United States v. Lyons ( 2006 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, 
Plaintiff-Appellee, No. 04-50082
v.  D.C. No.
CR-02-00319-DOC-
TIMOTHY JAMES LYONS, 01
Defendant-Appellant.

UNITED STATES OF AMERICA,  No. 04-50127
Plaintiff-Appellee, D.C. No.
v.  CR-02-00319-DOC-
GABRIEL SANCHEZ, 2
Defendant-Appellant.
 OPINION
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Argued and Submitted
March 8, 2006—Pasadena, California
Filed July 17, 2006
Before: Sidney R. Thomas and M. Margaret McKeown,
Circuit Judges, and Samuel P. King,* Senior Judge.
Opinion by Judge McKeown
*The Honorable Samuel P. King, Senior United States District Judge
for the District of Hawaii, sitting by designation.
7841
UNITED STATES v. LYONS 7845
COUNSEL
John H. Weston, Weston, Garrou & DeWitt, Los Angeles,
California; William J. Kopeny, William J. Kopeny & Asso-
ciates, Irvine, California, for the defendants-appellants.
Ellyn Marcus Lindsay, Assistant United States Attorney, Los
Angeles, California, for the plaintiff-appellee.
OPINION
McKEOWN, Circuit Judge:
Rare is the person who relishes getting calls from those
great patrons of the telephone, telemarketers.1 Yet many char-
1
One oft-repeated expression of the collective view of telemarketers is
Jerry Seinfeld’s response to a telemarketer’s call:
[TELEMARKETER]: Hi. Would you be interested in switching
over to TMI long-distance service[?]
7846 UNITED STATES v. LYONS
ities, especially small, obscure or unpopular ones, could not
fund their operations without telemarketers. Some profes-
sional telemarketers take the lion’s share of solicited dona-
tions, sometimes requiring and receiving commission rates of
up to 85%. Most donors would probably be shocked or sur-
prised to learn that most of their contributions were going to
for-profit telemarketers instead of charitable activities. But the
Supreme Court has held that, under the First Amendment, the
bare failure to disclose these high costs to donors cannot, by
itself, support a fraud conviction. Madigan v. Telemarketing
Assocs, Inc., 538 U.S. 600, 606 (2003). Evidence of high fun-
draising costs may, nonetheless, support a fraud prosecution
when “nondisclosure is accompanied by intentionally mis-
leading statements designed to deceive the listener.” Id.
In this appeal we consider, among other things, under what
circumstances the government may introduce high commis-
sion rates as evidence in a criminal fraud case. Timothy
Lyons and Gabriel Sanchez challenge their convictions for
mail fraud and money laundering on the basis that they never
lied, and never asked the telemarketers in their employ to lie,
about the fact that around 80% of donations to their charities
were earmarked for telemarketing commissions.
Lyons and Sanchez did, however, misrepresent to donors
how they spent contributions net of telemarketer commis-
SEINFELD: Oh, gee, I can’t talk right now. Why don’t you give
me your home number and I’ll call you later? . . . .
[TELEMARKETER]: Well, I’m sorry. We’re not allowed to do
that.
SEINFELD: I guess you don’t want people calling you at home.
[TELEMARKETER]: No.
SEINFELD: Well, now you know how I feel.
available at http://transcripts.cnn.com/TRANSCRIPTS/0102/14/nr.00.
html.
UNITED STATES v. LYONS 7847
sions. Their undoing was not that the commissions were large
but that their charitable web was a scam. Donors were told
their contributions went to specific charitable activities when,
in reality, almost no money did. We conclude that the govern-
ment did not violate the First Amendment by introducing evi-
dence that over 80% of donations went to telemarketers.
Lyons and Sanchez also claim non-constitutional error
involving the admission of evidence and jury instructions.
These claims lack merit. We affirm the convictions and order
a limited remand pursuant to United States v. Ameline, 409
F.3d 1073, 1078-79 (9th Cir. 2005) (en banc).
BACKGROUND
I. FACTUAL BACKGROUND
We first describe the scheme Lyons and Sanchez devised,
and then turn to the specific representations made to potential
donors through both telemarketers and promotional pam-
phlets, and how Lyons and Sanchez actually spent the funds
they received.
A. OVERVIEW OF THE SCHEME
Around early 1994, long-time friends Lyons and Sanchez
decided to form a business in which Sanchez would run a
church and Lyons would supervise telemarketers to raise
money for the church. Sanchez formed the First Church of
Life (FCL), which had no congregation, services or place of
worship; its address belonged to the house of Sanchez’s
father. Lyons formed a fundraising company called North
American Acquisitions (NAA).
In pursuit of their scheme, the pair created six charities
under the FCL umbrella and selected names likely to attract
sympathy and donations, including the AIDS Research Asso-
ciation, Children’s Assistance Foundation, Cops and Sheriffs
7848 UNITED STATES v. LYONS
of America, Handicapped Youth Services, U.S. Firefighters,
and U.S. Veterans League. None of these charities had infra-
structure separate from FCL. The groups also had little if any
actual contact with the people or causes they purported to sup-
port.
NAA outsourced most operations to third-party telemar-
keters to solicit donations on behalf of FCL’s charities.
Donors usually sent checks, made out to the various FCL
charities, to the telemarketers. On average, the telemarketers
took 80% of the donated funds as commission. NAA kept
another 10%, and the last 10% was deposited into the respec-
tive accounts of the six FCL charities. We explain later in
greater detail how funds were distributed.
As a registered fundraiser, NAA filed annual financial
reports with the State of California and disclosed all funds
collected and all fees that went to the third-party telemar-
keters and NAA. By December 1997, FCL had lost its tax-
exempt status in California, so Sanchez registered a new
church in Nevada, Christian Outreach Ministries, through
which he ran the six charities originally under the FCL
umbrella.
In 1997, a California newspaper published articles calling
Sanchez’s operation a scam. Sanchez left Christian Outreach
Ministries and began to work for NAA. The operation of the
charities fell to other co-schemers.
Lyons and Sanchez went to Nevada, where they incorpo-
rated yet another church, Mercy Ministries, later renamed
Glory Ministries. The church became the umbrella organiza-
tion for six new charities, which inherited money and similar-
sounding names from the old charities.2
2
For example, AIDS Research Association became Children’s AIDS
Council; Cops and Sheriffs of America became the Police and Sheriffs
Support Fund; U.S. Firefighters became Firefighters Assistance Founda-
tion.
UNITED STATES v. LYONS 7849
In 2000, Lyons sold the assets of NAA to Roger Lane.
According to his employees, Lyons kept operational control
of NAA. Although employees were told to regard him as a
consultant, Lyons was still in charge and actively involved.
B. SPECIFIC REPRESENTATIONS AND FUNDS SPENT
During the course of the scheme, Lyons and Sanchez raised
over $6 million for the various causes. Out of these millions
raised on behalf of the six FCL charities, very little was spent
on charitable activities—according to the government, about
$4,800.3 This amount is small, even as a percentage of the net
donations received after paying telemarketers’ commissions.
Most of the charities’ funds actually went to Sanchez’s per-
sonal expenses—home rent, car payments, loan payments,
legal expenses, medical expenses, and credit card payments.
Nevertheless, Lyons and Sanchez wrote scripts for telemar-
keters to read to would-be donors, as well as promotional
pamphlets, that suggested otherwise.4 Every script and pam-
phlet mentioned a number of specific charitable activities pur-
portedly funded by donors’ contributions. We review in turn
each of the six charities, what each charity promised, and
what each charity actually delivered.
AIDS Research Association claimed that its goals were to
“provide funds to local A.I.D.S. hospitals to help find a cure
or at least to help funding of drug programs which may
enhance or lengthen the life of A.I.D.S. patients,” and to “pro-
3
The bank records were incomplete because certain electronic media
were unreadable. Sanchez argued at trial that all of the funds for which the
bank had lost records went to charity. However, Sanchez agreed that of all
the funds for which the bank could provide “hard and fast” numbers, less
than $5,000 went to charitable activities.
4
Sanchez testified that “I wrote the brochure information; and in later
years, I believe it was something that Mr. Lyons would write and I would
approve, modify, and I would come up with a product that was . . . accept-
able to both of us.”
7850 UNITED STATES v. LYONS
vide funds to local A.I.D.S. patients by giving in-home care
or just helping out families when a person dies of A.I.D.S.”
No evidence indicates that the Association ever gave funds to
hospitals, AIDS patients or their families. According to the
government, the association raised $261,257 in 1998 and
1999 but spent no money at all on charitable activities.
Children’s Assistance Foundation claimed that its goal was
to “eventually open a facility [for] . . . long term care for chil-
dren and their families,” and that its activities included “relo-
cat[ing] entire families” and “helping children and their
families . . . by providing food, shelter, medical care, and sim-
ple family expenses.” The group did not help multiple “fami-
lies” or “children,” though Sanchez himself provided exactly
one woman and her child food and shelter for several months.
The foundation raised $465,596 in 1998 and 1999, but could
document spending just $100 on charitable activities.
Cops and Sheriffs of America claimed to finance “various
crime prevention and drug awareness programs throughout
the country” and provide police officers education on “state
of the art” crime-fighting equipment and techniques. The
group published a magazine annually containing paid adver-
tisements. The charity changed its name to Police and Sher-
iff’s Support Fund, which purported to provide free self-
defense classes, financial support for neighborhood watch
programs and “families of slain officers,” and contributions to
“The National Law Enforcement Officers Memorial.” Of its
advertised activities, the Fund offered only a single self-
defense class attended by a few NAA or FCL employees. The
group raised $828,928 in 1998 and 1999, with only $400
spent on charitable activities.
Handicapped Youth Services purported to help provide
“wheelchairs, crutches, walkers or any other equipment that
these children may need but financially cannot afford,” and to
take handicapped children to “fairs, museums, and amuse-
ment parks to give some cheer to their lives.” In 1998 and
UNITED STATES v. LYONS 7851
1999, the charity raised $602,643. The group documented
spending no money at all on charitable activities.
The pamphlet for U.S. Firefighters said that it funded “vari-
ous fire prevention and awareness programs throughout the
country,” including the education of “professional and volun-
teer firefighters” on “state-of-the-art equipment and tech-
niques of firefighting and fire prevention.” Apparently, one
person went to low income houses in Orange County on
behalf of the group, installed fire extinguishers and smoke
detectors, left information, and gave away 50-75 fire extin-
guishers. Nothing in the record suggests that any firefighters
were educated. In 1998 and 1999, the group raised $752,270
but could document only $3,015 spent on its charitable activi-
ties.
U.S. Veteran’s League claimed to provide clothing, food,
shelter, and career counseling to homeless veterans and pur-
ported to have formed scholarships and grants for veterans.
Employees of Sanchez and Lyons testified that the charity
carried out none of these activities. The League raised
$955,806 in 1998 and 1999 but spent just $295 on charitable
activities.
II. PROCEDURAL BACKGROUND
In October 2002, a grand jury charged Lyons and Sanchez,
as well as Roger Lane and Steven Delatorre, with 33 counts
of mail fraud, 11 counts of money laundering and one count
of criminal forfeiture. Lane and Delatorre pleaded guilty just
before trial.
At trial, the government introduced evidence of the misrep-
resentations Lyons and Sanchez made on behalf of each char-
ity. The government introduced as exhibits the telemarketer
scripts and promotional pamphlets prepared by Lyons and
Sanchez, as described above. Donors testified as to what they
were told by telemarketers. The government also explained
7852 UNITED STATES v. LYONS
how Lyons and Sanchez, through their scripts and pamphlets,
had misrepresented the nonprofit status of FCL and its charities.5
Evidence of the high commissions taken by telemarketers
and how donations were actually spent formed a backdrop for
testimony about the charities. Former employees testified that
very little money was spent on charitable work. Some testified
that Sanchez did no work while at the office, where he talked
on the telephone and played video games. Former employees
also testified that they had asked Lyons and Sanchez what
precise charitable activities FCL engaged in. Lyons admitted
to an employee that FCL and its progeny did nothing for char-
ity, and Sanchez told another employee that it was none of her
business what he did for charity.
The government presented pie-charts that summarized the
bank records of each of the six charities and how they spent
donations received. Each chart showed the total donations
raised by each of the charities over roughly two years,
between 1998 and 1999. For instance, the chart for Handi-
capped Youth Services showed that, from late 1997 to
November 1999, the organization received $602,643 in dona-
tions. Of this amount, the chart showed that $520,313 or 85%
went to NAA, and that $19,519 eventually went to a new
account for Disabled Children’s Charity (the second genera-
tion incarnation of Handicapped Youth Services). Of the
$46,655 available for the charity to spend on its activities not
including returned deposits and funds for which records are
missing, the government’s chart reflected that $0 was spent on
charitable activities. The government explained that Sanchez
5
The government noted that the materials authored by Lyons and San-
chez represented that the charities were registered § 501(c)(3) nonprofit
organizations, and thus that any donations were tax deductible. The gov-
ernment argued that both Lyons and Sanchez knew that the basis for any
tax exemptions was the fact that Sanchez called his organization a church,
but that to receive a tax exemption, FCL had to apply for an exemption
and receive formal recognition from the IRS. Lyons and Sanchez never
sought formal approval of the organization’s claimed nonprofit tax status.
UNITED STATES v. LYONS 7853
actually spent the $46,655 on his own expenses, including his
own sports car, house rent, legal fees unrelated to NAA or
FCL, and personal medical bills.
Throughout the trial, as a foundation for its explanation that
the charities established by Lyons and Sanchez spent almost
no money on charitable activities, the government referred to
the high commissions taken by telemarketers. The govern-
ment’s opening argument is fairly representative of the way
it treated the high telemarketer commission rate throughout
the trial:
I’d like to talk now a moment about the money.
You will hear during the course of this trial that
out of every dollar raised from donors, 85 to 90 per-
cent went to N.A.A., defendant Lyon’s company.
Not a dollar of that money . . . went for any charita-
ble purpose whatsoever.
Now, out of that money, . . . 75 to 80 percent went
to professional telemarketers. The rates varied
depending on the firm. And he kept the rest himself.
He used it to pay his salary, his personal expenses
....
Now, that leaves us with 10 percent approxi-
mately. That 10 percent was . . . deposited into an
account under the name of the purported charity; for
example, the Handicapped Youth Services account.
Those accounts were under the control of defen-
dant Sanchez.
But of this money . . . you will hear that the vast
majority of it went into the pockets of defendant
Sanchez and those that worked for him — went to
pay for their business expenses, their personal
7854 UNITED STATES v. LYONS
expenses, and other items. Virtually no money went
for any charitable purpose whatsoever.
In November 2003, after a two-day trial, the district court
instructed the jury on the elements of mail fraud, co-schemer
liability, and the relevance of high fund-raising costs to fraud:
In order for the defendant to be found guilt[y] of
mail fraud as charged in counts 1 through 33 . . . [in
violation of 18 U.S.C. §1341], the government must
prove each of the following elements beyond a rea-
sonable doubt:
First, the defendant knowingly devised or know-
ingly participated in a scheme or plan to defraud, or
a scheme or plan for obtaining money or property by
means of false or fraudulent pretenses, representa-
tions, or promises;
Second, the defendant knew that the promises or
statements were false;
Third, the promises or statements made or facts
omitted were material, that is, they would reasonably
influence a person to part with money or property;
Fourth, the defendant acted with the intent to
defraud; and
Fifth, the defendant used or caused to be used, the
mails to carry out or attempt to carry out an essential
part of the scheme.
....
The phrases “scheme to defraud” and “scheme to
obtain money or funds” mean any deliberate plan of
action or course of conduct by which someone
UNITED STATES v. LYONS 7855
intends to deceive or to cheat another, or by which
someone intends to deprive another of something of
value.
....
The term “false or fraudulent pretenses, represen-
tations, or promises” includes actual direct false
statements and includes the knowing concealment of
facts that are material to the matter in question that
were made or used with the intent to defraud.
....
Each member of a scheme to defraud may be
responsible for the actions of the other co-schemers
performed during the course of and in furtherance of
the scheme. A defendant is responsible for a co-
schemer’s fraudulent acts if:
One, the defendant himself was a member of the
scheme to defraud;
Second, the defendant had the intent to defraud;
Third, the acts of co-schemers were performed
during the course of and in furtherance of the
scheme; and
Fourth, the defendant personally made up or par-
ticipated in the scheme.
High fund-raising costs without more do not
establish fraud. And mere failure to volunteer the
fund-raiser’s fee when contacting a potential donee
without more is insufficient to establish fraud.
The jury convicted Lyons and Sanchez on all mail fraud
and money laundering counts. The district court denied
7856 UNITED STATES v. LYONS
Lyons’ motion for a new trial and directed verdict. Lyons and
Sanchez were each sentenced to 180 months in prison and
three years of supervised release.
ANALYSIS
Lyons and Sanchez challenge their convictions on constitu-
tional and evidentiary grounds. They also argue that if their
convictions stand, they are entitled to a remand under Ame-
line, if not full resentencings. Sanchez alone requests a
remand to a different district judge.
I. FIRST AMENDMENT AND FUNDRAISING COSTS
Lyons and Sanchez argue that their mail fraud convictions
violated the First Amendment6 because the district court
allowed the government to use the high cost of fundraising as
evidence of fraud even though they had not affirmatively mis-
represented the cost of fundraising to donors. They raise a
cluster of closely-related arguments, all premised on a similar
misreading of Madigan.
[1] Madigan established a default rule in criminal prosecu-
tions for fraud involving telemarketing: the “bare failure to
disclose [the high cost of fundraising] directly to potential
donors does not suffice to establish fraud.” 538 U.S. at 606.
That is, the mere fact that a telemarketer keeps 85% of contri-
butions it solicits cannot be the basis of a fraud conviction,
and neither can the fact that a telemarketer fails to volunteer
this information to would-be donors. This fund-raising safe
harbor stems from a trio of Supreme Court cases that barred
states from adopting non-criminal regulations either (1) limit-
ing the percentage of donations fundraisers (usually telemar-
6
Constitutional issues are reviewed de novo. Buono v. Norton, 371 F.3d
543, 548 (9th Cir. 2004). A constitutional error is only harmless if it is
harmless beyond a reasonable doubt. Chapman v. California, 386 U.S. 18,
24 (1967).
UNITED STATES v. LYONS 7857
keters) may take, or (2) requiring fundraisers to tell would-be
donors about the percentage commission taken by fundraisers.
See Riley v. Nat’l Fed’n of the Blind, 487 U.S. 781, 784-87
(1988); Secretary of State of Md. v. Joseph H. Munson Co.,
467 U.S. 947, 950-54 (1984); Schaumburg v. Citizens for a
Better Environment, 444 U.S. 620, 622-28 (1980). The
Supreme Court articulated the First Amendment concern at
stake in these fundraising cases this way: “Our prior cases
teach that the solicitation of charitable contributions is pro-
tected speech, and that using percentages to decide the legal-
ity of the fundraiser’s fee is not narrowly tailored to the
State’s interest in preventing fraud.” Riley, 487 U.S. at 789.
[2] The limit of this principle may be seen in Madigan’s
holding that when “nondisclosure is accompanied by inten-
tionally misleading statements designed to deceive the listen-
er,” the high cost of fundraising may be introduced as
evidence of fraud in a criminal case. 538 U.S. at 606. Riley
foreshadowed this result by noting that fraud prosecutions
were “narrowly tailored” enough to be in “keeping with First
Amendment directives,” and that “the State may vigorously
enforce its antifraud laws to prohibit professional fundraisers
from obtaining money on false pretenses or by making false
statements.” 487 U.S. at 800.
Lyons and Sanchez urge an extremely narrow view of
Madigan, arguing that “Madigan held that if the fundraiser
affirmatively misrepresented the costs of the fundraising,
then, and only then, evidence of the costs might be utilized to
demonstrate the fraudulent nature of any specific misrepre-
sentations.” (Emphasis added). The apparent basis for this
argument is that in Madigan, the defendants directly lied to
donors about the percentage of donations that went to charita-
ble activities as opposed to fundraising.7 Thus, Lyons and
7
In Madigan, most donors were told that “a significant amount of each
dollar donated would be paid over” to the charity. 538 U.S. at 605 (empha-
sis added). One donor was even told that 90% of her donation would go
directly to the charity; yet another was told that no funds would go to labor
expenses because “ ‘all members [were] volunteers.’ ” Id. at 608.
7858 UNITED STATES v. LYONS
Sanchez urge that unless the government could show that they
lied to donors about how much the telemarketers would
receive, the government was barred from introducing evi-
dence of the high commissions paid to telemarketers.
[3] Madigan’s reach is not as narrow as Lyons and San-
chez suggest: “So long as the emphasis [in the arguments
made by the prosecution] is on what the fundraisers mislead-
ingly convey, and not on percentage limitations on solicitors’
fees per se, such actions need not impermissibly chill pro-
tected speech.” Madigan, 538 U.S. at 619. The Supreme
Court emphasized that “the First Amendment . . . case law
emphatically do[es] not require . . . a blanket exemption from
fraud liability for a fundraiser who intentionally misleads in
calls for donations.” Id. at 621. Madigan underscores that the
state faces a high burden to demonstrate fraud, including the
burden to prove that a defendant made knowing misrepresen-
tations with the intent to defraud. See id. at 620. Thus,
“[e]xacting proof requirements of this order, in other contexts,
have been held to provide sufficient breathing room for pro-
tected speech.” Id. (citing, inter alia, New York Times Co. v.
Sullivan, 376 U.S. 254, 279-80 (1964)).
In Madigan, the defendants not only misrepresented the
percentage of funds going to telemarketers, they also made
false promises about how donations—even net of telemar-
keters’ fees—were to be spent. Telemarketers “told prospec-
tive donors their contributions would be used for specifically
identified charitable endeavors,” such as food baskets, job
training, rent and bill payments, and rehabilitation for veter-
ans of the Vietnam War, even though donations did not pay
for these activities. Id. at 608. The government alleged that,
even taking into account the fact that fundraisers received
85% of donations, the charity itself spent only 3% of all funds
(or only 20% of net donation proceeds) on providing charita-
ble services. See id. at 607 n.1. The indictment charged that
“the charitable solicitation was a facade” because “[a]lthough
[the fundraisers] represented that donated funds would go to
UNITED STATES v. LYONS 7859
[the charity’s] specific charitable purposes, the amount of
funds being paid over to the charity was merely incidental to
the fund raising effort, which was made for the private pecu-
niary benefit” of the fundraisers and their agents. Id. at 618-19
(internal citations and quotation marks omitted).
[4] With respect to Lyons and Sanchez, the government
both alleged in its indictment and offered evidence at trial of
specific misrepresentations and omissions they made regard-
ing the use of donated funds. Specifically, the government’s
evidence underscored the fact that virtually none of the
money that ended up in the bank accounts of the six FCL
charities went to any charitable activities at all, let alone the
specific charitable activities mentioned in the telemarketers’
calls or promotional pamphlets. These misrepresentations are
nearly identical to the specific misrepresentations at issue in
Madigan. See id. at 607 n.1 (misrepresenting that significant
part of donations actually went to charitable activity when,
even net of fundraising costs, very little did); id. at 608 (repre-
senting that donations would fund specific charitable activi-
ties for Vietnam veterans that were never carried out).
[5] Neither Madigan nor the First Amendment insulates
defendants from criminal prosecution for fraudulent misrepre-
sentations about their charitable endeavors. Rather, the gov-
ernment is constrained from charging that high fundraising
costs per se are tantamount to fraud. Our case is much like
Madigan. The fraud is banded by the blatant misrepresenta-
tions about the charities. However, admission of evidence
regarding the fundraising costs was essential to understanding
the overall scheme and the shell game of the multiple chari-
ties. The government did not violate Lyons’ or Sanchez’s
First Amendment rights by introducing evidence that third-
party telemarketers received 80% of funds donated to the var-
ious FCL charities because the government had also shown
that Lyons and Sanchez, through their respective organiza-
tions, had made fraudulent misrepresentations regarding dis-
position of the charitable funds.
7860 UNITED STATES v. LYONS
II. RULE 403 AND FUNDRAISING COSTS
[6] Lyons and Sanchez argue that the government’s
repeated emphasis throughout the trial on the cost of fundrais-
ing, specifically the high commissions received by telemar-
keters, constituted “unfair prejudice” substantially
outweighing its probative value under Federal Rule of Evi-
dence 403.8 Under Rule 403, “unfair prejudice” is “an undue
tendency to suggest decision on an improper basis.” Rule 403
Advisory Committee Notes. We review the district court’s
Rule 403 decisions for abuse of discretion. United States v.
Leon-Reyes, 177 F.3d 816, 821 (9th Cir. 1999).
Relying on selective excerpts from the record, Lyons and
Sanchez claim that the government repeatedly emphasized the
high commissions taken by third-party telemarketers, as if this
fact alone were sufficient to sustain a fraud conviction. A
review of the record and trial as a whole shows the govern-
ment did not solely or relentlessly focus on the high cost of
fundraising to prove fraud. To be sure, the government asked
many witnesses about the high fundraising costs, but the vast
bulk of questions concerned misrepresentations or FCL’s fail-
ure to apply donated funds to charitable purposes. Nor was
the high commission rate itself a basis of the government’s
fraud case. Rather, the commission was a legitimate expense
and part of the overall picture of how the money was allocated.9
8
Rule 403 provides: “Although relevant, evidence may be excluded if
its probative value is substantially outweighed by the danger of unfair
prejudice, confusion of the issues, or misleading the jury, or by consider-
ations of undue delay, waste of time, or needless presentation of cumula-
tive evidence.”
9
See Madigan, 538 U.S. at 625 (Scalia, J., concurring) (“[T]here can in
general be no reasonable expectation on the part of donors as to what frac-
tion of the gross proceeds goes to expenses. . . . [O]ne who is promised,
without further specification, that his charitable contribution will go to a
particular cause must reasonably understand that it will go there after the
deduction of legitimate expenses . . . .”) (emphasis in original).
UNITED STATES v. LYONS 7861
Just as the government could not demonstrate fraud simply
by showing that 80-90% of contributions went to telemarket-
ing fees instead of charity, neither could it prove fraud solely
by showing that 10-20% of donations were not spent on char-
ity, without showing what happened to the remaining 80-90%
of the funds.
[7] The evidence is overwhelming that between telemar-
keters’ fees and Lyons’ and Sanchez’s personal expenses, the
six FCL charities spent virtually no money on charitable
activities promised to donors. The district court did not abuse
its discretion in overruling the Rule 403 objections regarding
fundraising costs.10
III. JURY INSTRUCTIONS
Lyons and Sanchez argue that the district court made four
discrete errors, failing to instruct the jury (1) as to the proper
scope of Madigan; (2) to be unanimous on the particular false
representations made by Lyons or Sanchez; (3) to be unani-
mous on the theory of mail fraud because the government
allegedly offered two theories (false representations or
scheme to defraud); and (4) as to the correct elements of co-
schemer liability. We review de novo whether the district
court’s jury instructions accurately stated the law. United
States v. Stapleton, 293 F.3d 1111, 1114 (9th Cir. 2002).
A. MADIGAN
The following was, in relevant part, the district court’s jury
instruction as to the rule in Madigan: “High fund-raising costs
10
Sanchez alone argued Rule 403 prejudice as to the admission of evi-
dence on how he spent donated funds net of fundraising costs—about
$700,000. Sanchez attempts to blur the distinction between fundraising
costs and net charity proceeds; the latter is definitely probative as to the
claimed fraud here. Madigan and the First Amendment surely do not pre-
clude a district court from admitting evidence of how charitable funds, net
of fundraising fees, are spent. See 538 U.S. at 607 n.1.
7862 UNITED STATES v. LYONS
without more do not establish fraud. And mere failure to vol-
unteer the fund-raiser’s fee when contacting a potential donee
without more is insufficient to establish fraud.” According to
Lyons and Sanchez, the jury instruction allowed the jury to
believe that it could convict based on the confluence of these
two facts that, taken independently, could not support a fraud
conviction. That is, they claim the jury could have convicted
based on high fundraising costs and the failure to volunteer
information about fundraising costs to donors.
Lyons and Sanchez posit that the district court should have
“directed the jury not to consider the high fundraising costs as
any evidence of fraud whatsoever.” Alternately, they propose
that the instruction “should have told the jury that neither evi-
dence of high fundraising costs nor evidence that such costs
were not gratuitously disclosed, nor any combination of both,
could be deemed any evidence of fraud absent proof of mis-
representations of these costs.”
[8] The difficulty with their challenge is that the court’s
instruction was a nearly verbatim quotation from Madigan.
See 538 U.S. at 624. It is difficult to understand the claim that
the jury instruction was “flatly prohibited by the Supreme
Court in Madigan” when the instruction quite appropriately
quoted the controlling law.
B. UNANIMITY AS TO A PARTICULAR FALSE PROMISE
Both Lyons and Sanchez claim that the district court should
have instructed the jury that, to convict on mail fraud, it had
to agree unanimously on the particular false promise or state-
ment made by the defendants. Thus, according to Lyons and
Sanchez, different members of the jury could have convicted
them based on different false promises. For instance, some
jurors may have decided to convict because Handicapped
Youth Services did not provide wheelchairs to handicapped
children as pamphlets promised, while other jurors may have
UNITED STATES v. LYONS 7863
convicted because the AIDS Research Association failed to
provide any funds to hospitals or AIDS patients.
[9] This argument is foreclosed by a long line of cases; the
jury need not be unanimous on the particular false promise.
See, e.g., United States v. Woods, 335 F.3d 993, 998-99 (9th
Cir. 2003) (“Under the mail fraud statute the government is
not required to prove any particular false statement was
made.”). The district court instruction was proper.
C. UNANIMITY AS TO THE THEORY OF FRAUD
The next challenge to the jury instructions is that the dis-
trict court should have instructed the jury to be unanimous on
the theory of fraud. Lyons and Sanchez claim that the instruc-
tions given suggest two conceptually distinct theories of mail
fraud liability: the “scheme to defraud” theory and the spe-
cific misrepresentation theory. Because this issue was not
raised at trial, we review for plain error. United States v.
Sanders, 421 F.3d 1044, 1050 (9th Cir. 2005).
[10] Ordinarily, the “general unanimity instruction suffices
to instruct the jury that they must be unanimous on whatever
specifications form the basis of the guilty verdict.” United
States v. Kim, 196 F.3d 1079, 1082 (9th Cir. 1999). A specific
unanimity instruction is required if it appears that there is a
“genuine possibility of jury confusion or that a conviction
may occur as the result of different jurors concluding that the
defendant committed different acts.” Id. (citing United States
v. Anguiano, 873 F.2d 1314, 1319 (9th Cir. 1989)) (internal
quotation marks omitted).
[11] Nothing here suggests the jury might have been con-
fused, nor do Lyons and Sanchez offer any evidence to sug-
gest this was the case. See United States v. Mastelotto, 717
F.2d 1238, 1247 (9th Cir. 1983) (requiring special unanimity
instruction when “a variance occurred between the single
scheme charged in each count of the indictment and the proof
7864 UNITED STATES v. LYONS
at trial” which indicated the existence of two schemes). Most
importantly, though, the government did not present two “the-
ories” of fraud. Lyons and Sanchez have miscast the jury
instructions and created a false dichotomy between a “scheme
to defraud” theory and a “false promises” theory. The jury
instruction provided that, to prove mail fraud under 18 U.S.C.
§ 1341, the government was required to show that a “defen-
dant knowingly devised or knowingly participated in a
scheme or plan to defraud, or a scheme or plan for obtaining
money or property by means of false or fraudulent pretenses,
representations or promises . . . .” (emphasis added).
Thus, the “alternate” theories actually both involve
schemes or plans. The jury instruction as given simply did not
provide for mail fraud liability in the absence of a unifying
scheme or plan. By following this instruction, the jury could
not have convicted Lyons and Sanchez for making false
promises in the abstract.
In any case, jurors need not be unanimous as to a particular
theory of liability so long as they are unanimous that the
defendant has committed the underlying substantive offense.
Kim, 196 F.3d at 1083 (“[I]t was not necessary for the jurors
in this case to unanimously agree on a specific classification
of Kim’s conduct.”).11 Here, the “scheme or plan to defraud”
and “scheme or plan for obtaining money or property by
means of false or fraudulent pretenses” both involve the same
underlying statutory offense, a violation of 18 U.S.C. § 1341.
11
See also Schad v. Arizona, 501 U.S. 624, 631-32 (1991) (“We have
never suggested that in returning general verdicts in such cases the jurors
should be required to agree upon a single means of commission, any more
than the indictments were required to specify one alone. In these cases, as
in litigation generally, different jurors may be persuaded by different
pieces of evidence, even when they agree upon the bottom line. Plainly
there is no general requirement that the jury reach agreement on the pre-
liminary factual issues which underlie the verdict.”) (internal citations and
quotation marks omitted).
UNITED STATES v. LYONS 7865
[12] Finally, sufficient evidence presented at trial showed
that both Lyons and Sanchez had both devised a scheme to
defraud donors and a scheme to obtain money by false pre-
tenses. Under these circumstances, the district court did not
commit plain error. See United States v. Fredette, 315 F.3d
1235, 1243 (10th Cir. 2003) (finding no plain error when the
district court issued general unanimity instruction and “ample
evidence” showed that defendant “both devised a scheme to
defraud customers and dealers and devised a scheme to obtain
money by false pretenses.”) (emphasis in original).
D. CO-SCHEMER LIABILITY
We next consider the final challenge to the jury instruc-
tions, namely that the district court did not instruct the jury as
to all the elements of co-schemer liability. The district court
instructed that to convict on co-schemer liability, the jury had
to find that (1) defendant was a member of the scheme; (2) he
acted with intent to defraud; (3) the acts of the co-schemer
were during and in furtherance of the scheme; and (4) defen-
dant participated in the scheme. The district court did not
instruct the jury that, for a defendant to be vicariously liable
for the acts of his co-schemers, those acts must have been rea-
sonably foreseeable and in furtherance of the scheme. See
United States v. Tarallo, 380 F.3d 1174, 1184 (9th Cir.
2004)).
[13] The government argues that foreseeability is not an
element of co-schemer liability. But the very case it cites, Sta-
pleton, indicates that jury instructions must “limit[ ] vicarious
liability to acts of co-schemers during the life of the scheme
and acts that were reasonably foreseeable as a necessary and
natural consequence of the fraudulent scheme.” 293 F.3d at
1118 (emphasis added). Stapleton affirmed jury instructions
that explicitly made foreseeability an element of co-schemer
liability. Id. at 1115-16 (“For a defendant to be found guilty
of an offense allegedly committed by a coschemer as part of
the scheme, the offense must be one which would reasonably
7866 UNITED STATES v. LYONS
have been foreseen to be a necessary and natural consequence
of the scheme to defraud.”) (emphasis added and original
bolding omitted). Thus, the district court erred by not instruct-
ing the jury that foreseeability is an element of co-schemer
liability.
The question, then, is the effect of this instructional error.
Although this instruction was not challenged at trial, the error
was not plain and did not affect the substantial rights of either
Lyons or Sanchez. See Sanders, 421 F.3d at 1050.
[14] Lyons seeks to distance himself from co-schemer lia-
bility for any misrepresentations in the brochures for charities,
Counts 13-33, all of which he argues were created after he
had sold his business to co-schemer Roger Lane. But Lyons
was still an active participant in the scheme, including the
drafting of fraudulent pamphlets, long after he sold his busi-
ness. Lyons not only authored the brochures, he was still in
charge of NAA after Lane’s purchase. Because Lyons was
still actively participating in the fraud alleged, “foreseeabili-
ty” was not an issue, and the district court’s error was not
plain and did not affect Lyons’ substantial rights. See Staple-
ton, 293 F.3d at 1117 (noting that a defendant may only be
vicariously liable for the acts of co-schemers that “occurred
during the defendant’s knowing participation or [were] an
inevitable consequence of actions taken while the defendant
was a knowing participant”).
[15] As was the case with Lyons, many of the mail fraud
counts against Sanchez are based on Sanchez’s active partici-
pation in the scheme to defraud. They thus involve his liabil-
ity as a principal.12 The remaining counts in the indictment
12
Sanchez asserts that “[e]ach of the fraud counts is based on the con-
duct of the telemarketers,” and that the jury should have been instructed
that he was only vicariously liable if the telemarketers were co-schemers,
since he never personally lied to donors. His argument misapprehends
how the indictment alleged mail fraud. None of the mail fraud counts cor-
UNITED STATES v. LYONS 7867
involve actions in furtherance of the fraudulent scheme that
were reasonably foreseeable. The counts of mail fraud relat-
ing to actions that took place after Sanchez left the scheme in
late 2000 charged Sanchez with actions executed by co-
schemers in accord with his explicit instructions. Mail fraud
that took place after 2000, then, was “an inevitable conse-
quence of actions taken while [Sanchez] was a knowing par-
ticipant” in the scheme to defraud. Id. Thus the district court’s
error was not plain and did not affect Sanchez’s substantial
rights.
IV. SENTENCING
[16] Lyons and Sanchez request limited remands pursuant
to Ameline, 409 F.3d at 1078-79. The government acknowl-
edges that remand is appropriate and we grant the requests.
Lyons and Sanchez go a step further and ask for full resen-
tencings because the district court should have applied the
“beyond a reasonable doubt” standard to facts, aside from
prior convictions, used for sentencing enhancement. Sanchez
in particular argues that the loss calculations used to raise his
sentence were not proven by clear and convincing evidence.
Generally, the pre-Booker standards of proof apply to sen-
tencing, see United States v. Dare, 425 F.3d 634, 642 (9th
Cir. 2005) (“[T]he preponderance of the evidence standard is
the appropriate standard for factual findings used for sentenc-
ing.”), though we have held that “the clear and convincing
responds with misrepresentations by telemarketers. The indictment alleges
a scheme to defraud in which Sanchez participated. Each of the 33 counts
of mail fraud is based on a separate mailing in furtherance of the scheme
to defraud—mostly packages from NAA containing commission checks
and supplies.
Sanchez also suggests that any fraud stemmed from unscripted lies told
by telemarketers, but the indictment does not charge Sanchez with being
liable for any unscripted lies told by telemarketers.
7868 UNITED STATES v. LYONS
standard still obtains for an enhancement with an extremely
disproportionate effect, even though the enhancement now
results in the calculation of an advisory rather than a manda-
tory Guidelines sentence.” United States v. Staten, ___ F.3d
___, No. 05-30055, 2006 WL 1542835, at *7 (9th Cir. June
7, 2006).
As Sanchez and Lyons did not raise this argument in dis-
trict court, the plain error standard applies. Sanders, 421 F.3d
at 1050. Because there were no extremely disproportionate
enhancements and there is no evidence that the district court
plainly erred in sentencing the defendants, they are not enti-
tled to full resentencings.
V. REASSIGNMENT OF DISTRICT JUDGE
Sanchez alone has asked to be assigned to a different judge
on remand, under 28 U.S.C. § 2106,13 because “the district
judge does not like Appellant.” Actually, the tension appeared
to be with Sanchez’s attorney, not Sanchez himself, and noth-
ing in the record supports an allegation of bias against San-
chez.
[17] After Sanchez’s counsel raised several objections that
the district judge seemed to find particularly objectionable,
the judge noted his displeasure with Sanchez’s counsel: “I
control this courtroom. Do you understand that?” The judge
stated that counsel’s objections were not inadvertent error,
refused counsel’s apology, told him to object properly, and
made the following comments to Sanchez’s counsel in front
of both defendants:
13
Section 2106 provides: “[A]ny . . . court of appellate jurisdiction may
affirm, modify, vacate, set aside or reverse any judgment, decree, or order
of a court lawfully brought before it for review, and may remand the cause
and direct the entry of such appropriate judgment, decree, or order, or
require such further proceedings to be had as may be just under the cir-
cumstances.”
UNITED STATES v. LYONS 7869
I don’t believe you. It’s willful, and I will resolve
this for you. I’m warning you. And by the time they
fish your client out of prison, if he is convicted—and
even if I’m overturned in terms of something I say
in front of the jury, it will be years. So don’t press
me on it counsel. We are done with this discussion
now. Have a nice lunch.
The government identifies no context or other facts that help
drain the sting from the judge’s comments. Nevertheless, San-
chez points to no other examples of purported bias by the dis-
trict judge. These few comments alone do not justify
reassignment of this case.
We may remand to a different district judge if a party can
show personal biases or unusual circumstances, based on an
assessment of three factors: (1) whether on remand the district
judge can be expected to follow this court’s dictates; (2)
whether reassignment is advisable to maintain the appearance
of justice; and (3) whether reassignment risks undue waste
and duplication. United States v. Peyton, 353 F.3d 1080, 1091
(9th Cir. 2003).
Sanchez prevails on none of these factors. Nothing suggests
that the district judge would fail to follow this court’s man-
date, even if it had been favorable to Sanchez. Nor do we
believe that these comments will affect the fairness of pro-
ceedings on limited remand. We also have no reason to
believe that reassignment is needed to maintain the appear-
ance of justice. Even after this limited exchange, the district
judge made rulings favorable to Sanchez, departing down-
ward on his criminal history score and refusing to impose a
two-level enhancement for obstruction of justice, as requested
by the government. Finally, as the government notes, reas-
signment would result in undue waste and duplication, partic-
ularly given the long procedural history of the case and
complexity of issues involved.
7870 UNITED STATES v. LYONS
AFFIRMED in part; REMANDED in part pursuant to
Ameline.