United States v. Diamond, 27602.

• Citation: 430 F.2d 688
• Decision Date: 29 July 1970
• Docket Number: No. 27602.,27602.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Harold M. DIAMOND, Bernard Sacks, Sam Sacks and Mac Kinsbruner, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

430 F.2d 688 (1970)

UNITED STATES of America, Plaintiff-Appellee, v. Harold M. DIAMOND, Bernard Sacks, Sam Sacks and Mac Kinsbruner, Defendants-Appellants.

No. 27602.

United States Court of Appeals, Fifth Circuit.

July 29, 1970.

E. David Rosen, Miami, Fla., for Kinsbruner, Bernard Sacks, and Sam Sacks.

Richard M. Gale, Miami, Fla., James J. Hogan, Sam Sacks, Alan E. Weinstein, Miami Beach, Fla., for Harold M. Diamond.

Robert W. Rust, U. S. Atty., Theodore Klein, William A. Daniel, Jr., Asst. U. S. Attys., Michael J. Osman, Acting U. S. Atty., Miami, Fla., for appellee.

Before PHILLIPS^*, BELL and SIMPSON, Circuit Judges.

SIMPSON, Circuit Judge:

The Grand Jury for the District of Arizona returned a sixteen count indictment originally charging the four appellants and two others with mail fraud in violation of Title 18, U.S.C., Section 1341.¹ The indictment was dismissed as to one of the other two defendants, an attorney, prior to trial and judgment of acquittal was entered as to the other, Sol Markowitz, during trial. On the motion of the United States Count V was dismissed during trial on the basis of admitted failure of proof. Jury trial of each of the present appellants, Harold Diamond, Bernard Sacks, Sam Sacks and Mac Kinsbruner, resulted in each of them being convicted and sentenced as to each of the remaining fifteen counts.² Upon this resulting appeal we reverse and remand because of prejudicial error occurring during the trial.

The appellants were officers and stockholders in Realsite, Inc., which was engaged in the development and sale of land located in Mohave County, Arizona, marketed as "Arizona Ranchettes". The original defendant Markowitz was Chairman of the Board of Realsite; Diamond and Sam Sacks were President and Vice President, respectively. As such executive officers these two defendants were the more active participants in the alleged mail fraud scheme. Promotion for the development was handled primarily by a Florida subsidiary of Realsite, Inc., Dynamic Enterprises, Inc. Diamond was President and Sam Sacks was Vice President of Dynamic Enterprises.

In late 1961 Dynamic Enterprises entered into contracts to purchase about 8000 acres of Mohave County, Arizona land. Nine square miles of the acreage was subdivided into nine units called "Arizona Ranchettes". Dynamic Enterprises paid $110,000.00 for the release of approximately 1000 acres of this land so as to make it available for public sale. The lots sold were approximately one acre in size, and 943 lots were sold to the public. Purchasers received deeds after full payment for 342 lots, and defaults occurred in the deferred payments for 601 lots. The selling agent for "Arizona Ranchettes" was Arizona-Florida Land and Title Company, whose officers included Bernard Sacks and Mac Kinsbruner. Since the sufficiency of the evidence is not one of the questions raised on this appeal and because our disposition of the case requires that it be retried, we will not set forth the proof relied on by the government in detail. However, the main thrust of the government's case was that the four defendants acting through the corporations, Realsite, Dynamic Enterprises and Arizona-Florida, induced the public to purchase "Arizona Ranchettes" beginning in January 1962 by placing misleading ads in various newspaper publications, inviting the public to purchase a full acre in "Arizona Ranchettes" for $395.00. This could be accomplished by sending the coupon from the ad with a down payment, plus subsequent $10.00 monthly payments provided the applicant was fully satisfied. The coupons were forwarded from Kingman, Arizona, to Fort Lauderdale, Florida, from where color brochures (containing maps, letters, fact sheets and a report of the Arizona Real Estate Department on the subdivision) were mailed to the persons replying to the advertisement. The contents of the various promotional publications mailed to prospective customers was the basis of the indictment charges of a scheme to defraud by use of the mails.

The literature represented that utilities, including metered water, gas, electricity and telephone, would be available to lot purchasers, that the lots were fully developed and ready for early occupancy and that others had already built homes on the property and were completely satisfied. The government sought to prove that the nearest existing electricity, telephone and water lines were fourteen miles removed from the nearest "Arizona Ranchette", that the lots were in fact not ready for immediate occupancy, and that no one had built on the development.

The appellants urge: (1) that they were effectively deprived of jury consideration of their defense of good faith because of the trial court's erroneous view of the law as to good faith expressed in the jury's presence; (2) that certain evidence was improperly excluded by the trial judge; (3) that the requested instruction upon the right to rely on the advice of counsel was improperly refused; and (4) that the court's instructions to the jury, particularly additional instructions given during the course of the jury's deliberations, were prejudicially erroneous. Our reversal is based on grounds (2) and (4). Other questions raised are either such as are not likely to arise upon retrial, or else contain so little substance that discussion of them is unnecessary.

I. Good Faith as a Defense

The appellants assert that they were prejudiced by the trial court's comments in open court about the defense of good faith. The trial court stated that honest belief that an enterprise would succeed does not make out the defense of good faith and repeated that view several times during the disputed colloquy.³ The appellants urge that these comments for all practical purposes foreclosed their right to assert good faith as a defense. We disagree.

The trial court was correct in stating that an honest belief in the ultimate success of the project is not in itself a defense. This is clearly the holding of this Circuit. Greenhill v. United States, 5 Cir. 1962, 298 F.2d 405; Proffer v. United States, 5 Cir. 1961, 288 F.2d 182.

The appellants rely heavily on language found in Sparrow v. United States, 10 Cir. 1968, 402 F.2d 826, 828, to support their position that honest belief in the ultimate success of the project constitutes a defense:

"In considering the issues raised by the defendant on this appeal it is necessary to consider what the term `good faith\' as used by the parties and in the previous decisions refers to, or to determine in what the defendant must have this `good faith\'. An examination of the cases previously decided by this court demonstrates that the basic reference in the opinions is to the defendant\'s good faith that the entire plan or scheme which has been devised and which is the subject of the promotion is economically sound. The references are not to the defendant\'s good faith as to the existence of any particular fact or situation; instead, as indicated above, it is good faith that the entire plan will be successful as a business."

Even if authority from our respected sister Circuit were binding rather than persuasive, close reading of the Sparrow case reveals a rule of law no different than that prevailing in this Circuit. The appellants have omitted from their brief a qualifying paragraph which brings the broad language quoted above into proper perspective. The Sparrow court further stated at page 828 of 402 F.2d:

"A similar statement appears in Hawley v. United States, 133 F.2d 966 (10th Cir.), where the court approved a trial court\'s instruction which directly covered the matter of good faith in the plan as a whole. The court there cautioned, as we do here, that no matter how firmly the defendant may believe in the plan, his belief will not justify baseless, false, or reckless representations or promises. Elbel v. United States, 364 F.2d 127 (10th Cir.)." (Emphasis added)

No prejudicial results to the appellants flowed from the remarks of the trial court set out in Footnote, 3, supra.

II. Exclusion of Evidence

The appellants complain that the trial court made erroneously restrictive evidentiary rulings in three respects: (1) the exclusion from the evidence of questionnaires filled out by purchasers of the land; (2) the refusal to permit proof of a prior successful land promotion enterprise conducted by the same principals; and (3) the exclusion from evidence of a certified file from the State of Arizona Real Estate Department.

The appellants were entitled to rely upon good faith as a complete defense and were entitled to appropriate instructions as to such defense if the evidence warrants. Greenhill v. United States, 5 Cir. 1962, supra; Proffer v. United States, 5 Cir. 1961, supra; Coleman v. United States, 5 Cir. 1948, 167 F.2d 837; Beck v. United States, 10 Cir. 1962, 305 F.2d 595, cert. denied 371 U.S. 890, 83 S.Ct. 186, 9 L.Ed.2d 123. In mail fraud cases often the only available defense is that of good faith. In the typical case, the accused is not in position usually to refute that the representations made were false. The accused can then only defend on the ground that the representations were made in good faith and without intent to defraud. Courts have come to recognize that in our high pressure economy, puffing of merchandise and services to the legal limit is commonplace. Consequently a person accused of fraudulent representations to prospective customers must not be unduly restricted in asserting what may be his sole defense, good faith. Intent to defraud is a jury question and a liberal policy as to the admission of evidence tending to prove good or bad faith should be followed. The court must entrust to the jury the task of sifting the evidence and the ability to reach a reasonable conclusion upon the question of intent to defraud. Against the background of these precepts we turn to the evidence which was excluded by the trial court.

The appellants first assert in...