Sandals v. United States

213 F. 569, 130 C.C.A. 149, 1914 U.S. App. LEXIS 1912

• Court: Court of Appeals for the Sixth Circuit
• Decided: May 5, 1914
• Docket: No. 2396
• Status: Published

Opinion

WARRINGTON, Circuit Judge

(after stating the facts as above). We are convinced that the judgment below will have to be reversed and a new trial awarded for error in the charge; but in the first place we shall dispose of several initial questions which might otherwise recur at the next hearing. *

[1] It is urged that two distinct dates are laid in each count of the indictment as the'time of the offense. This is a mistake. Counsel seem to be in doubt whether the offense charged was committed when the scheme was devised or when it was carried into execution. While defendants were entitled to be so advised of the particulars of the scheme as to enable them to prepare their defense (Foster v. United States, 178 Fed. 166, 171, 101 C. C. A. 485 [C. C. A. 6th Cir.]), yet devising the scheme was not the offense. The offense denounced by the statute was the alleged use of the post office establishment in execution of the scheme. Milby v. United States, 120 Fed. 1, 4, 57 C. C. A. 21 (C. C. A. 6th Cir.); O’Hara v. United States, 129 Fed. 551, 554, 64 C. C. A. 81 (C. C. A. 6th Cir.); Gould v. United States, 209 Fed. 730, 734, 126 C. C. A. 454 (C. C. A. 8th Cir.); Stockton v. United States, 205 Fed. 462, 466, 123 C. C. A. 530, 46 L. R. A. (N. S.) 936 (C. C. A. 7th Cir.); Lemon v. United States, 164 Fed. 953, 957, 90 C. C. A. 617 (C. C. A. 8th Cir.); Brooks v. United States, 146 Fed. 223, 226, 76 C. C. A. 581 (C. C. A. 8th Cir.).

[2] The indictment appears to have been drawn in accordance with old section 5480, Revised Statutes (U. S. Comp. St. 1901, p. 3696), and consequently was more than adequate in its allegations under section 215 as construed in United States v. Young, 232 U. S. 156, 161, 34 Sup. Ct. 303, 58 L. Ed. -.

[3] It is further claimed that defendants could not be prosecuted because the scheme is laid as of .January, 1909, and section 215 of the federal Penal Code was not enacted until January, 1910. This ignores alike the statutory inhibition existing in 1909 (section 5480), the time shown to have been consumed in developing the scheme, and the allegations charging defendants with having intended to execute it at the times they used the mails after the passage of the law. Besides, section 215 seems to contemplate, among others, a situation like this; for it provides:

“Whoever, having devised * * * any scheme * * * to defraud * * * shall, for the purpose of executing such scheme * * * place, or cause to be placed, any letter * * * in any post-office, * * * to be sent or delivered by the post-office of the United States, * * * shall be fined,” etc. 35 Stat. p. 1130.

And, mpreover, section'343 expressly authorizes the prosecution and punishment of offenses committed prior to enactment of the Penal Code “in the same manner and with the same effect as if this act had not been passed.” 35 Stat. p. 1159; Smith v. United States, 208 Fed. 131, 132, 125 C. C. A. 353 (C. C. A. 8th Cir.). It.cannot be, then, that where only the devising of the scheme occurred before the passage of the act, its execution thereafter is any the less an offense.

Enough has been said to dispose of the objection made at the opening of the trial to the introduction of any' evidence, and also of the motion made at the close of plaintiff’s evidence to direct a verdict in favor of defendants, on the ground of insufficiency of the indictment.

[4] The claim of insufficiency of evidence, also offered in support of this motion, was waived by the introduction of evidence for defendants. Gould v. United States, supra, 209 Fed. 735, 126 C. C. A. 454; Simpson v. United States, 184 Fed. 817, 820, 107 C. C. A. 89 (C. C. A. 8th Cir.); Leyer v. United States, 183 Fed. 102, 104, 105 C. C. A. 394 (C. C. A. 2d Cir.); Burton v. United States, 142 Fed. 57, 59, 73 C. C. A. 243 (C. C. A. 8th Cir.). The motion made at the close of all the evidence, that the defendants be discharged and the case dismissed for insufficiency of evidence, was rightly denied. And, since the evidence to be adduced at the next hearing may differ from that offered at the last trial, we content ourselves with saying that the present record required submission of the case to the jury.

[5] We are thus brought to a consideration of the charge of the court. The complaint of counsel for defendants is in effect that portions of the instructions respecting some of the facts, and also the conduct of persons not on trial, were such as to prevent the jury from exercising a free and independent judgment. This may be better understood in connection with a brief statement of the position taken by defendants at the trial and some portions of the charge to which the complaint relates. The defense and the claim of defendants, as well as the tendency of proofs they offered through their own testimony and that of others, including correspondence, contracts, and the like, were in substance a denial of fraudulent intent, and, on the contrary, an insistence of good faith, in every transaction alleged in the indictment and shown in the evidence; that prior to the date of the alleged scheme to defraud they had arranged to secure certain oil property, first by option and later by lease, which they had good reason to believe was productive and profitable; that, while they had been the victims of fraudulent representation in the beginning, they were successful in rectifying the mistake through leases of other properties of oil-bearing qualities, parts of which had been and were producing oil in large quantities; that the Sterling Oil Company was organized with a directory comprising men’of good repute, who, with knowledge of the situation, concurred in the views and opinions of defendants; that the company issued stock in large quantities, and defendants, as its financial agents, sold shares at varying prices and aggregating a sum of several hundred thousand dollars; that this was applied toward the payment of purchase prices of property, drilling of wells, and equipment for producing oil, and necessary1 operating expenses, including expenses of defendants; that the total dividends paid were less than the net earnings; and that if defendants had been permitted t'o continue the business the persons to whom they had sold the stock would have made large profits.

It is not intended to intimate what weight in the end should have been accorded to the evidence offered either by the government in support of the indictment or by the defendants to sustain the position taken by them. It is neither proper nor necessary to do so in considering the present question.- The ultimate issue of fact was whether defendants were actuated by an intent to defraud when using the mails (Harrison v. United States, 200 Fed. 662, 665, 666, 119 C. C. A. 78 [C. C. A. 6th Cir.]); and this was to be resolved by the jury through an unfettered consideration of all the admissible facts and circumstances, under appropriate instructions of the court. Since the charge of an intent to defraud was met by a claim of good faith, the question is whether, in practical effect, any of the portions of the charge complained of operated to prevent the jury, even when considering the charge as a whole, from exercising a free and independent judgment touching the element of good faith. We quote the following portions:

“Now, gentlemen, this fact stands out in this case beyond all question, that the business in which they [defendants] were engaged did operate as a fraud upon those who bought oil stock. There can be no gainsaying that. There is no use for the jury to spend very much time upon that proposition, because as we look back on it, and in the clear light that time and reflection affords us, we can see that whoever bought this oil stock at the prices [at which] they were obtaining it, and upon which it was sold generally in the market, was bound to lose his money. * * *

“ * * *' Now, I have said that this scheme was bound to work a loss. There is no question about that. It was bound to fail.”

After describing by illustration what would and what would not justify the payment of dividends, it was said:

“ * * * These dividends, declared monthly, were, under the most favorable circumstances, more than twice what anything justified under any sort of business consideration should be declared.”

Later it was said:

“Gentlemen of the jury, I do not know, if I had my choice, whether I would prefer to be the defendants in this case, or some of those so-called directors of the Sterling Oil Company. Dividends could only lawfully be declared by the directors of the Sterling Oil Company. Sandals and Griffin had no right to say what the dividends should be, and I only wish that I had some of these smug directors here in such a shape as that they might understand and the public might understand the contemptible position in which they stand. _ I can’t see, for my part, any great difference between a man who accepts a bribe directly and a man who takes a bunch of stock in a corporation like this for a few cents on the dollar—one-tenth or one-twentieth of what his neighbors are paying for it—and permits his neighbors to buy it at an exaggerated price on the strength of his standing in the community; a man who then sits back and permits a thing like this to go on year in and year out, and accepts dividends on such a basis and on such an arbitrary declaration as dividends were provided here. But, gentlemen of the jury, those-smug gentlemen are not on trial, and Sandals and Griffin cannot hide themselves in this case behind their skirts. They must stand or fall by what they did, and because the directors or the president of this corporation failed to get together for 13 or 14 -months, and permitted Sandals and Griffin to manage these affairs under the name of the Sterling Oil Company, is no defense at all, and does not make the declaration of these dividends a formal declaration by the corporation known as the Sterling Oil Company.”

We cannot repress the feeling that these portions of the charge operated to eliminate the question of good faith. The solution of that question was riot to be found in retrospection; most men are wise after the fact. Expressions coming from the court to the effect that, looking back at the transactions, “this scheme was bound to work a loss, * * * was bound to fail,” were calculated to charge defendants with a degree of foresight, when entering upon and carrying out their enterprise, which was inconsistent with an honest belief in éither its merits or success, even though such belief might in truth have existed.

[6] A man may be visionary in his plans and believe that they'will succeed, and yet, in spite of their ultimate failure, be incapable of committing conscious fraud. Human credulity may include among its victims even the supposed impostor. If the men accused in the instant case really entertained the conviction throughout that the oil properties and the stock in dispute • possessed merits corresponding with their representations, they did not commit the offense charged. As Mr. Justice Brewer said in Durland v. United States, 161 U. S. 306, 313, 16 Sup. Ct. 508, 511 (40 L. Ed. 709):

“The significant fact is tbe intent and purpose. The question presented by this indictment to the jury was not, as counsel insist, whether the business scheme suggested in this bond was practicable or not. If the testimony had shown that this Provident Company, and the defendant, as its president, had entered in good faith upon that business, believing that out of the moneys received they could by investment or otherwise make enough to justify the promised returns, no conviction could be sustained, no matter how visionary might seem the scheme.”

In Rudd v. United States, 173 Fed. 912, 913, 97 C. C. A. 462, 463 (C. C. A. 8th Cir.), the scheme to defraud and the circulars sent through the mails to promote it concerned a machine designed as an attachment to a pump for lifting water, which was shown to be “contrary to well-known fundamental physical laws.” In respect of the defense of honest belief in the efficiency of the machine, Judge Hook said:

“The main defense was that, though the machine may have been impracticable, the accused honestly believed in Its efficiency, and that what he did was without intent to defraud. Of course, if this was so, there was no violation of the law which was designed to prevent the use of the post office in intentional efforts to despoil.”

See, also, Horn v. United States, 182 Fed. 721, 105 C. C. A. 163 (C. C. A. 8th Cir.) page 737 of majority opinion, and page 740 of Judge Sanborn’s dissenting opinion.

[7] We also think the defense of good faith was further restricted by the statement that the monthly dividends were “more than twice what anything justified under any sort of business consideration should be declared”; and when there k added to this the statement, above quoted, respecting the directors of the Sterling Oil Company, the error assigned becomes manifest. The directors were not on trial; we do not recall any suggestion that they had even been indicted; and still the clear tendency of the language employed in respect of their conduct is that under an appropriate charge they would have been defenseless. True, this statement appears to have been made in regard to an effort of the accused to aid their defense through the showing made as to the conduct and character of the directors; but, after discrediting the directors as shown, the inevitable effect of the statement that the defendants could not “hide themselves in this case behind their [the directors’] skirts” was to restrain and embarrass the jrfry in the exercise of its own judgment. What remained either to be said or considered touching the question of defendants’ good faith?

[8] It should be observed that the learned judge in substance disclaimed any purpose to control the jury by the remarks complained of, and measurably qualified them by explaining and directing attention to the essential issues; but we cannot believe that the influence of positive and emphatic statements like these can be effectively removed by explanation. Rudd v. United States, supra, 173 Fed. 914, 97 C. C. A. 462. , The jury is naturally sensitive to the court’s expressions of opinion concerning the issues of fact in any case (Starr v. United States, 153 U. S. 614, 625, 626, 14 Sup. Ct. 919, 923 [38 L. Ed. 841] ; and while it is true that ordinarily in the federal courts a trial judge’s “expression of opinion upon the facts is not reviewable upon error,” yet, as Mr. Chief Justice Fuller said in that case when reversing the judgment for error in the charge:

“But he should take care to separate the law from the facts, and to leave the latter in unequivocal terms to the judgment of the jury as their true and peculiar province.”

See, also, Hickory v. United States, 160 U. S. 408, 424, 425, 16 Sup. Ct. 327, 40 L. Ed. 474 (opinion by the present Mr. Chief Justice White); Mullen v. United States, 106 Fed. 892, 895, 46 C. C. A. 22 (C. C. A. 6th Cir., opinion by the present Mr. Justice Day); Rudd v. United States, supra; Foster v. United States, 188 Fed. 305, 308, 310, 110 C. C. A. 283 (C. C. A. 4th Cir.).

The following language of Judge Hook in the Rudd Case, supra, 173 Fed. 914, 97 C. C. A. 464, has our approval:

“We do not mean to impair in any degree the right of a trial court m both civil and criminal cases to comment upon the facts, to express its opinion upon them, and to sum up the evidence, for that is one of the most valuable features of the practice in the counts of the United States. A judge should not be a mere automatic oracle of the law, but a living participant in the trial, and so far as the limitations of his position permit should see that justice is done. But his comments upon the facts should be judicial and dispassionate, and so carefully guarded that the jurors, who are the triers of them, may be left free to exercise their independent judgment.”

It should be stated that, if the scheme here involved was not in fact devised and executed in good faith, the defense should fail; but the true remedy for the error found is a new trial.

The judgment is accordingly reversed, with direction that retrial be awarded.