurance Company. Additionally, Stout was ordered to pay a special assessment of $200. Stout filed a timely notice of appeal to this court.

II.

Stout's opening challenge is to the trial judge's denial of two pretrial motions. The first, denial of his motion for discovery or in camera inspection of the grand jury proceedings, we can dispose of summarily. The essence of his argument is that the prosecutor failed to present exculpatory evidence to the grand jury, which he claims was...