U.S. v. Zang

• Decision Date: 07 June 1982
• Docket Number: 80-2228,Nos. 80-2227,s. 80-2227
• Citation: 703 F.2d 1186
• Parties: 10 Fed. R. Evid. Serv. 1489 UNITED STATES of America, Plaintiff-Appellee, v. W. Darrell ZANG and Louis Porter, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1186

703 F.2d 1186

10 Fed. R. Evid. Serv. 1489

UNITED STATES of America, Plaintiff-Appellee, v. W. Darrell ZANG and Louis Porter, Defendants-Appellants.

Nos. 80-2227, 80-2228.

United States Court of Appeals Tenth Circuit.

June 7, 1982.

Rehearing Denied April 26, 1983.

B. Hayden Crawford, Tulsa, Okl. (Joe D. Dillsaver, Tulsa, Okl., with him on the brief), of Crawford, Crowe & Bainbridge, Tulsa, Okl., for defendant-appellant W. Darrell Zang.

John A. Field, III, of Jerris Leonard & Associates, P. G., Washington, D. C. (James C. Lang and William J. Wenzel, of Sneed, Lang, Adams, Hamilton, Downie & Barnett, Pat Malloy and Pat Malloy, III, of Malloy, Thompson & Malloy, Tulsa, Okl., with him on the briefs), for defendant-appellant Louis Porter.

Stephen P. Learned, U. S. Dept. of Justice, Washington, D. C. (Frank Keating, U. S. Atty., N. D. Okl., Tulsa, Okl., with him on the brief), for plaintiff-appellee.

Before SETH, Chief Judge, McWILLIAMS, Circuit Judge, and BRIMMER, District Judge ^*.

SETH, Chief Judge.

The defendants, W. Darrell Zang and Louis Porter, were convicted by a jury of one count of conspiracy (18 U.S.C. Sec. 371), six counts of mail fraud (18 U.S.C. Sec. 1341 and Sec. 2), eight counts of wire fraud (18 U.S.C. Sec. 1343 and Sec. 2), and one count of racketeering (18 U.S.C. Sec. 1962(a), Sec. 1963, and Sec. 2). The court sentenced each of the defendants to five years on each count to be served concurrently, a total fine of $49,000, and ordered the forfeiture, pursuant to 18 U.S.C. Sec. 1963(a)(1), of the defendants' respective interests in Dalco Investments, which included an interest in the Dalco Building.

The facts leading up to their indictment and conviction concern the purchase and resale of crude oil. The government alleged that from approximately December of 1976 through September of 1978 the appellants fraudulently miscertified over one million barrels of lower tier priced controlled crude oil as higher tier crude oil resulting in an illegal profit of nearly 7.5 million dollars.

Mr. Porter owned, among other businesses, a company known as Dalco Petroleum, Inc. which had as one of its wholly owned subsidiaries, Dalco Crude, Inc. (Dalco). In 1976 he formed Dalco Crude, Inc. to operate a crude oil and natural gas liquids trading business. Mr. Porter hired Mr. Zang to run the enterprise. Mr. Zang had previously been the vice president and regional manager of Western Crude Oil, Inc. (Western). As the manager of Dalco Crude Mr. Zang received an annual salary and an interest in the profits. Later in January of 1978 Dalco Crude, Inc. was succeeded by Dalco, Inc., a company owned jointly by Mr. Porter and Mr. Zang.

In December of 1976 Dalco negotiated with Cities Services (Cities) for the purchase of 310,000 barrels of low tier crude oil. Under that contract Dalco would pay Cities' acquisition cost which was based on posted prices for crude oil, the gathering charges or pipeline fees, plus 24 cents per barrel. Dalco simultaneously resold the crude to Western. Under the contract with Western Dalco received an acquisition cost based on posted prices, plus 19 cents per barrel.

The basis for the indictment was that Dalco recertified the lower tier crude oil from Cities as high tiered crude oil and thus a higher priced crude, when it was resold to Western. The then prevailing price control regulations required the producer to certify the tier of the oil sold and each reseller was required to certify the crude to its purchaser to be of the same tier as the certification it received. The certification was usually typed on the reseller's invoice. As a reseller Dalco was thus required to pass onto Western the same tier designation it had received for the oil. Because of the fraud perpetrated through miscertification the government alleged that Dalco overcharged Western $7,482,837.

Similar arrangements were negotiated between Cities and Western through July of 1978. Dalco negotiated for the purchase and resale of about 15,000 barrels per day, and over a fifteen-month period 7,629,442 barrels were traded in this manner.

Mr. Porter claims that he had no involvement in the transaction except for financing. He claims that Mr. Zang was in charge of preparing the invoices and that he was never aware of any violations until September or October of 1978. Mr. Zang claims that he did not intend to defraud Western, downstream purchasers, or the United States. He argues that he made a good-faith effort to comply with what he described as the confusing and complicated pricing and certification regulations. The appellants advance several points on appeal:

1. What had become known as the BAC invoice and Falcon letter were improperly admitted into evidence;

2. The conspiracy convictions were not supported by the evidence;

3. The trial court should have dismissed the RICO count;

4. Several of the defendants' exhibits concerning the DOE regulations were improperly excluded;

5. The trial court wrongfully denied defendants' requested jury instructions;

6. The Emergency Petroleum Allocation Act (EPAA) implicitly preempts Title 18.

The appellants argue that the BAC invoice and the Falcon letter were improperly admitted as false exculpatory evidence. These documents resulted from an attempt by Mr. Zang and Mr. Porter to cover up the crude oil certification imbalance. Thus on March 31, 1978 Mr. Porter had prepared and placed in Dalco's file an invoice from BAC Petroleum billing Dalco $275,000 as BAC's commission for arranging Dalco's purchase of foreign crude from Falcon Petroleum, Ltd. This transaction allegedly occurred in March and April of 1978 in an effort to balance Dalco's incoming and outgoing crude oil tier certification. This liability was questioned in late August of 1978 when an outside auditor asked why the liability had not been paid. Mr. Porter explained that since Dalco was unable to obtain port facilities the offer of foreign crude oil had to be turned down, but he and John Draughon, his business partner from BAC, agreed to the $275,000 commission.

However, the accountants requested confirmation of this liability. Mr. Porter explained that confirmation would be difficult to obtain since Mr. Draughon was reluctant to claim an interest in the foreign company, Falcon, because of tax reasons. On September 8, 1978 Mr. Porter dictated a letter to Allen McNaughton of Falcon Petroleum in Bermuda. The letter recounted the alleged transaction and requested that Dalco be allowed to withhold payment temporarily. At Mr. Porter's direction no file copies were made and one copy was sent to Dalco's controller to show the outside auditors. This "Falcon letter" was returned marked "addressee unknown." Mr. Porter told his secretary to forget about it. However, based on the BAC invoice, the Falcon letter, and Mr. Porter's assurances that the transaction was valid, the liability was left on the books at the end of the year. The record demonstrates that Mr. Draughon had no such interest in Falcon Petroleum. Falcon Petroleum did not exist and Dalco never had such a foreign crude oil transaction.

The appellants claim that the BAC invoice and the Falcon letter are not really false exculpatory evidence. They argue that the foreign crude oil transaction meant to balance their certificates would not have exculpated them on the government's theory of fraud. And, even if it was proper false exculpatory evidence, they argue it caused unfair prejudice and confusion so the trial court should have excluded it.

False exculpatory statements made by a defendant are admissible to prove circumstantially consciousness of guilt or unlawful intent. United States v. Ingram, 600 F.2d 260 (10th Cir.); United States v. Tager, 481 F.2d 97 (10th Cir.). Such statements cannot be considered by the jury as direct evidence of guilt. United States v. Boekelman, 594 F.2d 1238 (9th Cir.).

The trial court admitted these documents noting that the evidence was allowed to show intent. The trial court carefully instructed the jury that a defendant's attempt to fabricate evidence after an alleged violation of the law is not sufficient to establish guilt.

The appellants argue that the evidence concerns balancing Dalco's tier inventory, which is unrelated to the fraud charges. We disagree. Miscertification was the method by which the fraud was perpetrated. The invoice and the letter were attempts to prevent the detection of the tier miscertification. Thus we find that there was no error in admitting the documents as false exculpatory evidence. The judge fully instructed the jury on the use of such evidence; therefore, it was for the jury to weigh the testimony and the evidence and determine whether the false exculpatory evidence indicated a consciousness of guilt or nothing at all. See United States v. Ingram, 600 F.2d 260 (10th Cir.).

The balancing of the probative value of evidence against its prejudicial effect is left to the discretion of the trial court. We will reverse only for a clear showing of abuse of discretion. United States v. Harris, 534 F.2d 207 (10th Cir.). The evidence was offered for a specific purpose, the jury was properly instructed, and thus the invoice and letter were properly admitted into evidence.

As to the conspiracy charge, the appellants contend that the evidence was insufficient to support the jury's verdict. Specifically they argue that the government never produced evidence of an unlawful agreement between them.

We have held in many cases that the agreement in a conspiracy may be either express or implied, and that the parties must have a meeting of the minds in the common design, purpose, or objects of the conspiracy. United States v. Lopez, 576 F.2d 840 (10th Cir.); United States v. Butler, 494 F.2d 1246 (10th Cir.). Frequently the agreement to cooperate is not susceptible of direct proof because the nature of the crime and the unlawful agreement may be established by circumstantial evidence. United States v....