Court Opinion

ID: 8869067
Source: CourtListenerOpinion
Date Created: 2022-11-26 18:17:19.678738+00
Date Added: 2024-06-11T17:06:06.633334
License: Public Domain

DIMOCK, District Judge
(dissenting).
Defendants were convicted on 24 counts charging violation of Section 1341 of Title 18 U.S.Code, the well known mail fraud statute, and on one count of conspiracy to violate it. Simply stated, the crime consists of the use of the mails in the course of a scheme to defraud. Essential to the establishment of the existence of a scheme is proof of the making of false representations of material facts and second, a state of mind of the maker at the time the representations were made consisting either of knowledge that the representations were false or a reckless disregard for their truth or falsity. With the addition of evidence of an agreement, the same proof would suffice for the conspiracy charge.
There was no dispute as to the alleged use of mails consisting of the receipt of 24 pieces. These contained checks sent *1018by 24 customers of defendant’s mail order business.
The alleged representations, insofar as they were of substance, were: first, that, upon the payment of $7, defendants would furnish, among other items, a catalog of some 700 pages and that some 20,-000 items could be purchased therefrom at “factory” prices and, second, that delivery of goods ordered and refunds to customers who chose to rescind their “memberships” would be made promptly. These statements were, of course, promissory in nature so that, standing alone, they did not qualify as statements of fact. To substantiate a charge of fraud it was necessary to imply a statement that defendants intended to carry out the promises and then prove that defendants did not in fact so intend.
With respect to the first, it was shown that, only upon payment of an added $13.75, could the 700 page catalog and the right to purchase the added 20,000 items be obtained. Defendants maintained that their promissory representations were not to the contrary.
With respect to the representation of prompt service, the prosecution offered evidence that, in a number of cases, merchandise or refunds arrived belatedly if at all. Defendants contended that poor service was merely the result of an unanticipated flood of customers. The issue, therefore, was whether defendants, at the time when the promise of good service was made, had known that such would not be forthcoming or perhaps had not even intended that it should be.
To prove the second element both of the alleged substantive crimes and of the conspiracy, i. e. that this state of mind had existed, the prosecution introduced a mass of evidence pertaining to over four thousand so-called “complaints." I shall continue to refer to such items by the word which has been universally, though to my mind unjustifiably, applied to them during the trial and in the majority opinion.
The complainers were not produced. A postal inspector and two representatives of a chamber of commerce testified to-complaints that had been received and a box full of complaints was offered and, when objected to as hearsay, left on the counsel table all during the trial pending a final withdrawal of the offer.
The only evidence as to the contents of these complaints as to which the postal inspector and the representatives of the-chamber of commerce testified was that they contained statements that deliveries, and refunds to the writers had not yet been received. I find no evidence that any of them were grounded upon misunderstanding of the promotion material’s statements as to the 20,000 factory cost, items.
Defendant Buy-Rite had 50,000 members. Up to December 31, 1961, complaints, presumably all dealing with non-receipt of deliveries or refunds, and numbering not more than 200, had been called to defendants’ attention by the chamber of commerce which had x-eceived them over the nine month period beginning in April 1961. Defendants did not thereafter send out any more of the matei'ial containing the representations complained of. There is no evidence that any advertisements published later reiterated these representations.
In spite of the cessation of mailings at the end of 1961, a chamber of commerce-executive was permitted to testify to his. subsequent sending of complaints to the-defendants. During the charge the trial court read to the jury a list recounting the weekly totals of communicated complaints totaling, for the period between Februax-y 27, 1962 and June 23, 1962, some 225. A postal inspector testified that he saw 242 complaints at defendants’ office in Bennington, Vermont, on January 12,1962 and 251 at defendants’ office in Lodi, New Jersey, on January 30, 1962. He testified that 1600 complaints had been received by the Post Office Department relative to defendant Buy-Rite and 1600 in x-elation to its affiliate, defendant Factory Supply Company. He did not furnish these 3200 items to the defendants or, so far as the record discloses, notify defendants of their contents, or *1019-even their existence. The foregoing applies with equal force to 625 complaints which the chamber of commerce executive .said that he had received over and above the 225 referred to in the charge.
Thus, of the 4000 odd complaints testified to, not more than 200 were called to defendants’ attention before they stopped making representations, some 700 more were called to their attention thereafter and the remainder, the overwhelming majority, were never called to their attention.
As evidence of the truth of their contents, these complaints were all clearly Iiearsay. The majority opinion says, however, that the inference might be drawn that continued operation despite knowledge of complaints showed the existence of a scheme to defraud.
This may possibly be true with respect to the 200 complaints received by the chamber of commerce over a 30 to 40 week period and called to the defendants’ attention from time to time during the period of mailing of promotional material. It may be that notice to defendants, from whatever source and however unreliable, that there were delays in their operations, coupled with subsequent repetition of a promise that operations would be prompt, would be admissible to suggest the existence of a reckless state of mind in the defendants at the time of the repetition of the promise. It may also be that there is a permissible inference that this reckless state of mind not only persisted into the indefinite future but existed in the indefinite past so as to meet the requirement of scienter or recklessness at the time of the earlier making of the representations. The whole of this rather flimsy structure is founded, however, on the fact that the defendants reiterated the representations after notice that they had not been acting promptly. This theory, of course, would justify the admission of only the less than 200 complaints brought to defendants’ attention in 1961 before the last reiteration of the representations.*
There is not even this basis for the admission of evidence of notice, given to defendants in 1962 after their last reiteration of the representations, by the receipt of 242 complaints in defendants’ office in Bennington, 251 complaints in Lodi and 225 complaints received by the chamber of commerce executive and sent to defendants.
The majority, however, hold that, in accepting membership fees after December 31, 1961, defendants reaffirmed what are referred to as the solicitation material’s misleading representations that $7.00 would bring the right to buy 20,000 items at factory cost. This theory necessarily proceeds upon the assumption that defendants were under a duty not to accept the membership fees. Such a duty could only arise if defendants had notice that the applicants had been misled. Though one of the defendants admitted that “some of the people who were reading the literature, didn’t fully understand, or weren’t reading all of the literature and were writing in and asking when they would receive the 700 page catalogue, so they could buy the 20,000 items at factory cost,” nothing had occurred which would oblige defendants to presume that every recipient of the promotional material had been misled into thinking that the “introduction” to the Factory Buying Plan would permit the recipient to take advantage of it without further cost. The promotional material was at worst only equivocal on that point. The fact that a representation is capable of misleading is not enough. The recipient must be misled. The sending in of $7.00 membership fees by prospects was not evidence to defendants that the senders had been misled. The admission of evidence of the approximately 700 complaints of which defendants received notice after the cessation of mailings of promotional material was therefore erroneous.
*1020Neither the court below nor the majority of this court have stopped at approving the admission of evidence of complaints brought to the attention of defendants. Evidence of 3825 complaints of which defendants never heard was admitted below, and its admission was specifically submitted to the jury by the charge and the substance of the charge submitting it approved by the majority.
At this point the majority opinion no longer ostensibly applies settled principles of law to the facts of the particular case but creates a new principle. The court holds that, in a fraud case, evidence of the extent of dissatisfaction of third persons, not proved to have been defrauded, is admissible. The Government concedes that the issue appears to be one of first impression. The courts went far in holding that, in a fraud case, evidence of other frauds committed by the defendant was admissible. I think that the majority go too far in opening the door still farther and admitting evidence of mere dissatisfaction of others with whom the defendant has done business.
It is a rare large business organization which, no matter how high its ethics, does not find it necessary to maintain a complaint department to deal with dissatisfied customers. No one would claim that the existence of a dissatisfied customer whose dissatisfaction was not based on fraud would have any logical bearing on the question whether a defendant had been guilty of fraud in another case. Yet the rule of the majority opinion admits, as proof of fraud, evidence of dissatisfaction without any proof that the dissatisfied customer was defrauded.
My brethren have introduced a new darling to the prosecutor.
The errors in the admission of evidence of complaints and of dissatisfaction and the error in the charge cannot be disregarded as not of critical importance. The inadmissible evidence of complaints and dissatisfaction may well have been the deciding factor. What was presented was a picture of a rather shabby concern which employed such devices as false names, a $7.00 fee that entitled the customer to pay $13.75 more for more discount privileges, a country address for a metropolitan enterprise, and a special reference to Dun and Bradstreet — not admirable devices but arguably within the morals of the market place. The Government’s burden was to demonstrate, in addition, a fraudulent intent. The jury could well have said, “The comparatively few instances where the prosecution presented dissatisfied customers as witnesses may all have been the result of innocent mistakes or carelessness or chance but when they add thousands more we have to rule out mistakes and carelessness and chance; the defendants must have intended to defraud people.”
The judgments of conviction appealed from should be reversed and a new trial ordered.

 An advertisement published in April 1962 did not embody a reiteration of the representations.