United States v. Grote

• Decision Date: 02 June 2020
• Docket Number: August Term, 2018,Docket No. 18-181(L), 18-184(CON), 18-1802
• Citation: 961 F.3d 105
• Parties: UNITED STATES of America, Appellee, v. Crystal GROTE, aka Crystal Cram, aka Crystal Cram-Grote, aka Crystal Stubbs, Defendant, and Timothy Muir, Scott Tucker, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

961 F.3d 105

UNITED STATES of America, Appellee,

v. Crystal GROTE, aka Crystal Cram, aka Crystal Cram-Grote, aka Crystal Stubbs, Defendant,andTimothy Muir, Scott Tucker, Defendants-Appellants.

Docket No. 18-181(L), 18-184(CON), 18-1802

August Term, 2018

United States Court of Appeals, Second Circuit.

Argued: June 12, 2019

Decided: June 2, 2020

Thomas J. Bath, Jr., Bath & Edmonds, P.A., Overland Park, KS, for Defendant-Appellant Timothy Muir.¹

Beverly Van Ness, Law Firm of Beverly Van Ness, New York, NY, for Defendant-Appellant Scott Tucker.

Karl Metzner (Hagan Scotten, Sagar K. Ravi, on the brief), Assistant United States Attorney, for Geoffrey S. Berman, United States Attorney for the Southern District of New York, New York, NY, for Appellee.

Before: LEVAL, POOLER, and PARKER, Circuit Judges.

LEVAL, Circuit Judge:

Defendants Scott Tucker and Timothy Muir appeal their criminal convictions after a five-week jury trial in the U.S. District Court for the Southern District of New York (P. Kevin Castel, J. ) on fourteen counts of racketeering, conspiracy, and fraud offenses arising out of the Defendants’ operation of an illegal payday lending scheme. The evidence showed that from about 1997 to 2013, the Defendants lent money at interest rates far in excess of those permitted under the laws of New York and other states in which their borrowers resided, and deceived borrowers as to the terms of the loans.

The indictment included three counts of conducting an enterprise's affairs through the collection of unlawful usurious debt, in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) (Counts 2-4); one count of conspiracy to do the same, in violation of 18 U.S.C. § 1962(d) (Count 1); one count of wire fraud and one count of wire fraud conspiracy, in violation of 18 U.S.C. §§ 1343, 1349 (Counts 5-6); three counts of money laundering and conspiracy to launder money, in violation of 18 U.S.C. § 1956(a)(1)(A)(i), - (a)(1)(B)(i), - (h) (Counts 7-9); and five counts of making false statements in disclosures required by the Truth in Lending Act (TILA), in violation of 15 U.S.C. § 1611 (Counts 10-14). The Defendants were convicted on all counts.

At trial, the parties agreed—as they do now—that the requisite mental state for the RICO counts was willfulness. The Defendants defended primarily on the ground that, because the lending business was operated by Native American tribes (the "Tribes"), the loans were not subject to state usury laws, and that even if the loans were unlawful, Defendants had a good faith belief that they were lawful by virtue of the tribal involvement, so that their conduct was not "willful."

The Defendants’ principal claim on appeal is that the district court erred in instructing the jury that the Government could satisfy the required state-of-mind element of collection of unlawful debt by proving that the Defendants acted deliberately, "with knowledge of the actual interest rate charged on the loan[s]," App'x at 264-65, notwithstanding any good faith belief that their conduct was lawful. Defendants contend that they could not be properly convicted on the charges of unlawful usurious lending unless they acted willfully, with knowledge that they were acting unlawfully.

We reject this challenge to the Defendants’ convictions. Because the Defendants did not preserve their objection in the manner specified by Rule 30 of the Federal Rules of Criminal Procedure, the "plain error" standard of Rule 52 applies. Even assuming that the charge with respect to Counts 2-4 was erroneous, the error did not affect the verdict, and thus Defendants have not satisfied the requirements of "plain error." The jury necessarily found in rendering a guilty verdict on Count 1, for which an undisputedly correct willfulness instruction was given as to the "conspiracy" element, that the Defendants were aware of the unlawfulness of their making loans with interest rates that exceeded the limits permitted by the usury laws. Furthermore, the evidence of the Defendants’ willfulness was overwhelming. We therefore find that the standard for a finding of plain error is not satisfied.

Concluding also that the Defendants’ other contentions are without merit, we affirm the judgments of conviction on all fourteen counts. Additionally, we find that the district court did not abuse its discretion in denying Tucker's application to stay the execution of the forfeiture order entered against him following his conviction.

BACKGROUND

Payday loans are small loans typically to be repaid on the borrower's next payday.

Such loans frequently carry high interest rates. Many states, including New York, have usury laws capping the permissible annual interest rate on such loans, with the highest lawful interest rate varying by state.

From approximately 1997 through 2013, Defendant Tucker owned and operated a payday lending business based in Overland Park, Kansas. Initially, the business offered loans primarily via fax and telephone. In about 2000 it began to solicit payday borrowers over the internet, operating through several different websites which were held out to the public as separate entities, but which were administered from the same building and by the same employees, and were referred to internally as different "portfolios." Muir joined Tucker's business as an in-house attorney in 2005 or 2006. At its peak, the business had over 1,500 employees and 4.5 million customers, and generated more than a billion dollars in yearly revenue.

Tucker's loans were structured in the following manner. On each of the borrower's paydays following the loan disbursement (until the loan was repaid), the borrower's bank account was automatically debited a $30 "service charge" for each $100 remaining on the loan principal. On each of the first four paydays following disbursement, the loans would "automatically renew," meaning that the service charge would be assessed and no payment would be taken to reduce the outstanding principal balance. On the borrower's fifth payday and on each subsequent payday until the principal was repaid, in addition to the service charge, a "principal payment" of $50 would be taken from the borrower's bank account and applied to reduce the loan principal. According to a chart Tucker used to train his employees, based on this payment structure, a borrower would ultimately pay $975 to repay a $300 loan. Considering the service charges as interest, the resulting annualized interest rate (which varied depending on the frequency of a borrower's paydays) often exceeded 600%.

Borrowers were entitled under the terms of the loans to opt out of the "automatic renewal" process and instead pay the full amount of the principal (in addition to the service charge) on their first payday. To opt out of automatic renewal, borrowers were required to notify the lender in writing. A borrower of $300 who elected to opt out would pay a service charge of $90. The interest rates charged on the loans exceeded what was permitted in some states, including New York, even when the loan was repaid on the first payday. And under the default automatic renewal process, the interest rates far exceeded those allowed by the applicable state usury laws. The written terms of the loans were materially misleading as to how the automatic renewal process worked and the borrowers’ entitlement to opt out from it. A major source of borrowers’ confusion regarding the automatic renewal process was the information in the "TILA Box" displayed in the loan documents. TILA—the Truth in Lending Act—requires lenders to make certain disclosures in a prominently displayed chart or "box" regarding the cost of prospective loans, including the loan amount, finance charge, annualized interest rate, and total amount of expected payments (including the principal). See generally 15 U.S.C. § 1638(a). The information listed in the TILA Box on Tucker's loan documents reflected what those costs would be without the "automatic renewal" process—that is, what a borrower would pay if she opted out of the automatic renewal process and paid off her entire loan on the first payday. Thus, for a loan of $300, the TILA box listed that the finance charge would be $90 and the total amount of payments (including principal repayment) would be $390. The disclosure was correct for borrowers who opted out of automatic renewal. It did not reveal, however, that under the default payment schedule, the total finance charge on a loan of $300 would be $675 and the total payment would be $975. Nor did it adequately reveal (although setting it forth in small print and hyper-technical language outside the TILA box) that borrowers could decline the option of automatic renewal.

The indictment alleged that Tucker's enterprise charged interest rates well in excess of the maximum rates allowed for payday loans in at least 25 states and Washington, D.C., and that Tucker and Muir willfully conducted the affairs of the enterprise through the collection of unlawful debt. The indictment included four RICO counts: three for participating in the conduct of an enterprise's affairs through the collection of unlawful debt (Counts 2-4), and one for conspiracy to do so (Count 1). Each of the three substantive RICO counts (Counts 2-4) listed five customers, located in various states, as to whom the Defendants were charged with collecting unlawful debts. The district court instructed the jury that, to convict Defendants on Counts 2-4, the jury had to find that Defendants engaged in collecting at least one of the five unlawful debts listed in that count.

The Government's evidence showed that Tucker and Muir used three different "fronts," including the Tribes, to avoid detection of their usurious lending practices or to give those practices the appearance of legality. The first of these alleged fronts was Tucker's business relationship, from 1998 to 2004, with County Bank of Rehoboth Beach, Delaware ("County Bank"). As a...