This opinion is subject to revision before final publication in the Pacific Reporter.

201 4 UT 38

I N T HE 

## S UPREME 

## C OURT OF THE 

## S TATE OF 

## U TAH

——————— S TATE OF U TAH , Plaintiff and Petitioner,

v.

G RACE C. K ELSON , Defendant and Respondent.

———————

No. 20120843 Filed September 1 9 , 201 4

——————— Third District

, Salt Lake The Honorable Judith S.H. Atherton
No. 041901548

——————— On Certiorari to the Utah Court of Appeals

——————— Attorneys: Sean D. Reyes, Att’y Gen., Karen A. Klucznik, Asst. Att’y Gen., Salt Lake City, for petitioner
Alan S. Mouritsen, Nicole G. Farrell, Scott S. Bell, Salt Lake City

, for respondent

—————— — J USTICE L EE authored the opinion of the Court, in which
C HIEF J USTICE D URRANT , A SSOCIATE C HIEF J USTICE N EHRING , J USTICE D URHAM , and J USTICE P ARRISH joined

.

——————— J USTICE L EE , opinion of the Court:

¶1 Grace Kelson was convicted of five securities law violations and one count of maintaining a pattern of unlawful activity (rac keteering) related to an investment schem e

. The court of appeals
overturned Kelson’s securities c onvic tions on the basis of ineffe ctive assista nce of trial counsel in stipulating to a jury instruction that purportedly reliev ed the State of its burden to prove each e lement of the charges beyond a reason able doubt.S TATE v

. K ELSON Opinion of the Court

¶2 We reverse. We conclude that the jury instruction in que stion was an accurate statement of the underlying criminal law and
not a burden

- shifting evidentiary presumption. We accordingly reject Kelson’s claims of ineffective assistance of counsel and plain error, and thus reinstate her five securities law convictions.

I

¶3 Kelson met M ark and Todd Mosher , owners of a mortgage

company , in 1999. At th at time Kelson was working on two pu rported property development s

— one in Heber City , Utah

, and the
other in Brazil. She approached the Moshers about helping to s ecure funding for the pro jects , and they agreed. B etween 1999 and 2001, the Moshers met w ith 20 to 30 potential lenders but were u ltimately unable to secure loans for the projects

. Face d with insu fficient funding, Kelson and the Moshers sought to obtain a letter
of c redit to fund the B razilian project

. The letter of credit was to serve as collateral for potential lenders , thereby making it easier to find parties willing to fund the projec t

. Kelson and the Moshers needed approximately $125,000 to secure a $15 million letter of
credit

.

¶4 To that end, they set about persuading friends and co lleagues, and the f amilies of their friends and colleagues , to pr ovide funds for the letter of credit. The deal was pitched as a short

term investment with little to no risk and the potential for very
hi gh return s

. In exchange for funding the letter of credit, the i nvestors received promis s ory notes signed by Kelson for amounts several times larger than the amounts they provided. Kelson and
the Moshers did not register the promis s ory notes as securi ties o r obtain licenses to sell them.

¶5 The promis s ory not es stated that they would be paid wit hin thirty days by S.D.C. Financial Services, a limited liability co mpany of which Kelson was the registered agent

. S.D.C. was crea ted and registered as a limited liabi lity company on the date the promis s ory notes were executed, and opened its first b ank a ccount that same day. Over the course of several days, t he money secured by the promis s ory notes was deposited in the S.D.C. ba nk

account. Most of it was then transferred to an account in the s tate of Washington . Of the money that remained in the S.D.C. account, $5,000 was used for legal fees

, and Kelson withdrew another $25,000 for her own personal use, which included clothing, gr o2Cite as: 2014 UT 38 Opinion of the Court

ce r ies, personal care, trips t o hair salons, furniture, and a down payment on a condominium. Kel son did not inform the holders of the promis s ory notes that their money would be used for her pe rsonal expenses.

¶6 Ultimately, Kelson failed to obtain the letter of credit and
S.D.C. defaulte d on its obligations under the promissory notes.
When the S.D.C. bank account was closed a few months later , it had a negative balance of approximately $9,000.

¶7 The State charged Kelson with three counts of securities
fraud ; one count of offer ing or s elling unregistered securities ; one count of sales by an unlicensed broker

- dealer, agent, or inves tment advisor ; and one count of engaging in a pat tern of unlawful activity. At trial, Kelson did not dispute that she had issued the promissory notes. Her pri mary de fense was that t he promissory

notes did not constitute “ securities ” under Utah law.

¶8 The parties stipulated to jury instructions, one of which outlined the process for the jury to determine whether the pro missory notes were se curities. Instruction 25 stated:
You are instructed that a “note” is presumed to be a security. However, certain notes have been cla ssified as non

- securities; these notes are:

1. the note delivered in consumer financing,
2. the note secured by a mortgage on a home,
3. the s hort

- term note secured by a lien on a small business or some of its assets,
4. the note evidencing a “character” loan to a bank customer,
5. short term notes secured by an assignment of accounts receivable, or
6. a note which simply formalizes an open

a ccount debt incurred in the ordinary course of business particularly if, as in the case of a customer of a broker, it is collateralized.
The instruction then explained that a class of notes that “rese mbles one of these exceptions can be added to the l ist of non

security notes if [it] meet [s] a four factor test.”

¶9 I nstruction 25 then delineate d a four

- part test

. Under that

test the ju ry w as directed first to “examine the transaction” to d e3S TATE v

. K ELSON Opinion of the Court

termine whether “the seller’s purpose [wa s ] to raise money for the

ge neral use of a business enterprise or to finance substantial i nvestments,” in which case the note would likely be deemed a s ecurity . Alternatively, the jury was to consider whether the note “facilitate[d] the purchase of a minor asset or consumer good [,]

. . . correct[ed] cash

- flow difficulties [,]

. . . [or] advanced some other commercial or consumer purpose,” in which case the note was “less sensibly described as a se curity.” Next t he jury was
to determine whether the note wa s an instrument “in which there is common trading for speculation and investment,” and “exa mine the reasonable expectations of the investing public.” And f inally

, the jury was to examine whether another factor such as “the existence of another regulatory scheme” reduce d the risk of the instrument and “thereby render[ ed ] application of the Securities
Act unnecessary .”

¶10 Kelson was convicted on all six counts and appealed. The court of appeals reversed Kelson’s five securities law convic tions

, holding that her counsel rendered ineffect ive assistance by stip ulating to instruction 25 because that instructio n (specifically, its language establishing a presumption that a note is a security) i mpermiss ibly shifted the burden to Kelson and relieved the State of its burden to prove each element of an offense beyond a reason able doubt. 1 See State v. Kelson , 2012 UT App 217, ¶ 49, 284 P.3d 695. The State filed a petition for certiorari, which we granted.

¶11 On certiorari, we review the decision of the court of a ppeals, not the underlying decision of the trial court . The appellate
court’s decision merits no deference in our analysis , although the

corr ectness of the court of appeals’ decision may turn in part on whether it accurately reviewed the trial court’ s decision under an appropriate standard of review

. See State v. Verde , 2012 UT 60, ¶ 13, 296 P.3d 673.

II

¶12 The threshold question presented concerns the viability of the jury instruction’s statement that “a ‘note’ is presumed to be a security.” Kelson contends, and the court of appeals held, that this

1 The court of appeals also vacated Kelson’s conviction for pa ttern of unlawful activity, see State v. Kelson , 2012 UT 217, ¶ 48, 284
P. 3d 695, but the State does not challenge that part of the decision.

4Cite as: 2014 UT 38 Opinion of the Court

presumption effectively relieved the prosecution of its burden of proof on an element of the securities crimes with which she was charged, running afoul of the principles set forth in Francis v.
Franklin

, 471 U.S. 307, 313 (1985), and In re Winship , 397 U.S. 358, 363 (1970). State v. Kelson , 2012 UT App 217, 284 P.3d 695. And in light of this alleged defect in the instruction, the court of appeals agreed with Kelson’s assertion that her counsel was ineffec tive in failing to object to it.

¶13 The State’s response is twofold. It first defends the instru ction as accurately reflecting a presumption prescribed by statute,
Utah Code section 61

- 1

- 13(24)(a)(i) (A) (2000)

— a provision that in
the State’s view obviates the principles in Francis and Winship and therefore excuses counsel’s failure to object to the instruction in question. And second, the State defends counsel’s failure to object
on an alternative basis

— that the instruction was actually more favorable to the d efense than that prescribed by statute, in that the instruction incorporated limiting principles from Reves v. Ernst & Young , 494 U.S. 56 (1990)

, that are not set forth in the statute.

¶14 We uphold the instruction as an accurate statement of law
that does no t implicate the burden

- shifting concerns reflected in
Francis and Winship

. O n that basis we reverse the court of appeals’ determination of defense counsel’s ineffectiveness in failing to o bject to instruction 25, and decline to address the State’s alternat ive ground for defending counsel’s performance

. Finally, w e reject Kelson’s plain error argument, as there was no plain error in the adoption of this stipulated instruction.

A

¶15 Winship established the now

- familiar principle that due process requires proof beyond a reasonable doubt “ of every fact necessary to constitute the crime with which [one] is charged .”
397 U.S. at 364. Francis extended that “axiomatic and eleme ntary

. . . principl e” to foreclose the operation of burden

- shifting evidentiary presumptions that have the effect of relieving the prosecution of its burden of proof on an essential element of a
crime

. 471 U.S. at 315

– 18.

¶16 The presumption at issue in Francis arose in the con text of a
crime of “malice murder” (murder committed with “malice afor ethought”). See Francis , 471 U.S. at 310 n.1. Although the underl ying substantive criminal law required not just proof of the actus

5S TATE v

. K ELSON Opinion of the Court

reus of homicide but the mens rea of intent, the jury instruction in question had the effect of relieving the State of its burden of pro ving the latter . It did so by operation of a presumption that a pe rson is “ presumed to in tend the natural and probable consequen ces of his acts. ” See id. at 315. 2

¶17 The Francis court found that presumption to run afoul of due process. It held that due process “prohibits the State from u sing evidentiary presumptions in a jury charge that have the effect of relieving the State of its burden of persuasion beyond a reason able doubt of every essential element of a crime.” Francis , 471 U.S.
at 313 (emphasis added)

. And it found that principle to be impl icated by the above

- noted instruction, as it effectively eliminated the requirement of proof of intent beyond a reasonable doubt

— by the presumption establishing the mens rea element upon proof of
the actus reus

. See id . at 316 ( explaining that the instruction runs afoul of due process principles because it “ directs the jury to pr esume an e ssential element of the offense

— intent to k ill

— upon proof of other elements of the offense

— the act of slaying anot her ”).

¶18 The fatal flaw in the instruction in Francis was its distortion of the substantive law of intentional homicide. That underlying law set forth two independent elements

— of actus re us and mens

rea

— and left no room for a presumption collapsing the two. Thus,

2 The full jury instruction at issue in Francis read: “ A crime is a violation of a statute of this State in which there shall be a union of joint operation of act or omission to act, and i ntention or crim inal negligence. A person shall not be found guilty of any crime committed by misfortune or accident where it satisfactorily a ppears there was no criminal scheme or undertaking or intention or criminal negligence. The acts of a person of so und mind and di scretion are presumed to be the product of the person's will, but the presumption may be rebutted. A person of sound mind and discretion is presumed to intend the natural and probable cons equences of his acts but the presumption may be rebut ted. A pe rson will not be presumed to act with criminal intention but the trier of facts, that is, the Jury, may find criminal intention upon a consideration of the words, conduct, demeanor, motive and all
other circumstances connected with the act for which the accused is prosecuted.” 471 U.S. at 311

– 12.

6Cite as: 2014 UT 38 Opinion of the Court

the defect in the Francis instruction was its creation of an evide ntiary presumption out of whole cloth

— a presumption that had no
basis in the substantive criminal law and that th erefore shifted the burden of proof on an element assigned by the criminal law to the prosecution.

¶19 The presumption at issue here did no such thing. It in no way altered or under mined any element of the substantive law

. To the contrary, the presumption accurately reflected that law,
which defines a “security” to include “any note.” U TAH C ODE § 61

- 1

- 13(24)(a)(i) (A) (2000)

. 3 The presumption in instruction 25 thus steered clear of the due process concern in Francis , as it in no way shifted the burden of pro of on an element assigned by the criminal law to the prosecution.

¶20 The legislature has the discretion to define the elements of a crime as it sees fit. In so doing, it is not at all foreclosed from employing the terminology or concept of a presumption . The moral
of Francis is not that presumptions are generally suspect as el ements of criminal jury i nstructions; it is that they must not be used in a manner that shifts the burden of proof on an element a ssigned by the criminal law to the prosecution. 4

3 The statute underwent subsequent amendments, which were primarily stylistic. Kelson was charged under the 2000 version , so we cite it here

.

4 See People v. McCall , 82 P.3d 351 (Cal. 2004) ( upholding jury i nstruction under statute criminalizing possession of certain chem icals with intent to manufacture met hamphetamine

— which stated that “possession of immediate precursors sufficient for the man ufacture of [] hydriodic acid [] shall be deemed to be poss ession of
the derivative substance”

— because that presumption in instru ction was “nothing more than a definitional section that specified [criminal] conduct,” and “lawmakers [have] broad power to select the elements of crimes, and to define one thing in ter ms of anot her”); People v. Pinkston , 112 Cal. App. 4th 387 , 391

– 92 (2003) ( u pholding jury instruction under statute defining evasion of peace
officer a s a felony where “pursued vehicle is driven in a willful or wanton disregard for the safety of persons or property,” including

“ driving while fleeing or attempting to elude a pursuing peace officer during which time either three or more violations that are

7S TATE v

. K ELSON Opinion of the Court

¶21 Even in the law of murder, there is no general due process ban on the invocation of a presumption. The law of felony murder incorporates a presumption, and in so doing raises no due process concern. Thus, although the state generally must prove intent to
sustain a conviction for murder, our law presumes intent where a homicide is committed in the course of a felony

. See U TAH C ODE § 76

- 5

- 203(2) (d)

. The adoption of that presumption falls well wit hin the legislature’s judgment in defining the elements of a crime.
And for that reason a jury instruction reflecting it would be pe rfectly acceptable as a matter of due process.

¶22 The same conclusion holds for the securities crimes at issue here. The governing statute is in the form of a presumption

— in defining “security” in t erms of general rules and exceptions. See
U TAH C ODE § 61

- 1

- 13(24)(a)&(b) (2000) . And the instruction at i ssue accurately reflected the statute in establishing a presumption that a note is a security.

¶23 That conclusion foil s Kelson’s claim for ineffective ass i stance of counsel. Kelson’s counsel could reasonably have stipula ted to instruction 25 as an accurate statement of law that in no way shifted the burden of proof through an evidentiary presumption.
We reverse on that basis. See Nicholls v. State , 2009 UT 12, ¶ 3 7 , 203 P.3d 976 (defendant has burden to show counsel’s performance “fell below an objective standard of reasonableness” (citing Stric kland v. Washington , 466 U.S. 688 (1984) )).

B

¶24 In so doing, we decline to address the State’ s alternative
basis for defending counsel’s effectiveness

— its assertion that counsel’s performance could be defended on the ground that i nstruc tion 25 was arguably more favorable to the defense than the standard prescribed by statute , such that an objection to the i nstruction mi ght have produced a clarification that would have hurt Kelson’s cause. This alternative argument compared the sta tutory text with the terms of the instruction

. Whereas t he statute seems to categori cally equate a “ security ” with a “ note ,” the State

assigned a traffic violation point count under [statute] occur, or damage to property occurs”; c onclud in g that definition esta blished a rule of law “rather than a presumption apportioning the burden of persuasion” on an element of the crime).

8Cite as: 2014 UT 38 Opinion of the Court

noted th at the in str uction framed the ma t ter in terms of a pr esum ption sub ject to rebut tal

— under exce ptions and fac tors a pparently i ncorpo rating the federal definition of se curity set forth
in Reves v. Ernst & Young , 494 U.S. 56, 61

– 65 (1990). 5

5 Reves interpreted the federal definition of “security” in the 1934 Securities Act, 15 U.S.C. § 78c(a)(10) . Althou gh the statutory def inition broadly defined “security” as “ any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit

- sharing agreement ,” the Reves court concluded that the
1934 Act did not establish a “ broa d f ederal remedy for all fraud,’”
but was aimed instead at fraud in connection with “investments.”
Reves , 494 U.S. at 61 (internal quotation marks omitted). Thus, the
Reves court held that the 1934 Act did not literally extend to all transactions encompassing literally all “notes,” but rather left it to
the SEC and to the courts “ to decide which of the myriad financial transactions in our society come within the coverage of these sta tutes. ” Id . (internal quotation marks omitted).

Extending a body of caselaw followed in some of the lower courts to have addressed this issue, the Reves court adopted a pr esumption that “every note is a security,” while allowing for rebu ttal of the presumption by a showing that the note falls into one o f seven categories more closely resembling consumer or comme rcial loans than investments. Reves , 494 U.S. at 64

– 65 (recognizing exceptions for (1) a “note delivered in consumer financing;” (2) “a note secured by a mortgage on a home;” (3) a “short

- term not e s ecured by lien on a small business or some of its assets;” (4) a “note evidencing a ‘ character ’ loan to a bank customer;” (5) a short

- term note “secured by an assignment of accounts receivable;” (6) “a note which simply formalizes an open

- account debt i ncurred in the ordinary course of business;” and (7) a note “evidencing loans by commercial banks for current operations”). In addition, the
Reves court identified four factors of relevance to determining whether a note bears a “strong resemblance” to one of these cat egories. Id . at 66

– 67 (indicating that the relevant factors are (1) “the motivations that would prompt a reasonable seller and buyer to enter into [the transaction];” (2) “the plan of distribution of the i nstrument;” (3) “the reasonable expecta tions of the investing pu blic;” (4) “whether some factor such as the existence of another

9S TATE v

. K ELSON Opinion of the Court

¶25 The distinction between the statutory text and the terms of the instruction may be more apparent than real. T he Reves stan dard could be understood to represent a settled, term

- of

- art unde rstanding of the definition of a security . And if so it might be po ss ible to read the Utah statute as incorporating that established understanding. See Maxfield v. Gary Herbert, 2012 UT 44, ¶ 31 , 284 P.3d 647 (noting that when a word or phrase is transplanted from another legal source, it may be interpreted to bring its “ol d soil with it”) ; State v. Burkenshaw , 2010 UT App 245, ¶ 11 n.3, 239 P.3d 1052 (reviewing trial court’s application of the Reves test in a cri minal case, “without deciding whether Utah should adopt that

te s t” to determine whether a note is a security). B ut we need not
and do not resolve this question here . We rest our decision instead

on the conclusion that instruction 25 was not an evidentiary pr esumption unlawfully shifting the burden of proof to the defense
but an accurate statement of Utah law

. 6

C

¶26 The above analysis of instruction 25 defeats Kelson’s plain

error claim as well. Because the instruction is not a burden

shifting evidentiary presumption but a correct statement of Utah law, there can be no error

— much less plain error

— in the district

cour t’s acceptance of the parties’ stipulated instruction. See State v.
Dunn , 850 P.2d 1201, 1208 (Utah 1993) ( plain error “is not esta blished” unless error is “obvious”). We accordingly reject Kelson’s assertion of plain error and therefore reinstate the secu rities co nvictions entered against her in the district court.

——————

regulatory scheme significantly reduces the risk of the instrument, thereby rendering application of the Securities Act unnecessary”).

6 Our holding also obviates Kel son’s take on the Reves factors set
forth in the instruction

— that those factors reinforced the burden

shifting impact of the instruction’s presumption. Sh e says they did so by telling the jury “ that it should infer notes are securities u nless the defendant persuaded the jury that such an inference was
unwarranted.” That may be, but again that is not by operation of a
burden

- shifting evidentiary presumption, but only as an accurate statement of the substantive law.

10