United States v. Davis

• Decision Date: 24 October 1969
• Docket Number: No. 23132,23133.,23132
• Citation: 418 F.2d 59
• Parties: UNITED STATES of America, Appellee, v. Fred DAVIS, Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

418 F.2d 59 (1969)

UNITED STATES of America, Appellee, v. Fred DAVIS, Appellant.

Nos. 23132, 23133.

United States Court of Appeals Ninth Circuit.

October 24, 1969.

Charles S. Stout (argued), Boise, Idaho, for appellant.

Clarence D. Suiter (argued), Asst. U. S. Atty., Jay F. Bates, U. S. Atty., Boise, Idaho, for appellee.

Before MERRILL, DUNIWAY and CARTER, Circuit Judges.

JAMES M. CARTER, Circuit Judge:

Appellant Davis, in two consolidated cases,¹ was convicted by a jury of seven counts of securities fraud (15 U.S.C. § 77q (a)), five counts of mail fraud (18 U.S.C. § 1341) and one count of conspiracy (18 U.S.C. § 371). This appeal challenges the admissibility and weight of the evidence and asserts several procedural errors. We affirm.

Davis makes five contentions of error. (1) The court erred in refusing to grant him a separate trial from co-defendant Carl Harrison, Jr.; and that Harrison's statement to an S.E.C. investigator was erroneously received in evidence in violation of the holding in Bruton v. United States (1968), 391 U.S. 123, 88 S.Ct. 1620, 20 L.Ed.2d 476. (2) The court erred in reading the information to the jury after Davis had moved to strike passages of it as prejudicial. (3) The evidence was inadequate to support the verdicts and to show the specific criminal intent required for conviction. (4) The court should have granted the motion for acquittal. (5) The court should have granted the motion for new trial. Davis' briefs do not separately support the last two contentions. We treat them as standing or falling with the more specific allegations of error.

THE FACTUAL SETTING

The charges arose out of the participation of Davis, Harrison and Michael Boulds in a series of Idaho business enterprises. Between 1963 and 1966 Davis helped promote and control Mid-Day Dew, Inc., Command Products, Inc., and Command Products, Ltd., a common law trust. While there were differences in form between the three enterprises, the evidence indicated that essentially only one business was involved, with the form changing primarily for promotional advantage. The stated purpose of all three businesses was the development and marketing of various types of cleansing tissue.

Financing for all enterprises was provided by investors recruited by Harrison, Davis and Boulds. Typically subscribers would be asked to invest in return for Davis' promissory note and shares of stock. As Davis explained it, the note guaranteed repayment and the shares were a bonus. During the marketing of the notes and shares, Davis or Harrison or both made the misrepresentations on which these actions are based. While the specific misrepresentation varied according to the enterprise promoted and the prospective purchaser, the substance of the misstatements together with the actual situation, can be summarized.

(1) The promoters claimed that all money subscribed would be used exclusively to produce and market the corporate products; none would be used for personal expenses. In fact, the majority of the money was appropriated to personal use by Davis, Harrison and Boulds.

(2) Davis stated he was selling his own stock. In fact, Davis did not hold much stock in the businesses. Further, he did not reveal the ownership interest of others in his sales attempts.

(3) Davis claimed he had invested everything he had in the businesses. In fact, his investment was minimal.

(4) The corporations were protrayed as on the verge of being ready to market their products based on substantial recent progress and the establishing of several distributorship agreements. In fact, most progress was imaginary.

(5) It was represented that Mrs. Ernest Hemingway, widow of the famous author, and Harmon Killibrew, a prominent professional baseball player, would be investing in the businesses. In fact, Harrison had contacted them and received non-committal responses.

(6) The investment was described as certain to double the investors' money within a year. It was also talked of as a "sure thing" and one that "couldn't miss." In fact, no dividends have been paid. Nor have repayments on the promissory notes been made. At the time of making such representations there was no factual basis to support such positive assertions.

The dealings by Davis with subscriber Keith Allred are illustrative and typical of the deception practiced. Davis initially phoned Allred saying that a mutual friend had told him of Allred's interest in investment possibilities. An appointment was arranged between Harrison, Davis and Allred at the latter's Salt Lake City home. At the meeting, Davis waxed eloquent over the prospects for Mid-Day Dew. He stated he was the sole owner, never mentioning the real majority shareholder; that business had been so good that the product couldn't be made fast enough to meet the demand. To support this contention, Davis produced a purported list of orders. Davis stated that since he had invested all his money in the corporation, he was forced to seek limited outside funding. Allred was told that Mrs. Hemingway would be backing the business as soon as the product had proven itself on the market. In asking for a loan, Davis promised repayment within a year. The stock would be there as a bonus. Davis further guaranteed that no wages or salaries would be drawn until after the company was showing a profit. Suitably impressed, Allred became a stockholder in the Mid-Day Dew-Command Products businesses.

After investigation by the S.E.C., the three promoters were charged with securities and mail fraud. Michael Boulds pleaded guilty. Harrison and Davis pleaded not guilty and were tried and convicted as charged. Only Davis perfected an appeal.

THE MOTION FOR SEPARATE TRIAL AND THE BRUTON PROBLEM.

Davis alleges error in the failure of the trial court to grant his motion for separate trial. Rule 14, Fed.R. Crim.P. leaves the decision in the discretion of the trial judge. Here strong arguments of judicial convenience supported the decision not to separately try Harrison and Davis. The trial lasted ten days and involved the introduction of almost 400 exhibits by the government. Thirty two witnesses testified, some coming from considerable distances to do so. The government's case would have been only slightly less complex if Davis alone had been tried.

Davis claims the indictment was so long and complex that it was impossible to segregate the proofs and defend against the charges. We find no undue complexity. The charges were phrased in the language of the applicable statutes and were clear as to which of the defendants were charged. The length and complexity was not due to the presence of two defendants in the action, but rather to the magnitude of the frauds perpetrated.

Nor is there substantial merit to Davis' claim that testimony was offered which only Harrison, fearful of impeachment for prior convictions, could refute. Davis did not raise this particular objection in his motion for separate trial. Nor is it shown that Harrison would have given testimony favorable to Davis if he had taken the stand. Indeed, the argument in Davis' brief makes it appear likely that Harrison would have been as reluctant to incriminate himself at a separate trial as at a joint one.

Defendant strenuously contends that the ruling of the Supreme Court in Bruton v. United States, supra, makes the admission of testimony of co-defendant Harrison at an examination by Securities and Exchange Commission investigators prejudicial error. Bruton was decided after the trial but since Bruton has been held retroactive, Roberts v. Russell (1968), 392 U.S. 293, 88 S.Ct. 1921, 20 L.Ed.2d 1100 its teachings must be considered in this case.

In Bruton the Supreme Court considered the admission at a joint trial of one defendant's confession where that defendant did not take the witness stand. The Court held that such a practice violated the other defendant's 6th amendment right to confront the witnesses against him even though the jury was instructed to consider the confession only as evidence against the confessor. The Court regarded the mutually incriminating statement as inevitably prejudicial to the non-confessing party no matter how strongly the judge's limiting instruction was phrased.

In reaching its decision in Bruton, the Court placed great emphasis on the "powerfully incriminating" nature of the confession. The Court observed: "Not every admission of inadmissible hearsay or other evidence can be considered to be reversible error unavoidable through limiting instructions * * *," 391 U.S. 123, 135, 88 S.Ct. 1620, 1627.

Recently in Harrington v. California (1969), 395 U.S. 250, 89 S.Ct. 1726, 23 L.Ed.2d 284 the Supreme Court refused to overturn a felony-murder conviction on Bruton grounds. The Court found that the evidence, aside from the prejudicial confessions, was so overwhelming, that the Bruton violation was harmless error beyond a reasonable doubt² under the standard of Chapman v. California (1967), 386 U.S. 18, 87 S.Ct. 824, 17 L.Ed.2d 705, 24 A.L.R.3d 1065.

Several circuit court decisions also indicate that alleged Bruton errors need not always be...