Petition — Johnson v. United States

FILED

AUG 25 1978

‘Ones Court, UL

i

\

IN THE

SUPREME COURT OF THE UNITED STATES —.

October Term, 1978

Noé 8 "32 p

UNITED STATES OF AMERICA,

Respondent,

vs.

GWYN J. JOHNSON and >,

Petitioner.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

FRANKLYN M. GIMBEL

Attorney for Petitioner

Gwyn J. Johnson

GIMBEL, GIMBEL & REILLY

Attorneys at Law

270 East Kilbourn Avenue

Suite 900, MGIC Plaza

Milwaukee, Wisconsin 53202

4

HAMMERSMITH-BREITHAUPT PRINTING CORP., MILWAUKEE, WIS. 53212

Page

ES ISS LS ea Oe 1

LS AIEEE LE SES Se SIS nO 1

a saictninemnecsonsneunoone 2

I ees Sen CERES 2

Nee ssscecscneseweone 2

LILES 3

Reasons for Granting The Writ ....................-..--0--0---+- 4

i. secopedtonenncse 7

Appendix

Opinion of the Court of Appeals for the Seventh

S.A 8

Order of the Court of Appeals for the Seventh

Circuit denying a rehearing in banc, dated July

a cn scensicesonsvorenccocser 13

CITATIONS

Henderson v. United States, 425 F.2d 134 (5th Cir.,

RE RAE EG OT a 6

United States v. Britzman and Rubin, 547 F.2d 380

EES ESE 4,6

United States v. Crisona, 416 F.2d 107 (2nd Cir.,

EEA SS 6

United States v. Maze, 414 US. 395, 38 L. Ed. 2d

ERS SSE ESC 3, 4,6

United States v. Powers, 467 F.2d 1089 (7th Cir.,

I Sete cial oictiahiidetnenenternervees 6

STATUTES

*18 USC 1341 ............. Nil laastawtvitbdonbhoninenee 3

SESE 2, 3, 4

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1978

No.

UNITED STATES OF AMERICA,

Respondent,

VS.

GWYN J. JOHNSON and

DANIEL ABENDROTH, d/b/a

GLOBAL INTERNATIONAL CORPORATION,

Petitioner.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Gwyn J. Johnson petitions for a Writ of Certiorari to

review the decision of the United States Court of Ap-

peals for the Seventh Circuit entered on June 2nd, 1978.

OPINION BELOW

The opinion of the Seventh Circuit Court of Appeals

dated June 2, 1978 is printed in the Appendix at pp. 8-12.

JURISDICTION

Jurisdiction is conferred upon this Court by 28 USC,

Section 1254.

2

ORDERS

The United States Court of Appeals for the Seventh

Circuit affirmed Gwyn J. Johnson’s conviction in the

Federal District Court for the Eastern District of Wis-

consin on June 2, 1978. The Defendant-Appellant, Gwyn

J. Johnson’s Petition for rehearing was denied by the

United States Court of Appeals for the Seventh Circuit

on July 24, 1978.

On August |, 1978 the Defendant-Appellant Johnson

moved the United States Court of Appeals for the Sev-

enth Circuit for its Order to Stay Mandate.

STATUTE INVOLVED

18 USC, Section 1343:

“$1343. Fraud by wire, radio or television

Whoever, having devised or intending to devise any

scheme or artifice to defraud, or for obtaining money

or property by means of false or fraudulent pre-

tenses, representations, or promises, transmits or

causes to be transmitted by means of wire, radio or

television communication in interstate or foreign

commerce, any writings, signs, signals, pictures, or

sounds for the purpose of executing such scheme

or artifice, shall be fined not more than $1,000 or im-

prisoned not more than five years, or both. Added

July 16, 1952, c. 879, §18(a), 66 Stat. 722, and

amended July 11, 1956, c. 561, 70 Stat. 523.”

QUESTIONS INVOLVED

1. Whether persons may be charged, tried, convic-

ted, and sentenced under the federal wire fraud

statute, 18 USC 1343 for breaching contracts, as-

suming arguendo, a showing of fraud in the

breach?

3

2. Does the rationale presented in the case of United

States v. Maze, 414 U.S. 395, 38 L. Ed. 26, 603

(1974) compel federal prosecutors to prove a close

connection between the use of interstate wires and

an artifice to defraud before a person may be con-

victed under the federal wire fraud statute, 18

USC 1343?

STATEMENT OF THE CASE

Gwyn J. Johnson was charged in the Eastern District

of Wisconsin with one count of mail fraud in violation

of 18 USC 1341, and one count of wire fraud in violation

of 18 USC 1343.

Johnson, d/b/a Global International Corporation was

in the business of seeking out and obtaining funding for

commercial development projects. One of Johnson’s cli-

ents was Consolidated Mine Management. This group

was seeking financing for a mining venture in the West-

ern United States. If Johnson was successful in having

the project financed, he was to receive a brokerage fee

plus royalties from the mines.

Johnson agreed to sell a percentage of his interest in

this mining venture to three businessmen. In return John-

son was to receive a $20,000.00 advance from the three

men. The money was to be used for the express purpose

of defraying certain expenses involved in Johnson’s ef-

forts to obtain financing for the mining project. A letter

was mailed to Johnson at his corporate office memorializ-

ing the agreement and the money was wired from Mil-

waukee, Wisconsin to Johnson’s bank in Neenah, Wis-

consin.

After long and extensive efforts to arrange the desired

financing for the mining venture, the deal fell through.

4

Johnson was unable to return the $20,000.00 to the three

businessmen. It was later shown at Johnson’s trial that

Johnson had breached the contract he had with the three

businessmen by using the $20,000.00 for his own personal

expenses which were incurred as a result of his efforts to

obtain funding for the mining venture. ‘he money was

not used solely for those express purposes as called for

by the letter memorializing the contract.

In a trial to the Court before the Federal District

Court for the Eastern District of Wisconsin, Johnson was

convicted of wire fraud. However, pursuant to the cases

of United States v. Maze, 414 U.S. 395, 38 L. Ed. 2d

603 (1974) and United States v. Britzeman and Rubin,

547 F.2d 380 (7th Cir. 1977), the Trial Court concluded

that the United States failed to establish a sufficient con-

nection between the use of the mails and the alleged

fraudulent scheme. Therefore a conviction under the fed-

eral mail fraud statute was not warranted.

On appeal to the United States Court of Appeals for

the Seventh Circuit, that Court affirmed the District

Court decision. The Seventh Circuit held in effect that

Johnson had misrepresented the purposes for which he

would use the $20,000.00 and that this money had been

transferred by use of wire communications. The Seventh

Circuit concluded that these facts alone were sufficient to

constitute a federal offense of wire fraud.

REASONS FOR GRANTING THE WRIT

Gwyn J. Johnson’s conviction under 18 USC 1343,

Fraud by Wire, constitutes an ill-conceived use of the

federal criminal code. The Seventh Circuit’s affirmance

of this conviction was an approval of a gross misappli-

cation of the federal wire fraud statute. If this decision

5

stands, it will be judicial authorization for the United

States Attorney’s Office to become the final arbiter of the

business relationships between private citizens. Certain-

ly, this is not a proper role for either the federal prosecu-

tors or the federal courts.

The basic facts of this go undenied. Johnson entered

into a contract wtih three other parties whereby he would

receive $20,000.00; in return the others would receive

a share of Johnson’s interest in a mining venture. The

money was subsequently transferred by wire. The min-

ing venture in which the three were to gain an interest

was legitimate. The United States in prosecuting this

case has never contended that Johnson induced his three

“victims” into investing in a worthless scheme. Further,

the trial record is replete with testimony and physical

evidence proving that Johnson made protracted efforts

to bring the contract to a fruitful conclusion. Had John-

son been successful, his three “victims” would have

shared handsomely in the profits.

Johnson’s only offense was that when he entered into

the contract with the three other parties, he allegedly

agreed to use the $20,000.00 in a specified manner. He

breached this agreement by using the money for his own

personal expenses. The Trial Court concluded that he

had misrepresented the intended use of the money, and

because the money had originally been wired, Johnson

was guilty of wire fraud.

This case stands in stark contrast to other cases tried

under the federal mail and wire fraud statutes. Usually

the offender has maintained false personal or business

identities; often the offender creates the mirage of a

sound business; falsified financial statements are used to

mislead the innocent; money is taken or received by the

<r ~

6

perpetrator who then leaves for parts unknown. See

United States v. Powers, 467 F.2d 1089 (7th Cir., 1972) ;

Henderson v. United States, 425 F.2d 134 (Sth Cir.,

1970) ; United States v. Crisona, 416 F.2d 107 (2nd Cir.,

1969).

In comparison the case at bar evidences a straightfor-

ward business transaction among four competent and

aware businessmen. Johnson never deceived anyone about

the risks involved. The persons allegedly victimized by

Johnson invested $20,000.00 in an enterprise they knew to

be ripe with hazard. Only after their money was lost did

they begin to cry “wolf”. After a lengthy federal investi-

gation, it was determined that Johnson’s single misdeed

was to spend the money in a fashion that was inconsis-

tent with the terms of the original contract. Surely, these

facts are not a sufficient foundation for federal criminal

jurisdiction. The State of Wisconsin provides ample

remedies for breach of contract and civil fraud. The in-

tervention of the Justice Department in this case is an

unfortunate example of a federal court overstepping the

proper bounds of its jurisdiction.

In addition to the foregoing argument, it is to be noted

that the Court of Appeals’ decision in this case conflicts

with the principles enunciated in United States v. Maze,

414 U.S. 395, 38 L. Ed. 2d 603 (1974). Therein this

Court held that before a person can be convicted on a

federal mail fraud charge, there must be a sufficiently

close connection between the use of the mail and the al-

leged fraud. The Seventh Circuit has acknowledged this

principle in United States v. Britzman and Rubin, 547

F.2d 380 (7th Cir., 1977). By analogy this principle

should apply to federal wire fraud cases.

In this case the Government failed to show this close

relationship. Admittedly the money was transferred by

7

wire, but was never shown that this use of the wires was

anything more than an incidental arrangement to a bona

fide business transaction.

The most significant aspect of this case, and the reason

it merits review by the Supreme Court, is the Seventh

Circuit’s failure to fashion some logical limit to the ap-

plication of the federal wire fraud statute. This decision

evidences an utter disregard for the need to distinguish

those cases which are nothing more than a breached con-

tract from those cases which are truly federal offenses.

The case of United States v. Gwyn Johnson, as it now

stands, will‘turn almost every business deal gone sour into

a federal case. It is imperative that the Supreme Court

formulate a reasonable limit on federal jurisdiction in

cases of this nature. If the Court does not do so, this case

will stand as an albatross hovering over the heads of the

federal courts and American business.

CONCLUSION

On the basis of the foregoing argument, and the rea-

sons set forth, I respectfully request that this Court grant

its Writ of Certiorari.

Respectfully submitted,

FRANKLYN M. GIMBEL

Attorney for Petitioner

8

APPENDIX

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Chicago, Illinois 60604

ARGUED MAY 25, 1978

June 2, 1978

Before

HON. ROBERT A. SPRECHER, Circuit Judge

HON. HARLINGTON WOOD, JR., Circuit Judge

HON. WILLIAM J. CAMPBELL,

Senior District Judge*

UNITED STATES OF

AMERICA, ; Appeal from the United

Plaintiff-Appellee, States District Court

No. 77-2176 vs. for the Eastern

GWYN J. JOHNSON District of Wisconsin.

d/b/a GLOBAL No. 77-CR-52

INTERNATIONAL Myron L. Gordon,

CORPORATION, Judge.

Defendant-Appellant. ‘

ORDER

The issues in this appeal are whether the district court

properly applied the federal wire fraud statute and

whether the evidence produced at trial was sufficient be-

yond a reasonable doubt to convict defendant.

I

The defendant, Gwyn M. Johnson, and his son-in-law,

Daniel Abendroth, were charged in a two-count indict-

ment with the alleged use of the mails and wire commu-

nications in furtherance of a fraudulent scheme to obtain

a $20,000 advance fee from George Whitney of Florida,

and Victor Weiss and Lawrence Lubotsky of Milwau-

kee, Wisconsin. Johnson was convicted of fraud by use

9

of wire, 18 U.S.C. §1343, and Abendroth was acquitted

of the same charge. Defendants’ motion to dismiss the

mail fraud charge, 18 U.S.C. §1341, was granted.

Whitney was seeking financing for a condominium

project. Defendant Johnson indicated to Whitney that

he might secure financing from a financing group in Lon-

don called Capital Funding. Subsequently, Johnson in-

formed Whitney that he was in the final stages of get-

ting funding for a separate project involving a mining

venture. First, however, Johnson needed to raise $20,000

to cover expenses. Whitney and two of his associates

agreed to fund the money in return for a portion of John-

son’s. interest. Weiss wired $20,000 to the bank account

of Johnson’s corporation, Global International, at the

First National Bank of Neenah, Wisconsin. Weiss also

mailed a letter to Global International setting out the

terms of the agreement. The letter was signed by Aben-

droth and returned to Weiss.

The mining project did not receive funding and the

$20,000 was not returned. It is upon these basic facts that

Johnson was convicted of wire fraud. Since defendant

challenges the sufficiency of the evidence, more details

of the transaction will be discussed subsequently. De-

fendant appeals from his conviction.

II

Defendant argues that, assuming a fraudulent scheme

existed, the Government failed to show a sufficient use

of wire communications to constitute a violation of the

wire fraud statute. Accepting that the use of interstate

wire communications must be “sufficiently closely re-

lated” to, United States v. Maze, 414 U.S. 395, 399

(1974), or “incident to an essential part of the scheme,”

Pereira v. United States, 347 U.S. 1, 8 (1954), to consti-

tute a violation of the statute, we agree with the district

court that a sufficient nexus has been shown.

10

The wire transfer of the $20,000.00 was an important

portion of the scheme. Without the wire transfer, the

scheme would have remained incomplete and therefore

was crucial to the execution of the fraud itself. In addi-

tion, the wire transfer was pursuant to the express di-

rections of the defendants (Tr. at 25). Under these cir-

cumstances, there was sufficient connection between the

use of wire communication and the frav.‘ulent scheme

to constitute a violation of the wire fraud statute.

Defendant argues further, however, that since the mail

fraud was dismissed for lack of a sufficient nexus of the

mails with the fraudulent scheme, the same result must

follow for the wire fraud charge. We disagree with the

defendant for two reasons. First the argument assumes

not only that the same standards apply under both stat-

utes, but also that the district court was correct in con-

cluding that the mail fraud charge must be dismissed. Ac-

cepting that the standards for the two statutes are the

same, we think that merely because a claim under one

was dismissed does not mean that a charge under the

other has no viability. Whether or not the mail fraud

count was sufficient is not before us and, as we have noted,

the connection between the use of wire communications

and the fraud was sufficient to violate the statute.

Second, and more fundamentally, we do not view the

use of the mails here as being nearly as important to an

essential part of the scheme as was the use of wire com-

munications. The wire transfer of the money was neces-

sary to complete the scheme whereas the only use of the

mails was a memorandum of agreement sent from Weiss

to Global International. Not only was the use of the

mails not contemplated or directed by defendant, but, as .

we shall discuss shortly, the defendant no doubt would

have preferred Weiss not to have memorialized the

agreement between the parties and not have mailed it to

defendant. Thus, the district court properly applied the

11

wire fraud statute and concluded that the use of wire

communications was sufficient to violate the-statute.

III

Defendant also challenges the sufficiency of the evi-

dence that a fraudulent scheme existed. In reviewing the

sufficiency of the evidence, we view the evidence and the

inferences reasonably drawn therefrom in a light most

favorable to the Government. Glasser v. United States,

315 U.S. 60, 80 (1942) ; United States v. Cardi, 478 F.2d

1362 (7th Cir. 1973).

The heart of the fraudulent scheme was the representa-

tion by Johnson that the money advanced would be used

only for the purpose of a geological investigation of the

mineral deposits and would be refunded if the project

fell through (Tr. at 24). This agreement was spelled

out in a letter (Government Exhibit 2) from Weiss to

Global International that stated, in part:

It is understood that these funds are to be taken in

trust by you and to be used only for the puurpose

of defraying expenses of an investigating team, being

sent here by the lender, to inspect the above men-

tioned gold mine, silver mines and mineral deposits

before final approval of lender, relating to loan ap-

plied for relating to same and for no other purposes.

The $20,000 was not kept in trust and the funds were

used immediately upon receipt for defendant’s personal

needs and expenses in total contravention of the agree-

ment. In addition, Global International, through defen-

dant’s son-in-law Abendroth, signed and returned the

written memorandum from Weiss. Throughout, defen-

dant continued to represent that the monies were being

held in escrow (Tr. at 156, 158, 159), contrary to the

12

facts. Under these circumstances, we fully agree with the

conclusion of the district court (Tr. at 395).

The fact that Globai International Corporation ap-

proved [the agreement] in writing, by signature of

Mr. Abendroth approved that condition, coupled

with the subsequent proof that again I think is irre-

sistible, that the principals of the Global Interna-

tional Corporation withdrew the funds from this

account, depleting the $20,000.00 for purposes ut-

terly variant from that reflected in the conditions of

the trust, demonstrates, in my judgment, that a

scheme to defraud was contemplated by the defen-

dant Johnson, and that the Government has met its

burden of showing the necessary fraudulent intent

and the execution of the scheme by causing Mr.

Weiss to transfer by wire the sum of $20,000.00 to

the Neenah Bank.

Therefore, for the reasons discussed above, the deci-

sion and judgment of the district court convicting defen-

dant Johnson of wire fraud is in all respects affirmed.

AFFIRMED.

13

UNITED STATES COURT OF APPEALS

; FOR THE SEVENTH CIRCUIT

Chicago, Illinois 60604

July 24, 1978

Before

HON. ROBERT A. SPRECHER, Circuit Jud

HON. HARLINGTON WOOD, JR., Circuit fudge

HON. WILLIAM J. CAMPBELL

Senior District Judge*

UNITED STATES OF

AMERICA, Appeal from the Unite

Plaintiff-A ppellee, States District Court :

No. 77-2176 vs. for the Eastern

GWYN J. JOHNSON, District of Wisconsin.

d/b/a GLOBAL No. 77-CR-52

INTERNATIONAL Myron L. Gordon

CORPORATION, Judge

Defendant-A ppellant. a

On consideration of the petition for rehearing and sug-

gestion for rehearing en banc filed in the above-entitled

cause by Defendant-Appellant, Gwyn J. Johnson, d/b/a

Global International Corporation, no judge in active

service has requested a vote thereon, and all of the judges

on the original panel have voted to d .

cordingly, o deny a rehearing. Ac

IT IS ORDERED that the aforesaid petition for re-

hearing en banc be, and the same is hereby, DENIED.

* Senior District Judge William . Campbell ars

Jane ee Dierict