Source: http://openjurist.org/364/f3d/934
Timestamp: 2014-08-27 09:42:05
Document Index: 641458469

Matched Legal Cases: ['§ 371', '§ 1341', '§ 1956', '§ 1341', '§ 1341', '§ 1341', '§ 1341']

364 F3d 934 United States v. L Parker | OpenJurist
364 F. 3d 934 - United States v. L Parker	Home364 f3d 934 united states v. l parker
364 F3d 934 United States v. L Parker 364 F.3d 934
UNITED STATES of America, Plaintiff-Appellee,v.James L. PARKER, Defendant-Appellant.
No. 03-1127.
Filed: April 20, 2004.
James R. Wyrsch, argued, Kansas City, MO (J. Justin Johnston, Kansas City, MO, on the brief), for appellant.
James C. Bohling, Asst. U.S. Atty., argued, Kansas City, MO, for appellee.
James L. Parker was charged in a twenty-count indictment with one count of conspiracy to commit mail fraud in violation of 18 U.S.C. § 371, eight counts of mail fraud in violation of 18 U.S.C. § 1341, and eleven counts of money laundering in violation of 18 U.S.C. § 1956. A jury convicted him of each of these charges, and the district court1 sentenced him to fifty-one months imprisonment and ordered him to pay restitution in the amount of $704,720.00. Parker appeals his conviction, making several challenges to the sufficiency of the evidence, evidentiary rulings, and the jury instructions. We affirm.
On April 12, 2000, a federal grand jury in the Western District of Missouri indicted Parker, his son, Ethan Parker, and Lyle Perry on charges arising out of their business activities with Parker's corporation, FCI Marketing, Inc. ("FCI"). All three co-defendants were charged with conspiracy to commit mail fraud. Only Parker and Perry, FCI's vice president, were charged with mail fraud, while Parker alone was charged with money laundering.
In 1981, Parker, together with his wife, formed FCI's predecessor company, Factory Connections, Inc. That company foundered, and it filed bankruptcy in 1987. Burdened by personal, as well as corporate, debt, the Parkers themselves also filed a petition for bankruptcy in 1988. The Parkers revamped their business approach and, in June of 1989, founded FCI. James Parker functioned as the president and controlling partner.
Parker's concept in forming FCI was to sell exclusive distributorships to investors who would sell FCI brand-name automotive parts on a consignment basis. In exchange for an initial investment of between $30,000-$250,000 (depending on the initial package of inventory and the size of the investor's territory), FCI agreed not to set up other distributorships within the boundaries of the agreed-upon exclusive geographic territory. In addition, FCI's sales teams traveled to the distributors' territories and set up accounts with garages. After an account was established, the sales teams installed FCI cabinets and racks at these locations and stocked them with FCI brand products, namely brakes, spark plugs, belts, tire repair kits, starters, alternators, and other commonly used aftermarket automobile parts.
The investors, or "distributors," serviced these garages and replaced the depleted inventory with parts that the distributors purchased directly from FCI. When servicing the garages, the distributors also collected money for the parts that the garages' mechanics had used since the last servicing. Therefore, distributors paid FCI for the inventory they used to stock garages, but the distributors themselves did not receive any payment for the products until mechanics actually used them. The distributors maintained a line of credit with FCI so that they could adequately service their accounts.
Investors' execution of Parker's consignment-based business model proved considerably more difficult to carry out successfully than Parker advertised orally and in printed media. At trial, the government sought to prove that Parker, in conjunction with his co-defendants, fraudulently induced investors to purchase FCI distributorships by making several false statements. The substance of these statements concerned the quality of the automotive parts sold under the FCI brand name, the quality of the distributorship accounts, FCI's business history, and the amount of actual and projected income.
For example, Parker's written promotional packages touted FCI products as being of the highest quality. However, the evidence at trial showed that many of the products, particularly the starters, alternators, and brakes, were of substandard quality. This poor quality created friction between the distributors and the garages that used these FCI products. Parker himself claimed in a 1996 lawsuit against his brake manufacturer that the brakes were subject to premature wear, squealing, and disintegration and that FCI lost distributorships as a result of the problems. Moreover, in a 1996 civil deposition, Parker claimed FCI had lost thirteen distributors as a result of the inferior quality of the starters and alternators. Even so, when distributors complained to Parker about the products, Parker assured the complaining distributors that they were the only ones experiencing recurrent problems. In addition, testimony at trial established that Parker often responded to these complaints by accusing the mechanics of improperly installing the FCI products, which exacerbated the tension between the distributors and the garages.
Parker also represented that FCI would provide distributors with a professional sales staff to set up high quality accounts. He described the accounts as garages that employed several mechanics and had two or more bays. Instead, the government alleged that the "professional" sales team members had little to no training and that the accounts were oftentimes no more than dump sites for the sales person's inventory. There was evidence that FCI sales teams had set up accounts at a bait shop and at a junk yard and that, in order to entice garage owners to accept an FCI account, sales members would tell the owners that they need not use the product but could keep it on hand for emergencies. The government alleged that Parker knew of these deficiencies but continued to promote his sales staff as a professional one that would establish income-producing accounts at high volume garages.
What is more, FCI promotional materials included documentation concerning the profitability of owning an FCI distributorship. The figures contained in these materials were compiled by Parker and co-defendant Perry, who was a certified public accountant. In 1993, at FCI's annual seminar, Parker circulated an informal income and sales survey. The idea to conduct such a survey was an impromptu one, and distributors were told to estimate their sales revenues. Based on these responses, Perry compiled a chart of gross and net incomes for the current year and, based on a 10% yearly growth rate, projected gross and net income for the following two years.
In 1994, Parker again surveyed distributors at FCI's annual convention. The figures obtained from this survey were significantly lower than the 1993 figures, and Parker and Perry compiled a new chart with the updated 1994 figures. When the survey showed yet another decline in income in 1995, Parker did not update his promotional materials with the 1995 figures. Instead, he continued to provide prospective investors with the 1994 chart. Moreover, the 1994 chart continued to show a 10% annual increase in sales and profits even though the results of Parker's survey showed a decline in income for two consecutive years. After 1995, Parker did not conduct any further surveys, nor did he tell new distributors that the most current data showed significantly less profitability and growth than the information he provided them.
Representations concerning the profitability of an FCI distributorship, the projected incomes, the professionalism of FCI's sales staff, and the quality of its goods and accounts were not the only bases of the crimes charged in the indictment. At trial, the government produced evidence of other alleged misrepresentations Parker made that tended to prove his intent to deceive and to induce potential investors into buying FCI distributorships. Like the above-mentioned statements, these other misrepresentations were mailed to interested investors as part of FCI's promotional literature packet. For instance, the government alleged that Parker falsely represented to potential investors that FCI distributorships were 100% successful when, in fact, Parker knew of failed distributorships and of distributorships that were not profitable. Similarly, in print media, FCI advertised that it was "Number 1," and the advertisement further indicated that this ranking was based on an "Independent survey conducted by FCI Marketing Inc." No such survey had ever been conducted.
FCI was headquartered in St. Joseph, Missouri, and prospective investors commonly traveled to FCI headquarters to meet with Parker before purchasing distributorships. As part of Parker's sales pitch to several investors, he informed them that the profitability of his son, Ethan Parker's, distributorships was typical. Parker failed to inform prospective investors, however, that his son received substantial inventory free of charge and had a much higher line of credit than ordinary distributors. The government alleged that Parker's representations regarding the normalcy and the profitability of his son's distributorships were made (or omitted) with the fraudulent intent of inducing and deceiving prospective investors.
Parker's first point of contention on appeal concerns the trial court's admission of the expert testimony of Steven Toporoff. Toporoff is a government lawyer with the Federal Trade Commission. His job title, specifically, is Franchise Program Coordinator. The thrust of his testimony summarized the scope and substance of the so-called Federal Trade Commission's "Franchise Rule." Without offering any opinion as to whether or not FCI distributorships were "franchises" within the meaning of the Franchise Rule, Toporoff testified as to the Federal Trade Commission's definition of a franchise and the disclosure obligations under federal franchise law that accompany classification as a franchise.
Toporoff testified that the Franchise Rule requires that a franchisor make several disclosures to potential investors. First, a franchisor must disclose the total number of franchises that have opened, as well as the total number of those that have closed. In addition, a franchisor must disclose its litigation history to the extent it implicated the franchisor's wrongdoing. Franchisors are also required to disclose all bankruptcy proceedings in which the franchise or its principals have been involved. And while the Franchise Rule does not require that a franchisor make any financial disclosures, it governs those that are made. For example, a statement as to historical performance must meet generally accepted accounting principles, and a projection must proceed from a reasonable basis.
At trial, Parker's counsel objected to Toporoff's testimony on relevancy grounds, while counsel for his co-defendant, Perry, objected to the testimony on the ground it constituted an impermissible legal conclusion. The trial judge overruled the objections, agreeing with the government's contention that the testimony was properly admissible to show intent and motive. At Parker's request, the court did, however, give the jury the following cautionary instruction at the conclusion of Toporoff's testimony:
I advise you that whether FCI, that is the corporation that we're [sic] been talking about, whether FCI created franchises is not something that the witness established by his testimony. He wasn't asked that; he didn't answer any such question. The question of whether a franchise or franchises were created by FCI with regard to its distributorships is something that would have to be determined to the extent it is pertinent by other evidence in the case.
And I further remind you that even if FCI did create franchises, this prosecution is not a lawsuit claiming violation of the Federal Trade Commission, FTC requirements. The question in this case, at least one of the ultimate questions, would be whether one or more of the defendants knew of the obligations under the FTC written rules, whether one or more of them knew of the obligations and failed to comply in order to hide things from the investors and to deceive them into becoming distributors.
Parker did not object to the substance of this cautionary instruction.
On appeal, Parker argues the trial court erred in admitting Toporoff's testimony for three reasons. First, Parker contends the testimony invaded the province of the judge and the jury because it constituted opinion testimony concerning legal standards. Second, he reasserts his relevancy objection. And third, for the first time, he argues that, even if the testimony were relevant, the district court should have excluded it under Federal Rule of Evidence 403 because, according to Parker, its probative value was substantially outweighed by its prejudicial effect.
We review the district court's decision to admit evidence over a party's objection for abuse of discretion. United States v. Rock, 282 F.3d 548, 551 (8th Cir.2002). The government argued, and the trial court found, that the testimony was properly admissible to show Parker's intent to deceive. We agree.
Among other charges, Parker was convicted of mail fraud in violation of 18 U.S.C. § 1341. This statute prohibits the use of the mails to execute "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises." 18 U.S.C. § 1341. Intent to defraud is an essential element of proving a violation of 18 U.S.C. § 1341. See United States v. Manzer, 69 F.3d 222, 226 (8th Cir.1995) (to prove a violation of 18 U.S.C. § 1341, government must establish "(1) the existence of a scheme to defraud, and (2) the use of the mails ... for purposes of executing the scheme"). Toporoff's testimony was relevant to establishing this essential element.
Toporoff did not testify that FCI distributorships were franchises subject to the Federal Trade Commission's Franchise Rule. Thus, contrary to Parker's assertion, Toporoff did not offer an impermissible legal opinion. He testified as to the scope and obligations of the rule. Other evidence supported a finding that FCI distributorships were, in essence, franchises. For instance, in the late 1980's, the State of Nebraska sent Parker a letter, in which it informed him that FCI may be subject to compliance with Nebraska's seller-assisted marketing regulations. In addition, Parker's promotional