U.S. v. Thomas

• Decision Date: 19 April 1979
• Docket Number: 78-5374,Nos. 78-5249,s. 78-5249
• Citation: 593 F.2d 615
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. John H. THOMAS and Jon-T Farms, Inc., a corporation, Defendants-Appellants. UNITED STATES of America, Plaintiff-Appellee, v. John H. THOMAS, also known as J. H. Thomas, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 615

593 F.2d 615

UNITED STATES of America, Plaintiff-Appellee, v. John H. THOMAS and Jon-T Farms, Inc., a corporation,

Defendants-Appellants.

UNITED STATES of America, Plaintiff-Appellee, v. John H. THOMAS, also known as J. H. Thomas, Defendant-Appellant.

Nos. 78-5249, 78-5374.

United States Court of Appeals Fifth Circuit.

April 19, 1979.

Travis D. Shelton, Lubbock, Tex., Michael E. Tigar, John J. Privitera, Washington, D.C., for defendants-appellants.

Kenneth J. Mighell, U.S. Atty., Fort Worth, Tex., Bob D. Slough, Asst. U.S. Atty., Lubbock, Tex., for plaintiff-appellee.

Appeals from the United States District Court for the Northern District of Texas.

Before GEE and VANCE, Circuit Judges, and HUNTER, ^* District Judge.

GEE, Circuit Judge:

Appellants John Thomas and Jon-T Farms, Inc. were jointly indicted on 44 counts charging violations of 15 U.S.C. § 714m(a) and 18 U.S.C. § 2 (making or causing to be made false statements to the Commodity Credit Corporation (CCC) for the purpose of obtaining payments under the 1972 and 1973 Upland Cotton Allotment programs) and 47 counts charging violations of 15 U.S.C. § 714m(c) and 18 U.S.C. § 2 (causing conversion of CCC property by arranging cotton support payments for persons not qualified to receive them). Appellant John Thomas alone was named in an additional conversion count. After a jury trial, appellants were convicted on all counts, with the exception of one false statement count that was dismissed by the trial judge. Thomas received three-year concurrent sentences on all counts and a $3,000 fine on each false statement count. Jon-T Farms, Inc. was fined $5,000 on each false statement count.

In a second indictment John Thomas individually was charged with four counts of making and causing to be made false tax returns in violation of 26 U.S.C. § 7206(1). After a trial to the court on one count of the indictment, he was found guilty. ¹ He was fined $5,000 and received a three-year sentence to run concurrently with the sentences in the cotton case. These two cases have been consolidated for appeal. Appellants challenge the convictions on a host of grounds requiring varying amounts of factual background for proper analysis. We will supply the facts relevant to each issue as we proceed. ²

With respect to the cotton fraud indictment, appellants first challenge the sufficiency of the evidence to support the jury verdicts on the false statement counts. The cotton fraud indictment is based on appellants' participation in the Upland Cotton Program, ³ which is administered through the Commodity Credit Corporation. ⁴ In 1970, Congress amended the Agricultural Adjustment Act to provide that no "person" could receive more than $55,000 in any crop year as a price support payment for upland cotton. ⁵ Congress authorized the Secretary of Agriculture to promulgate regulations defining person and assuring a fair and reasonable application of the payment limitation. ⁶ The regulations in effect in 1972 and 1973 provided that each individual entitled to share in the proceeds of a joint venture farming operation would be considered a separate person for the purpose of applying the payment limitation as long as the individual was actively engaged in the farming operations of the joint venture, by capital contribution or otherwise. 7 C.F.R. § 795.6 (1973). ⁷ The regulations also provided that if the land was custom farmed, ⁸ the custom farmer would not be considered a separate person from the person for whom he was performing the custom farming if the custom farmer had either a direct or an indirect interest in the farm as landowner, landlord, or in any other similar capacity. 7 C.F.R. § 795.15 (1973). ⁹ The regulations further provided that any changes in farming operations by lease or otherwise would be disregarded for the purpose of applying the payment limitation unless the changes were bona fide, substantive, and legally binding. 7 C.F.R. § 695.13 (1973). ¹⁰

Jon-T Farms, Inc. is a wholly owned subsidiary of Jon-T Chemicals, in which appellant Thomas is the majority stockholder. Under the new regulations, Jon-T Farms was no longer eligible for price support payments for its entire farming operation. Consequently, the corporation leased most of its land to two joint ventures, Gaines County Farms (GCF) and Gaines County Joint Venture (GACO). Thomas recruited business associates and employees to become members of the joint ventures. ¹¹ Generally, each venturer signed a personal note at a bank selected by Thomas, a power of attorney, ASCS Form 516 (Intention to Participate and Payment Application), ASCS Form 36 (Assignment of Payment), a joint venture agreement, and a lease. C. R. Bruce was selected to custom farm the land for both joint ventures. Based on Jon-T Farms' submission of ASCS Forms 516 and 580, ¹² each joint venturer received a cotton price support payment of approximately $53,000 from the government in 1972 and in 1973. The jury found appellants guilty on 43 false statement counts based on the submission of Form 516 in 1972 and 1973 and Form 580 in 1973. The false statement counts were prosecuted on the theory that appellants made false statements to the CCC by the submission of the forms applying for payments in the name of each joint venturer and certifying compliance with the Upland Cotton Program when appellants knew that the joint venturers were not entitled to receive the payments because they were not involved in a bona fide and substantive joint venture farming operation separate and apart from appellants as required by the regulations.

Appellants claim that the evidence established that the joint venturers were entitled to receive payments because the operation was in fact in compliance with the regulations. The government responds that the joint venture operations were not in compliance in two respects. First, the government contends that the paper structures were shams rather than bona fide and substantive changes in appellants' farming operations. Second, the government claims that Bruce was an employee of Jon-T rather than an independent contractor; therefore, the joint venturers were not separate persons under the regulations because their custom farmer had an interest in the land farmed.

Viewed in the light most favorable to the government, ¹³ the evidence established that, although the paper structures created by appellants were in compliance with the regulations, the appellants did not act in accordance with the paper structures. On paper, there were two separate entities, GACO and GCF, but the entities were not treated as separate and distinct by the parties. At the direction of Thomas, the cotton crops from the two joint ventures were combined, and the profits or losses were apportioned among the total number of joint venturers in the operation. According to the paper structures, all management and operation decisions required the agreement of a majority of the joint venturers. But the record reflects that virtually all decisions were made solely by John Thomas. The profits and losses of each joint venture were supposed to be shared equally by its members, but neither profits nor losses were shared equally. In 1973, Thomas directed that $3,000 in profits be distributed only to those members of the joint ventures who were also employees of Jon-T; those members of the joint ventures who were not Jon-T employees received nothing. ¹⁴ Whenever a joint venturer withdrew from the operation, the loss was apportioned among the remaining joint venturers instead of requiring the withdrawing venturer to pay his proportionate share of the losses to the date of withdrawal. From this evidence, together with other evidence too extensive to discuss, the jury was entitled to conclude that the joint ventures were in fact shams rather than bona fide and substantive joint ventures.

There was also sufficient evidence to support a jury conclusion that Jon-T was performing the custom farming for the joint ventures through its employee C. R. Bruce. Although Bruce was ostensibly an independent contractor working for the joint ventures and there is some evidence to support such a characterization, ¹⁵ the evidence as a whole indicated that he was actually a Jon-T employee. There is really no other reasonable explanation for Jon-T's extensive involvement with Bruce. Jon-T provided a large amount of the equipment used by Bruce and paid the fuel bills for the custom farming operation. Jon-T hired a person whose full-time responsibility was to oversee the custom farming operation. Bruce's bank statements were regularly sent to Jon-T for reconciliation, and Bruce and his bookkeeper, selected by Jon-T, were carried on Jon-T's payroll health insurance plan. Bruce was authorized to purchase Jon-T stock by a corporate resolution designating him as a key and valuable employee. ¹⁶ There is ample evidence to support the jury's conclusion that Jon-T was performing the custom farming for the joint ventures through its employee C. R. Bruce.

Under either theory, therefore, and despite the considerable amount of conflicting evidence in the case, we must agree with the government that the evidence was sufficient to support the jury's ultimate conclusion that the statements were in fact false because the joint venturers were not entitled to receive government payments. ¹⁷

Appellants next argue that the imposition of criminal liability in the cotton fraud case is not in accordance with the doctrine of strict construction of criminal statutes. ¹⁸ See, e. g., United States v. Laub,385 U.S. 475, 480, 87 S.Ct. 574, 577, 17 L.Ed.2d 526 (1967). Appellants' argument on this issue is very narrow. They do not challenge the Secretary's authority to issue the regulations nor do they challenge the potential applicability of 15 U.S.C. § 714m as an enforcement mechanism for these regulations. Instead, they contend only that, strictly construed, the statutory and regulatory scheme then in...