United States v. Kyle, 378

• Decision Date: 28 July 1958
• Docket Number: Docket 25064.,No. 378,378
• Citation: 257 F.2d 559
• Parties: UNITED STATES of America, Appellee, v. Alastair KYLE, Clinton Gardner and Toys of the World Club, Inc., Appellants.
• Court: U.S. Court of Appeals — Second Circuit

257 F.2d 559 (1958)

UNITED STATES of America, Appellee, v. Alastair KYLE, Clinton Gardner and Toys of the World Club, Inc., Appellants.

No. 378, Docket 25064.

United States Court of Appeals Second Circuit.

Argued June 9-10, 1958.

Decided July 28, 1958.

COPYRIGHT MATERIAL OMITTED

Rudolph Stand and Frank Aranow, New York City (Rudolph Stand and Frank Aranow, New York City, of Counsel), for appellants, Kyle and Toys of the World Club, Inc.

Engelman & Hart, New York City (Jack Hart and Myron Engelman, New York City, of Counsel), for appellant, Clinton Gardner.

Cornelius W. Wickersham, Jr., U. S. Atty., for Eastern District of New York, Brooklyn, N. Y. (Warren Max Deutsch, Asst. U. S. Atty., Glen Cove, N. Y., of Counsel), for appellee.

Before CLARK, Chief Judge, PICKETT, Circuit Judge, and RYAN, District Judge.

RYAN, District Judge.

Defendants Kyle and Toys of the World Club, Inc. appeal from a judgment of conviction on a seven-count indictment charging them with conspiracy and six substantive violations of the mail fraud statute (Title 18 U.S.C.A. Secs. 371, 1341 and 1342). Defendant Gardner appeals separately from the conspiracy conviction — he was acquitted on the substantive counts. The individuals received prison sentences: Kyle one year and a day to run concurrently on each count; Gardner, six months, and the corporate defendant a fine of a total of $1,400 on all counts.

The evidence produced on the trial was undisputed; none of the defendants called any witnesses and only Gardner testified in his own defense. All the defendants on this appeal attack the sufficiency of the evidence and in addition Kyle and Toys of the World Club urge error on the part of the trial court in (1) excluding evidence of Gardner's intent, (2) curtailing cross-examination of a Government witness, and (3) admitting collateral prejudicial matter; they also urge prejudice resulting from the prosecutor's summation. Defendant Gardner urges error in the court's exclusion of evidence material to his defense and in its charge on criminal intent.

The indictment charged that beginning prior to June, 1955 and continuing through August 3, 1956 (the indictment date), defendants did defraud and obtain money by the mailing of false and fraudulent circulars selling and offering to sell membership in a gift toy club known as Toys of the World Club, Inc. The fraudulent statements contained in the circulars were alleged to be (1) that defendants had a present supply of toys for the subscription periods, (2) that they were able to make full refund to any dissatisfied subscriber and (3) that certain eminent persons had endorsed the plan, when in fact defendants knew they had no such supply of toys, that they were financially incapable of making any refunds as promised and that they had no such endorsements. Each of the six counts charges a separate mailing to a named person during the period of September through December, 1955. The seventh count charges a conspiracy among the three defendants to use the mails to execute their fraudulent scheme and obtain money by false pretenses through the mailing of circulars and "lulling" letters and cards to named subscribers.

The evidence was that in November, 1954, defendants Kyle and Gardner as president and secretary-treasurer, respectively, began a mail order toy business under the name of "Toys for a Year, Incorporated," which in March, 1955 became defendant Toys of the World Club. The plan as described in the brochures sent out consisted in soliciting paid up subscriptions on a 3-month ($7), 6-month ($12) and 12-month ($22) basis for the receipt by the subscriber of a distinctive toy from a foreign country for each month of the subscription period, and in addition, a free introductory toy — a Tyrolean Village block set. This toy it was promised in the brochure would be mailed to the subscriber at once and if it did not satisfy the subscriber, upon demand defendants would at any time make a full refund of the amount paid for the subscription for any toys not already shipped. The brochure also represented that the club had an advisory panel who approved the story pamphlets which would accompany each toy describing its background.

Beginning in June, 1955, defendants commenced mailing out systematically hundreds of thousands of these brochures which reached the staggering figure of seven million by December and in response to which they received a total of $385,000. in paid subscriptions. At the time of this mailing in June, 1955, defendants' eight-month old business was operating at a loss of about $42,000 and was in default to its trade creditors and to subscribers of the former plan (Toys of the Year), on the bonus toy as well as on toys subscribed for. Defendants' insolvency grew steadily; by October, 1955, they were completely out of cash and the deficit had reached the sum of $264,000, by December, 1955 it was $355,000 and continued to increase until the discontinuance of operations early in 1956. Hand in hand with this mounting, hopeless insolvency during this time went the pouring into the mails of millions of circulars promising toys in exchange for money, and this, in spite of default in delivery of toys and complaining letters from subscribers. During the entire period that Toys of the World operated there was no one subscriber who received all the toys for which he had paid. In order to appease impatient subscribers, defendants sent out two types of letters in which they gave as reasons for not sending the bonus toy difficulty in obtaining the particular wood needed and delays in manufacture abroad. The real reason, as the jury found defendants were only too well aware, was their inability to prepay for the toys to be imported by placing letters of credit with the manufacturer abroad in accordance with the agreement they had made; they knew that without such prepayment there was no supply of toys available for subscribers. In fact, defendants during this six-month period (June-December, 1955) were unable to pay the printer for their brochures and were forced to contract with a new printer; numerous checks in large denominations in purported payment of trade debts and toys were returned for "insufficient funds" with monotonous regularity and the stopping of payment on checks issued was a regular business practice of the company. In October, 1955, they were unable to pay the employees' quarterly withholding tax. They refunded no part of any money collected and yet they continued to solicit subscriptions. In November, 1955 they sent over three million circulars guaranteeing delivery of the free toy by Christmas, when performance, it was obvious, was impossible as they had stopped payment on a check sent to pay for these very toys. Finally, in December, 1955, defendants Gardner and Kyle took over $50,000 of subscribers' checks to a check cashing agency where they falsely certified in writing that they were the sole stockholders and authorized to cash the checks, the proceeds of which they then deposited in a non-corporate account in Canada over which Kyle had sole control, and for these funds they have never accounted. Any attempted last minute explanations as in the Kyle reply brief may not be considered by this Court.

Defendant Gardner's active and knowing participation with Kyle and the corporation in the swindle is amply sustained by the evidence. He was secretary-treasurer of the corporation and remained so until close to the end in December 12, 1955, at a salary of $1,000 per month; he helped draft the brochures and the lulling letters to the subscribers; he employed his talents as a mail expert to conduct the intensive campaigns and to estimate the returns; he stopped payment on checks; he accompanied Kyle to the check cashing agency and falsely certified as to their control and authority; he deposited some of these moneys in the non-corporate account; he was fully aware of the company's financial condition for he made it a three-month loan at 80% interest and drew up a memorandum of its financial condition. Whether he be called a mailing consultant or an officer and director of the corporation his was a knowing and active participation in the operations of the defendant club. The evidence of the corporate insolvency, its continuing defaults and regular systematic solicitation and receipt of money through the making of promises it knew it had not and could not fulfill and its retention of these substantial sums in the face of such knowledge...