F. Darold Windsor v. United States

384 F.2d 535, 1967 U.S. App. LEXIS 5113

• Court: Court of Appeals for the Ninth Circuit
• Decided: September 15, 1967
• Docket: 19174_1
• Status: Published

Opinions

MERRILL, Circuit Judge:

Appellant (with certain codefendants) stands convicted of mail fraud and conspiracy to commit mail fraud. 18 U.S.C. §§ 1341, 371. There is no question whatsoever of his involvement in an unsavory, high-pressure, fly-by-night scheme for the promotion of land sales. The dispute which this case presents is whether he was a party to or aware of that conduct of his codefendants which elevated this exercise in caveat emptor to the level of an outright swindle. The question upon appeal is whether the record supports his conviction.

Appellant is an attorney practicing in Portland, Oregon. In May, 1962, he drew up and filed articles of incorporation for Consolidated Homes Corp., an Oregon corporation. Two of his codefendants were among the incorporators and officers. The headquarters and mailing address was appellant’s Portland office.

Lake Coeur d’Alene is located in the panhandle of Northern Idaho, which still boasts substantial areas of untouched countryside. Upon this Eden, Consolidated Homes Corp. descended in classic confrontation of free enterprise with unguarded natural resource. Operating under the trade name of Lakeview Estates, the entrepreneurs proceeded in the following fashion:

1. A twenty-acre tract of lake view property was acquired by contract, largely on credit (one fifth cash).

2. A civil engineer was employed (on credit) to survey the property and prepare a subdivision plat for recording (which was never recorded).

3. A bulldozer operator was employed, largely on credit (three eighths cash), to rough out the roads.

4. Two Portland taxicab drivers (also codefendants) were secured to act as sales force.

5. An office was rented in Coeur d’Alene (for three months).

6. Typists were employed (largely on credit) to prepare over 12,000 bait letters with which Spokane, Washington, and nearby sections of Idaho were flooded. Appellant participated in preparing the letters which showed his Portland office as “Home Office.” The addressees (whose names had been secured from telephone directories and auto registration lists) were advised that their names had been “recommended to our advertising department” and were invited to buy an “advertising tract” of at least 60 x 132 feet for $89, and promised a warranty deed for this amount.

7. When a prospect arrived at the local office the sales force took him in hand. He was shown the $89 lots, discouragingly located in the poorest corner of the tract; was advised that the price did not include improvements, for which assessments remained to be levied; and was encouraged to buy a more desirable lot with improvements included (discussed later) priced at from $748 to $2587 (after a discount of $300 for presenting the letter), the average being about $1500, payable $89 down and $20 a month.

8. In October, 1962, less than three months after the selling campaign began, the purchasers were sent a letter advising that the subdivision was sold out; that the local office was closing; that further correspondence should be with the “Home Office” and that payment in full by November 1 would earn 10 per cent discount.

9. Shortly, an advertisement appeared in a Spokane newspaper offering the land contracts at “substantial discount.”

10. The entrepreneurs moved out and the postal inspectors, in due course, moved in.

Appellant’s connection with all of this is clear. While he remained in Portland and aloof from the activities at Coeur d’Alene, he handled the paper work — the correspondence, the contracts and such deeds as were drawn. The contracts provided :

“It is understood and agreed that there are no terms or conditions to this sale, other than those appearing in writing in this contract.”

No improvements were mentioned. When protests resulted a “rider” was added by appellant which promised water, electricity and “all-weather roads” at such time as the purchaser built a home of “approved character” on the lot. How such a home was to be built without adequate access, water or electricity is not discussed.

However, as to these details of modus operandi in which appellant participated or as to which he was apparently aware, there was no proof that promises were fraudulently made or debts fraudulently incurred. The interest of the postal inspectors was aroused by complaints relating to oral representations made by the Coeur d’Alene sales force. All customers were promised not only water and electricity, but paved roads. Many were promised asphalt roads with cement curbs, a water system with filtration plant and six-inch mains, fire hydrants, gas mains, street lights, sidewalks, removal of trees and of an old building which blocked the view. Some customers were told that contracts had already been let for some of these improvements, and some were told that the cost had already been paid. Most were simply promised completion dates ranging from the fall of 1962 to the spring of 1963. The record is clear that there never was intent to meet any of these promises.

There is nothing but speculation to connect appellant with these on-the-scene representations. His knowing participation in a scheme to defraud is an essential part of the Government’s case. Phillips v. United States, 356 F.2d 297 (9th Cir. 1965), cert. denied, Walker v. United States, 384 U.S. 952, 86 S.Ct. 1573, 16 L.Ed.2d 548 (1966). This element may be established circumstantially, but cannot be based on so-called “constructive” knowledge because of facts known to others with whom appellant was involved in this scheme. Id. at 303. A study of the record convinces us that the extent of his proved participation is as consistent with lack of knowledge as it is with knowledge. He, in fact, never went to the Coeur d’Alene site. While he ultimately received knowledge of the representations through complaints arriving at the “Home Office,” this was after the selling campaign had been concluded.¹

The Goverment, then, has failed to meet its burden of establishing the criminal intent essential to the crime of mail fraud.

Reversed.

1 . We cannot accept the chronology of events inferred by the dissent. Appellant’s acknowledgement to Postal Inspector Burnett, to which the dissenting opinion refers, occurred two years after the fact. It was established by testimony of the postal inspector with reference to notes taken by him of conversations had with appellant. The inspector testified: “There is another point here that I have quotation marks around. ‘Originally was to gravel street. I heard some people were told by salesmen that streets would be blacktopped but that was not contemplated.' ” The notes thus bear out appellant’s assertion that such representations, made on the ground, were unauthorized; but, further, in no way does it appear lohen appellant learned of this particular representation. In light of the completion dates promised, it hardly seems likely that complaints respecting lack of performance would have arrived at the home office while the selling campaign was still in progress. Complaints respecting sufficiency of the contract of sale, as a result of which the rider was added, are not spelled out and were apparently satisfied by the provisions of the rider.