United States v. Janice Demmitt , 706 F.3d 665 ( 2013 )

Case: 11-11120 Document: 00512132239 Page: 1 Date Filed: 02/01/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
February 1, 2013
No. 11-11120 Lyle W. Cayce
Clerk
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
JANICE EDWINA DEMMITT,
Defendant - Appellant.
Appeal from the United States District Court
for the Northern District of Texas
Before STEWART, Chief Judge, and GARZA and ELROD, Circuit Judges.
CARL E. STEWART, Chief Judge:
A jury convicted Defendant-Appellant Janice Edwina Demmitt of
conspiracy to launder monetary instruments, wire fraud, and money laundering.
The district court sentenced her to seventy months imprisonment, a net term of
five years supervised release, and restitution. Demmitt now appeals on the
basis of alleged evidentiary errors, an improper jury instruction as to deliberate
ignorance, and as to one of the money laundering counts, a fatal variance from
the indictment or, alternatively, insufficient evidence to support the conviction.
We AFFIRM in part, VACATE in part, and REMAND.
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I. BACKGROUND
A. Facts
Demmitt and her son, Timothy Fry (“Fry”) lived and ran an insurance
annuity business together. They were both licensed agents for Allianz Life
Insurance Company (“Allianz”), a legitimate company. Demmitt and Fry
secured several clients and set up annuity policies for them with Allianz.
Between 2007 and 2008, Fry began to defraud his customers. He forged
letters and e-mails purporting to be from Allianz that promised customers a fifty
or one-hundred percent match for opening a new annuity. Fry encouraged
clients to come up with this money in a variety of ways, including cashing out
their existing Allianz annuities. Fry told clients he needed the money
immediately in order to secure the match and that, to save time, the clients
should provide cash or write him, not Allianz, a personal check. Each time a
client cashed out or borrowed against an existing Allianz annuity, Fry or
Demmitt sent a fax from their office to Allianz’s Minnesota office. In most
instances, whenever a change was made to an Allianz annuity, Allianz sent a
letter to Demmitt to inform her of the changes, even if Fry had initiated them.
Fry also obtained money from clients in other ways. In one instance, Fry
obtained a $30,000 check from a client by reporting that the client’s husband,
also a client, owed him the money.
In many cases, Fry deposited the fraudulently-obtained checks into his
individual bank accounts or joint bank accounts he owned with Demmitt. In
some instances, Fry cashed the checks and then gave cash to Demmitt, who
deposited it into her individual or joint bank accounts. Demmitt used the funds
to cover business and personal expenses, including frequent purchases from
QVC and payments to an interior decorator who was helping her set up a call
center in a warehouse that required significant renovations. Fry and Demmitt
both bought new vehicles.
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Fry also funneled some of his clients’ money into an E*TRADE account
that he used to fund his investment activities. Fry’s discussions of his trading
successes were convincing enough that his brother, Tad Fry (“Tad”), who lived
in Colorado and periodically sent money to help with Demmitt and Fry’s
household expenses, requested that some of his money be invested in the
E*TRADE account. In fact, Fry lost a significant amount of the money in the
account, including fraudulently-obtained client money.
In the summer of 2008, some of Tad’s logging equipment began to break
down, and he asked Fry and Demmitt to send him money from the E*TRADE
account. Tad believed Fry and Demmitt would send him his own money.
Instead, they wired Tad money that was ultimately traced to client funds. For
example, on August 21, 2008, Demmitt wired Tad $3,000 in client funds from
one of her bank accounts.
Meanwhile, both Demmitt and Fry experienced significant cash flow
problems of which Demmitt was aware. Because the business only had a
handful of clients, annuity commissions alone were insufficient to cover business
expenses, let alone personal expenses. Several people informed Demmitt of
financial problems the business and Fry were having. For example, in
September 2008, after Tad informed Fry that he needed more money to pay for
the equipment, Fry sent Tad a series of checks that were ultimately returned for
insufficient funds. Consequently, Tad’s bank account became overdrawn by
$47,000. Tad informed Demmitt that Fry’s checks had been returned for
insufficient funds. Demmitt was also informed several times that employee
paychecks had been returned for insufficient funds.
In August 2008, clients Georgiann and Donald McCormick filed a
complaint with the Amarillo Police Department, alleging that Fry had stolen
$450,000 from them. Police Detective Celia Vargas was dispatched to Demmitt
and Fry’s business office to investigate. When Demmitt opened the locked door,
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Vargas asked to speak with Fry, but Demmitt reported that he was not present.
Upon Demmitt’s question, Vargas informed her that she was investigating
possible fraud being perpetrated by Fry. When Vargas requested to look around
the property, Demmitt called to Fry, who appeared. Demmitt informed Fry that
Vargas was there to investigate “financial fraud,” thus qualifying Vargas’s
investigation in a way Vargas had not done.
In total, Fry defrauded over $700,000 from his clients.
B. Procedural History
Demmitt and Fry were each charged with one count of conspiracy to
launder monetary instruments, fifteen counts of wire fraud, and eleven counts
of money laundering. All of the money laundering counts, except Count 27, were
brought under 18 U.S.C. §§ 1957 and 2 and involved amounts over $10,000.
Count 27 was brought under 18 U.S.C. § 1956(a)(1)(B)(i) and alleged, inter alia,
that Demmitt transferred $3,000 to Tad knowing that the transaction was
designed to conceal the illegal attributes of the money.
Fry pleaded guilty, signing a factual resume that, inter alia, asserted
Demmitt had been involved in the scheme. Demmitt pleaded not guilty, and she
was tried before a jury. At trial, Demmitt presented no witnesses or evidence,
and she argued that Fry had been the sole perpetrator of the scheme. The jury
convicted Demmitt of conspiracy to launder monetary instruments, eight counts
of wire fraud, and all of the money laundering counts.
Demmitt now brings this appeal, raising four issues: (1) the district court
reversibly erred when it permitted the Government to introduce Fry’s factual
resume as substantive evidence of Demmitt’s guilt; (2) the district court
reversibly erred when it permitted the Government to introduce witness Doris
Streu’s testimony; (3) the district court reversibly erred when it gave the jury a
deliberate ignorance instruction; and (4) conviction under Count 27 was
improper because the Government’s evidence was a fatal variance from the
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indictment or, alternatively, there was insufficient evidence that Demmitt
satisfied the essential elements of the crime.
II. EVIDENTIARY ISSUES
Demmitt raises two evidentiary issues. First, she argues that the trial
court erred when it permitted the prosecution to introduce Fry’s factual resume
as substantive evidence of Demmitt’s guilt. Second, she argues that the trial
court erred when it permitted the prosecution to introduce Streu’s testimony
regarding a loan her husband made to Fry.
We first address Demmitt’s second argument. As Demmitt has cited no
authority in support of her contentions as to the impropriety of admitting Streu’s
testimony, we hold this argument waived. See Fed. R. App. P. 28(a)(9) (“The
appellant’s brief must contain . . . citations to the authorities . . . .”); see also
Procter & Gamble Co. v. Amway Corp., 376 F.3d 496, 499 n.1 (5th Cir. 2004)
(collecting citations) (“Failure adequately to brief an issue on appeal constitutes
waiver of that argument.”).
We now turn to Demmitt’s argument that the trial court erred when it
permitted the prosecution to introduce Fry’s factual resume as substantive
evidence of Demmitt’s guilt.
A. Standard of Review
Where a party has properly preserved an objection, as is the case here, we
review evidentiary rulings for an abuse of discretion, subject to a harmless error
analysis. United States v. Cisneros-Gutierrez, 517 F.3d 751, 757 (5th Cir. 2008)
(citation omitted); United States v. Crawley, 533 F.3d 349, 353 (5th Cir. 2008)
(citation omitted). “Reversible error occurs only when the admission of evidence
substantially affects the rights of a party.” Crawley, 533 F.3d at 353 (citations
omitted).
“A nonconstitutional trial error is harmless unless it had substantial and
injurious effect or influence in determining the jury’s verdict.” United States v.
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El-Mezain, 664 F.3d 467, 526 (5th Cir. 2011) (citations and internal quotation
marks omitted). “Under this standard, we ask whether the error itself had
substantial influence on the jury in light of all that happened at trial; if we are
left in grave doubt, the conviction cannot stand.” Id. (citations and internal
quotation marks omitted).
B. Discussion
We now address the merits of Demmitt’s contention as to the introduction
of the factual resume. Soon after Fry was sworn in as a witness for the
prosecution, the following exchange occurred:
Q [Prosecutor]. And Government’s [Exhibit] 17-2, is
that the factual resume that provides the factual basis
for your plea of guilty that you entered?
A [Fry]. Yes.
Q. And does it bear your signature, along with that of
your lawyer?
A. Yes.
[Prosecutor]: The Government offers
Government’s Exhibit . . . W17-2.
[Counsel for Demmitt]: Your Honor, both of these
documents are hearsay. They’re out-of-court
statements that are being offered for the truth of the
matter asserted.
The Court: Admitted.
Q (By [Prosecutor]): Did you plead guilty to this on July
the 28 of 2011?
A. Yes.
Q. And prior to your – during your plea of guilty, were
you sworn in?
A. Yes.
Q. Did you raise your right hand and promise to tell
the truth?
A. Yes.
Q. And did you swear that everything contained in the
factual resume was true and correct?
A. Yes.
[Prosecutor]: I’ll pass the witness.
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Fry’s factual resume attributes every aspect of the fraud to both himself
and Demmitt. On cross-examination, Fry testified that he did not remember
most of his fraudulent activities due to heavy medication, but that he did not
recall Demmitt’s involvement in the fraud. He explained that he did not believe
he was representing Demmitt was part of the fraud when he signed the factual
resume and that, before he signed the factual resume, he had informed the
prosecutor that Demmitt was not involved in the scheme. Fry also stated that
he had informed Demmitt that his E*TRADE investments were doing well.
However, Fry also conceded Demmitt’s awareness of particular aspects of the
fraud, such as withdrawals from client annuity accounts.
Demmitt argues that the factual resume was impermissibly admitted
hearsay. The Government disputes this characterization, claiming that the
factual resume is admissible non-hearsay under Federal Rule of Evidence 801
as an adoption or as a prior inconsistent statement. We disagree with the
Government’s contentions.
As is well-known, hearsay is a statement, including a “written assertion
. . . that: (1) the declarant does not make while testifying at the current trial or
hearing; and (2) a party offers in evidence to prove the truth of the matter
asserted in the statement.” Fed. R. Evid. 801(a), (c). Hearsay is not admissible
unless a statute or rule provides otherwise. Fed. R. Evid. 802. In some
instances, however, a declarant-witness’s prior statement is not hearsay. The
Government presses two of those non-hearsay situations here: (1) when the
declarant adopts the prior statement and (2) when the prior statement is
inconsistent with the declarant’s testimony. Fed. R. Evid. 801(d).
1. Adoption
“If the witness admits on the stand that he made the statement and that
it was true, he adopts the statement and there is no hearsay problem.” Fed. R.
Evid. 801(d)(1) advisory committee’s note; see also Vanston v. Conn. Gen. Life
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Ins. Co., 482 F.2d 337, 344 (5th Cir. 1973) (quoting committee note and
recognizing this circuit as having adopted the rule). The Government argues
that the direct examination exchange between the prosecutor and Fry, quoted
at the outset of this section, was sufficient to serve as an adoption.
The hearsay rule stands as a bulwark against unreliable testimony, and
thus hearsay exceptions and exclusions have been carefully crafted. As made
clear in the committee note and our case law, the prior statement must be
acknowledged and affirmed on the stand in order to be admissible for
substantive purposes independent of use as a prior inconsistent statement. As
the above exchange illustrates, Fry did acknowledge that he had made the
statements in the factual resume. However, he did not admit on the stand, in
the presence of the jury, that they were true statements, only that he had
previously sworn they were true. The prosecutor’s careful use of the past tense
when asking about the truth of the factual resume—“did you swear that
everything contained in the factual resume was true and correct?”—is
insufficient to establish Fry’s affirmation on the stand at Demmitt’s trial. Cf.
Cisneros-Gutierrez, 517 F.3d at 758 (holding that a witness’s admission under
oath at a plea hearing that a factual resume was “true and correct in every
respect” demonstrated sufficient adoption such that the factual resume could be
used as a prior inconsistent statement). We thus conclude that Fry did not adopt
the factual resume on the stand at Demmitt’s trial.
As the factual resume was not adopted on the stand, it was hearsay and
should not have been admitted. The trial court erred when it admitted the
factual resume, and its error was an abuse of discretion. That, however, does not
end our inquiry because we now must assess whether the error was harmless.
2. Harmless Error
Under the Federal Rules of Evidence, when “[t]he declarant testifies and
is subject to cross-examination about a prior statement, and the statement . . .
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is inconsistent with the declarant’s testimony and was given under penalty of
perjury at a trial, hearing, or other proceeding or in a deposition,” the statement
is not hearsay. Fed. R. Evid. 801(d)(1).
The parties do not dispute that at the time the factual resume was entered
into evidence, the document was not yet a prior inconsistent statement. We
agree because, as demonstrated by the above testimony, at the time the evidence
was admitted, Fry had not yet made any inconsistent statements concerning
facts also contained in the factual resume.
Instead, the Government asserts that the factual resume’s admission was
harmless because it later became a prior inconsistent statement under Federal
Rule of Evidence 801(d)(1)(A). Specifically, the Government contends that
because Demmitt then cross-examined Fry about the factual resume, “by the
time of Fry’s redirect examination, the factual resume had clearly become a prior
inconsistent statement admissible for its truth under [Federal Rule of Evidence]
801(d)(1)(A).” We disagree with the Government’s argument, but we nonetheless
find the error harmless due to the totality of the evidence adduced at trial.
We first dispense with the Government’s argument that the “premature
admission of evidence whose foundation is later established is harmless error.”
Demmitt argues, and the Government implicitly concedes, that Demmitt herself
was essentially forced to elicit Fry’s inconsistent testimony, thereby correcting
the trial court’s admission error. After the trial court erroneously admitted the
factual resume, Demmitt was left with an unenviable choice: (1) decline to cross
examine Fry on the factual resume’s contents and hope that on appeal, Demmitt
would prevail on an argument that the document was impermissible hearsay or
(2) cross-examine Fry on the document in an attempt to undermine its
effectiveness, thereby satisfying Federal Rule of Evidence 801 in the process.
Such a prosecution tactic is impermissible, and we decline to endorse it by
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finding that the trial court’s error was ameliorated by Demmitt’s cross-examination.
However, even though we disagree with the Government’s argument about
subsequent inconsistency, that does not end our inquiry into the error’s
harmlessness. Instead, we must consider the admission of the factual resume
“not in isolation, but in relation to the entire proceedings.” United States v.
Williams, 957 F.2d 1238, 1244 (5th Cir. 1992) (citation and internal quotation
marks omitted). Our examination is “fact-specific and record-intensive,
requiring a close review of the entire trial proceedings.” El-Mezain, 664 F.3d at
526. “[W]e must judge the likely effect of any error in the case before us based
on the totality of the circumstances in this trial.” Id. “Unless there is a
reasonable possibility that the improperly admitted evidence contributed to the
conviction, reversal is not required.” Id. (citation and internal quotation marks
omitted) (alterations omitted). “It is well established that error in admitting
evidence will be found harmless when the evidence is cumulative, meaning that
substantial evidence supports the same facts and inferences as those in the
erroneously admitted evidence.” Id. (collecting citations).
After carefully reviewing the record, we conclude that the erroneous
admission of the factual resume does not require reversal. Although the case
against Demmitt was circumstantial, in light of the volume of evidence
presented by the prosecution that supports the same facts and inferences as
those in the factual resume, we conclude the admission was harmless.
The factual resume stated that Demmitt was actually involved in the
fraud. Other trial testimony could lead to the same conclusion or to the
conclusion that she was deliberately ignorant of it, either of which is sufficient
basis for conviction. See Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 240 (5th
Cir. 2010) (“Deliberate ignorance is the legal equivalent of knowledge.”). Broadly
defined, there were four types of evidence presented at trial, in addition to Fry’s
factual resume, that lead to this conclusion.
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First, there was ample testimony that Demmitt was made aware of
problems with client accounts. For example, Allianz Senior Special Investigator
Barbara Krueger testified that Demmitt was copied on letters Allianz sent about
changes to client annuities, and Fry testified that he “probably” informed his
mother that he was sending faxes to Allianz using her name. There were also
several instances in which clients directly informed Demmitt that their money
had not been properly deposited in their Allianz annuities. For example, client
Richard Burdett informed Demmitt that Fry had personally cashed a check he
had written, but the money had not been deposited in Burdett’s Allianz account.
Burdett testified that Demmitt denied Fry’s signature was on the check and
claimed that the money had been deposited in Burdett’s Allianz account.
Burdett testified that he did not think Demmitt believed what she told him.
Another client, Dahl Clower, testified that Demmitt accepted checks made out
to Fry from Clower’s wife, as well as discussed the fake Allianz bonus structure
with her. A third client, Georgiann McCormick, testified that Demmitt was
aware other clients were complaining that their money had not been deposited
in their Allianz annuities. McCormick further testified that she did not believe
Fry acted alone or fooled Demmitt.
Second, there was testimony that Demmitt tightly controlled the business
and that Fry frequently consulted Demmitt before he made any decisions. For
example, former employee Jan Burchfield testified that only Demmitt and Fry
were permitted to answer the business telephone or open the business mail. Fry
also testified that Demmitt sometimes opened the mail. Additionally, Burchfield
testified that she assisted Demmitt in organizing client files around August
2008, and that Demmitt and Fry shared business decisions. Another former
employee, Delores Austin, testified that Demmitt was in charge of the office and
that Demmitt prohibited her from standing near the copy machine when
Demmitt made copies. Multiple people also testified that Fry frequently
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consulted Demmitt before making decisions. For example, Austin testified that
Fry called his mother to find out how he should pay Austin after she refused to
accept a personal check for fear it would be returned for insufficient funds.
Streu testified that Demmitt became involved when Streu’s husband set up a
payment plan for Fry, who was delinquent in repaying the truck loan for which
Streu’s husband had signed. Demmitt personally delivered Fry’s payments and
required the Streus to sign a receipt for each. Later, when the Streus decided
to repossess Fry’s truck after Fry stopped paying on the loan, Demmitt called
Streu to attempt to convince her not to repossess the truck.
Third, there was significant evidence that Demmitt’s annuity commissions
alone could not have supported her business or personal expenses, yet she and
Fry made frequent and expensive purchases. For example, Demmitt’s bank
records show that she often received only about $1 per month in commission
from Allianz. Nevertheless, both Fry and Demmitt purchased new vehicles, and
Demmitt made numerous QVC purchases. Demmitt and Fry also made down
payments on two houses, and Demmitt made numerous payments to the interior
decorator who was working on preparing the warehouse for Demmitt’s planned
call center.
Finally, there was substantial evidence that Demmitt participated in or
that her bank accounts received suspicious financial transactions. Demmitt and
Fry had at least one joint account into which client-signed checks were directly
deposited. On other occasions, Fry cashed client checks and Demmitt deposited
the cash into her accounts in suspicious quantities. For example, at least one of
these transactions involved a deposit of one hundred and twenty $100 bills.
We hold that the record shows the Government presented significant
evidence, albeit circumstantial, that demonstrated Demmitt was actually
involved in Fry’s scheme or deliberately indifferent to it. Given that this
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evidence is cumulative of the factual resume, we hold that the trial court’s error
in admitting the factual resume was harmless and does not warrant reversal.
III. DELIBERATE IGNORANCE INSTRUCTION
Over Demmitt’s objection, the trial court gave the jury a deliberate
ignorance instruction. The trial court did, however, agree to include a limiting
instruction, which was included as the last sentence in the deliberate ignorance
instruction:
You may find that a defendant had knowledge of a fact
if you find that the Defendant deliberately closed her
eyes to what otherwise would have been obvious to her.
While knowledge on the part of the Defendant cannot
be established merely by demonstrating that the
Defendant was negligent, careless, or foolish,
knowledge can be inferred if the Defendant deliberately
blinded herself to the existence of a fact. This does not
lessen the Government’s burden to prove, beyond a
reasonable doubt, that the knowledge elements of the
crimes have been satisfied.
On appeal, Demmitt challenges the propriety of the trial court’s deliberate
ignorance instruction.
A. Standard of Review
We utilize an abuse of discretion standard when reviewing a district
court’s jury instructions. Baisden v. I’m Ready Prods., Inc., 693 F.3d 491, 504-05
(5th Cir. 2012) (citation omitted). We use a two-part test to review challenges
to particular instructions. Id. at 505 (citation omitted). First, the appellant
“must demonstrate that the charge as a whole creates substantial and
ineradicable doubt whether the jury has been properly guided in its
deliberations.” Id. (citation and internal quotation marks omitted). Second,
even if a jury instruction were given in error, we will not reverse the district
court if, “in light of the entire record, the challenged instruction could not have
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affected the outcome of the case.” Id. (citation and internal quotation marks
omitted).
When a defendant contends that a jury instruction was inappropriate, we
consider whether the charge was both legally accurate and supported by fact.
See United States v. Mendoza-Medina, 346 F.3d 121, 132 (5th Cir. 2003)
(citations and internal quotation marks omitted). “In assessing whether the
evidence sufficiently supports the district court’s charge, we view the evidence
and all reasonable inferences that may be drawn from the evidence in the light
most favorable to the Government.” Id. (citations and internal quotation marks
omitted). If we determine the charge was erroneous, we review for harmless
error. Id. (citations and internal quotation marks omitted).
B. Discussion
We first note that Demmitt has not challenged the district court’s
instruction as an incorrect statement of law. Therefore, our sole ground for
review is whether the instruction was supported by fact. We conclude that it
was.
Due to concerns that a jury will convict a defendant for what she should
have known rather than the appropriate legal standard, we have “often
cautioned against the use of the deliberate ignorance instruction.” Mendoza-
Medina, 346 F.3d at 132 (citations omitted). It is improper for a district court
to instruct a jury on deliberate ignorance “when the evidence raises only the
inferences that the defendant had actual knowledge or no knowledge at all of the
facts in question.” Id. at 134 (citation omitted).
We use a two-prong test to determine whether the evidence supports a
deliberate ignorance instruction, wherein the evidence presented at trial “must
raise two inferences: (1) the defendant was subjectively aware of a high
probability of the existence of the illegal conduct and (2) the defendant
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purposefully contrived to avoid learning of the illegal conduct.” Id. at 132-33(citation omitted).
In evaluating the first prong, we have noted that “the same evidence that
will raise an inference that the defendant had actual knowledge of the illegal
conduct ordinarily will also raise the inference that the defendant was
subjectively aware of a high probability of the existence of illegal conduct.”
United States v. Conner, 537 F.3d 480, 487 (5th Cir. 2008) (citation and internal
quotation marks omitted).
In discussing the second prong, we have cautioned that
the sine qua non of deliberate ignorance is the conscious
action of the defendant—the defendant consciously
attempted to escape confirmation of the conditions or
events he strongly suspected to exist. Where the choice
is simply between a version of the facts in which the
defendant had actual knowledge, and one in which he
was no more than negligent or stupid, the deliberate
ignorance instruction is inappropriate.
Mendoza-Medina, 346 F.3d at 133 (citations and internal quotation marks
omitted). We have held that the second prong can be established where “the
circumstances in the case were so overwhelmingly suspicious that the
defendant’s failure to conduct further inspection or inquiry suggests a conscious
effort to avoid incriminating knowledge.” Conner, 537 F.3d at 486 (citation and
internal quotation marks omitted) (alterations omitted).
“Under well-established precedent, the error in giving a deliberate
ignorance instruction in the absence of evidence of contrivance is harmless
where there is substantial evidence of actual knowledge.” United States v.
Delgado, 672 F.3d 320, 341 (5th Cir. 2012) (en banc) (citation and internal
quotation marks omitted).
1. Prong One
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We hold that the trial testimony raises a strong inference that Demmitt
was subjectively aware of the existence of Fry’s illegal conduct. Much of the
evidence supporting this inference is presented in Sub-section II.B, supra.
Therefore, we need not reiterate all of the relevant facts, but we highlight a few
of the more telling pieces of evidence. First, at least two clients informed
Demmitt that they were missing money from their Allianz annuity accounts.
Second, Allianz copied Demmitt on letters it sent to clients, confirming changes
to their annuity accounts. Finally and most tellingly, Fry deposited client checks
directly into bank accounts he jointly owned with Demmitt. Thus, there was
ample evidence to support an inference that Demmitt was subjectively aware of
Fry’s illegal conduct, and the first prong is satisfied.
2. Prong Two
Demmitt contends there is no evidence to show she contrived to avoid
learning of the illegal conduct. We disagree. Instead, there is ample evidence
that the circumstances were “so overwhelmingly suspicious” that Demmitt’s
“failure to conduct further inspection or inquiry suggests a conscious effort to
avoid incriminating knowledge.” See Conner, 537 F.3d at 486. Much of this
evidence overlaps with that discussed in Prong One.
Perhaps most tellingly, Demmitt frequently deposited large sums of cash
that she likely obtained from Fry, often in relatively small bills, into her bank
accounts. Second, even though the Allianz commissions were clearly unable to
support business and personal accounts, Fry and Demmitt made numerous
purchases, totaling thousands of dollars per month. In addition, even after
Detective Vargas notified Demmitt that Fry was being investigated for fraud,
Fry deposited a $60,000 client check into his and Demmitt’s joint bank account.
Finally, as discussed above, several clients notified Demmitt that their money
had not been deposited into their Allianz annuity accounts. Given all these
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suspicious facts, Demmitt’s failure to conduct further inspection or inquiry
suggests a conscious effort to avoid incriminating knowledge.
Moreover, Demmitt admits on appeal that she “devoted all of her attention
to the creation of a call center,” and this evidence also was presented to the jury.
As the government argues, the jury could have inferred that by doing so,
Demmitt purposefully contrived to avoid learning of Fry’s illegal conduct
associated with the annuity business. Thus, the second prong is satisfied.
Because the evidence adduced at trial satisfies both prongs, we conclude
that the district court’s deliberate ignorance instruction was proper.1
IV. MONEY LAUNDERING CONVICTION
Demmitt challenges her conviction under 28 U.S.C. § 1956(a)(1)(B)(i),
which was identified in the indictment as Count 27. She first argues that the
difference between the date of the action charged in the indictment and the date
about which evidence was presented at trial is a fatal variance from the
indictment. She next argues that there was insufficient evidence to satisfy the
elements of the statute. Because we agree that the Government did not present
sufficient evidence to support Demmitt’s conviction under the statute, we need
not reach her fatal variance argument.
A. Standard of Review
We review de novo whether sufficient evidence was presented at trial to
support a conviction. United States v. Brown, 186 F.3d 661, 664 (5th Cir. 1999)
(citation omitted). Our review is highly deferential to the verdict. United States
v. Elashyi, 554 F.3d 480, 491 (5th Cir. 2008) (citation and internal quotation
1
Even if both prongs of the test were not satisfied and the district court erred in giving
the deliberate ignorance instruction, we hold the error harmless because there was substantial
evidence that Demmitt was aware of the scheme. See, e.g., United States v. Peterson, 244 F.3d
385, 395 (5th Cir. 2001) (permitting deliberate ignorance instruction where evidence showed
defendants were deliberately indifferent or had actual knowledge that they were engaged in
fraud).
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marks omitted). We review “whether a rational trier of fact could have found
that the evidence established the essential elements of the offense beyond a
reasonable doubt.” United States v. Ned, 637 F.3d 562, 568 (5th Cir. 2011) (per
curiam) (citation omitted). We consider the evidence in the light most favorable
to the Government, and we draw all reasonable inferences and credibility choices
in support of the verdict. Id. (citation omitted). We assess whether “the trier of
fact made a rational decision, rather than whether it correctly determined the
defendant’s guilt or innocence.” Id. (citation omitted). The standard of review
does not change, even though the evidence in this case was largely
circumstantial. See id. (citation omitted).
B. Discussion
The statute under which Demmitt was charged in Count 27 is as follows:
Whoever, knowing that the property involved in a
financial transaction represents the proceeds of some
form of unlawful activity, conducts or attempts to
conduct such a financial transaction which in fact
involves the proceeds of specified unlawful activity . . .
knowing that the transaction is designed in whole or in
part (i) to conceal or disguise the nature, the location,
the source, the ownership, or the control of the proceeds
of specified unlawful activity . . . shall be sentenced . . . .
18 U.S.C. § 1956(a)(1)(B)(i). The indictment charged Demmitt with violating the
statute when she transferred $3,000 via wire to her son, Tad. Demmitt argues
that the Government did not prove that the wire transfer was “designed . . . to
conceal or disguise the nature, the location, the source, the ownership, or the
control” of the fraudulently obtained money. Despite our demanding standard
of review, we agree.
The Supreme Court has interpreted the statute’s element requiring a
design to mean “purpose or plan; i.e., the intended aim of the [transaction].”
Cuellar v. United States, 553 U.S. 550, 563 (2008) (interpreting 18 U.S.C.
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§ 1956(a)(2)(B)(i), which prohibits transporting, transmitting, and transferring
money when it is designed to conceal or disguise the proceeds in specified ways).
We have previously applied Cuellar’s statutory interpretation to 18 U.S.C.
§ 1956(a)(1)(B)(i). See United States v. Brown, 553 F.3d 768, 786 n.56 (5th Cir.
2008).
We have explained Cuellar as follows:
In Cuellar, the Supreme Court overturned an en banc
decision of this court. The Court first held that the
“designed to conceal” element of this statute does not
require the government to prove that a defendant
sought to “create the appearance of legitimate wealth,”
because in this provision of the statute, “Congress used
broad language that captures more than classic money
laundering.” However, the Court limited the statute’s
breadth somewhat: “[M]erely hiding funds during
transportation is not sufficient to violate the statute,
even if substantial efforts have been expended to
conceal the money.”
Brown, 553 F.3d at 786-87 (quoting Cuellar, 553 U.S. at 558-59, 563). The
concealment of the unlawfully obtained money must be a purpose—not just an
effect—of the money transfers. Chaney, 595 F.3d at 240-42. The way in which
a transaction is structured may be related to the transaction’s purpose, but “how
one moves the money is distinct from why one moves the money. Evidence of the
former, standing alone, is not sufficient to prove the latter.” Cuellar, 553 U.S.
at 566. Thus, the statute’s design requirement “distinguishes the crime of
money laundering from the innocent act of mere money spending.” United
States v. Burns, 162 F.3d 840, 848 (5th Cir. 1998) (citing United States v. Willey,
57 F.3d 1374, 1384 (5th Cir. 1995)). In Brown, we held the government’s
evidence was sufficient to satisfy Cuellar’s standard where “defendants intended
to and did make it more difficult for the government to trace and demonstrate
the nature of these funds,” including by employing “classic” money laundering
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techniques, such as conducting transactions in cash and making deposits below
$10,000 to avoid reporting requirements. 553 F.3d at 787.
The evidence presented at trial shows that on August 11, 2008, Fry
deposited a cashier’s check from Georgiann McCormick into the bank account he
jointly owned with Demmitt at Amarillo Community Federal Credit Union. This
check had been obtained fraudulently. At the time of the deposit, the account
balance was only $175.67. On August 21, 2008, Demmitt sent $3,000 from her
account, using this money, via wire to Tad. The wire transfer receipt contains
Demmitt’s name, address, and account number, as well as Tad’s business name.
Most importantly, Tad testified that Demmitt sent the money upon Tad’s
request to help him purchase necessary business equipment. The Government
has not suggested that Tad was part of Fry and Demmitt’s scheme nor has it
suggested that Tad did not need the money for business expenses.
As we noted above, mere spending of fraudulently obtained funds does
not by itself satisfy 18 U.S.C. § 1956(a)(1)(B)(i). At trial, the Government proved
only that the wire transfer occurred and that it was connected to fraudulently
obtained money, not that Demmitt’s actions were designed to conceal the
fraudulent aspects of the money. Critically, the Government presented no
evidence to rebut Tad’s testimony that the purpose of the wire transfer was to
provide money for his business expenses. Moreover, the series of transactions
that culminated in the wire transfer differs from our precedent where we have
upheld convictions that employed classic money laundering techniques. See, e.g.,
Brown, 553 F.3d at 787; United States v. Powers, 168 F.3d 741, 748 (5th Cir.
1999) (finding important that checks did not reveal on their faces that the
defendant or his wife were involved in the transactions).
No such techniques appear to have been used here nor did Demmitt intend
to or succeed in making “it more difficult for the government to trace and
demonstrate the nature of these funds.” Brown, 553 F.3d at 787. This is not a
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case where, for this particular transaction, Demmitt commingled fraudulently
obtained funds with legitimate business funds—Demmitt’s legitimate business
funds were so minuscule that the provenance of the client funds were not
concealed when deposited into her account. Instead, Demmitt treated the
fraudulently obtained money as her personal spending money, and she sent it
to Tad upon his request for help with his business expenses. The Government
presented no additional evidence or witnesses to explain how this transaction
was designed to conceal the fraudulently obtained money in any of the specified
ways.2
In sum, this transaction does not demonstrate any indicia of the type of
unusualness or concealment that we have previously held to be sufficient to
support a money laundering conviction. See, e.g., Willey, 57 F.3d at 1385-87(describing unusual brokerage account transactions, the use of third parties, and
“convoluted financial maneuvers” designed to conceal the source of funds).
Accordingly, in light of the evidence in the record, we hold that no rational
trier of fact could have found that the evidence established all of the essential
elements in 18 U.S.C. § 1956(a)(1)(B)(i) beyond a reasonable doubt. We therefore
vacate Demmitt’s conviction as to Count 27.
V. CONCLUSION
In light of the foregoing, we AFFIRM Demmitt’s conviction except as to
Count 27. We VACATE Demmitt’s conviction as to Count 27, and REMAND to
the district court for proceedings not inconsistent with this opinion.
2
One of the Government’s witnesses testified that Georgiann McCormick’s personal
check was negotiated in Nazareth. Even if that is the case, the cashier’s check Fry obtained
is stamped as deposited into Amarillo Community Federal Credit Union on August 11, 2008,
and the check is clearly labeled “Remitter: Georgiann McCormick.” This check does not
present the case, as demonstrated by some of the other checks, where Fry apparently
deposited fraudulently obtained funds into one of his accounts, and then purchased a cashier’s
check in his own name, which he then deposited into another one of his accounts.
21