Opinion ID: 665876
Heading Depth: 2
Heading Rank: 1

Heading: Limitation on Presentation of Theory of Defense

Text: 14 Defendants' first argument is that the district court erred by improperly limiting the presentation of their theories of defense. Defendants sought to establish that they lacked criminal intent by showing that their actions in taking money through Midwest were consistent with the practices of Aerodyne's other officers and directors. Defendants argue that the district court's rulings prevented them from effectively presenting this defense because they were unable to adequately establish the manner in which Aerodyne was operated, as shown by the intercorporate and related-party dealings among the officers and directors of Aerodyne. Specifically, defendants contend that the district court (1) improperly limited their cross-examination of Cronin, Janney, and John Giles, another government witness, on the intercorporate dealings among the Aerodyne shareholders and related companies; (2) improperly excluded documents showing the recast earnings of Aerodyne and several other companies in which Aerodyne's Board members had an interest; (3) improperly excluded expert testimony regarding defendants' corporate duties to Aerodyne; and (4) improperly declined to instruct the jury on defendants' theory of defense and on corporate duties owed to Aerodyne. These four contentions are discussed separately below. By discussing the theory of defense, we do not rule as a matter of law that the theory was valid or invalid. Defendant Russell Baker Sr. was a shareholder and director of Aerodyne at the time of the alleged crime and the jury returned a verdict of not guilty to the charges against him. The two Baker sons, who were found guilty, were not shareholders of Aerodyne. Although Russell Baker Jr. was a vice-president and director, he, like his brother Roger, was a salaried employee. We make no ruling on whether the two appellants had standing to advance their theory of defense, but for the sake of discussion assume they did.1. Limitation on Cross-Examination 15 We have carefully reviewed the trial testimony of Cronin, Janney, and John Giles. Defense counsels' cross-examination of these witnesses covers more than 300 pages of transcript. Testimony was elicited from these witnesses about their financial interest in seeing defendants convicted; 1 about the Aerodyne shareholders' financial interests in other, related companies, some of which competed with Aerodyne; 2 about Aerodyne's practice of permitting its shareholders, directors, and officers to engage in outside employment and to receive income from other companies; 3 about the Aerodyne shareholders' improper practice of taking profits from Aerodyne by creating and submitting invoices rather than by taking dividends; 4 about Cronin's ownership interest in the property on which Aerodyne operated and his use of Aerodyne monies to deal with environmental problems on the property; 5 about the sale of one of Cronin's companies to Aerodyne; 6 about Cronin's interest in other companies that were sold along with Aerodyne; 7 about Janney's employment with the company that purchased Aerodyne; 8 about the Aerodyne Board's approval of another commission contract similar to the contract with Midwest; 9 about the allegations of wrongdoing among the officers and directors of Aerodyne; 10 about lawsuits reflecting intercorporate battles among the officers and directors of Aerodyne; 11 and about the Aerodyne shareholders' individual income tax reporting. 12 This cross-examination was more than adequate to develop defendants' theory of defense. 16 Defendants complain about numerous specific restrictions on their cross-examination. Only two of these specific restrictions warrant discussion. First, defendants complain that they were not permitted to establish that Cronin forced Aerodyne to purchase products from him at inflated prices. Although the district court did sustain objections to some questions on this subject, defense counsel elicited admissions from Cronin that one of his companies sold products to Aerodyne and that there were disputes among the shareholders as to the price of these products. 13 In addition, during the defendants' case, Russell Baker Jr. testified that Cronin required Aerodyne to purchase certain products from one of his companies and overcharged Aerodyne for these products. 14 Thus, defendants did establish Cronin's questionable dealings with Aerodyne. Second, defendants complain that they were not allowed to establish that, between the first and the second trial, Cronin and Janney created an elaborate fiction 15 to explain the methods by which they took profits from Aerodyne. Defense counsel questioned Cronin and Janney at length regarding their methods of taking profits from Aerodyne, challenging Cronin and Janney with allegedly inconsistent statements made by each during the first trial and in the grand jury proceedings. However, Cronin's and Janney's testimony in the first trial as to the methods of taking profits from Aerodyne was substantially similar to their testimony in the second trial. 16 Thus, defendants' inability to establish the claimed elaborate fiction was not due to limitations on cross-examination. Having carefully reviewed the record in this case, we conclude that the district court did not commit reversible error in limiting defense counsels' cross-examination. 2. Exclusion of Recast Earnings 17 Defendants argue that the district court erred in declining to admit a series of documents that showed the recast earnings of Aerodyne and several related companies. One of Aerodyne's prospective purchasers had retained an accounting firm to gather information and recast the earnings of Aerodyne and several related companies to reflect what the earnings would have been had the prospective purchaser owned the companies. Defendants contended that the recast earnings documents were relevant because defendants could use the documents to impeach Cronin's and Janney's testimony regarding the profit distribution at Aerodyne. Defense counsel were unable to establish either the exact sources of the information that the accounting firm used in calculating the recast earnings or the reliability of those sources. 17 The district court declined to admit the recast earnings documents, holding that there was a legal requirement to make the connection between [the information provided] and any one of those ... shareholders before they can be--before knowledge or lack of knowledge can be inferred them. 18 We find that the recast earnings documents were not reliable, were of marginal relevance, and could have caused the jury considerable confusion. 19 Moreover, the district court did permit defense counsel to question the accountant who prepared the recast earnings documents as to his knowledge of the distribution of profits at Aerodyne. 20 We find no reversible error. 3. Expert Testimony On Corporate Duties 18 Defendants argue that the district court erred in declining to permit their expert witness to testify as to defendants' corporate duties to Aerodyne under the Aerodyne Articles of Incorporation and Florida law. They argue that they were entitled to establish through this testimony that defendants had no duty to disclose their interest in Midwest to Aerodyne's directors. Having carefully reviewed the record, we conclude that this argument is without merit. 19 Defendants mischaracterize the government's case against them. Defendants argue that the government's case against them was based upon their failure to disclose their interest in Midwest to the Aerodyne Board members; thus, they argue, the expert's testimony was relevant in that it would establish that they had no duty to make such a disclosure. In fact, the government's case was based not upon defendants' failure to disclose information; rather, it was based upon defendants' affirmative misrepresentations and active concealment. Indeed, in his closing argument to the jury, the prosecutor said: 20 The government's theory is not that the defendants are guilty because they were part of Midwest Military Marketing and they didn't tell anybody. That's not the government's theory. The government's theory is that they were part of Midwest Marketing and they lied to the board about what Midwest Military Marketing was, who was in charge of it, who was doing what and what Aerodyne was getting for the commissions. They are charged because of the false documents in the files and the false statements that they made. 21 21 Defense counsel during closing argument also stressed this point: 22 The defendants' failure to disclose their ownership interest in Midwest Military Marketing is not an issue in this case. I'm going to repeat that. It's vitally important. The defendants' failure to disclose their interest in Midwest Military Marketing, their ownership interest in Midwest Military Marketing is not an issue in this case. 22 23 Finally, the district court instructed the jury: 24 Now, you have been instructed in this case that the defendants are charged with mail fraud; that is, a scheme to defraud involving the use of the mails which involves false statements. The charges which you are to consider in this case are based only on the making of affirmative, false statements and are not based on a failure to disclose certain facts. The defendants' failure to disclose their ownership in Midwest Military Marketing is not an issue in this case. 23 25 Thus, to prove its case against defendants, the government had to establish that defendants made affirmative misrepresentations. Defendants' duty, or lack thereof, to disclose information was not relevant to the jury's determination of whether defendants made affirmative misrepresentations. 26 To the extent defendants' duty, or lack thereof, to disclose their interest in Midwest may have been relevant to defendants' theory of defense, that defense was adequately presented. Although the district court did not permit expert testimony on the subject, it did permit full development of the subject through other evidence. For example, defendants introduced into evidence Aerodyne's Articles of Incorporation and used a blow-up of relevant portions of the Articles for argument to the jury. Russell Baker Jr. testified as to his understanding of his duties under the Articles of Incorporation. 24 Finally, at defendants' request, the district court charged the jury on the Florida law on corporate duties. 25 Defendants presented ample evidence to support their theory of defense, and an expert witness would not have aided the jury's understanding of this evidence. Accordingly, we find no reversible error. 4. Jury Instructions 27 Defendants argue that the district court erred in declining to instruct the jury on their theory of defense. This argument is absolutely without merit. The district court instructed the jury: 28 It is the defense of all defendants in this case that no false statements or material facts were made to the Aerodyne Board of Directors and that no false statements were made in order to conceal their ownership of Midwest Military Marketing. Further, it is the position of all defendants that they did not have an intent to defraud the shareholders of Aerodyne or Aerodyne itself out of money or property. Rather, the defendants contend that because they believed the transaction was fair and reasonable to Aerodyne at the time, and that considering the course of dealings of the officers, directors and shareholders of Aerodyne, the Articles of Incorporation of Aerodyne and Florida corporate law, their actions in implementing their ownership interest in Midwest Military Marketing, they had no intent to defraud. 29 The defendants also contend that based on the course of dealings between and among the other directors individually with their related companies in Aerodyne, the Aerodyne Articles of Incorporation and Florida corporate law, they had a good faith belief that the related party transaction between Midwest Military Marketing and Aerodyne was proper. 30 . . . . . 31 Now, good faith is a complete defense to the charges in the Indictment, since good faith on the part on the defendant is inconsistent with intent to defraud or willfulness, which is an essential part of the charges. The burden of proof is not on the defendant to prove his good faith, of course, since he has no burden to prove anything. The government must establish beyond a reasonable doubt that the defendant acted with specific intent to defraud as charged in the Indictment. 26 32 This instruction adequately apprised the jury of defendants' theory of defense.B. Other Jury Instructions
33 Relying on McNally v. United States, 27 defendants argue that the district court's mail fraud instruction was flawed because it did not require that the jury find that the government had proven a loss of money or property. In McNally, the Supreme Court held that the mail fraud statute is limited in scope to the protection of monetary and property rights and does not protect a citizen's intangible right to good government. Defendants argue that the government proved only that they deprived Aerodyne of its right to honesty and loyalty, an intangible right that cannot be the basis of a mail fraud conviction under McNally. Thus, defendants contend that their convictions cannot stand. 34 To assess defendants' McNally claim, we must look to the indictment and the jury instructions to determine whether the jury could have convicted defendants of defrauding Aerodyne of an intangible, non-property right, such as the right to honesty and loyalty. As this court has said: 35 In the plethora of post-McNally cases addressing challenges to pre-McNally mail fraud convictions, the courts uniformly have looked to the wording of the indictment and the jury instructions to determine if the convictions can stand. If the indictment and jury instructions were phrased in such a way that the jury could have convicted the defendant of scheming to defraud the victim of a McNally -type intangible right, the courts have reversed the convictions. Conversely, if the jury necessarily must have concluded that the defendant schemed to defraud the victim of a non-McNally type of right (i.e. a monetary or property right, whether tangible or intangible), then the convictions stand, even if the indictment charged and the jury was instructed on McNally -type intangible rights in addition to non-McNally rights. 28 36 Defendants' case is not even close; the indictment charges and the jury was instructed only on non-McNally monetary and property rights. The indictment charges that defendants knowingly devised and intended to devise a scheme and artifice to defraud Aerodyne Investment Castings, Inc. and the shareholders of Aerodyne of money and property .... 29 Similarly, the district court charged the jury that defendants were guilty of mail fraud only if they knowingly and willfully devised a scheme to defraud or for obtaining money or property by means of false pretenses, representations or promises.... [T]he word scheme includes any plan or course of action intended to deceive others, and to obtain by false or fraudulent pretenses, representations or promises money or property from the persons so deceived. 30 The jury was not instructed on the intangible rights theory; that is, no instruction was given that defendants' convictions could be based upon the deprivation of Aerodyne's right to honesty and loyalty. The government proved that defendants obtained more than $500,000 from Aerodyne through their scheme. Given the language of the indictment and the jury instructions, the jury necessarily must have concluded that defendants schemed to defraud Aerodyne of money. Accordingly, defendants' challenge to their convictions under McNally is without merit. 37
Instruction 38 Defendants argue that the district court also erred in instructing the jury on the interstate transportation of stolen property charges. Section 2314 of Title 18 makes it a federal offense for any person to transport in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud. 31 Defendants were charged on three counts with transporting three checks drawn on the account of Aerodyne and made payable to Midwest or Fisher. In charging the jury on these counts, the district court followed the Eleventh Circuit Pattern Jury Instructions, with one small modification. The pattern instructions refer only to stolen property, as opposed to property stolen, converted or taken by fraud. The pattern instructions then incorporate the conversion and fraud aspects of the crime through the definition of stolen, which is defined to include any wrongful and dishonest taking of property with the intent to deprive the owner of the rights and benefits of ownership. 32 The district court followed these pattern instructions, except that it referred throughout the instruction to property stolen or taken by fraud, rather than merely to stolen property. 33 Section 2314 clearly criminalizes the interstate transportation of property taken by fraud, as well as of stolen property. We find no reversible error. 39 C. Constitutionality of Money Laundering Statute 40 Defendants contend that 18 U.S.C. Sec. 1957, which prohibits engaging in monetary transactions in criminally derived property, violates the Fifth Amendment because it is constitutionally vague and overbroad. Because defendants' challenge does not involve the First Amendment, we review the statute as it was applied in this case. 34 As the Supreme Court has said, [a] plaintiff who engages in some conduct that is clearly proscribed cannot complain of the vagueness of the law as applied to the conduct of others. 35 41 Section 1957 makes it a federal crime for any person to knowingly engage[ ] or attempt[ ] to engage in a monetary transaction in criminally derived property that is of a value greater than $10,000 and is derived from specified unlawful activity.... 36 The statute requires that the defendant know that the property is criminally derived, but it does not require that the defendant know that the property was derived from specified unlawful activity. 37 Criminally derived property is defined as any property constituting, or derived from, proceeds obtained from a criminal offense. 38 Thus, the government must prove that the defendant knew that the property was obtained from a criminal offense. In this case, the government proved that defendants deposited into their bank accounts funds that they had derived from their own criminal fraud activities. We find that this conduct is clearly proscribed by Sec. 1957. Accordingly, Sec. 1957 is constitutional as applied to defendants. 39