663 F.2d 534
UNITED STATES of America, Plaintiff-Appellee,
v.
Walter L. BALLARD, James R. Clark, Ronald B. Pruitt, and
John L. Burns, Defendants-Appellants.
UNITED STATES of America, Plaintiff-Appellee,
v.
Raymond F. GRANLUND, Defendant-Appellant.
UNITED STATES of America, Plaintiff-Appellee,
v.
Walter BALLARD, Defendant-Appellant.
Nos. 79-5268, 79-5506 and 80-5752.
United States Court of Appeals,
Fifth Circuit.
Unit B
Dec. 10, 1981.
Bruce S. Rogow, Nova University Law Center, Fort Lauderdale, Fla., for Ballard.
Ellis C. McCullough, Houston, Tex., Robert C. Josefsberg, Miami, Fla., for Clark.
Olney G. Wallis, Houston, Tex., for Pruitt and Burns.
G. Ernest Caldwell, Houston, Tex., for Burns.
K. Charles Peterson, Joe H. Reynolds, James R. Leahy, Houston, Tex., Bernard C. Silver, Tampa, Fla., for Granlund.
Judy S. Rice, W. Christian Hoyer, Asst. U. S. Attys., Tampa, Fla., for plaintiff-appellee.
Appeals from the United States District Court for the Middle District of Florida.
Before MARKEY, Chief Judge, and HILL and HENDERSON, Circuit Judges.
JAMES C. HILL, Circuit Judge:
The five appellants in these consolidated cases have been convicted in jury trials of conspiracy and mail fraud violations in connection with oil transactions that occurred in 1973-74 while the Federal Emergency Petroleum Allocation Act was in effect. Briefly, we hold that the theory upon which the appellants were successfully prosecuted was incorrect as a matter of law; based upon the evidence presented, we reverse the convictions of four of the appellants and remand the case involving the remaining one.
I. The Facts
The underlying facts in these cases are rather complex, but they arise from a relatively simple situation: oil pricing laws allowed no seller to make the maximum profit a free market might have provided because a seller could not charge the highest price that a purchaser was willing to pay.
Essentially, each of the appellants worked for enterprises which bought and sold oil. In the transactions here under consideration, the appellants caused these businesses to align themselves in what has been characterized as a "daisy chain." Each sold oil, at its maximum allowable price (and profit) to another which, taking its maximum profit, sold to still another in the chain. The several enterprises each realized its maximum profit before the oil was sold to the ultimate consumer, Florida Power Company. In the complex laws and regulations then controlling the marketing of oil, none prohibited this practice. The prosecution asserts no violation of the Emergency Petroleum Allocation Act ("the Act"). If criminal conduct occurred, it was the commission of mail fraud and conspiracy to do so.
Florida Power Corporation ("FPC"), the buyer at the end of the daisy chain, is a large electric utility company. Though its basic fuel for generating electricity had been number six oil, FPC had begun to use number two oil in late 1972 or early 1973. During 1973, FPC's demand for number two oil increased greatly, and its demand problem was exacerbated by the widespread oil shortage. Under the Act, which dictated that certain amounts of oil be sold on an historical basis, FPC was assured of only ten percent of its number two requirements. Unable to fulfill its needs through the supply assured by long-term contracts, FPC was forced to buy oil in the spot market.
Appellant Ray Granlund, apparently the master-mind and executioner of the daisy-chain scheme, was a consultant employed by FPC to assist in its search for oil. Angel P. Perez, who had been President and Chief Executive Officer of FPC until his retirement in 1973, had negotiated the original FPC-Granlund consulting agreement in 1971. The contract had been renewed annually after 1971 and was in effect during the resale scheme.
During 1973 and 1974, Willard Simonds was the fuel manager of FPC and had the primary responsibility for negotiating purchases of all its fuel. Whenever Granlund located a supply of oil, he would call Simonds and tell him the available quantity and price. When Simonds could not obtain needed oil on the spot market at a better price, he would discuss the Granlund offers with Richard Raymond, who was the vice-president of FPC in charge of fuel acquisition and Simond's direct supervisor. Though Simonds often accepted offers relayed by Granlund, he did reject offers on several occasions.
Both prior to and during his employment by FPC, Granlund also worked as a consultant for a subsidiary of Signal Oil and Gas Company ("Signal"). Granlund sought buyers of oil for Signal and reported to appellant Walter Ballard, an executive vice-president in charge of marketing. FPC knew when it hired Granlund that he was a consultant with Signal, and Signal knew Granlund was consulting with other companies.
Over the years preceding the Act, including 1973, Signal had purchased oil from Charter International Oil Company ("Charter")-a subsidiary of Charter Oil Company-under a private contract. When the allocation program went into effect in June of 1973, Charter was obligated to sell a certain portion of its oil to Signal based on these historical sales.
Appellant John L. Burns was the Executive Vice-President of Supply and Distribution with Charter and was responsible for, among other things, selling number two oil. Though Charter officials did not know it, Burns also owned stock in Larcon Petroleum Corporation ("Larcon"), an oil marketing company which sometimes bought and sold oil with Charter. Apparently, Burns was not in a policy-setting position with Larcon, but appellant James R. Clark served as Larcon's President during 1973 and 1974. Appellant Granlund also dealt with Larcon and was paid commissions on oil transactions that he brought in. The evidence indicated that Larcon was nearly defunct before it participated in the daisy-chaining.
Appellant Ronald B. Pruitt, a lawyer, assisted Larcon in legal and financial matters. Pruitt also owned part of Matrix Properties ("Matrix"), a corporation originally formed by J. Godfrey and Pruitt in the spring of 1973 to deal in real estate and oil. Burns, Pruitt and Clark were investors in some of the real estate partnerships handled by Matrix, though Burns and Clark were never officers, employees, or shareholders of Matrix itself. Pruitt, who was in charge of Matrix's oil deals, had the profits from all such deals transferred to the Pruitt and Monshaugen ("P & M") trust account, a bank account containing funds held in trust by attorneys Pruitt and Monshaugen. The P & M funds also contained commissions paid by Larcon.
The scheme which involved all of the appellants or their employers was first manifested in April of 1973, when Granlund told Perez and Raymond that he saw an opportunity to make some money in the oil business and that he wanted a letter from FPC authorizing him to accept commissions from oil suppliers that would sell to FPC. Perez told Raymond to compose the letter and to get the necessary approval from the FPC legal department. At some point, Granlund told Perez and Raymond that he would share his profits with them. During September 1973 the letter authorizing Granlund to accept commissions from suppliers was prepared by Raymond, transmitted through FPC's legal department and routed to both the general counsel and the president of FPC. The approved letter, sent to Granlund on September 19, 1973, provided as follows:
Pursuant to our consulting agreement with you dated March 2, 1973, and Mr. Perez's and my conversations with you in St. Petersburg on April 23, 1973, it is now recognized that Florida Power Corporation's requirements for petroleum products greatly exceed our previous estimates, and because of the U.S. energy shortage with the resulting tightness of product, more time and work will be required to locate sources of supply to meet our increased requirements.
We recognize that you are under contract to Petroleum Heat and Power, a Signal Oil Company subsidiary, and your first obligation is to them.
It is therefore agreed that after you have fulfilled your obligations to Petrol, you will continue to use your best efforts to locate additional products for Florida Power Corporation. You will submit all offers of supply with costs to our fuel department for its first refusal and/or acceptance. We further confirm that you may accept compensation from supplying companies without creating a conflict of interest under our consulting agreement with you. (emphasis added).
Two subsequent letters to Granlund dated February 19, 1974, and March 6, 1975, reiterated the terms of the original commission authorization.
This prosecution centers on oil transactions that occurred after Granlund had received FPC's authorization to receive commissions from suppliers. At trial the government established a series of oil sales involving the business entities that have been discussed. The basic flow of oil (along with the appellants related to the businesses) was established as follows: Charter (Burns) to Signal (Ballard) to Matrix (Pruitt) to Larcon (Clark and Burns) to FPC. Also included in the transactions in this case were sales to Florida Power by Tauber Oil Company ("Tauber"), Mitsui, and Reidy International Oil Company ("Reidy").
Granlund received a commission from his supplier on each of the spot purchases by FPC. Commissions were paid to Granlund individually by Matrix; Larcon, Tauber, and Reidy paid both Granlund and Rotary Oil, a company owned by Granlund. The commissions paid by Larcon and Matrix represented fifty percent of their profits, and commissions to Granlund or Rotary from all these sources totalled $2,331,968.10.
The government has attempted to connect the appellants to the daisy-chaining scheme primarily by virtue of payments which they received from the legitimate profits realized in the oil transactions. The first payment was made on October 30, 1973, when Granlund met with Perez and Raymond at a restaurant, gave each of them an envelope of money, and said, "we have sold some oil and made some money, and this is for you."
During 1974 and 1975, Perez received checks from Granlund totalling $193,255.37; each check was received through the mail. Perez remained on FPC's Board of Directors until March 1977 and did not disclose to them that he had received the money. Ballard also received checks from Granlund for $193,255.37 from the transactions involved in this case. He was not expressly authorized by Signal to receive compensation from a source other than Signal. All fifty transactions set forth in the indictment resulted in payments to Ballard and Perez and all the payments were made from Rotary Oil funds.
An account in the P & M trust ledgered as the "number two deal" included $270,000 of profit attributable to Matrix's and Larcon's transactions in this case. That income was divided among Burns, Clark, and Pruitt and Monshaugen when an accountant reconciled the P & M trust account for 1973, 1974, and 1975.
Though the dispersal of Matrix and Larcon profits through Granlund to Ballard and Burns would appear to have insured that the flow of oil would be routed through the daisy-chain, there was no direct evidence that Granlund received any favorable treatment from FPC, Perez, Ballard, Signal, Burns, or Charter in return for the money which he paid. Furthermore, it appears that Signal and Charter received the maximum price allowable under federal regulations and that FPC ultimately purchased the oil at a reasonable spot market price despite the intermediate transactions of the daisy-chaining scheme.
II. The Theory of Fraud Alleged
The appellants were all convicted on six counts of mail fraud under 18 U.S.C. § 1341 and one count of conspiracy related to that mail fraud. The indictment charged that the mails were used in a fraudulent scheme in which the appellants combined and conspired to deprive Charter, Signal, and FPC of their employees' honest and faithful services. It set forth several alleged breaches of fiduciary duty-by Granlund, Perez, Raymond, Ballard, and Burns-that were purported to constitute part of the fraudulent scheme.
The indictment reflects the theory of fraud upon which the government proceeded in this case. In essence, the government has urged that the mail fraud statute is violated whenever the mail is used to further a scheme in which an employee intentionally breaches a fiduciary duty of honesty or loyalty to an employer by accepting kickbacks. In each of these cases, the trial court's charge to the jury embodied the government's theory.
III. The Existence of Mail Fraud
Our review of the appellants' convictions has required that we determine the standard for finding mail fraud in a context which the Fifth Circuit has previously had no opportunity to assess. Many other cases have already established the general proposition that fraudulent schemes designed to cause losses of an intangible nature may violate the mail fraud statute. See, e. g., United States v. Bohunus, 628 F.2d 1167 (9th Cir. 1980); United States v. States, 488 F.2d 761, 764-66 (8th Cir. 1973), cert. denied, 417 U.S. 909, 950, 94 S.Ct. 2605, 3078, 41 L.Ed.2d 212, 671 (1974). Under the facts of this case, though, we find that the government's theory sweeps too broadly and does not correctly reflect the quality and quantity of fraud necessary to invoke the criminal sanctions of § 1341. All fiduciary breaches, it seems, could be found to involve the loss of an intangible-an employee's faithful and honest services. But, as the Seventh Circuit has stated, "(n)ot every breach of fiduciary duty works a criminal fraud." United States v. George, 477 F.2d 508, 512 (7th Cir. 1973). We believe that a breach of fiduciary duty can constitute an illegal fraud under § 1341 only when there is some detriment to the employer. The possible detriment here is that one of the alleged deprivations of an employee's faithful and honest services may have involved a violation of the employee's duty to disclose material information to the employer. See generally, e. g., United States v. Von Barta, 635 F.2d 999, 1006 (2d Cir. 1980); United States v. Bush, 522 F.2d 641, 648 (7th Cir. 1975), cert. denied, 424 U.S. 977, 96 S.Ct. 1484, 47 L.Ed.2d 748 (1976). Our focus shall thus be on the duty to disclose, which may be imposed by state or federal statute or may arise from the employment relationship itself, United States v. Von Barta, 635 F.2d at 1007, and on materiality, which exists whenever an employee has reason to believe the information would lead a reasonable employer to change its business conduct.
In the case before us, four of the alleged conspirators were charged with breaching fiduciary duties to their employers, and the government has maintained that at least one of the breaches was sufficient to invoke the mail fraud statute. We turn to the allegations against each of the four to determine whether, under the proper standard for mail fraud, a jury could reasonably conclude that the evidence, viewed in the light most favorable to the government, leaves no reasonable doubt as to guilt.
Appellant Ballard, it has been alleged, breached his fiduciary duty to Signal by concealing his knowledge and share of the profits made by Granlund. Even if that is true, however, the breach could not be the basis for a mail fraud. Signal was obtaining the maximum profit that it could make under the Act because it was selling the number two oil in these transactions at the highest allowable price. In the normal, non-regulatory course of business, Signal would have been able to raise its price to capture the profits made on the intermediate transactions. Here, though, that increase in prices would have violated the law. The government has urged that the concealment by Ballard was material nonetheless because Signal might have desired to sell directly to FPC during this period of shortage to gain favor with that customer for the future. The evidence is simply insufficient to support that conjecture. The alleged concealment from Signal was not material even if it occurred.
The indictment similarly charges that Burns breached his fiduciary duty to Charter by concealing his knowledge and share of the profits generated by the scheme. Under the peculiar circumstances present here, the transfer of oil from Charter to Signal in the amounts transferred and at the price paid would have been unaffected by his disclosure. Charter was required, by the allocation scheme based on historical sales, to sell oil to Signal; moreover, Signal paid Charter the full price allowable under the regulations. Any concealment by Burns did not involve material information; there is no evidence showing that Charter, as a reasonable employer, would have changed its course of dealing if it had known of the scheme.
The indictment charges that appellant Granlund breached his fiduciary duty to FPC and Signal "by, among other things, concealing his knowledge and share of profits generated by raising the price of oil he located." Any breach of duty to Signal could not involve material information for the same reasons that Ballard's alleged breach could not. Granlund's duty to FPC, however, must be evaluated under the special instructions that were contained in the letter authorizing his acceptance of commissions. See United States v. Von Barta, 635 F.2d at 1007 (evaluating Von Barta's duty of disclosure under the special circumstances there). One such special instruction was, "You will submit all offers of supply with costs to our fuel department for its first refusal and/or acceptance." Given this additional fact, a jury could conclude that Granlund had committed fraud upon FPC by concealing the intermediate transactions in the daisy-chaining scheme. In effect, he would have been fraudulently misrepresenting that FPC was being given a right of first refusal when, in fact, Granlund was seeing to it that others were given the first opportunity to purchase-and resell-the oil.
We have looked to see if the evidence could have made out such deceit and we have found that it could. Granlund had informed Simonds, the fuel acquisition manager for FPC, that purchases had to go through a broker because the refiners would not sell small quantities directly to users. Even if Granlund's statement was true on its face, it may have concealed the extra resellers that had been imposed in the daisy-chain.
The undisclosed information would have been material if, with that information, FPC had been able to purchase the oil at a significantly lower price. A jury might properly make that finding. Consequently, the alleged deprivation of Granlund's faithful and honest services could be within the scope of the mail fraud statute.
Angel P. Perez, by receiving money and concealing Granlund's scheme from FPC, also may have acted in a manner which would constitute a fiduciary duty fraud violation of § 1341. Though the substantive charges against him were dropped, the government, in the appellants' trials, adduced evidence supporting the indictment's charges.
IV. The Charges of Conspiracy and Aiding and Abetting
Though the actions of Ballard and Burns (as principals) would not have supported a conviction of mail fraud, their activities-as well as those of Pruitt and Clark-could theoretically have been found to have been in support of the fraud by either Granlund or Perez. Therefore, if the indictment's charges were supported by the evidence, the appellants other than Granlund could have been convicted of aiding and abetting a principal as well as conspiring in a scheme to perpetuate a fraud upon FPC.
"(I)n order for a person to aid and abet another in the commission of a crime, it is necessary that he associate himself with the unlawful venture; that he participate in it with the desire of accomplishment and that he seek to make it succeed by his actions." Moore v. United States, 356 F.2d 39, 43 (5th Cir. 1966). Similarly, one of the elements that must be proven to sustain a conspiracy verdict is "the existence of an agreement ... to combine efforts to accomplish an illegal purpose (or to use illegal means to accomplish a legal purpose) ...." United States v. Crockett, 534 F.2d 589, 593 (5th Cir. 1976). "The conspirator must knowingly agree to join others to bring about a common goal." United States v. Middlebrooks, 618 F.2d 273, 278 (5th Cir. 1980). Because a conspiratorial agreement is often reached in secrecy, the existence of the agreement or common purpose may be inferred from relevant and competent circumstantial evidence, United States v. Crockett, 534 F.2d at 594, but the prosecution must still offer some evidence showing that the conspirators knew "the essential of the conspiracy." United States v. Alvarez, 625 F.2d 1196, 1198 (5th Cir. 1980), cert. denied, --- U.S. ----, 101 S.Ct. 2017, 68 L.Ed.2d 324 (1981).
In this case, then, the evidence in support of aiding and abetting and conspiracy must include indications that Ballard, Burns, Pruitt, and Clark knew of the particular fraud which Granlund or Perez could have committed. More specifically, in order for the other four appellants to have conspired and acted in support of a fraud by Granlund, they must have known of a special obligation on Granlund-which might be found in the letter of September 19, 1973-to provide FPC with a first refusal of oil which he located. In the absence of that obligation, the acceptance of kickbacks and concealment of the scheme here could not be considered to have been in furtherance of a mail fraud, for such conduct, though perhaps subject to criticism, would be consistent with non-fraudulent activities; the appellants could have simply been involved in a non-criminal back-scratching scheme.
Our review of the evidence reveals that there was no indication that Ballard, Burns, Pruitt, or Clark knew of any special responsibilities or obligations of Granlund to FPC. Furthermore, there is no evidence showing that they knew of payments to Perez, which might have constituted circumstantial evidence of their involvement in Granlund's scheme to defraud FPC by misrepresenting that it was receiving rights of first refusal. Similarly, because there was no evidence that they knew that some of the profits from the intermediate transactions were ultimately being used to pay Perez, they could not have properly been convicted of conspiring with Granlund or aiding and abetting his attempt to deprive FPC of Perez's faithful and honest services.
V. Conclusion
Our duty in reviewing appeals is to ascertain whether the law has been stated and applied correctly and to determine whether there is any evidentiary support for findings of fact. As our previous discussion has shown, the fulfillment of our duty in this case inevitably leads us to reverse the convictions of appellants Ballard, Burns, Pruitt and Clark. The legal theories upon which the government proceeded do not permit their convictions as principals, and no evidence supports their convictions as conspirators or aiders and abettors.
The jury could have concluded, under a correct theory of law, that Granlund perpetrated a fraud upon FPC through his own concealment or through his payments to Perez, which served to deprive FPC of the faithful and honest services of its employee in a manner that would also have led to concealment of material information. Nonetheless, we cannot allow his conviction to stand; we must reverse and remand for a new trial. Since we have rejected a large part of the government's sweeping theory, the charge to the jury was too broad and did not set forth the appropriate standard for establishing guilt under the mail fraud statute. Moreover, the jury was authorized to find Granlund guilty if the government made out facts supporting any of the criminal theories embodied in the court's charge to them. Though sufficient evidence of mail fraud and the related conspiracy may have existed, different jurors could have based guilty verdicts on differing portions of the charge; for example, some may have found his own concealment constituted a fraudulent breach, some may have found he only aided in depriving FPC of the services of Perez, and others may have improperly found he aided Burns in fraudulently breaching his fiduciary duty to Charter. Because it is impossible to determine whether all of the jurors agreed that Granlund committed one of the acts which could properly support the convictions on mail fraud and conspiracy, he was deprived of a unanimous jury verdict, and we must therefore reverse and remand for a new trial. See United States v. Gipson, 553 F.2d 453 (5th Cir. 1977).
Our disposition of these cases is in no way a condonation of the appellants' behavior. At a time when a serious national crisis had necessitated the imposition of extraordinary regulations, the appellants sought to circumvent the regulatory pricing mechanism. The appellants may have acted against the public interest, but they owed no legal duty to uphold a public trust. Though their transactions accomplished results contrary to the clear intent of the regulations, the daisy-chaining itself was not directly prohibited, and there is no crime in exploiting a lawful opportunity to make a profit. We refuse to over-extend the mail fraud statute to fill in the gaps in the regulatory scheme passed by Congress.
Judgment in Nos. 79-5268 and 80-5752 REVERSED; judgment in No. 79-5506 REVERSED and REMANDED for further proceedings.