United States v. Carl D. Schaefer

HASTINGS, Chief Judge

(concurring in part and dissenting in part).

I concur in that part of the majority opinion affirming defendant’s conviction ■on counts eleven and twelve.

I concur in the result reached by the ■majority in affirming defendant’s conviction on counts three and six.

I respectfully dissent from that part of the majority opinion resulting in the .reversal of defendant’s conviction on -counts one, two, seven, eight, nine and fen.

The majority reversed defendant’s conviction on counts one, two, seven, eight, nine and ten because no representations as to financial backing were made to the investors named in those counts. The crux of this holding is that the scheme extends only to those investors who felt the impact of the misrepresentations as to financial backing. The majority has split a single, integrated course of conduct into two separate courses of conduct by deciding that there were in reality two schemes — one legal, the other fraudulent. Such is not the law, and the majority cites no case in support of this particular holding.

In order for the scheme to come within the terms of the statute, it is not necessary that the victim be deceived, and the scheme to defraud may exist although no misrepresentation of fact is made. Henderson v. United States, 6 Cir., 202 F.2d 400, 404 (1953), cert. denied, 349 U.S. 920 , 75 S.Ct. 660 , 99 L.Ed. 1253 ; Bobbroff v. United States, 9 Cir., 202 F. 2d 389, 391 (1953). Furthermore, unlike common law fraud it is not necessary under the statute that any victim actually be defrauded. United States v. Sylvanus, 7 Cir., 192 F.2d 96 (1951), cert. denied, 342 U.S. 943 , 72 S.Ct. 555 , 96 L.Ed. 701 . It is not necessary to show that the entire course of the transaction was a fraud. In Stephens v. United States, 9 Cir., 41 F.2d 440 (1930), cert. denied, Spicer v. United States, 282 U.S. 880 , 51 S.Ct. 83 , 75 L.Ed. 777 , certain aspects of the defendants’ business were perfectly legal, and the defendants claimed that the mailings charged were in furtherance of the lawful aspects of their business. The court stated:

“In respect of the question whether such use of the mails was in the ‘execution’ of the ‘scheme’ to defraud, defendants’ position is, in the main, that the business conducted by them is not shown to have been wholly fraudulent, in all of its branches, and that the mailings were made in the promotion of the lawful features, or at least that the evidence fails to show any connection with those branches which were promoted by deception and false pretenses. But direct connection was not requisite. The business was a single general enterprise, and a lawful activity in the course thereof might very well have made a material contribution to the success of another activity illegitimate in its purpose or fraudulent in the means used in carrying it forward. * * * If fraudulent in important and continuing branches of its activities, the enterprise as a whole may properly be characterized as a fraudulent scheme.” Id. at 447 of 41 F.2d.

It is the clear holding of Stephens that the fraudulent aspects of an enterprise taint the entire enterprise. The majority opinion appears to be directly to the contrary when it states that “even though a scheme to defraud in the sale of securities may have been devised and have been operative on certain investors, if a sale of these same securities would be legal absent the employment of the scheme and i.f the sales to those investors in which the use of the mails are charged is not tainted by the employment of the scheme, no offense has been proved.”

*634 The majority holding reversing the conviction on these counts, without precedent, in my opinion is an unwarranted doctrine based upon a theory that runs counter to the rationale of all holdings brought to our attention. I would affirm defendant’s conviction on counts one, two, seven, eight, nine and ten.

I respectfully dissent from the majority holding that it was error to exclude the witnesses Krueger and Reed from the stand and in refusing to allow them to testify.

At the outset, it is important to examine the record relating to the exclusion order itself. At the opening of the trial and before any witnesses had testified, the court inquired: “Is there a motion to exclude?” Defendant’s counsel, Mr. Grant, replied: “Yes, your Honor.”

Pursuant to the Government’s request, Thomas Howard, a representative of the Securities and Exchange Commission, was permitted by the court to sit and participate with the Government. The court then announced in open court the following rule:

“Any and all witnesses in the case of the United States of America versus Carl D. Schaefer who are in the courtroom are asked to leave the courtroom and go to the witness room which is just back of the courtroom.”

This was a trial to the court, without the intervention of a jury. The motion to exclude the witnesses was made by defendant, not the Government.

During the trial, defendant called Krueger as a witness on his behalf. When it was brought out by defendant’s counsel that the witness had been present in the courtroom during the course of the trial when testimony was being given, the Government objected to his testifying. The witness was examined by counsel for both sides and by the court. Krueger admitted being present in court “twice” while witnesses were testifying. Government counsel stated that, “now that I know who he is,” he had seen him in the courtroom “at least three times” and “in the corridor outside of the courtroom on numerous occasions during the trial.” The record shows that the following then took place:

“The Court: The motion to exclude will be allowed.

“Mr. Grant [defendant’s counsel]: Then I assume you mean, Judge, that the objection to this witness testifying is sustained ?

“The Court: That is right. It will be sustained in that he has been present during the trial of the case.

“Mr. Grant: All right. Step down. “The Court: Step down, sir. That is all.”

Other than to make a statement during a colloquy while Krueger was on the stand that “I think the testimony he is going to give would not have been pertinent to the testimony, given by any Government witness, and that perhaps the rule shouldn’t apply,” defendant's counsel made no offer of proof, no showing as to what the witness would testify if permitted to do so; indeed, no representation of any kind as to the nature and relevancy of anything the witness might say.

The majority holds that “the error in failing to permit Krueger to testify was prejudicial as to counts four and five.” To support this finding of prejudice they say:

“The record shows with respect to counts four and five that Krueger may have been present during several conversations between defendant and Turney. It was during these conversations that defendant allegedly made false statements pertaining to the financial backing of his invention and statements regarding Turney’s authority to solicit contracts. Defendant denied he had any knowledge or reason to believe that Turney was writing anyone concerning the machine, and stated he had never authorized Turney to make representations concerning the *635 machine. It thus appears from the record that Krueger’s testimony was relevant and material because of the discrepancy in the testimony of defendant and Turney.” (Emphasis added.)

It is conceded that there is no federal appellate court case holding prejudicial error resulting from the refusal to permit witnesses to testify who disobeyed an exclusion order. There are a number of holdings that it is within the trial court’s discretion to allow a witness who has disobeyed the rule to testify. Likewise, it is well settled that it is within the discretion of the trial court whether to put such a rule into effect.

Certainly, all hands agree that either the allowance or refusal of testimony by witnesses found to be in violation of an exclusion rule lies within the sound discretion of the trial court. It is well settled that under such a discretionary rule a reviewing court will not disturb an exercise of discretion unless it finds the latitude given a trial judge to have been clearly abused with prejudicial results.

Defendant’s witnesses were excluded on his own motion. One would have to be naive indeed to believe that neither defendant nor his counsel did not know that Krueger was sitting in the courtroom or loitering in corridors in violation of the exclusion rule. Since defendant invoked the rule he had a compelling duty to see that his witnesses obeyed and to advise the court promptly of such disobedience.

It is to be noted that neither defendant nor his trial counsel ever represented to the court that they had no knowledge of Krueger’s presence in the courtroom in violation of the exclusion rule.

Assuming that defendant did not know Krueger had violated the rule when called to testify, when the Government properly questioned the propriety of his testifying, under the circumstances of this case, the defendant had a positive duty to inform the trial court concerning the nature and relevancy of the proffered testimony; if not by formal offer of proof, then at least in some informal manner. Instead, defendant merely stated that such testimony would not be pertinent to the testimony given by the Government’s witnesses.

Now, on appeal, defendant would have us search the cold record and guess what Krueger might have testified to and then guess again as to its relevancy and then hazard a finding that this was all material to defendant’s conviction. This is a tortuous route on which to find a gross abuse of discretion.

It is to be noted with commendation that the majority finds no prejudicial error in the exclusion of the witness Reed’s testimony. We, therefore, have no need to consider further the rejection of his testimony. Further, with the foregoing single exception, there was no finding of prejudicial error as to Krueger’s excluded testimony. These findings of lack of prejudicial error are based on the immateriality or irrelevancy of such pro-offered testimony or the failure to make an offer of proof. I think the court errs today in making this single exception. It is not enough to say that “Krueger may have been present during several conversations between defendant and Turney.”

This was a bench trial before an able and experienced trial judge. He could best gauge the purport of his action. We may disagree with his ruling. We may have ruled to the contrary had we sat in his place. But we may not substitute our judgment for his. We may set aside his judgment on a clear showing of gross abuse of discretion resulting in prejudicial error. I do not find that present in the record in this case. I would affirm the judgment of conviction on counts four and five.

In conclusion, I would affirm the judgment of conviction on all counts.