United States v. Daniel Gilbert Brown , 327 F.3d 867 ( 2003 )

OPINION

BETTY B. FLETCHER, Circuit Judge.

Daniel G. Brown (“Brown”) appeals his jury conviction of twenty-eight counts of wire fraud in violation of 18 U.S.C. § 1343 for overcharging a wood chip client by two percent. Brown claims that the trial court erred in allowing evidence of “other acts” under Fed. R. Evid. 404(b) and 403 and in allowing irrelevant and highly prejudicial witness testimony under fed. R. Evid. 401. Moreover, Brown claims that the district court failed to provide an adequate jury instruction in response to the prosecutor’s propensity statements during closing arguments regarding the alleged “other acts” 404 evidence. We have jurisdiction pursuant to 8 U.S.C. § 1291. Because we reverse on the grounds that the trial court committed reversible error by failing to cure the propensity arguments, we do not consider Brown’s remaining contentions regarding the district court’s evidentiary rulings and motion for mistrial.

I.

Brown co-founded Circle DE Pacific, a wood-chipping operation, located on the Kenai Peninsula in Alaska. Circle DE Pacific’s principal client was Mitsui Corporation, a Japanese Corporation with offices in Seattle, Washington. Mitsui bought wood chips and then sold them to Japanese paper producers. Brown sold his wood chips “green”, freshly chipped and still containing moisture, but priced them without moisture, or in “bone dry units” (“BDU”). In order to calculate the BDU of the “green” wood chips, Brown operated a laboratory in which small samples of the green chips were dried, and their weights were compared before and after drying. That calculation yielded the moisture percentage, which was then multiplied against the incoming green weight to yield the weight in BDUs.

The BDU calculation was also applied to incoming chips, which Brown obtained from both self-generated and outside sources. Brown paid some outside suppliers by “green” weight and others by BDU. As with chips sold to Mitsui, Brown’s laboratory sampled chips from each truck load, determined the moisture content, and cal-eulated the number of BDUs per truck, when his contract with that provider called for BDU measurement. The laboratory also performed chip classification measurements on each incoming load. Chip classification determines the quality and price of the chip. Chip quality was particularly important to Mitsui, and as a result, the contract detailed standards for sampling chips and measuring their classification.

After Brown opened the laboratory in April 1993, he instructed Bonnie Kenner, the laboratory supervisor, to undervalue the incoming chip BDU calculations by two percent. The resulting effect was that the number of BDUs that Brown had in inventory was underestimated by that two percent value. Brown told Kenner that the reason for this manipulation was to ensure that Brown had enough inventory to supply his customers’ demands. In 1994, Brown reiterated these instructions to Kenner’s replacement, Penny Barnes. Brown told Barnes that the two percent adjustment was intended to compensate for inventory lost to “bum samples, los-sage, blowage over the fence, and shrinkage.” Brown also allegedly instructed Barnes to alter chip classification summaries provided to Mitsui when their shipments were loaded.

Mitsui took shipment of its chip orders directly at Brown’s facility. The empty cargo capacity of each ship was measured by a surveyor, after which each cargo hold was filled as full as possible with chips. The chips, which were still “green” at delivery, were sampled every twenty minutes during ship loading and tested to determine moisture content. They were also tested for chip classification. The ship was surveyed again once loading was complete to compute the BDUs on board. These measurements were then used to bill Mitsui and to recalculate Brown’s current inventory.

In 1996, Brown instructed Barnes to apply a two percent adjustment to chip shipments that were outgoing to Mitsui due to an inventory problem. Brown also instructed Barnes to cook incoming chips for sixteen hours during the moisture— measurement process to compute BDUs, and outgoing chips for twelve hours. Brown told her that the outgoing chips were to have “just a tweak of moisture” and that they were “selling just a little bit of water.”

A federal grand jury indicted Brown on twenty-eight counts of wire fraud in violation of 18 U.S.C. § 1343 and twenty-five counts of illegal monetary transactions in violation of 18 U.S.C. § 1957(a) for devising a scheme and artifice to defraud Mit-sui. The indictment alleges that “Brown directed the company laboratory technician to increase the oven dry weight of the wood chips by 2% during the sampling process as the ship was being loaded. The total BDU weight was thus falsely inflated, causing Mitsui to be over-billed by 2% for each ship load.” The twenty-five counts of illegal monetary transactions were dismissed before trial.

A jury convicted Brown on twenty-eight counts of wire fraud based on allegations that between 1996 and 1998 he inflated invoices transmitted by facsimile to Mitsui. Brown was sentenced to twelve months incarceration and five years supervised release. The court also ordered Brown to pay restitution in the amount of $557,084.08, a fine, and a special assessment. Brown appeals his conviction and his denial for a mistrial alleging that the district court erred in admitting “other bad acts” evidence, in allowing certain witness testimony, and the trial judge’s failure to either admonish the government or to meaningfully instruct the jury regarding the improper comments made during closing arguments.

Although it is questionable as to whether the district court abused its discretion in admitting evidence of the other acts, we reserve ruling on that issue and assume for purposes of analysis that other acts evidence was properly admitted. We reverse and remand for a new trial because the trial judge failed to instruct the jury to disregard the prosecutor’s statements insofar as they suggested that Brown had a criminal propensity.

II.

The district court granted the prosecution’s motion in limine as to the use of other acts’ evidence, except for the introduction of evidence regarding phantom loads, or false truck loads, since they did not have direct relevance to whether wood chips were properly weighed and the moisture content was properly determined. The evidence allowed included Brown’s manipulation of incoming chip measurements, his manipulation of chip classification measurements, his manipulation of the reports to Mitsui regarding truck shipments, and his alleged underpaying of individual truckers. Defense counsel objected to this evidence at trial on the ground that it violated FED. R. EVID. 404.¹ The government argued that the other acts were relevant circumstantial evidence of Brown’s intent to defraud. The government also argued that the evidence of other acts demonstrates that Brown “was willing and able to lie and cheat on these other adjustments,” and therefore, “he has a propensity to lie.” Defense counsel argued that the jury has to decide whether or not directions were made incorrectly to increase the bone-dry percentage by two percent, whether they were altered with the intent to deceive the buyer, and whether or not the buyer was deceived. He stated that these other acts would not help the jury decide the issue.

The court admitted the “other acts” evidence on the theory that the trial would inevitably “come down to a swearing contest between the defendant and Penny Barnes as to what happened,” and that the “other acts” evidence would demonstrate Brown’s “knowledge and intent” and rebut his defense that Barnes simply manufactured the “two percent” allegations because she was a disgruntled employee. The court acknowledged that the probative value of the “other acts” evidence must be measured against its prejudicial effect under Fed. R. Evid. 403, and then stated “I doubt anybody’s going to get a lot of emotion out of wood chips.” Furthermore, the court found that the “other acts” evidence was “sufficiently intertwined” with the evidence of crimes charged in the indictment that to prevent the jury from hearing it would give the jury a distorted picture of the events in question.

During closing argument, the government attorney quoted extensively from one of the surreptitiously recorded conversations between Brown and Barnes. The prosecutor recounted:

[Barnes] says, “Okay, so on the ship-loadings, we’ve been doing it 12 hours like you told me to do, cook it for 12.” Mr. Brown says, “Yeah.” Ms. Barnes: “Now, do you want these every day cooked to 12?” Brown: “No.” Barnes: “Okay, just during the ship-loading?” Mr. Brown: “What we got coming in cook 16; going out, cook 12.” That leaves a tweak, just a tweak of moisture in the going-out chips. “We’re selling just a little bit of water,” is what Mr. Brown says.

The prosecutor then followed with this question to the jury: “And my question to you is, if a man is willing to cheat a little bit over here, wouldn’t he be willing to cheat just a little bit over here?” Defense counsel immediately objected. Without ruling on the objection, the court instructed: “The jury must consider only the charges in this case in reaching its decision, the 28 counts in the indictment.” At the closing of argument, defense counsel moved for a mistrial on the basis of the prosecuting attorney’s statement. The court, while finding the prosecution’s statements to be “bordering on propensity evidence,” did not grant the mistrial.

III.

“Prosecutorial statements to which the defendant objects are reviewed for ‘harmless error,’ ” while comments for which no objection is made are reviewed for plain error. United States v. de Cruz, 82 F.3d 856, 861 (9th Cir.1996); United States v. Sanchez, 176 F.3d 1214, 1218 (9th Cir.1999). “When reviewing for harmless error, we must determine ‘whether allegedly improper behavior, considered in the context of the entire trial, including the conduct of the defense counsel, affected the jury’s ability to judge the evidence fairly.’ ” Id. at 862 (quoting United States v. Endicott, 803 F.2d 506, 513 (9th Cir. 1986)). We must also look to “the substance of the curative instruction and the closeness of the case.” Id. “An error prejudices the substantial rights of a defendant when it affects the outcome of the proceedings.” United States v. Fuchs, 218 F.3d 957, 962 (9th Cir.2000) (internal quotation marks and citation omitted).

The prosecution’s closing argument relied heavily on evidence of other bad acts. During closing arguments, the prosecutor recited excerpts from Brown’s conversation with Barnes regarding the cooking time for outgoing chips, including Brown’s statement that they were “selling just a little bit of water.” The prosecutor then said to the jury, “And my question to you is, if a man is willing to cheat a little bit over here, wouldn’t he be willing to cheat just a little bit over here?” The court did not rule on defense counsel’s objection to these remarks. More importantly, the court failed “[to admonish] counsel to refrain from such remarks or[to give] appropriate curative instructions to the jury.” United States v. McKoy, 771 F.2d 1207, 1213 (9th Cir.1985); see also Endicott, 803 F.2d at 513. Instead the court instructed the jury to “consider only the charges in this case in reaching a decision, the 28 charges in the indictment.” The court did not instruct the jury to disregard the prosecutor’s statements insofar as they suggested that Brown had a criminal propensity.

Immediately following the court’s curative instruction, the prosecutor presented an abbreviated timeline describing the dates Brown allegedly ordered particular adjustments to incoming and outgoing chip values. The prosecutor would ultimately conclude that Brown cheated the truckers out of five percent of their loads because “[t]hey don’t know any better” while Brown was allegedly more careful with his Japanese clients. The prosecutor stated to the jury that “when you consider all the evidence in this case ... you’ll find that Mr. Brown cheated the Japanese customer — but not by much, just by the 2 percent.” The five-percent adjustment was thereby represented as the more egregious offense, but it was uncharged and served largely to show propensity. Defense counsel did not object, and the court offered no additional instruction regarding this line of argument.

The prosecutor’s statements were clearly designed to show Brown’s criminal propensity, in violation of Fed. R. Evid. Rule 404(b). They were also arguably an attempt to “inflame the jury” by indicating that the defendant took advantage of naive, domestic truckers more egregiously than he did his sophisticated Japanese customer. Cf. United States v. Williams, 989 F.2d 1061, 1072 (9th Cir.1993) (stating that “[a] prosecutor’s appeal to the jury to act as a conscience of the community is acceptable unless it is specifically designed to inflame the jury,” such as by appealing to their “parochial inclinations ... with respect to ... an out-of-state defendant”). The district court’s curative instruction did not tell the jury to reject the prosecutor’s implication that Brown harbored a propensity to cheat his business associates, and it did not inform them that generally, propensity evidence is improper. Furthermore, it did not inform them that insofar as the cooking-time evidence was proper, it was proper only to prove intent. As a result, the instruction was inadequate to guide the jury’s deliberations. Based on the disfavored nature of propensity evidence, its placement within the larger context of the prosecutor’s closing argument, and the district court’s failure to cure the improper statement, it is “more probable than not that the [prosecutor’s misconduct] materially affected the verdict.” United States v. Christophe, 833 F.2d 1296, 1301 (9th Cir.1987).

IV.

The district judge failed to give appropriate curative instructions regarding the prosecution’s inappropriate statements during closing argument. These statements affected the jury’s ability to judge the evidence fairly.

REVERSED and REMANDED.

1 . Rule 404(b) of the Federal Rules of Evidence provides that: "Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident, provided that upon request by the accused, the prosecution in a criminal case shall provide reasonable notice in advance of trial, or during trial if the court excuses pretrial notice on good cause shown, of the general nature of any such evidence it intends to introduce at trial.”