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

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 96-2666
___________
United States of America, *
*
Appellee, * Appeal from the United States
* District Court for the Western
v. * District of Missouri.
*
James Hubert Cain, Jr., *
*
Appellant. *
___________
Submitted: January 13, 1997
Filed: November 12, 1997
___________
Before LOKEN, BRIGHT, and MORRIS SHEPPARD ARNOLD, Circuit Judges.
___________
MORRIS SHEPPARD ARNOLD, Circuit Judge.
After a five-day trial in 1996, a jury convicted James Hubert Cain,
Jr., of one count of conspiracy to commit mail fraud, two counts of mail
fraud, and four counts of interstate transfer of money obtained by fraud.
(For reasons that we cannot discern, the judgment reflects convictions on
one count of conspiracy to commit mail fraud and on three counts each of
mail fraud and interstate transfer of money obtained by fraud. The
indictment, the jury instructions, and the verdict forms, however, all show
the configuration of charges that we listed above.) The trial court
sentenced Mr. Cain to 51 months in prison and to restitution of
$508,096.61.
Mr. Cain appeals his convictions, arguing that the evidence was
insufficient, that certain hearsay was improperly admitted as coconspirator
statements, and that the trial court erred in refusing to give a proffered
jury instruction on "honest opinions" and "mere puffing." Mr. Cain also
appeals his sentence, contending that the amount of loss, and thus his
guidelines range and the amount of restitution that he owes, was determined
incorrectly. We grant Mr. Cain's motion to file an untimely reply brief.
We affirm Mr. Cain's conviction but remand for resentencing.
I.
The essence of the charges was that Mr. Cain conspired with others
to induce several people to invest in the company of which he was president
by knowingly misrepresenting to them, in documents and in person, that
their investments were guaranteed by an escrow fund that would be used to
buy government bonds. In reality, no money was ever placed in escrow for
the purchase of bonds, and no bonds were ever bought. The individual
counts of the indictment related to specific correspondence and money
transfers executed during the relevant events. Mr. Cain characterizes his
defense in several different ways, but all of them amount to the basic
assertions that he had no intent to defraud, that any of his own
representations alleged to be fraudulent were instead merely predictions,
projections, and opinions about events to occur in the future, and that he
had no knowledge of the falsity of any representations made by others.
Witnesses variously described Mr. Cain, who held the title of
president of the company as of mid-July, 1993, as the person "people would
go to" "whenever there was a problem, when things became chaotic," the
person who "was supposed to be basically in charge of the day-to-day
operations," and the person "to look to ... for direction for the company,
for control of the company." According to one witness, Mr. Cain described
himself by saying, "I run this operation ... if ... you need a decision
made, I am the boss." Mr. Cain once directed another witness "to come to
him on any matters concerning the company ... or problems and things like
that." As president,
-2-
Mr. Cain "had complete access to all of the books and records of the
company" and "controlled ... all distributions of funds."
In July or August, 1993, according to the chief executive officer of
the company, several individuals in the company began to revise the written
materials used in meetings with prospective investors. Among those
documents was a summary sheet (so designated by the parties) stating that
each investment "is" guaranteed "by the purchase and escrow deposit of
government securities" (emphasis supplied). According to the chief
executive officer, Mr. Cain was among those who contributed to the content
of the revised summary sheet and had the entire original summary sheet
before him when he did so. According to the chief executive officer,
Mr. Cain knew at that time that "there was no guaranty fund in place."
Marion Johnson testified that she attended a prospective investors'
meeting in September, 1993, where Mr. Cain stated to her, with respect to
investment in the company, that "yes ... the principal ... is safe"
(emphasis supplied). An advertising consultant testified that she attended
the same meeting and that the revised summary sheet was distributed at that
meeting. The advertising consultant's own notes from that meeting reflect
that the "principal is protected by zero coupon bonds ... [and] [i]n
effect, the principal is guaranteed" (emphasis supplied). A tax accountant
testified that Mr. Cain "went through" the prospectus and the revised
summary sheet "in great detail" with Ms. Johnson and "[r]epeatedly"
emphasized the escrow fund. That evening, Ms. Johnson signed releases for
almost $250,000 in insurance and annuity proceeds, to be transferred to the
company.
The chief financial officer of the company testified that after the
meeting with Ms. Johnson, Mr. Cain and several others discussed how to use
the money that they would receive from Ms. Johnson. The group decided,
first, to pay outstanding bills of approximately $90,000 and, second, to
"establish[] and fund[] ... the guaranty fund." Obviously, then, the
escrow fund still did not exist in September, 1993. Nor "was there
-3-
any surprise expressed" by Mr. Cain during those post-meeting discussions
"that the account for the guaranty fund had not already been funded,"
according to the chief financial officer. The company paid the bills in
question but did not establish the escrow fund, even though the chief
financial officer asked both Mr. Cain and the chief executive officer about
it again. At that time, the chief executive officer instructed the chief
financial officer "to wait"; Mr. Cain made no objection.
Other meetings were held with prospective investors in the fall of
1993. Donald and Eva Jantz testified that they attended one meeting where
Mr. Cain was present and that they were given a copy of the revised summary
sheet. They further testified that in reliance on the revised summary
sheet, they invested $10,000 in the company. Robert Ross testified that
he and his mother attended a meeting at which Mr. Cain was present. The
revised summary sheet was distributed on that day as well. At a subsequent
meeting where Mr. Cain was also present, Mr. Ross's mother invested $10,000
in the company. Finally, Charles Heiman testified that he and his wife
attended one meeting where Mr. Cain was present. The revised summary sheet
was also distributed at that meeting. Mr. and Mrs. Heiman invested $10,000
in the company on that day.
The chief financial officer testified that after all of these
meetings, he asked Mr. Cain and the chief executive officer "almost daily"
about "whether or not the guaranty fund should have any money put into it."
Mr. Cain always "pass[ed] the buck back" to the chief executive officer,
never directed that the escrow fund be established, and in fact instructed
the chief financial officer "to spend money for other purposes." In spite
of those circumstances, the chief executive officer testified, Mr. Cain
"represented to the investors that there was a fund" and in fact
"emphasized that with ... the ... investors."
We believe that the evidence is more than sufficient to show that
Mr. Cain colluded with others to induce several people to invest in the
company of which he was
-4-
president by misrepresenting to them that their investments would be
completely safe because of the existence of an escrow fund that was used
to buy government bonds, at times when he knew that no such escrow fund or
bonds existed. See, e.g., Atkinson v. United States, 344 F.2d 97, 99-100
(8th Cir. 1965), cert. denied, 382 U.S. 867 (1965), and Morris v. United
States, 7 F.2d 785, 792-93 (8th Cir. 1925), cert. denied, 270 U.S. 640
(1926); see also United States v. Kaplan, 554 F.2d 958, 963-64 (9th Cir.
1977) (per curiam), cert. denied, 434 U.S. 956 (1977), and United States
v. Hartenfeld, 113 F.2d 359, 361-62 (7th Cir. 1940), cert. denied, 311 U.S.
647 (1940). We turn, then, to Mr. Cain's other contentions.
II.
The trial court made a finding pursuant to United States v. Bell, 573
F.2d 1040, 1043-44 (8th Cir. 1978), that a conspiracy existed, that
Mr. Cain was a member of that conspiracy, that certain statements were made
by other conspirators during the course of the conspiracy and in
furtherance of it, and, therefore, that those statements were admissible
under Fed. R. Ev. 801(d)(2)(E). On appeal, Mr. Cain first argues that no
conspiracy existed. We reject that contention in light of our discussion
on the sufficiency of the evidence.
In the alternative, Mr. Cain asserts that certain statements admitted
under Fed. R. Ev. 801(d)(2)(E) were in fact not coconspirator statements
within the meaning of the rule. Mr. Cain does not specify the exact
statements to which he objects. The gist of his argument seems to be,
however, that any statements made after November, 1993, could not have been
coconspirator statements, since by that time the conspirators (for our
purposes, Mr. Cain, the chief executive officer, and the chief financial
officer) were antagonistic to one another.
We have carefully read the transcript of the trial. There are very
few "statements" within the meaning of the rules dealing with hearsay, see
especially Fed. R. Ev. 801(a)(1), 801(c), 802, 805, 806, and we believe
their admission to be
-5-
harmless error, if error at all. See, e.g., United States v. Smith, 550
F.2d 277, 282 (5th Cir. 1977), cert. denied, 434 U.S. 841 (1977). We
therefore reject Mr. Cain's assertions on this issue.
Mr. Cain also contends that the trial court improperly refused to
give a jury instruction on "honest opinions" and "mere puffing." In the
first place, such an instruction was inapplicable to the misrepresentation
with respect to the present existence of an escrow fund. In the second
place, however, we note that the trial court did give jury instructions
requiring proof of "affirmative representations or omissions" and allowing
the jury to accept a defense of "good faith," "opinion[s] honestly held,"
and "honest mistake[s] in judgment."
In our view, the jury instructions (including the verdict director,
to which Mr. Cain also objects), taken as a whole, fairly and adequately
contained the applicable law, see, e.g., United States v. Casas, 999 F.2d
1225, 1230 (8th Cir. 1993), cert. denied, 510 U.S. 1078 (1994), and covered
the essence of Mr. Cain's proffered instruction, see, e.g., United States
v. Bettelyoun, 16 F.3d 850, 853 (8th Cir. 1994). We therefore reject
Mr. Cain's contentions on this issue as well.
III.
At the sentencing hearing, the trial court found that the conspiracy,
"as alleged in the indictment," existed from December, 1992, to December,
1993, and that Mr. Cain, "even though he was a late comer[]," was
"responsible for all of the money obtained during the conspiracy." That
amount, the trial court found, was $508,096.61. That total was the sum of
$298,851.61 for the stock transactions at issue during the trial,
$55,200.00 for other stock sales (not at issue during the trial but made
by the chief executive officer and the chief financial officer, both of
whom pleaded guilty as conspirators), and $154,045.00 for stock sales
between March and December, 1993, made by a commissioned stockbroker.
-6-
On appeal, Mr. Cain argues that the evidence failed to show that he
knew about the $55,200.00 in other stock sales or about the $154,045.00 in
stock sales made by the commissioned stockbroker (who was acting, according
to Mr. Cain, at the direction of the chief executive officer and the chief
financial officer). In the alternative, Mr. Cain asserts that since he did
not join the company until mid-July, 1993, he should not be held
responsible for any stock sales before that time.
The chief financial officer of the company testified that money began
"coming in" from stock sales in early March, 1993. Those sales, he stated,
were made by him, the chief executive officer, and the commissioned
stockbroker. The chief executive officer testified that he first met
Mr. Cain "sometime in March or April," 1993, and talked with him over "two
or three months" "about ... becoming involved in the company." During that
time, according to the chief executive officer, Mr. Cain "had total access
to the office" and "the company books and records."
Also during that time, the chief executive officer stated, he
discussed with Mr. Cain in "great detail" the sales that the commissioned
stockbroker was making, since the chief executive officer considered the
commissioned stockbroker "a major pain in my side." Mr. Cain told the
chief executive officer that "he was going to be [a] hatchet man" and "fix"
the situation with the commissioned stockbroker, who was allegedly being
paid exorbitant commissions. The chief executive officer also testified
that he discussed with Mr. Cain "the issues with the bond fund," presumably
that one did not exist, despite misrepresentations to the contrary in the
original summary sheet, which, as revised in other sections, was used
during meetings with prospective investors.
The company actually hired Mr. Cain in mid-July, 1993. According to
the chief financial officer, after Mr. Cain was hired, he "made himself
very familiar with the financial status of the company in terms of ... cash
flow, ... liabilities, [and] ... sources of income." He did so by going
through "the books and records of the company."
-7-
Mr. Cain especially "wanted to know on a daily basis what the cash
balance[s] in the various checking accounts were." Mr. Cain also knew,
after that time, according to the chief financial officer, about the
commissioned stockbroker's sales, because on "one occasion ... there was
a rather heated telephone exchange ... between [the commissioned
stockbroker] and [another company officer], and Mr. Bert Cain was present.
And following that altercation there was discussion between myself and [the
other officer and Mr. Cain] relating to the specific circumstances relating
to [the commissioned stockbroker]."
Under the federal sentencing guidelines, the relevant conduct, and
hence base offense level, for a participant in a conspiracy is determined
by reference to "all acts and omissions committed, aided, abetted, ... or
willfully caused by the defendant ... [and] all reasonably foreseeable acts
and omissions of others in furtherance of the jointly undertaken criminal
activity." See U.S.S.G. § 1B1.3(a)(1)(A), § 1B1.3(a)(1)(B). "A
defendant's relevant conduct does not include the conduct of members of a
conspiracy prior to the defendant's joining the conspiracy, even if the
defendant knows of that conduct." See U.S.S.G. § 1B1.3, application note
2, ¶ 8.
We have no difficulty concluding, from the evidence recounted, that
when Mr. Cain was hired in mid-July, 1993, he knew of the stock sales made
by the chief executive officer, the chief financial officer, and the
commissioned stockbroker. From that knowledge, it is reasonable to
conclude as well that future stock sales by those three people were
foreseeable to Mr. Cain. Nor is it irrational to believe that Mr. Cain
knew in mid-July, 1993, of the original summary sheet's misrepresentation
that an escrow fund existed and also knew that, in fact, no such fund did
exist. From that knowledge, we may infer that as of mid-July, 1993,
Mr. Cain agreed, at least tacitly, to the use of that assertion in the
revised summary sheet in future stock sales, whether he or the other three
persons in question made those sales.
-8-
We do not see any evidence in the record before us, however, that
justifies the conclusion that Mr. Cain joined the conspiracy during the
months between March and July, 1993. Specifically, we cannot extract from
the record before us, except by resort to raw speculation, the conclusion
that Mr. Cain agreed, before he was hired, to the use of either the
original or the revised summary sheet in future stock sales. We reverse,
therefore, the attribution to Mr. Cain of any stock sales before mid-July,
1993. Accordingly, we vacate the sentence in this case and remand for
limited additional proceedings to determine an appropriate guidelines range
for Mr. Cain and the amount of restitution that he owes.
IV.
For the reasons stated, we affirm Mr. Cain's conviction but remand
his case for limited further proceedings consistent with this opinion.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
-9-