United States v. Johnny Phillips

872 F.3d 803, 2017 FED App. 0230P, 2017 WL 4508597, 2017 U.S. App. LEXIS 19759
CourtCourt of Appeals for the Sixth Circuit
DecidedOctober 10, 2017
Docket16-6667
StatusPublished
Cited by9 cases

This text of 872 F.3d 803 (United States v. Johnny Phillips) is published on Counsel Stack Legal Research, covering Court of Appeals for the Sixth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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United States v. Johnny Phillips, 872 F.3d 803, 2017 FED App. 0230P, 2017 WL 4508597, 2017 U.S. App. LEXIS 19759 (6th Cir. 2017).

Opinion

OPINION

SUTTON, Circuit Judge.

Johnny Phillips makes his living as a “land man.” Land men scout rural property for coal mining potential and negotiate leases with the landowners to mine it. When the government found out that Phillips performed work for New Century Coal, a company that swindled millions of dollars from investors, it charged him with several crimes. A jury convicted him of conspiracy to commit mail and wire fraud. We affirm.

I.

Blue gem coal burns hotter and cleaner than traditional thermal coal, making it useful for producing silicon, a critical ingredient of computer chips and solar panels. Federal and state environmental regulations make it difficult to mine, however, and demand for the coal outstrips its supply as a result. Blue gem coal commands premium prices.

New Century Coal advertised itself as one of the largest blue gem coal companies in the country. Not only did it purport to own land with valuable deposits of blue gem coal, it also claimed to have the. much sought after permits to mine it. The company had little trouble convincing individuals to invest in it.

As it turns out, New Century Coal did not possess a lot of the land and permits it claimed to have. By the time law enforcement caught on, the company had swindled more than $14 million from more than 160 investors.

The government accused twelve people of being in on the scheme. Most of them, including the mastermind, Brian Rose, pleaded guilty. Only Johnny Phillips went to trial. The government charged him with three crimes: conspiring to commit mail and wire fraud, conspiring to launder money, and laundering money.

The government’s case against Phillips consisted mainly of the testimony of several conspirators, some investors, and a government investigator. Evidence showed that Phillips, in his role as a land man, helped Rose, a NASCAR driver with little experience in the coal industry, identify land with coal-mining potential. He introduced Rose to a property dubbed “Thacklight,” which New Century Coal eventually pitched to unwitting investors despite never owning the rights to mine it. R. 584 at 118-22. And he introduced Rose to the benefits of blue gem coal, which New Century Coal eventually claimed to mine.

The evidence portrayed Phillips as a coal-industry expert who helped New Century Coal convince investors that it was legitimate. The testimony placed Phillips at a pitch meeting in Missouri where Rose and two other New Century Coal representatives (Ray Spears and Bobby McGregor) used fake names. One investor at the meeting testified that he never would have invested in Thacklight without Phillips’ presence at the meeting and the expertise he conveyed.

Phillips testified in his own defense, claiming to be more gullible than the investors. He had no idea, he said, that the company defrauded investors. He was not aware, he said, that the company never secured the rights to mine Thacklight, which he helped pitch to investors. And he found nothing suspicious, he said, about Rose, Spears, and McGregor’s use of fake names.

The jury convicted Phillips of conspiracy to commit mail and wire fraud but acquitted him of the two money-laundering charges. The judge sentenced him to 30 months in prison.

II.

Sufficiency of the evidence. To convict Phillips on the conspiracy count, the government needed to prove that Phillips knowingly joined an agreement to commit mail and wire fraud and that a party to the agreement took an overt act in support of it. United States v. Smith, 749 F.3d 465, 477 (6th Cir. 2014). Phillips has nothing to say about some of these requirements. He does not challenge the proof showing he knowingly joined an agreement to commit fraud, and he does not challenge the proof showing that at least one person committed an overt act in furtherance of the conspiracy.

He focuses instead on the government’s alleged failure to produce sufficient evidence that he “said something materially false” to investors. Appellant’s Br. 36-37. According to Phillips, the government’s theory at trial “was that Phillips was guilty of the charged crimes” because he “fail[ed] to disclose” that some members of New Century Coal used “fake” names when meeting with investors. Id. at 37. And because failing to disclose the use of fake names is not a “material misrepresentation,” the government failed to prove its ease. Id. at 39-40.

But this argument knocks on the wrong door. Whether Phillips made a “material misrepresentation” to investors is an element of the underlying substantive offense of fraud. See Neder v. United States, 527 U.S. 1, 25, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999). The government need not prove the elements of fraud to convict Phillips of conspiracy. “It is elementary that a conspiracy may exist and be punished whether or not the substantive crime ensues.” Salinas v. United States, 522 U.S. 52, 65, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997). And it is equally elementary that “[a] conspiracy may exist even if a conspirator does not agree to commit or facilitate each and every part of the substantive offense.” Id. at 63, 118 S.Ct. 469. Even Phillips concedes that there was a conspiracy to defraud investors.

The only pertinent question, then, was whether Phillips was in on the scheme. The government did not need to show that Phillips made material misstatements to prove that.

That’s the lesson of United States v. Washington, 715 F.3d 975 (6th Cir. 2018). A jury convicted the defendant of conspiracy to commit program fraud. She challenged the verdict on the ground that the government failed to prove that she “embezzled, stole or fraudulently obtained property,” an element of the underlying substantive offense of program fraud. Id. at 979. In rejecting the argument, Washington explained that the government did not need to prove the elements of the fraud to convict the defendant of conspiracy to commit the fraud. Id. at 980. It was enough for the government to prove that the defendant knowingly and voluntarily joined an agreement to defraud and that a member of the conspiracy took an overt act in furtherance of it. Id. The same conclusion applies here.

For what it is worth, that is not Phillips’ only problem. Even if the government were required to prove that Phillips made a material representation, there was sufficient evidence—beyond Phillips’ failure to inform the investors of the fake names—that he did. Rose testified that Phillips falsely told investors that he purchased coal from New Century Coal. And there’s evidence that Phillips falsely conveyed to investors that New Century Coal was ready to mine Thacklight, even though he knew that the company had not secured the leases and permits to do so. Viewing the evidence in the light most favorable to the government, a rational jury could have concluded that Phillips made material misstatements to investors. See United States v.

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872 F.3d 803, 2017 FED App. 0230P, 2017 WL 4508597, 2017 U.S. App. LEXIS 19759, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-v-johnny-phillips-ca6-2017.