Court Opinion

ID: 4258597
Source: CourtListenerOpinion
Date Created: 2018-03-27 20:00:25.210436+00
Date Added: 2024-06-11T09:24:07.443971
License: Public Domain

NOT FOR PUBLICATION                             FILED
                     UNITED STATES COURT OF APPEALS                           MAR 27 2018
                                                                          MOLLY C. DWYER, CLERK
                                                                           U.S. COURT OF APPEALS
                             FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA,                          No.    16-50093

                 Plaintiff-Appellee,               D.C. No.
                                                   8:14-cr-00014-CJC-1
  v.

MICHAEL JAY STEWART, AKA Michael                   MEMORANDUM*
J. Stewart, AKA Mike Stewart,

                 Defendant-Appellant.

                    Appeal from the United States District Court
                       for the Central District of California
                    Cormac J. Carney, District Judge, Presiding

                       Argued and Submitted February 5, 2018
                                Pasadena, California

Before: CALLAHAN and NGUYEN, Circuit Judges, and PRATT,** District
Judge.

       Defendant Michael Jay Stewart (“Stewart”) appeals from his convictions and

sentences for eleven counts of mail fraud, arguing the district court: (1) failed to

properly instruct the jury, resulting in an unfair trial; (2) erred in interpreting a

       *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
       **
            The Honorable Robert W. Pratt, United States District Judge for the
Southern District of Iowa, sitting by designation.
sentencing enhancement and in determining the amount of loss under the

enhancement; and (3) imposed an unreasonable sentence. We have jurisdiction

under 28 U.S.C. § 1291 and 18 U.S.C. § 3742. Upon review, we affirm.

      1. Stewart argues the district court erred in departing from the Ninth Circuit

Model Jury Instructions in instructing the jury as to materiality and the intent

required to convict him of mail fraud under an omissions theory of fraud.

Assuming without deciding that Stewart preserved error with respect to his

challenge to Instruction No. 15, Stewart’s claim must fail even on de novo review.

See United States v. Pineda-Doval, 614 F.3d 1019, 1025 (9th Cir. 2010).

      The Government is not required to prove that a “scheme to defraud was

reasonably calculated to deceive persons of ordinary prudence and

comprehension.” United States v. Ciccone, 219 F.3d 1078, 1083 (9th Cir. 2000).

Moreover, Stewart’s assertion that the reasonable-investor standard under the civil

“bespeaks caution” doctrine should apply here is also without merit because that

doctrine is inapplicable in the criminal context as the criminal fraud statutes do not

require the Government to prove reliance. See Neder v. United States, 527 U.S. 1,

24–25 (1999).

      Additionally, Stewart’s challenges to Instructions Nos. 14 and 17 are

waived. See United States v. Kaplan, 836 F.3d 1199, 1217 (9th Cir. 2016); United

States v. Cain, 130 F.3d 381, 383–84 (9th Cir. 1997). However, even if these

                                          2                                    16-50093
challenges are not waived, his claims fail because the disjunctive formulation of

“intent to defraud” meaning “an intent to deceive or cheat” is included in our

model instruction, which we have repeatedly approved. See, e.g., United States v.

Shipsey, 363 F.3d 962, 967 (9th Cir. 2004).

       2. Stewart claims the district court committed plain error in failing to

instruct the jury that it must find Stewart had a fiduciary duty or other similar duty

to disclose in order to convict him on an omissions theory of fraud. We recently

examined a nearly identical claim and held the trial court had erred in failing to

“instruct the jury that it must find a relationship creating a duty to disclose before it

could conclude that a material non-disclosure supports a wire fraud charge.”1

United States v. Shields, 844 F.3d 819, 823 (9th Cir. 2016).

       “A trial court commits plain error when (1) there is error, (2) that is plain

[i.e., ‘clear and obvious’], and (3) the error affects substantial rights [i.e., ‘affects

the outcome of the proceedings’].” Shields, 844 F.3d at 823 (alterations in

original) (quoting United States v. Fuchs, 218 F.3d 957, 962 (9th Cir. 2000). The

Court “may exercise [its] discretion to notice such error, but only if the error

seriously affects the fairness, integrity, or public reputation of judicial

proceedings.” Fuchs, 218 F.3d at 962.

       1
              “It is well settled that cases construing the mail fraud and wire fraud
statutes are applicable to either.” Shipsey, 363 F.3d at 971 n.10.

                                             3                                      16-50093
      Because we evaluate the plainness of an error at the time of review rather

than at the time the error was committed, Henderson v. United States, 568 U.S.

266, 271 (2013), we conclude the trial court clearly and obviously erred in not

instructing the jury on the requirement of a duty to disclose, see Shields, 844 F.3d

at 823. However, because the court’s error did not affect Stewart’s substantial

rights or the outcome of the proceedings, his claim fails. See id. The record shows

that, although the Government relied in part on an omissions theory of fraud, it by

no means relied on that theory exclusively. Stewart made numerous false

statements to investors both directly and indirectly to induce them to invest with

his company Pacific Property Assets (“PPA”). Furthermore, the jury likely would

have determined there was an informal, trusting relationship between Stewart and

investors. See id. at 824.

      Moreover, several of Stewart’s representations to potential investors of the

Opportunity Fund can be categorized as “half-truths”—statements that “state the

truth only so far as it goes, while omitting critical qualifying information”—rather

than pure omissions. Universal Health Servs., Inc. v. United States ex rel.

Escobar, 136 S. Ct. 1989, 2000 (2016). And in a case involving half-truths, the

duty to disclose arises from the truth half-spoken, not from a separate duty. See

United States v. Lloyd, 807 F.3d 1128, 1153 (9th Cir. 2015). Thus, the jury did not

need to find a separate duty to disclose.

                                            4                                 16-50093
      3. Stewart asserts the cumulative effect of the alleged errors discussed

above requires reversal of his conviction. For the reasons stated above, we

conclude the Government’s case against Stewart was not “weak” and there was

overwhelming evidence of Stewart’s guilt. See United States v. Frederick, 78 F.3d

1370, 1381 (9th Cir. 1996).

      4. Stewart claims the district court incorrectly interpreted U.S.S.G.

§ 2B1.1(b)(2) when it failed to read a reasonable foreseeability requirement into

the provision, which applies if the offense “resulted in substantial financial

hardship to five or more victims.” (Emphasis added.) Assuming without deciding

that Stewart has preserved error with respect to this claim, we conclude that, even

on de novo review, see United States v. Carper, 659 F.3d 923, 924 (9th Cir. 2011),

the district court correctly interpreted and applied the four-level enhancement. At

least five victims stated that they had lost either all or a large portion of their

retirement funds or savings accounts or that the loss caused them to make

substantial changes to their employment or living arrangements. See U.S.S.G.

§ 2B1.1 cmt. 4(F)(iii)–(v). Nothing in the plain language of either § 2B1.1(b)(2)

itself or the accompanying commentary requires a district court to make a finding

that the loss must be reasonably foreseeable. If the Sentencing Commission had

intended for this to be a requirement, it would have said so explicitly. See

U.S.S.G. § 2B1.1 cmt. 3(A)(i) (defining “[a]ctual loss” as “the reasonably

                                            5                                         16-50093
foreseeable pecuniary harm that resulted from the offense”). Nor can Stewart point

to any case law that requires such a reading of the Guidelines provision.

      5. We review de novo Stewart’s claim that the district court incorrectly

determined the amount of loss under U.S.S.G. § 2B1.1(b)(1) by including loss

incurred beyond the statute of limitations. Stewart does not dispute that his

conduct with regard to the prior offerings constitutes “relevant conduct.” See

U.S.S.G. § 1B1.3(a)(1). “[A] district court may consider as relevant conduct for

sentencing purposes actions which may be barred from prosecution by the

applicable statute of limitations.” United States v. Williams, 217 F.3d 751, 754

(9th Cir. 2000). Thus, Stewart’s claim fails.

      Stewart also contends the district court applied the wrong standard of proof

at the sentencing hearing2 and relied on insufficient evidence to sustain its loss

calculation. Because Stewart was not convicted of committing fraud with respect

to any of PPA’s prior offerings beyond a reasonable doubt, the district court should

have employed a clear and convincing standard of proof in calculating the losses

from those other offerings. See United States v. Hymas, 780 F.3d 1285, 1291 (9th

Cir. 2015). But even assuming the court committed an error, any such error did

      2
             It is unclear from the record what standard of proof the district court
actually applied in calculating the loss amount. It is clear, however, that Stewart
did not object to the standard of proof; therefore, our review of this claim is for
plain error. See United States v. Armstead, 552 F.3d 769, 776 (9th Cir. 2008).

                                          6                                     16-50093
not affect Stewart’s substantial rights or seriously affect the outcome of the

proceedings. Fuchs, 218 F.3d at 962. The record shows over $9 million in loss

stems from the Opportunity Fund offering, of which Stewart was clearly convicted.

The PSR calculated the total losses from the prior offerings, which also included

the false balance sheet in their solicitation materials, at almost $4 million. Stewart

did not dispute any of these amounts in the district court. These combined losses,

totaling over $13 million, obviously exceeded the $9.5 million threshold for a

twenty-level increase. See U.S.S.G. § 2B1.1(b)(1)(K). Furthermore, based on the

evidence presented at trial, it was not clear error, see United States v. Stargell, 738

F.3d 1018, 1024 (9th Cir. 2013), for the district court to find that all of these losses

were “reasonably foreseeable pecuniary harm that resulted from the offense,”

U.S.S.G. § 2B1.1 cmt. 3(A)(i).

      6. Finally, Stewart argues the district court imposed a procedurally and

substantively unreasonable sentence. We review reasonableness claims for abuse

of discretion, United States v. Carty, 520 F.3d 984, 993 (9th Cir. 2008) (en banc);

however, to the extent Stewart alleges constitutional violations, we review de

novo, United States v. Guillen-Cervantes, 748 F.3d 870, 872 (9th Cir. 2014).

      Upon examination of the record, we conclude any alleged inconsistent

statements made by the Government at Stewart’s and his co-defendant’s

sentencing hearings regarding their respective culpability do not violate Stewart’s

                                           7                                     16-50093
due process rights or otherwise render his sentence procedurally unreasonable. See

Carty, 520 F.3d at 993; Thompson v. Calderon, 120 F.3d 1045, 1056 (9th Cir.

1997) (en banc), rev’d on other grounds by Calderon v. Thompson, 523 U.S. 538

(1998). Furthermore, the disparity between Stewart’s and his co-defendant’s

sentences was warranted, and Stewart’s sentence was not substantively

unreasonable. See United States v. Carter, 560 F.3d 1107, 1121 (9th Cir. 2009);

United States v. Marcial-Santiago, 447 F.3d 715, 719 (9th Cir. 2006); United

States v. Whitecotton, 142 F.3d 1194, 1200 (9th Cir. 1998).

      AFFIRMED.

                                         8                                 16-50093