United States v. Fred Fuchs and Roy D. Reagan

218 F.3d 957, 55 Fed. R. Serv. 748, 2000 Cal. Daily Op. Serv. 5479, 2000 Daily Journal DAR 7305, 2000 U.S. App. LEXIS 15606, 2000 WL 890447

• Court: Court of Appeals for the Ninth Circuit
• Decided: July 6, 2000
• Docket: 98-10173, 98-10174, 98-10214
• Status: Published

Opinions

Opinion by Judge T.G. Nelson; Dissent by Judge Graber

T.G. NELSON, Circuit Judge:

Fred Albano Fuchs and Roy Reagan appeal their convictions and sentences for conspiring to commit offenses against the laws of the United States. We have jurisdiction pursuant to 28 U.S.C. § 1291 and reverse.

I.

The United States Forest Service has traditionally relied on contracting with private parties to provide airtanker services for fighting forest fires. In the 1980s, the airtanker fleet consisted of C-119 twin engine, propeller-driven aircraft obtained from the military. After several crashes of C-119s due to structural defects, the C-119 fleet was grounded in 1987. Because the available airtanker fleet was substantially diminished, the Forest Service needed to obtain additional aircraft for use in firefighting operations.

In December 1987, Lawrence Amicarel-la, Director of Fire and Aviation Management for the Forest Service, directed defendant Fred Albano Fuchs, Deputy Director of Fire and Aviation, to send a letter to the Department of Defense (“DOD”), requesting that it cooperate with civilian contractors in obtaining military aircraft that could be converted to airtankers. Defendant Roy Reagan was a private aircraft broker representing Hemet Valley Flying Service (“Hemet Valley”), which was one of the companies that contracted with the Forest Service to provide airtankers. At a meeting on December 23, 1987, attended by both Fuchs and Reagan, the Air Force was presented with the idea of transferring Air Force C-130As to the Air Force Museum and then exchanging the C-130As with Hemet Valley’s grounded C-119s. However, at a subsequent meeting with representatives of the Air Force Museum, Air Force officials reacted negatively to the idea of conducting such an exchange.

Fuchs and Reagan later met with Mr. Duda of the General Services Administration (“GSA”) who introduced them to his assistant, Mr. Albee. Apparently, Albee suggested that exchanges be conducted without going through the Air Force Museum and instead have the Forest Service become directly involved. The Air Force would declare that the aircraft were excess property and transfer the aircraft to GSA, thereby making the aircraft available to other government agencies. Apparently, Albee stated that the government agencies that received excess aircraft were required to retain ownership of the aircraft.

Fuchs was given responsibility for coordinating the Forest Service’s exchange program. He did some research into the regulations and also obtained copies of exchange agreements that Reagan had used in previous transfers involving the military. Fuchs did not discuss the exchange program with the Forest Service Office of General Counsel. Each exchange agreement was prepared by Fuchs, who presented them to Amicarella who signed for the Forest Service. Fuchs signed as a witness.

Although the exchange agreements contained language stating that the exchange was made under authority of 41 C.F.R. § 101-46.203, the exchanges were not authorized by that regulation because the items being exchanged were not “historical items” as defined by 41 C.F.R. § 101-46.001-4, and the C-130As and P-3s that were part of the program were obtained by the Forest Service solely for the purpose of exchange, a violation of 41 C.F.R. § 101-46.202(b)(6).

The exchange agreements did not contain a bill of sale. Instead, Fuchs provided separate bills of sale to the contractors who were acquiring the C-130s and P-3s, thereby transferring title from the Government to the contractors in violation of the regulations. At trial, Fuchs admitted that he told his superiors that the transfer of ownership of the aircraft to the airtanker contractors had been approved by GSA when, in fact, GSA had not approved such transfers. Neither the Air Force personnel nor the GSA personnel involved with the exchange program were aware that ownership of the aircraft was being transferred to the contractors. Rather, they assumed that the Forest Service was retaining ownership of the aircraft.

Reagan received commissions from those contractors whom he assisted in acquiring updated aircraft. The commissions came in the form of title to four C-130s, which Reagan subsequently sold. Fuchs received flight time in the C-130s and P-3s, which he testified would cost from $2,000 to $3,000 an hour in the civilian world, but indicated that he believed the flight time was conducted for business purposes as part of his position with the Fire and Aviation Division of the Forest Service.

The exchange program was terminated in January 1990 after the Assistant General Counsel of the U.S. Department of Agriculture (“USDA”) reviewed the program and concluded that the Forest Service did not have authority to conduct the exchange program. More than six years later, on June 25, 1996, a grand jury indicted Fuchs and Reagan, charging the two men with one count of conspiring to commit offenses against the laws of the United States, a violation of 18 U.S.C. § 371, and one count of converting United States property to the use of another, a violation of 18 U.S.C. § 641.

Prior to trial, the defendants moved to dismiss on the basis of the statute of limitations. The district court denied that motion and stated, “[t]he Court will closely monitor the relevant conduct and will deal with this motion if it has merit at the time of a Rule 29 Motion.” At trial, however, the defendants did not request a statute of limitations jury instruction, and none was given.

After five weeks of trial and fifty hours of deliberation, the jury returned a verdict of guilty as to both defendants on the conspiracy count and not guilty as to the conversion count. Fuchs was sentenced to twenty-four months of imprisonment and three years of supervised release. Reagan was sentenced to thirty months of imprisonment and three years of supervised'release.

II.

The indictment was returned on June 25, 1996. The five-year general statute of limitations for noncapital offenses, see 18 U.S.C. § 3282, which applies to the conspiracy count, was tolled for 143 days from January 2,1996, to May 24,1996, while the Government sought information from the government of France. Therefore, the Government was required to show that the conspiracy continued until at least February 3, 1991, in order for the indictment to fall within the statute of limitations.

Reagan contends that Supreme Court precedent requires us to set aside the jury’s general verdict because only some of the overt acts alleged in the indictment could have occurred within the applicable statute of limitations, see Appendix to the Opinion, and the jury could have convicted on a legally inadequate ground. We agree.

First, we note that this defect in the indictment could have been cured simply by instructing the jury that it had to find that an overt act in furtherance of the conspiracy occurred within the statute of limitations. Here, however, there was no such instruction. Although defendants moved to dismiss the indictment on the ground that the statute of limitations had expired, neither defendant proposed a jury instruction regarding the statute of limitations, nor objected to the absence of such an instruction. The defendants therefore failed to object properly to the district court’s jury instructions.

“Where a defendant fails properly to object to a jury instruction or to an omission from a jury instruction, we review for plain error.” United States v. Klinger, 128 F.3d 705, 710 (9th Cir.1997). A trial court commits plain error when (1) there is error, (2) that is plain, and (3) the error affects substantial rights. See Johnson v. United States, 520 U.S. 461, 467, 117 S.Ct. 1544, 137 L.Ed.2d 718 (1997). We may exercise our discretion to notice such error, but only if the error seriously affects the fairness, integrity, or public reputation of judicial proceedings. See id.

The Supreme Court has held that when a general verdict may be based on a legally inadequate ground, such as because of a statutory time bar, the verdict should be set aside. See Yates v. United States, 354 U.S. 298, 312, 77 S.Ct. 1064, 1 L.Ed.2d 1356 (1957) overruled on other grounds, Burks v. United States, 437 U.S. 1, 98 S.Ct. 2141, 57 L.Ed.2d 1 (1978).¹ This is because:

Jurors are not generally equipped to determine whether a particular theory of conviction submitted to them is contrary to law — whether, for example, the action in question ... is time barred.... When, therefore, jurors have been left the option of relying upon a legally inadequate theory, there is no reason to think that their own intelligence and expertise will save them from that error.

Griffin v. United States, 502 U.S. 46, 59, 112 S.Ct. 466, 116 L.Ed.2d 371 (1991). Since the trial court did not instruct the jury it must find that an overt act in furtherance of the conspiracy had occurred after February 3,1991, the jury could have based its general verdict on acts alleged in the indictment that occurred outside the limitations period. Therefore, the district court erred when it failed to provide a statute of limitations instruction to the jury.

Second, the error was plain. Error is plain when it is “clear and obvious.” See United States v. Burt, 143 F.3d 1215, 1218-19 (9th Cir.1998) (reversing conviction for clear error on basis of erroneous entrapment instruction). Considering that a statute of limitations instruction is clearly required under established Supreme Court law and that the defendants had previously moved to dismiss the indictment because of statute of limitations and prose-cutorial delay, the trial court’s error was plain.

Third, the error affected substantial rights of the defendants. An error prejudices the substantial rights of a defendant when it “affeet[s] the outcome of the proceedings.” United States v. Baron, 94 F.3d 1312, 1318 (9th Cir.1996) (quoting People v. Cruz, 70 F.3d 1090, 1092 n. 2 (9th Cir.1995)). Our jurisprudence concerning convictions for engaging in a continuing criminal enterprise (“CCE”), in violation of 21 U.S.C. § 848, informs our inquiry and supports our conclusion that the defendants were prejudiced by the court’s failure to properly instruct the jury. In order to establish that a defendant is guilty of operating a CCE as defined by § 848(c), the Government must show that he engaged in a continuing series of violations of federal narcotics law. See United States v. Jerome, 942 F.2d 1328, 1330 (9th Cir.1991); see also 21 U.S.C. § 848(c). The Government must establish two elements: (1) that the “continuing series of violations were undertaken in concert with five or more other persons with respect to whom [the defendant] occupies a position of organizer, a supervisory position, or any other position of management”; and (2) that the defendant obtained substantial income or resources from the continuing series of violations. Jerome, 942 F.2d at 1330 (internal quotations omitted); 21 U.S.C. § 848(c)(2)(A)-(B).

In Jerome, the Government presented the jury with a number of people from whom the prosecution told them they could properly count in making the five-person calculation. 942 F.2d at 1331. Some of those individuals were improperly included because they were not organized, supervised or managed within the meaning of § 848(c)(2)(A). Id. We therefore held that in such cases, the district court “must give the jurors a specific unanimity instruction-that is the jurors had to be instructed that they must unanimously agree as to the identity of each of the five people [the defendant] organized, managed or supervised.” Id.

We reasoned that the district court’s failure to issue such an instruction “was highly prejudicial, with a high probability of substantially affecting the jury verdict.” Id. (emphasis added). Despite the defendant’s failure to object to the jury instructions, we held that the district court’s failure to issue the unanimity instruction constituted plain error, and thus we reversed the CCE conviction. Id.

The instant case presents a strikingly similar scenario. Of the ten overt acts alleged in the indictment, the acts that most strongly support a finding of conspiracy fell outside the statute of limitations. Just as the jury in Jerome could have found the defendant guilty based on individuals improperly included as being supervised or managed by the defendant, the jury here could have found Fuchs and Reagan guilty based on acts improperly included as part of the conspiracy because they were barred by the statute of limitations. The district court’s failure to instruct was just as “highly prejudicial” here as it was in Jerome.

Since there was “plain error,” we may exercise our discretion and reverse the defendants’ convictions if permitting the convictions to stand would result in a miscarriage of justice. See United States v. Olano, 507 U.S. 725, 736, 113 S.Ct. 1770, 123 L.Ed.2d 508 (1993). In Johnson, the Supreme Court held that it would be improper for a court of appeals to exercise its discretion to correct plain error where the evidence against the defendant on the issue erroneously explained to the jury was “overwhelming.” Johnson, 520 U.S. at 470, 117 S.Ct. 1544. There, in a perjury prosecution, the trial court had failed to instruct the jury that it must find the perjured statement was material to the grand jury investigation. Materiality was virtually uncontroverted, however, and Johnson could not present a plausible argument that her false statement was not material. See id. Thus, given that the evidence supporting materiality was “overwhelming,” the Court found no basis to conclude that the error “seriously affect[ed] the fairness, integrity or public reputation of judicial proceedings.” Id. at 469, 117 S.Ct. 1544.

Here, on the other hand, the evidence was not “overwhelming.” While there was enough evidence to support the verdict, the entire record also supports an inference that the defendants, particularly Fuchs, were not involved in an effort to defraud the Government, but were perhaps careless in dotting the administrative “i’s” they encountered. Allowing defendants’ convictions to stand, given the likelihood that the jury may not have convicted had they been properly instructed, would be a “miscarriage of justice.” Cf. United States v. Shortman, 91 F.3d 80, 82 (9th Cir.1996) (reversing conviction for plain error where trial court failed to properly instruct jury on gross negligence). We therefore reverse the defendants’ convictions.

III.

Because we reverse, we address the following claims of error in the event that there should be a retrial.

A. Prosecutorial Misconduct

Fuchs contends that the indictment was invalid because of prosecutorial misconduct in the grand jury proceedings. He alleges that the Government investigator intentionally testified falsely as to Fuchs’ conduct and role in the exchange program. The investigator testified that Fuchs had signed the exchange agreements on behalf of the Forest Service when he had actually signed as a witness. This inaccuracy was continued when the investigator presented time line charts that also indicated that Fuchs had signed for the Forest Service. Additionally, the investigator did not fully explain the timing of Fuchs’ retention of an attorney.

The district court’s determination of whether alleged prosecutorial misconduct before the grand jury requires dismissal'of an indictment is reviewed de novo. United States v. De Rosa, 783 F.2d 1401, 1404 (9th Cir.1986). “Dismissal of an indictment is considered a ‘drastic step’ and is generally disfavored as a remedy.” Guam v. Muna, 999 F.2d 397, 399 (9th Cir.1993) (quoting United States v. Rogers, 751 F.2d 1074, 1076 (9th Cir.1985)).

Fuchs provided no evidence to show that the prosecutor encouraged the investigator to testify in the manner he did or that the prosecutor acted in any intentional way to mislead the grand jury. Any inaccuracy that resulted from the investí-: gator’s statement that Fuchs signed for the Forest Service, rather than as a witness, was rendered harmless when the grand jury was presented with the exchange agreements themselves. The investigator’s statement that Fuchs was “giving” the aircraft to the contractors was not perjurious because the context in which that term was used indicates that the investigator meant “giving” to mean transferring in one instance and exchange in barter in the other instance. Finally, Fuchs’ contention that the prosecution was required to fully explain the circumstances surrounding Fuchs’ hiring of an attorney is meritless because the Government has no obligation to present evidence to the grand jury that is favorable to the accused. See United States v. Williams, 504 U.S. 36, 50-56, 112 S.Ct. 1735, 118 L.Ed.2d 352 (1992).

B. Evidentiary Rulings

1. Evidence of Benefit to the Government.

Fuchs and Reagan also appeal certain evidentiary rulings by the district court. The district court’s evidentiary rulings during trial are reviewed for abuse of discretion. See United States v. Senchenko, 133 F.3d 1153, 1158 (9th Cir.1998).

Defendants sought to present evidence that the Government received a continuing benefit from the transfer of the aircraft because the planes were being used to put out forest fires. The district court did not allow defendants to present this evidence ruling that the evidence was not relevant to the issue of whether the transfers were fraudulent at the time they occurred. When the district judge stated that the issue was whether the transfers were fraudulent and not whether there was a continuing benefit, Fuchs’ attorney agreed with the judge. The defendants were free to present evidence showing that the Government received a benefit at the time the transfers occurred, but did not do so. The district court did not abuse its discretion in determining that the issue of a continuing benefit to the Government was irrelevant and therefore inadmissible.

2. Reagan’s Tax Returns.

Reagan argues that the district court improperly admitted his tax returns that showed that he did not report as income over $400,000 he earned from selling two C-130As, which he received as a commission for arranging the transfer of aircraft to one of the private contractors. He argues the income did not need to be reported because it fell within a like exchange exception. However, there was some testimony from Reagan’s tax preparer that the income should have been reported.

Under Federal Rule of Evidence 404(b), evidence of other acts may be admissible to prove, among other things, motive, opportunity, intent, or knowledge. In order for other act evidence to be admissible, (1) the evidence must tend to prove a material issue in the case, (2) the acts must be similar to the offense charged, (3) proof of the other acts must be based upon sufficient evidence, and (4) the acts must not be too remote in time. See United States v. Montgomery, 150 F.3d 983, 1000 (9th Cir.1998).

The Government presented the tax return evidence to show that Reagan had knowledge that the exchange program was unlawful. When used to prove knowledge, “the prior act need not be similar to the charged act as long as the prior act was one which would tend to make the existence of the defendant’s knowledge more probable than it would be without the evidence.” United States v. Ramirez-Jiminez, 967 F.2d 1321, 1326 (9th Cir.1992). Proof that Reagan attempted to hide income that he received as a result of the exchange program could reasonably indicate that he knew the program was unlawful. The testimony of Reagan’s tax preparer provides sufficient evidence to show that the other act occurred. Finally, the alleged attempt to hide the income was not too remote in time from the object of the conspiracy, thus satisfying the time requirement for admissibility.

3. Audit Report.

The district court admitted an audit report of the exchange program prepared by USDA-OIG under the business records exception to the rule against hearsay, Fed.R.Evid. 803(6). The district court has wide discretion to determine whether a business record meets the trustworthiness standard of the business records exception to the rule against hearsay. See United States v. Scholl, 166 F.3d 964, 978 (9th Cir.1999). Although contested by the defendants, the record reflects that the audit report was made in the regular course of USDA-OIG’s regular activity and that it was the regular practice of USDA-OIG to prepare such a report.

The record indicates that USDA-OIG prepares audit reports, such as the one admitted at trial, whenever it suspects irregularities in a USDA program. The witness who presented the report was the individual in charge of the preparation of the report. There is nothing in the record to indicate the report lacks trustworthiness. The district court did not abuse its discretion when it admitted the audit report.

C. Instruction on Ownership of Aircraft

The defendants contend that the district court erred in instructing the jury that transfer of ownership of an airplane occurs when a valid bill of sale is signed by the previous owner and possession is taken by the new owner. We review the district court’s formulation of jury instructions for abuse of discretion. See United States v. Houser, 130 F.3d 867, 869 n. 1 (9th Cir.1997).

At trial, an attorney for the USDA, who was experienced with the Forest Service’s transfer of aircraft, testified that to transfer title to an aircraft, a bill of sale must be executed. The defendants did not present any evidence to rebut this testimony. Furthermore, in Pacific Harbor Capital, Inc. v. USDA 845 F.Supp. 1 (D.D.C.1993), the USDA claimed title to two of the C-130s that had been transferred under one of the exchange agreements written by Fuchs. The court granted Pacific Harbor summary judgment because it could trace its title through bills of sale commencing with those that had been executed by Fuchs. The bills of sale were held to be conclusive evidence that a legitimate transfer of ownership of the airplanes occurred. See id. at 4. Therefore, the district court did not err in instructing the jury concerning the transfer of ownership of an airplane.

REVERSED.

APPENDIX TO THE OPINION

The following is a summary of the overt acts that were listed in the grand jury indictment:

(a) Between on or about December 1987 and August 1989, defendant Fuchs made numerous misrepresentations regarding the manner in which government owned C-130A and P-3A aircraft were going to be provided to private airtanker operators by the Forest Service.

(b) Between on or about October 14, 1988, and August 23, 1990, defendants Reagan and Fuchs made numerous misrepresentations to a U.S. Air Force Lieutenant Colonel regarding the employment status of defendant Reagan and the ultimate disposition of C-130A aircraft which were in the process of being transferred from the Air Force to the Forest Service.

(c) On or about June 29,1989, defendant Fuchs faxed to defendant Reagan a copy of a letter from Fuchs to a third party that stated that Reagan would be representing the U.S. Forest Service in order to inspect six P-3A aircraft belonging to the Navy prior to the transfer of those aircraft from the Navy to the Forest Service.

(d) On or about July 4, 1990, defendant Fuchs “received and accepted approximately three hours of flight time in a P-3A aircraft originally exchanged from the Forest Service to [an] airtanker operator.”

(e) Between on or about April 3 and April 5, 1991, defendant Fuchs “received and accepted approximately 5.5 hours of flight time in a C-130A aircraft originally exchanged from the Forest Service to [an] airtanker operator.”

(f) On or about January 17, 1991, defendant Fuchs mailed a letter, which was signed by a third person, to defendant Reagan which indicated that the Forest Sendee was processing an exchange of aircraft between Reagan and the Forest Service.

(g) Between on or about May 24, 1988, and February 4, 1991, defendants Reagan and Fuchs arranged for the transfer of twenty-eight C-130A and P-3A aircraft from the Air Force and the Navy to the Forest Service. These aircraft were later transferred to five airtanker operators in exchange for alleged historic aircraft.

(h). On or about July 24,1992, defendant Fuchs altered an exchange agreement between the Forest Service and an airtanker operator by entering the serial numbers of three C-130A aircraft that had been exchanged with the airtanker operator three years earlier but had not been indicated on the face of the agreement, and substituting the serial number of a P-2V that had been accepted by Fuchs for the exchange of a C-130A aircraft.

(i) On or about September 30, 1992, defendant Reagan mailed a letter to the Chief of the U.S. Forest Service, requesting delivery of a C-130A aircraft from the Forest Service pursuant to an agreement between Reagan and the Forest Service.

(j) Between on or about April 3, 1989, and February 4, 1991, defendants Reagan and Fuchs “did knowingly and intentionally embezzle, steal, purloin, and convert to their own use or the use of another, property of the United States.”

1 . The dissent contends that the Supreme Court’s decision in Yates is inapplicable here. To the contrary, we believe that it directly controls. In Yates, the Supreme Court found that the court’s jury instructions improperly included an invalid object of the conspiracy. 354 U.S. at 311-12, 77 S.Ct. 1064. The overt acts that were charged in the conspiracy could have just as readily supported a valid ground as an invalid ground. See id. Because it was impossible to discern which overt acts the jury relied upon in their convic-lion, the Supreme Court reversed. It stated, "[i]n these circumstances we think the proper rule to be applied is that which requires a verdict to be set aside in cases where the verdict is supportable on one ground, but not on another, and it is impossible to tell which ground the jury selected.” Id. at 312, 77 S.Ct. 1064. Similarly, here it is impossible to discern whether valid or invalid overt acts were relied upon by the jury in convicting the defendants. Therefore, Yates dictates that the conviction be set aside.