United States v. James H. Cain, Jr. ( 1997 )

United States Court of Appeals
for the eighth circuit
___________
No. 96-2666
___________
United States of America, *
*
Appellee, * Appeal from the United
States
* District Court for the
Western
v. * District of Missouri.
*
James Hubert Cain, Jr., *
*
Appellant. *
___________
Submitted: January 13, 1997
Filed: August 1, 1997
___________
Before LOKEN, BRIGHT, and MORRIS SHEPPARD ARNOLD, Circuit
Judges.
___________
MORRIS SHEPPARD ARNOLD, Circuit Judge.
After a five-day trial in 1996, a jury convicted James
Hubert
Cain, Jr., of one count of conspiracy to commit mail fraud, two
counts of mail fraud, and four counts of interstate transfer of
money obtained by fraud. (For reasons that we cannot discern,
the
judgment reflects convictions on one count of conspiracy to
commit
mail fraud and on three counts each of mail fraud and
interstate
transfer of money obtained by fraud. The indictment, the jury
instructions, and the verdict forms, however, all show the
configuration of charges that we listed above.) The trial
court
sentenced Mr. Cain to 51 months in prison and to restitution of
$508,096.61.
Mr. Cain appeals his convictions, arguing that the
evidence
was insufficient, that certain hearsay was improperly admitted
as
coconspirator statements, and that the trial court erred in
refusing to give a proffered jury instruction on "honest
opinions"
and "mere puffing." Mr. Cain also appeals his sentence,
contending
that the amount of restitution was determined incorrectly. We
grant Mr. Cain's motion to file an untimely reply brief. We
affirm
Mr. Cain's conviction but remand for the entry of a new
restitution
order.
I.
The essence of the charges was that Mr. Cain conspired
with
others to induce several people to invest in the company of
which
he was president by knowingly misrepresenting to them, in
documents
and in person, that their investments were guaranteed by an
escrow
fund that would be used to buy government bonds. In reality,
no
money was ever placed in escrow for the purchase of bonds, and
no
bonds were ever bought. The individual counts of the
indictment
related to specific correspondence and money transfers executed
during the relevant events. Mr. Cain characterizes his defense
in
several different ways, but all of them amount to the basic
assertions that he had no intent to defraud, that any of his
own
representations alleged to be fraudulent were instead merely
predictions, projections, and opinions about events to occur in
the
future, and that he had no knowledge of the falsity of any
representations made by others.
Witnesses variously described Mr. Cain, who held the title
of
president of the company as of mid-July, 1993, as the person
"people would go to" "whenever there was a problem, when things
became chaotic," the person who "was supposed to be basically
in
charge of the day-to-day operations," and the person "to look
to
... for direction for the company, for control of the company."
According to one witness, Mr. Cain described himself by saying,
"I
run this operation ... if ... you need a decision made, I am
the
boss." Mr. Cain once directed another witness "to come to him
on
any matters concerning the company ... or problems and things
like
that." As president,
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Mr. Cain "had complete access to all of the books and records
of
the company" and "controlled ... all distributions of funds."
In July or August, 1993, according to the chief executive
officer of the company, several individuals in the company
began to
revise the written materials used in meetings with prospective
investors. Among those documents was a summary sheet (so
designated by the parties) stating that each investment "is"
guaranteed "by the purchase and escrow deposit of government
securities" (emphasis supplied). According to the chief
executive
officer, Mr. Cain was among those who contributed to the
content of
the summary sheet and had the entire summary sheet before him
when
he did so. According to the chief executive officer, Mr. Cain
knew
at that time that "there was no guaranty fund in place."
Marion Johnson testified that she attended a prospective
investors' meeting in September, 1993, where Mr. Cain stated to
her, with respect to investment in the company, that "yes ...
the
principal ... is safe" (emphasis supplied). An advertising
consultant testified that she attended the same meeting and
that
the summary sheet was distributed at that meeting. The
advertising
consultant's own notes from that meeting reflect that the
"principal is protected by zero coupon bonds ... [and] [i]n
effect,
the principal is guaranteed" (emphasis supplied). A tax
accountant
testified that Mr. Cain "went through" the prospectus and the
summary sheet "in great detail" with Ms. Johnson and
"[r]epeatedly"
emphasized the escrow fund. That evening, Ms. Johnson signed
releases for almost $250,000 in insurance and annuity proceeds,
to
be transferred to the company.
The chief financial officer of the company testified that
after the meeting with Ms. Johnson, Mr. Cain and several others
discussed how to use the money that they would receive from
Ms. Johnson. The group decided, first, to pay outstanding
bills of
approximately $90,000 and, second, to "establish[] and fund[]
...
the guaranty fund." Obviously, then, the escrow fund still did
not
exist in September, 1993. Nor "was there
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any surprise expressed" by Mr. Cain during those post-meeting
discussions, "that the account for the guaranty fund had not
already been funded," according to the chief financial officer.
The company paid the bills in question but did not establish
the
escrow fund, even though the chief financial officer asked both
Mr. Cain and the chief executive officer about it again. At
that
time, the chief executive officer instructed the chief
financial
officer "to wait"; Mr. Cain made no objection.
Other meetings were held with prospective investors in the
fall of 1993. Donald and Eva Jantz testified that they
attended
one meeting where Mr. Cain was present and that they were given
a
copy of the summary sheet. They further testified that in
reliance
on the summary sheet, they invested $10,000 in the company.
Robert
Ross testified that he and his mother attended a meeting at
which
Mr. Cain was present. The summary sheet was distributed on
that
day as well. At a subsequent meeting where Mr. Cain was also
present, Mr. Ross's mother invested $10,000 in the company.
Finally, Charles Heiman testified that he and his wife attended
one
meeting where Mr. Cain was present. The summary sheet was also
distributed at that meeting. Mr. and Mrs. Heiman invested
$10,000
in the company on that day.
The chief financial officer testified that after all of
these
meetings, he asked Mr. Cain and the chief executive officer
"almost
daily" about "whether or not the guaranty fund should have any
money put into it." Mr. Cain always "pass[ed] the buck back"
to
the chief executive officer, never directed that the escrow
fund be
established, and in fact instructed the chief financial officer
"to
spend money for other purposes." In spite of those
circumstances,
the chief executive officer testified, Mr. Cain "represented to
the
investors that there was a fund" and in fact "emphasized that
with
... the ... investors."
We believe that the evidence is more than sufficient to
show
that Mr. Cain colluded with others to induce several people to
invest in the company of which he was president by
misrepresenting
to them that their investments would be completely safe
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because of the existence of an escrow fund that was used to buy
government bonds, at times when he knew that no such escrow
fund or
bonds existed. See, e.g., Atkinson v. United States, 344 F.2d
97,
99-100 (8th Cir. 1965), cert. denied, 382 U.S. 867 (1965), and
Morris v. United States, 7 F.2d 785, 792-93 (8th Cir. 1925),
cert.
denied, 270 U.S. 640 (1926); see also United States v. Kaplan,
554
F.2d 958, 963-64 (9th Cir. 1977) (per curiam), cert. denied,
434
U.S. 956 (1977), and United States v. Hartenfeld, 113 F.2d 359,
361-62 (7th Cir. 1940), cert. denied, 311 U.S. 647 (1940). We
turn, then, to Mr. Cain's other contentions.
II.
The trial court made a finding pursuant to United States
v.
Bell, 573 F.2d 1040, 1043-44 (8th Cir. 1978), that a conspiracy
existed, that Mr. Cain was a member of that conspiracy, that
certain statements were made by other conspirators during the
course of the conspiracy and in furtherance of it, and,
therefore,
that those statements were admissible under Fed. R. Ev.
801(d)(2)(E). On appeal, Mr. Cain first argues that no
conspiracy
existed. We reject that contention in light of our discussion
on
the sufficiency of the evidence.
In the alternative, Mr. Cain asserts that certain
statements
admitted under Fed. R. Ev. 801(d)(2)(E) were in fact not
coconspirator statements within the meaning of the rule. Mr.
Cain
does not specify the exact statements to which he objects. The
gist of his argument seems to be, however, that any statements
made
after November, 1993, could not have been coconspirator
statements,
since by that time the conspirators (for our purposes, Mr.
Cain,
the chief executive officer, and the chief financial officer)
were
antagonistic to one another.
We have carefully read the transcript of the trial. There
are
very few "statements" within the meaning of the rules dealing
with
hearsay, see especially Fed. R. Ev. 801(a)(1), 801(c), 802,
805,
806, and we believe their admission to be harmless error, if
error
at all. See, e.g., United States v. Smith, 550 F.2d 277, 282
(5th
-5-
Cir. 1977), cert. denied, 434 U.S. 841 (1977). We therefore
reject
Mr. Cain's assertions on this issue.
Mr. Cain also contends that the trial court improperly
refused
to give a jury instruction on "honest opinions" and "mere
puffing."
In the first place, such an instruction was inapplicable to the
misrepresentation with respect to the present existence of an
escrow fund. In the second place, however, we note that the
trial
court did give jury instructions requiring proof of
"affirmative
representations or omissions" and allowing the jury to accept a
defense of "good faith," "opinion[s] honestly held," and
"honest
mistake[s] in judgment."
In our view, the jury instructions (including the verdict
director, to which Mr. Cain also objects), taken as a whole,
fairly
and adequately contained the applicable law, see, e.g., United
States v. Casas, 999 F.2d 1225, 1230 (8th Cir. 1993), cert.
denied,
510 U.S. 1078 (1994), and covered the essence of Mr. Cain's
proffered instruction, see, e.g., United States v. Bettelyoun,
16
F.3d 850, 853 (8th Cir. 1994). We therefore reject Mr. Cain's
contentions on this issue as well.
III.
At the sentencing hearing, the trial court found that the
conspiracy, "as alleged in the indictment," existed from
December,
1992, to December, 1993, and that Mr. Cain, "even though he was
a
late comer[]," was "responsible for all of the money obtained
during the conspiracy." That amount, and thus the appropriate
restitution, the trial court found, was $508,096.61. That
total
was the sum of $298,851.61 for the stock transactions at issue
during the trial, $55,200.00 for stock sales not at issue
during
the trial but made by the chief executive officer and the chief
financial officer (both of whom pleaded guilty as
conspirators),
and $154,045.00 for stock sales between March and December,
1993,
made by a commissioned stockbroker.
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On appeal, Mr. Cain argues that the evidence failed to
show
that he knew about the $55,200.00 in other stock sales or about
the
$154,045.00 in stock sales made by the commissioned stockbroker
(who was acting, according to Mr. Cain, at the direction of the
chief executive officer and the chief financial officer). In
the
alternative, Mr. Cain asserts that since he did not join the
company until mid-July, 1993, he should not be held responsible
for
any stock sales before that time.
The chief financial officer of the company testified that
money began "coming in" from stock sales in early March, 1993.
Those sales, he stated, were made by him, the chief executive
officer, and the commissioned stockbroker. The chief executive
officer testified that he first met Mr. Cain "sometime in
March or
April," 1993, and talked with him over "two or three months"
"about
... becoming involved in the company." During that time,
according
to the chief executive officer, Mr. Cain "had total access to
the
office" and "the company books and records."
Also during that time, the chief executive officer stated,
he
discussed with Mr. Cain in "great detail" the sales that the
commissioned stockbroker was making, since the chief executive
officer considered the commissioned stockbroker "a major pain
in my
side." Mr. Cain told the chief executive officer that "he was
going to be [a] hatchet man" and "fix" the situation with the
commissioned stockbroker, who was allegedly being paid
exorbitant
commissions. The chief executive officer also testified that
he
discussed with Mr. Cain "the issues with the bond fund,"
presumably
that one did not exist, despite misrepresentations to the
contrary
in the original summary sheet, which was used during meetings
with
prospective investors.
The company actually hired Mr. Cain in mid-July, 1993.
According to the chief financial officer, after Mr. Cain was
hired,
he "made himself very familiar with the financial status of the
company in terms of ... cash flow, ... liabilities, [and] ...
sources of income." He did so by going through "the books and
records of the company." Mr. Cain especially "wanted to know
on a
daily basis what the cash balance[s] in the
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various checking accounts were." Mr. Cain also knew, after
that
time, according to the chief financial officer, about the
commissioned stockbroker's sales, because on "one occasion ...
there was a rather heated telephone exchange ... between [the
commissioned stockbroker] and [another company officer], and
Mr. Bert Cain was present. And following that altercation
there
was discussion between myself and [the other officer and Mr.
Cain]
relating to the specific circumstances relating to [the
commissioned stockbroker]."
Under the federal sentencing guidelines, the relevant
conduct,
and hence base offense level, for a participant in a conspiracy
is
determined by reference to "all acts and omissions committed,
aided, abetted, ... or willfully caused by the defendant ...
[and]
all reasonably foreseeable acts and omissions of others in
furtherance of the jointly undertaken criminal activity." See
U.S.S.G. § 1B1.3(a)(1)(A), § 1B1.3(a)(1)(B). "A defendant's
relevant conduct does not include the conduct of members of a
conspiracy prior to the defendant's joining the conspiracy,
even if
the defendant knows of that conduct." See U.S.S.G. § 1B1.3,
application note 2, ¶ 8.
We have no difficulty concluding, from the evidence
recounted,
that when Mr. Cain was hired in mid-July, 1993, he knew of the
stock sales made by the chief executive officer, the chief
financial officer, and the commissioned stockbroker. From that
knowledge, it is reasonable to conclude as well that future
stock
sales by those three people were foreseeable to Mr. Cain. Nor
is
it irrational to believe that Mr. Cain knew in mid-July, 1993,
of
the original summary sheet's misrepresentation that an escrow
fund
existed and also knew that, in fact, no such fund did exist.
From
that knowledge, we may infer that as of mid-July, 1993, Mr.
Cain
agreed, at least tacitly, to the use of that summary sheet in
future stock sales, whether made by himself or the other three
persons in question.
We do not see any evidence in the record before us,
however,
that justifies the conclusion that Mr. Cain joined the
conspiracy
during the months between March and
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July, 1993. Specifically, we cannot extract from the record
before
us, except by resort to raw speculation, the conclusion that
Mr. Cain agreed, before he was hired, to the use of the summary
sheet in future stock sales. We reverse, therefore, the
attribution to Mr. Cain of any stock sales before mid-July,
1993.
Accordingly, we vacate the restitution order in this case and
remand for additional proceedings.
IV.
For the reasons stated, we affirm Mr. Cain's conviction
but
remand his case for further proceedings consistent with this
opinion.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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