Docket: Nos. 97-50326, 97-50327, 97-50406, 97-50410, 97-50432 and 97-50559
Court: Court of Appeals for the Ninth Circuit; August 6, 1998; Federal Appellate Court
Lori Blitz, Norman Hefferan, Jerry Pierre Ste. Marie, Kristen Leon Hall, Jacob Giffin, and Harold Larsen appeal their convictions and sentences for mail and wire fraud linked to a telemarketing scheme operated by Nortay Consultants. This scheme targeted victims, mainly the elderly, by promising recovery of funds lost to other fraudulent telemarketers in exchange for retainer fees. Hall disputes the evidence supporting his convictions, while Hall and Larsen contest the admission of certain trial evidence. All defendants challenge their sentences, particularly the district court's calculation of intended victim losses, and Hefferan contests his restitution order. The court dismisses Hefferan's appeal and affirms the convictions and sentences of the other defendants.
Nortay Consultants, founded by Blitz, Hefferan, and Larsen in 1993, falsely claimed to recover money from individuals defrauded by other telemarketers. The firm used lead lists to contact victims, misleading them into believing that Nortay had researched their cases and could assist in recovering lost funds. Victims were told they needed to pay retainer fees—promised to be refundable—before Nortay could legally represent them, with claims of a 25% charge on recovered amounts. Victims received 'guaranteed' service contracts also falsely assuring refunds. Ultimately, Nortay defrauded about 1,100 victims, collecting approximately $481,868 while returning only a small fraction of that amount. Blitz was the primary operator handling fund recovery, while Hefferan acted as a sales manager. Prior to Nortay, all involved had histories of fraudulent telemarketing activities. An indictment in 1997 charged them with multiple counts of fraud and money laundering; Blitz, Hefferan, and Ste. Marie pled guilty to reduced charges, while Larsen, Giffin, and Hall were convicted on several counts after trial.
Giffin was convicted of three counts of mail fraud and six counts of wire fraud, while the jury could not reach a verdict on two counts. Hall was convicted of two counts of wire fraud. Hefferan and other telemarketers received prison sentences and were ordered to pay restitution. Hefferan's appeal was dismissed as he waived his right to appeal his sentence in the plea agreement, which was deemed valid since it was made knowingly and voluntarily, and his sentence and restitution did not exceed the agreed limits. Hall challenged the sufficiency of evidence for his convictions, but the court found that ample evidence supported his guilt. A victim testified that Hall promised to recover her lost money from fraudulent telemarketers in exchange for a retainer fee, demonstrating Hall's participation in the scheme. The court ruled that Hall was liable for the actions of his co-schemers under the wire fraud statute, despite not personally contacting one of the victims.
Hall was found to have knowingly engaged in fraudulent activities alongside Nortay, intending to deceive Nortay’s customers. Evidence presented at trial included tape recordings of Hall's deceptive phone calls to potential victims, where he made numerous false statements to build trust and convince them to use Nortay's services. Hall also confessed to the FBI that he lied to customers and mocked them for their gullibility. This evidence supported the jury's conclusion that Hall actively participated in the fraudulent scheme and could be held liable for the actions of his co-conspirators.
The admission of evidence at trial faced scrutiny, particularly two items: Nortay bank records and evidence of prior employment at another fraudulent telemarketing company. The court evaluated these admissions for abuse of discretion. The Nortay bank records were deemed relevant, directly relating to the fraudulent scheme by revealing a significant disparity between the money received from customers and the little paid back to them. These records helped demonstrate the fraudulent nature of Nortay's operations and were not unfairly prejudicial.
Regarding the evidence of Larsen's prior employment at the National Promotional Clearing Center, it was argued to be irrelevant and prejudicial. However, the court found that such evidence could illustrate motives and intent under Rule 404(b) of the Federal Rules of Evidence. The court emphasized its discretion in admitting evidence for proper purposes, concluding that the prior employment evidence was appropriately included.
Rule 404(b) is interpreted as one of inclusion, allowing for the admission of other acts evidence if it meets four criteria: (1) it must prove a material issue in the case, (2) it may be similar to the charged offense, (3) sufficient evidence must exist for a jury to find that the defendant committed the other acts, and (4) the acts must not be too remote in time. The probative value of such evidence must also not be substantially outweighed by the danger of unfair prejudice as per Fed. R. Evid. 403.
In this case, evidence of Larsen's previous employment at NPCC was deemed admissible, as it directly contradicted his claim of ignorance regarding fraud. The district court noted that his past involvement in fraud indicated he would recognize similar fraudulent activities. Evidence of Larsen’s participation in other land fraud schemes was introduced to counter his denial of knowledge about the charged scheme. Additionally, prior drug convictions were accepted to establish familiarity with the cocaine business, lending credibility to claims related to drug transactions.
Larsen’s past involvement in fraudulent telemarketing at NPCC was found similar enough to support the argument that he knew Nortay was fraudulent. The jury had sufficient evidence to conclude his involvement at NPCC, despite his assertions that NPCC did not defraud customers. The government presented considerable evidence that NPCC operated a fraudulent scheme, misleading victims into purchasing overpriced products under false pretenses of winning prizes. Larsen admitted to selling overpriced items and acknowledged that customers never received the promised prizes. His employment at NPCC was recent relative to his involvement with Nortay, satisfying the temporal requirement. The evidence met the four-part test for admissibility, and the district court should admit it unless its prejudicial impact significantly outweighed its probative value.
Prejudice determinations fall within the trial court's discretion, as noted in McDonald. Larsen's claim that evidence did not prove NPCC’s customers were defrauded fails to demonstrate any actual prejudice from introducing evidence of his employment. Even if some prejudice occurred, it was not deemed "unfair" and did not outweigh the evidence's probative value, as supported by Simas and Parker. The district court's discretion in this context will only be overturned if abused, which it was not.
Regarding sentencing, the Telemarketers challenge the district court's loss calculation for Nortay’s victims. The court's interpretation of the Sentencing Guidelines is reviewed de novo, while factual findings, including loss calculations, are reviewed for clear error. The reliability of evidence for sentencing is also subject to an abuse of discretion standard.
The Telemarketers contest the calculation of their guideline scores based on intended loss from Nortay’s sales log. Under the applicable fraud guideline, offense levels increase with loss amounts. The Telemarketers argue the sales log inaccurately reflected their intended loss. Despite their claims that the log amounts were merely aspirational, trial witness testimony supported the log as a record of pledged amounts, justifying the district court's conclusion that the log accurately represented their intended losses. The district court's assessment of the sales log's validity in determining intended loss is upheld, as intended loss is a recognized measure in fraud cases.
The Telemarketers argue that their plan's success was unrealistic, suggesting that some victims would inevitably escape their schemes. They claim this undermines the use of a sales log for determining offense levels, which they assert should reflect a 'realistic, economic approach' to calculating loss. However, the cases they cite—United States v. Allison and United States v. Harper—do not support their position. In Allison, the court determined that it was appropriate to deduct amounts repaid on fraudulently obtained credit cards, indicating that intent cannot be ascribed to losses not intended or realized. Harper involved an equity skimming scheme, where the court found it unrealistic to assume that the defendant intended to inflict a greater loss than actually occurred. The court clarified that while the Telemarketers may not have achieved the full extent of loss they intended, this does not absolve them of responsibility for their intended actions. The determination of intended loss remains unaffected by external factors limiting actual loss. Citing precedents, the court reiterated that intended loss calculations are not diminished by unsuccessful attempts to defraud victims. The Telemarketers' reliance on a Sixth Circuit case asserting that losses must be both intended and possible has been rejected in their circuit and others. Consequently, the district court's use of the sales log to calculate the loss attributed to the Telemarketers was upheld. Additionally, the Telemarketers seek a reduction in their offense levels based on the argument that some of their intended frauds were merely attempts due to incomplete success in defrauding victims.
A provision indicates that a decrease in offense level by three levels is applicable unless the defendant completed all necessary acts for the substantive offense or was on the verge of completing them but was interrupted by an uncontrollable event. However, this provision is not beneficial to the Telemarketers involved in mail and wire fraud, as these offenses are considered complete upon the use of the mail or interstate wire, regardless of the success of the scheme or whether funds were ultimately transferred. Citing multiple cases, the document asserts that each call or letter constitutes a separate completed fraud offense, even if the intended fraud was not fully realized. The district court determined that the fraud was substantially complete when it was logged, with only the arrival of the money remaining uncertain. Thus, the Telemarketers had performed all acts they believed necessary for their frauds, making the three-point reduction in offense level inappropriate. Additionally, the court found no error in declining to offset the intended loss by any recoveries, refunds, or cancellations claimed by the Telemarketers.
Telemarketers were denied credit for canceled sales, as their intent to defraud was evident regardless of victim cancellations, which did not alter the intended loss. Refunds purportedly issued to some victims did not reflect legitimate services but were part of the fraudulent scheme, aimed at maintaining the operation's facade of legitimacy. The district court correctly concluded that refunds and recoveries merely facilitated the continuation of fraud rather than absolving the Telemarketers of liability. The Eighth Circuit ruled against reducing losses based on expenses incurred in executing fraud, reinforcing the notion that fraud-related costs do not warrant credit. Regarding relevant conduct, the district court appropriately held the Telemarketers accountable for the total losses incurred by Nortay during their employment. Under U.S. Sentencing Guidelines § 1B1.3(a)(1)(B), defendants in a jointly undertaken criminal activity are responsible for all foreseeable acts of others involved, establishing a broader scope of accountability than the Telemarketers argued. They attempted to rely on a precedent from the Second Circuit, which found insufficient grounds for linking one defendant to the actions of others; however, this did not apply to their case.
Reliance on the precedent set in Studley is inappropriate in this case. In Studley, the defendant was not engaged in broader telemarketing activities and operated independently, lacking involvement in the fraudulent scheme beyond personal sales. In contrast, the Nortay telemarketers operated in a collaborative manner, engaged in a joint criminal enterprise. Nortay employees worked together to execute the fraudulent scheme, with dialers and closers depending on each other for sales, and shared scripts and sales strategies. Employees participated in meetings where tactics were discussed, and sales advice was provided. Unlike the commission-based structure in Studley, most Nortay employees received salaries, making them reliant on the overall success of the operation for compensation. Testimony indicated that salespeople were pressured to prevent refunds to ensure sufficient funds for salary payments. The district court correctly determined that the telemarketers collectively undertook all sales activities during their employment. This aligns with other appellate court rulings holding telemarketers accountable for losses incurred by their co-workers in fraudulent schemes, as seen in cases like Whatley, Senn, and Boatner. The argument that Larsen, Giffin, and Hall should not be held liable for losses throughout their employment due to a lack of knowledge about the fraud was rejected, affirming that knowledge of the broader scheme is essential for establishing liability.
Larsen and Giffin argue that the jury's inability to reach a verdict on certain mail and wire fraud counts during their tenure at Nortay raises questions about their awareness of fraudulent activity. However, the court finds their claims unconvincing, citing substantial evidence that Nortay operated as a fraud throughout its existence, with all Telemarketers aware of this. The court emphasizes that the fraudulent telemarketing scheme in question was particularly egregious, preying on victims by promising to recover funds lost to prior scams. The Telemarketers challenge their sentences, arguing they should not be fully accountable for the losses intended. Nonetheless, the district court correctly applied sentencing guidelines to determine the losses attributable to each Telemarketer, affirming the sentences for Blitz, Ste. Marie, Hall, Giffin, and Larsen while dismissing Hefferan's case. The court lacks jurisdiction to review Ste. Marie’s sentence selection, and Hall's claims fail as he merely echoed Larsen's arguments without individual analysis. The court also dismisses the Telemarketers' objection to the reliability of the log used for loss calculation, stating that the district court is only required to make a reasonable estimate based on reliable evidence. The sales log was deemed sufficiently reliable, supported by testimonies and admitted as a business record. The inability of the jury to reach a verdict on some counts does not prevent the sentencing court from considering the underlying conduct, even for acquitted charges, as long as proven by a preponderance of the evidence.
