United States v. Johnny Phillips , 2017 FED App. 0230P ( 2017 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 17a0230p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
UNITED STATES OF AMERICA, ┐
Plaintiff-Appellee, │
│
> No. 16-6667
v. │
│
│
JOHNNY D. PHILLIPS, │
Defendant-Appellant. │
┘
Appeal from the United States District Court
for the Eastern District of Tennessee at Greeneville.
No. 2:14-cr-00076-11—J. Ronnie Greer, District Judge.
Argued: October 5, 2017
Decided and Filed: October 10, 2017
Before: SUTTON, DONALD, and THAPAR, Circuit Judges.
_________________
COUNSEL
ARGUED: J. Alex Little, BONE MCALLESTER NORTON PLLC, Nashville, Tennessee, for
Appellant. Debra A. Breneman, UNITED STATES ATTORNEY’S OFFICE, Knoxville,
Tennessee, for Appellee. ON BRIEF: J. Alex Little, BONE MCALLESTER NORTON PLLC,
Nashville, Tennessee, for Appellant. Debra A. Breneman, UNITED STATES ATTORNEY’S
OFFICE, Knoxville, Tennessee, for Appellee.
_________________
OPINION
_________________
SUTTON, Circuit Judge. Johnny Phillips makes his living as a “land man.” Land men
scout rural property for coal mining potential and negotiate leases with the landowners to mine it.
When the government found out that Phillips performed work for New Century Coal, a company
No. 16-6667 United States v. Phillips Page 2
that swindled millions of dollars from investors, it charged him with several crimes. A jury
convicted him of conspiracy to commit mail and wire fraud. We affirm.
I.
Blue gem coal burns hotter and cleaner than traditional thermal coal, making it useful for
producing silicon, a critical ingredient of computer chips and solar panels. Federal and state
environmental regulations make it difficult to mine, however, and demand for the coal outstrips
its supply as a result. Blue gem coal commands premium prices.
New Century Coal advertised itself as one of the largest blue gem coal companies in the
country. Not only did it purport to own land with valuable deposits of blue gem coal, it also
claimed to have the much sought after permits to mine it. The company had little trouble
convincing individuals to invest in it.
As it turns out, New Century Coal did not possess a lot of the land and permits it claimed
to have. By the time law enforcement caught on, the company had swindled more than $14
million from more than 160 investors.
The government accused twelve people of being in on the scheme. Most of them,
including the mastermind, Brian Rose, pleaded guilty. Only Johnny Phillips went to trial. The
government charged him with three crimes: conspiring to commit mail and wire fraud,
conspiring to launder money, and laundering money.
The government’s case against Phillips consisted mainly of the testimony of several
conspirators, some investors, and a government investigator. Evidence showed that Phillips, in
his role as a land man, helped Rose, a NASCAR driver with little experience in the coal industry,
identify land with coal-mining potential. He introduced Rose to a property dubbed “Thacklight,”
which New Century Coal eventually pitched to unwitting investors despite never owning the
rights to mine it. R. 584 at 118–22. And he introduced Rose to the benefits of blue gem coal,
which New Century Coal eventually claimed to mine.
The evidence portrayed Phillips as a coal-industry expert who helped New Century Coal
convince investors that it was legitimate. The testimony placed Phillips at a pitch meeting in
No. 16-6667 United States v. Phillips Page 3
Missouri where Rose and two other New Century Coal representatives (Ray Spears and Bobby
McGregor) used fake names. One investor at the meeting testified that he never would have
invested in Thacklight without Phillips’ presence at the meeting and the expertise he conveyed.
Phillips testified in his own defense, claiming to be more gullible than the investors. He
had no idea, he said, that the company defrauded investors. He was not aware, he said, that the
company never secured the rights to mine Thacklight, which he helped pitch to investors. And
he found nothing suspicious, he said, about Rose, Spears, and McGregor’s use of fake names.
The jury convicted Phillips of conspiracy to commit mail and wire fraud but acquitted
him of the two money-laundering charges. The judge sentenced him to 30 months in prison.
II.
Sufficiency of the evidence. To convict Phillips on the conspiracy count, the government
needed to prove that Phillips knowingly joined an agreement to commit mail and wire fraud and
that a party to the agreement took an overt act in support of it. United States v. Smith, 749 F.3d
465, 477 (6th Cir. 2014). Phillips has nothing to say about some of these requirements. He does
not challenge the proof showing he knowingly joined an agreement to commit fraud, and he does
not challenge the proof showing that at least one person committed an overt act in furtherance of
the conspiracy.
He focuses instead on the government’s alleged failure to produce sufficient evidence
that he “said something materially false” to investors. Appellant’s Br. 36–37. According to
Phillips, the government’s theory at trial “was that Phillips was guilty of the charged crimes”
because he “fail[ed] to disclose” that some members of New Century Coal used “fake” names
when meeting with investors. Id. at 37. And because failing to disclose the use of fake names is
not a “material misrepresentation,” the government failed to prove its case. Id. at 39–40.
But this argument knocks on the wrong door. Whether Phillips made a “material
misrepresentation” to investors is an element of the underlying substantive offense of fraud. See
Neder v. United States, 527 U.S. 1, 25 (1999). The government need not prove the elements of
fraud to convict Phillips of conspiracy. “It is elementary that a conspiracy may exist and be
No. 16-6667 United States v. Phillips Page 4
punished whether or not the substantive crime ensues.” Salinas v. United States, 522 U.S. 52, 65
(1997). And it is equally elementary that “[a] conspiracy may exist even if a conspirator does
not agree to commit or facilitate each and every part of the substantive offense.” Id. at 63. Even
Phillips concedes that there was a conspiracy to defraud investors.
The only pertinent question, then, was whether Phillips was in on the scheme. The
government did not need to show that Phillips made material misstatements to prove that.
That’s the lesson of United States v. Washington, 715 F.3d 975 (6th Cir. 2013). A jury
convicted the defendant of conspiracy to commit program fraud. She challenged the verdict on
the ground that the government failed to prove that she “embezzled, stole or fraudulently
obtained property,” an element of the underlying substantive offense of program fraud. Id. at
979. In rejecting the argument, Washington explained that the government did not need to prove
the elements of the fraud to convict the defendant of conspiracy to commit the fraud. Id. at 980.
It was enough for the government to prove that the defendant knowingly and voluntarily joined
an agreement to defraud and that a member of the conspiracy took an overt act in furtherance of
it. Id. The same conclusion applies here.
For what it is worth, that is not Phillips’ only problem. Even if the government were
required to prove that Phillips made a material representation, there was sufficient evidence—
beyond Phillips’ failure to inform the investors of the fake names—that he did. Rose testified
that Phillips falsely told investors that he purchased coal from New Century Coal. And there’s
evidence that Phillips falsely conveyed to investors that New Century Coal was ready to mine
Thacklight, even though he knew that the company had not secured the leases and permits to do
so. Viewing the evidence in the light most favorable to the government, a rational jury could
have concluded that Phillips made material misstatements to investors. See United States v.
DeJohn, 368 F.3d 533, 545 (6th Cir. 2004).
Jury instructions. Phillips chisels his second argument from the same flawed stone.
Because the prosecution relied so heavily on the use of fake names, he contends, the district
court should have instructed the jury that (1) “not all misrepresentations . . . are material,” and
(2) “a party does not have the right to accurate information before making an otherwise fair
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exchange.” Appellant’s Br. 44–45. According to Phillips, his requested instruction would have
admonished the jury that the use of fake names alone does not suffice to “establish the element
of materiality.” Id. at 45. As just shown, however, the government did not need to prove that
Phillips made a material misstatement to convict him of conspiracy. The government indeed
never made any such effort. The government used the fake names to prove that Phillips knew
about the conspiracy and joined it, not to prove that Phillips made a material misstatement. In
this context, Phillips’ instruction would have done more to confuse than to inform. The court did
not abuse its discretion in refusing to give it.
Jury question. Phillips complains that the district court should have answered one of the
jury’s questions differently. Here too we give district courts considerable discretion. United
States v. Fisher, 648 F.3d 442, 446 (6th Cir. 2011). And here too no abuse occurred.
On the second day of deliberations, the jury asked: “Is it possible to convict the
defendant of fraud without the parts of wire and mail being attached?” R. 620 at 2. The district
court found this question confusing, and understandably so. The government did not charge
Phillips with fraud; it charged him with conspiracy. The district court thought that the question
could be interpreted in two ways. One possibility: the jury wondered if it could convict Phillips
of conspiracy to commit mail and wire fraud without finding certain elements of mail and wire
fraud (the answer, as just explained, is yes). The other: the jury wondered if it could convict
Phillips of conspiracy without finding all the elements of conspiracy (the answer is no). Given
this uncertainty, the district court worried that answering the question (either yes or no) would do
more harm than good. It thus referred the jury back to the instructions already given.
That choice lay within its discretion. Although courts should “respond to questions
concerning important legal issues,” a “reference to or rereading of the instructions may suffice”
if the issue “has been fully covered in the court’s instructions.” United States v. Nunez, 889 F.2d
1564, 1569 (6th Cir. 1989).
The court’s instructions dealt with each possibility. Start with the first interpretation of
the question: Could the jury convict Phillips of conspiracy to commit mail and wire fraud
without finding certain elements of mail and wire fraud? The instructions answered that question
No. 16-6667 United States v. Phillips Page 6
by explaining that the government need only prove the two elements of conspiracy. So too with
the second: Could the jury convict Phillips of conspiracy if it failed to find all of the elements of
conspiracy? The instructions answered that question by telling the jury “all the elements . . .
must be proved beyond a reasonable doubt,” and that Phillips is not guilty “if the government has
failed to carry its burden of proof.” R. 619 at 122–23.
Phillips resists this conclusion on the ground that the jury question conveyed no such
uncertainty. The only reasonable interpretation of the question, he says, is the second one, and
the judge was required to answer the inquiry with an unqualified no. We disagree. It seems just
as likely (if not more likely) to us that the jury was confused about whether the government had
to prove the elements of mail and wire fraud to convict Phillips of conspiracy. Even Phillips’
counsel at trial did not think that the question was clear. When asked to give his opinion about
the jury question, he stated: “Your Honor, I think the issue they’ve asked can you kind of
separate parts of that off. What does that mean, I’m not exactly sure.” R. 620 at 3. We aren’t
either. No reversible error occurred.
Confrontation Clause. Phillips maintains that the district court unfairly limited cross-
examination of Rose when it prevented his counsel from asking follow-up questions about
Rose’s history of mental instability. Here is the exchange:
[Rose]: It has created a situation when I was detoxing off of benzodiazepines and
alcohol to hallucinate during a time period of about two to three weeks. I can’t
remember the year but yes, Sir. . . . When I quit cold turkey it created anxiety and
I had a very high rate of seizures. It took me a while to detox off of them.
Therefor[e] I went to an outpatient clinic three days a week to detox off of them
and come clean.
[Defense counsel]: Do you remember being asked in the Hearing whether you
reported homicidal thoughts to the treatment provider in June of 2013?
[Prosecutor]: I’m going to object, Your Honor, I don’t know where this is going
and how . . .
[Defense counsel]: This is going to his mental state and his ability to remember,
Your Honor.
[Prosecutor]: I don’t know how that shows memory.
[The court]: I don’t see how that goes to memory. . . . Sustained. . . .
No. 16-6667 United States v. Phillips Page 7
[Defense counsel]: Were you suicidal, Mr. Rose?
[Prosecutor]: Objection, I don’t know how this goes to memory.
[Defense counsel]: In June of 2013 were you suicidal?
[The court]: Just a minute, . . . you’ve got to wait on me to rule on the objection.
Why are you offering this?
[Defense counsel]: To prove, Your Honor, that this man was mentally unstable
and it might reflect upon his ability to recall truthful information.
[The court]: It might?
[Defense counsel]: Yes, I think the Jury is entitled to know that.
[The court]: Sustained.
R. 638 at 709–11.
Phillips argues that these restrictions violated his rights under the Confrontation Clause,
which “guarantees an opportunity for effective cross-examination,” including the opportunity to
probe a witness about potential biases. Delaware v. Van Arsdall, 475 U.S. 673, 679 (1986). He
argues in particular that the court prevented his counsel from asking about the dates of Rose’s
mental instability, which would have cast doubt about Rose’s ability to recall his interactions
with Phillips. Best we can tell, however, the district court did no such thing. It merely limited
questions about Rose’s homicidal and suicidal thoughts. The defense counsel was still free to
ask whether Rose experienced hallucinations in June 2013. The defense counsel likewise was
free to ask Rose about the extent of those hallucinations. But the defense counsel never asked
those questions. Phillips had the “opportunity for effective cross-examination.” He just didn’t
take advantage of it, preferring instead to try to bring up Rose’s suicidal thoughts.
Phillips persists that the court’s evidentiary rulings crossed the line because he has “a
constitutional right to inform the jury of all matters affecting Rose’s credibility.” Reply Br. 18.
Not exactly. The Confrontation Clause does not guarantee “cross-examination that is effective in
whatever way, and to whatever extent, the defense might wish.” Van Arsdall, 475 U.S. at 679(quotation omitted). District courts “retain wide latitude insofar as the Confrontation Clause is
concerned to impose reasonable limits on . . . interrogation that is repetitive or only marginally
relevant.” Id. The court did not abuse its discretion in concluding that Rose’s suicidal thoughts
No. 16-6667 United States v. Phillips Page 8
had little (if anything) to do with his memory. It thus limited these questions, quite fairly in our
view.
Lay opinion testimony. Phillips adds that the court abused its discretion by permitting a
lay witness to offer opinion testimony on guilt. But any potential error, if error there was, was
harmless.
At trial, Nick Worsham, an IRS agent who reviewed the financial records of New
Century Coal and Phillips, testified that, based on his review of the records, there was a
“correlation between key events of the New Century Coal activities and . . . the payments to Mr.
Phillips.” R. 584 at 34. Phillips received five separate checks within a few months of the
Thacklight investment pitch in Missouri and seven more around the time of a second meeting.
Based on his investigation, Worsham concluded that Phillips “received $58,750 [in] criminally
derived proceeds from . . . New Century Coal.” Id. at 30.
Worsham’s testimony culminated in the following exchange:
[Prosecutor]: Based upon your training and experience and your knowledge of
the facts in this case, did two or more persons agree to accomplish a common plan
to launder money in New Century Coal?
[Worsham]: Yes, ma’am, they did. There was actually several individuals,
including Johnny Phillips, Brian Rose, Thomas Berry, William Heath Morris,
Brent Loveall, Robert McGregor. All these individuals essentially agreed to the
plan in which they presented to investors using fake names, they made fake
representations to these investors, and they essentially sold a coal mine that they
had no lease to –
[Defense counsel]: Your honor, I object to the entire answer. That’s a conclusion
that goes to the ultimate issue.
[The court]: All right. Ladies and gentlemen, most of these issues are ultimately
going to be for you to decide. I will tell you when I instruct you that Agent
Worsham is what’s called an opinion witness. You don’t have to accept his
opinion. There’s several things you should look at in deciding whether his
opinion is something you should accept or not, including whether it’s based on the
facts as you find them; but, otherwise, he may testify on the, on that question.
Id. at 39–40.
No. 16-6667 United States v. Phillips Page 9
Phillips says that the court should not have allowed Worsham to offer his opinion that
Phillips was part of a criminal conspiracy and received criminally derived proceeds from it.
“An opinion is not objectionable just because it embraces an ultimate issue,” says Rule 704 of
the Federal Rules of Evidence. When assessing whether a district court may admit an opinion
from a lay witness, we look to Rule 701, which permits opinion testimony if the opinion is
(1) “rationally based on the witness’s perception” and (2) “helpful to clearly understanding the
witness’s testimony or to determining a fact in issue.”
Although Rule 701 calls these criteria distinct factors, they are interrelated. The basis of
a witness’s opinion will often determine the helpfulness of the testimony. United States v. Pinke,
No. 09-01-01, 2009 WL 4432669, at *3 (E.D. Ky. Dec. 2, 2009). If a handful of discrete facts
form the basis of the opinion, the witness usually will be most helpful by stating those facts and
allowing the jury to form its own opinion. See United States v. Rea, 958 F.2d 1206, 1216 (2d
Cir. 1992); United States v. Hampton, 718 F.3d 978, 981 (D.C. Cir. 2013). This is especially
true when a witness leaps from specific facts to an opinion on the ultimate issue. That’s why we
have explained that it “seldom will be the case when a lay opinion on an ultimate issue will meet
the test of being helpful to the trier of fact since the jury’s opinion is as good as the witness’s.”
Mitroff v. Xomox Corp., 797 F.2d 271, 276–77 (6th Cir. 1986).
In this instance, the court at a minimum toed the abuse-of-discretion line when it allowed
Worsham to testify that Phillips was part of a conspiracy and received “criminally derived
proceeds.” Worsham based his opinion on an analysis of financial records and the temporal
correlation between the company’s fraudulent activities and the checks it issued Phillips. But
after he told the jury about the correlation, the jury was in just as good a position as Worsham
was to assess its significance. See United States v. Harris, 786 F.3d 443, 448 (6th Cir. 2015).
It’s hard to understand how the government added value by introducing Worsham’s opinions.
We need not decide whether the district court abused its discretion, however. Any
potential error was harmless. The key thrust of the prosecutor’s question was whether Phillips
conspired to launder money. And Phillips was acquitted of that charge.
No. 16-6667 United States v. Phillips Page 10
True, Worsham’s response to the prosecutor’s question might have touched on whether
Phillips was part of a conspiracy to commit fraud. But we think the district court’s follow-up
instruction cured any error. After defense counsel objected to Worsham’s testimony, the court
told the jury that “most of these issues are ultimately going to be for you to decide.” R. 584 at
40. It instructed the jury that it should decide for itself, “based on the facts as [it] find[s] them,”
whether or not to come to the same conclusions as Worsham. Id. Given the court’s instructions,
we can say “with fair assurance” that the jury didn’t blindly rely on Worsham’s testimony
instead of looking at the evidence with its own eyes. The error did not substantially affect the
jury’s verdict. Kotteakos v. United States, 328 U.S. 750, 765 (1946).
For these reasons, we affirm.