# Appendix — Post v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1969
- **Citation:** 393 U.S. 1092

## Text

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APPENDIX

UNITED STATES COURT OF APPRAIA
FOR THE DISTRICT OF COLUMBIA CIRCUIT

———
No. 20,861

Troy V. Post, Jz., Appellant
v.
Untrep Srares or America, Appellee

No. 20,862

Buu M. Auten, Appellant
v.
Untrep Srares or America, Appellee

No. 20,863

Leroy W. Picker, Appellant
A
Unrrep States or America, Appellee

Appeals from the United States District Court
for the District of Columbia

Decided October 15, 1968

Mr. Raymond W. Bergan, with whom Mr. Thomas R.
Dyson, Jr., was on the brief, for appellants.

Mr. Roger A, Pauley, Attorney, Department of J ustice,
of the bar of the Court of Appeals of New York, pro hac
vice, by special leave of court, with whom Messrs. David
G. Bress, United States Attorney, and Frank Q. Nebeker,

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Assistant United States Attorney, were on the brief, for
appellee. Mr. Scott R. Schoenfeld, Assistant United States
Attorney, also entered an appearance for appellee.

Before Fany, Senior Circuit Judge, and Wsicut and
Rosrinson, Circuit Judges.

Rosinson, Circuit Judge: Appellants were convicted by
a jury of conspiracy’ and maii fraud? stemming from their
activities in the promotion of Lakewood Country Club, in
the area of Rockville, Maryland, and the concomitant sale
of memberships therein. On these appeals, they allege error
in three rulings by which evidence was excluded as irrele-
vant to their efforts to show their good faith in transactions
impugned by the indictment. They also attack an instruc-
tion which defined for the jury appellants’ criminal liabili-
ties as promoters of the club. Two additional contentions

1°‘Tf two or more persons conspire either to commit any offense
against the United States, or to defraud the United States, or
agency thereof in any manner or for any porpose, and one or more
of such persons do any act to effect the object of the conspiracy,
each shall be fined not more than $10,000 or imprisoned not more
than five years, or both.’’ 18 U.S.C. § 371.

2‘*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 pretenses, representations, or promises,
or to seil, dispose of, loan, exchange, alter, give away, distribute,
supply, or furnish or procure for unlawful use any counterfeit
or spurious coin, obligation, security, or other article, or anything
represented to be or intimated or held out to be such counterfeit
or spurious article for the purpose of executing such scheme or
artifice or attempting so to do, places in any vost office or author-
ized depository for mail matter, any matter or thing whatever to
be sent or delivered by the Post Office Department, or takes or
receives therefrom, any such matter or thing, or knowingly causes
to be delivered by mail according to the direction thereon, or at
the place at which it is directed to be delivered by the person to
whom it is addressed, any such matter or thing, shall be fined not
more than $1,000 or imprisoned not more than five years, or both.’’
18 U.S.C. § 1341.

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which they advance are effectively foreclosed by decisions
rendered subsequent to their trial.*

In the summer of 1958, appellants conceived the blue-
print for a new country club to be developed in the vicinity
of Washington.‘ Locating a suitable site in 1959, they
organized four corporations through which the club was to
be established and operated,® and embarked upon the pro-
motional phase from which emanated the events giving
rise to the indictment. An advisory board, generally non-
functional, of well know citizens was organized, a sales

8’ The argument that the trial judge erred in giving the ‘‘ Allen
charge,’’ Allen v. United States, 164 U.S. 492 (1892), is frustrated
by Fulwood v. United States, 125 U.S. App. D.C. 183, 369 F. 2d
960 (1966), cert. denied 387 U.S. 934 (1967). The claim that the
indictment should have been quashed because of delay incidental
to its procurement is nullified by Tynan v. United States, 126 U.S.
App. D.C. 206, 207-09, 376 F. 2d 761, 762-64, cert. denied 389 U.S.
845 (1967), which requires prejudice—a condition the record here
negates—resulting from the delay. There is no occasion for us
to reconsider these decisions. See District of Columbia v. Grimes,
No. 21,555 (D.C. Cir. March 26, 1968) at 9-10 (concurring opinion)
and cases cited.

*Their plan, they say, was to create a golf and country club
complex which they would own and manage, and from which they
would reap all profits. Lacking experience in such matters, they
proposed to engage the necessary professional personnel to make
the project work.

5 One, Lakewood Country Club, Inc., was a nonstock nonprofit
corporation, no part of the net earnings of which could inure to
the benefit of any director or member. Its directorate consisted
of three of appellants’ friends, and it was to be the sublessee of the
club premises. The others, all business corporations of which ap-
pellants were the sole stockholders and directors, were P.A.P., Inc.,
which was to be the lessee, and in turn the sublessor to Lakewood
Country Club, Inc., of the club property; Lakewood Management
Corporation, which was to operate the club; and Country Club
Developers, Inc., which, as prime contractor under agreement with
Lakewood Management Corporation, was to build the club’s
facilities.

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office was opened and a sales staff hired, and a thorough-
going campaign for members was launched. There was
extensive newspaper advertising, and tens of thousands
of direct mail advertisements were sent to area residents.
The promotional literature was issued under the apparent
auspices of the advisory board, and appellants’ names
were omitted.

Opportunities for affiliation with the incipient club as-
| sumed the form of $1,000 life memberships and $300 regular
memberships, and the distinctive characteristics of each
were publicly proclaimed. Life members would be im-
munized from all dues, assessments and minimum spending
requirements, but regular members would be required to
pay monthly dues. Life memberships would also be in
‘*limited number ;’’ applicants therefor were told that their
ratio to others would be about one in ten, and the maximum
number was variously fixed between 100 and 300. By
October 1, 1960, however, 1,124 life memberships had been
sold, as compared with only 719 regular memberships, and
the club’s bylaws, when distributed, authorized the directors
—appellanis’ appointees—to impose a minimum spending
requirement upon all members irrespective of class.®

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Appellants’ promotional crusade met instant and spec-
tacular success, garnering membership fees aggregating
: more than $1,250,000.7. While membership solicitations
j continued unabatedly, construction of the club’s facilities

got under way, and proved to be a lucrative enterprise

Le Acting through their wholly-owned cor-
; porations,® they turned handsome profits on a land lease

* This requirement, however, was never invoked while appellants
operated the club.

TIn addition to this amount, more than $250,000 was also col-
lected from members for excise taxes.

—

® See note 5, supra.

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to the club® and on contracts for the construction of its
facilities."° They were also paid more than $200,000 during
a 20-month period in salaries, commissions and fees pur-
suant to a variety of intracorporate arrangements. In
addition, they advanced from the monies collected for
initiation fees large sums to other country clubs in which
they were financially interested.'' The evidence warranted
the conclusion that Lakewood’s membership, actual and
potential, remained unaware of appellants’ proprietary
stake in the country club complex and the extent ‘o which
they were profiting from it.

By the fail of 1960, the club’s funds were exhausted, and
construction on its clubhouse came to a halt.*2 A member-
ship meeting in December culminated in the election of a
new board of directors, which during the next several
months endeavored unsuccessfully to negotiate an accord
with appellants. Finally, in March, 1961, suit was filed in

*The Club site was leased tc P.A.P., Inc., for 50 years at an
annual rental of $15,000, and wita the lease was coupled an option
to purchase. P.A.P., Inc., subleased to Lakewood Country Club,
Inc., at a rental of $60,000 annually for three years only—meaning,
necessarily, renegotiation at the end of that term.

Country Club Developers, Inc., contracted with Lakewood
Country Club, Inc., for the construction of facilities, and then
subcontracted with others for the actual work at much lower costs.
Among the facilities as to which there were substantial price differ-
entials were the clubhouse ($625,000 and $543,000), the golf
course ($245,000 and $165,000) and the tennis courts ($43,500
and $16,000).

14 Qne such transaction was a $63,000 transfer to Golf Con-

tractors, Inc., a Texas company owned by appellants, which is dis-
cussed in Part III, infra.

18 Other facilities, including the golf course and swimming pools,
were completed and in use. Testimony for the Government made
the point that all facilities could ‘‘easily’’ have been constructed
from the monies collected during the first few months of the mem-
bership campaign.

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the District Court for the District of Columbia seeking a
conservatorship, the ouster of appellants, and the recapture
of monies claimed to have been wrongfully diverted.* On
March 31, 1961, a conservator was appointed for all of the
corporations involved in the affair, and appellants were
prohibited from further operation of the club. There-
after, in February, 1962, the litigation was settled by a
consent order."

The indictment leading to appellants’ convictions charged,
in substance, material misrepresentatior associated with
the sale of memoperships, including the use of the names of
the advisory committee members, the statements as to
the ‘‘limited number’’ of life memberships and their non-
assessable character, and the nondisclosure of appellants’
interests in and their profiteering from the club. At the
trial, the core question was whether Lakewood Country
Club was, as the Government contended, a scheme to de-
fraud prospective members or was, as appellants insisted,
a ligitimate business venture that unexpectedly and un-
fortunately failed. Appellants concede that the record
coutains evidence which amply supports the jury’s ver-
dicts." They urge, however, that by virtue of the three
exclusionary rulings, the jury was precluded from hearing
evidence critical to their defense, and that, in consequence
of the instruction under assault, was inadequately in-

18 Lakewood Country Club, Inc. v. Post, Civil No. 805-61 (D.D.C.
filed March 15, 1961). See also Lee v. Post, Civil No. 1157-61
(D.D.C. filed April 17, 1961), which was instituted by the con-
servator after his appointment.

1¢ Discussed in Part IV, infra.

16 The indictment charged each appellant in one count of con-
spiracy, see note 1, supra, and 19 substantive counts of maii fraud,
see note 2, supra. Three counts were withdrawn or dismissed at
the close of the Government’s case in chief. The jury convicted
each appellant on the conspiracy count and 13 of the substantive
cuunts, and acquitted on each of the remaining fore.

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formed as to the Government’s burden of proof and the
criminal intent prerequisite to conviction. With these con-
tentions we do not agree, and we accordingly affirm the
convictions.

I

We approach our review, against the factual backdrop :

summarized, of the three exclusionary rulings advertent 4%
to familiar admonitions validated by generations of judicial
experience. ‘‘It is for ordinary minds,’’ we are instructed,
‘‘not for psychoanalysts, that our rules of evidence are
framed. They have their source very often in considera-
tions of administrative convenience, of practical policy, and ;
not in rules of logic.’’** Not the least of the evidentiary
principles so shaped are those by which the relevance of
proffered eviderze is to be measured. ;

An inevitable concomitant of the Anglo-Americar. legal
system, with its sharp distinction in function between judge
and jury, is ‘‘the rough and practical quality . . . notice-
able in the whcle law of probative value.’’’* This is
because ‘‘the Court will of course allow to be considered
only such evidence as is worth submitting to men who will
judge only by the most common and practicable tests.’’ 1°
As an even more significant consequence, ‘‘the effect is
to require a generally higher degree of probative value
for all evidence to be submitted to a jury than would be
asked in ordinary reasoning.’’’® For ‘‘({t]he Judge, in
his efforts to prevent the jury from being satisfied by
matters of slight value, capable of being axaggerated by
prejudice and hasty reasoning, has constantly seen fit to

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16 Shepard v. United States, 290 U.S. 96, 104 (1933).
171 J. Wigmore, Evidence § 28 at 409 (3d ed. 1840).
18 Thid. :
19 Ibid (emphasis omitted).

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exclude matter which does not rise to a clearly sufficient
degree of value.’’ *

These factors, in turn, define broadly the dissimilar roles
trial and appellate judges play in scrutinizing evidence the
pertinence of which is in issue. ‘‘It is the duty of the
trial judge,’’ we have declared, ‘‘to determine relevancy
in terms of the worth of the proffer. ‘Each single piece
of evidence must have a plus value,’ something more then
& minimum in a probative sense.’’** Just how much more
is a determination which by its very nature, of course,
exacts a careful and often difficult estimate in the context
of all else that the trial involves. The very considerations
that condition a criminal conviction upon incriminating
proof beyond a reasonable doubt entitle the accused to
ample latitude in evidentiary presentations from which
such a doubt might fairly arise. On the other hand, the
possibilities of confusion and false deduction from circum-
stances of nebulous significance are real dangers that can-
not be casually ignored. Trial judges, occupying an excel-
lent vantage point, must be afforded leeway in striking
the balance,”? a most delicate task when, as in the case at
bar, the operations of the human mind are to be probed.”

Appellate judges, on the other hand, must accord to trial
rulings on relevance a respect commensurate with the occa-

* Td. at 409-10.

21 Frank R. Jelleff, Inc. v. Braden, 98 U.S. App. D.C. 180, 188,
233 F. 2d 671, 679 (1956), quoting 1 J. Wigmore, Evidence § 28
at 410 (3d ed. 1940).

2 See Vareltzis v. Luckenbach S.S. Co., 258 F. 2d 78, 81 (2d Cir:
1958); Miller v. Alexandria Truck Lines, 273 F. 2d 897, 900-0%
(5th Cir. 1960) ; Metropolitan Life Ins. Co. v. Armstrong, 85 F. 2d
187, 193 (8th Cir. 1936).

78 See Glasser v. United States, 315 U.S. 60, 81 (1942).

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sion.* ‘‘There is no bright line that divides evidence
worthy of consideration by a jury, although subject to
heavy counterattack, from evidence that is not,’’* and
we are not unmindful of ‘‘the inescapable remoteness of
appellate review.’’** With these twin handicaps, we per-
form our reviewing function both carefully and deferentially
lest ‘‘the perspective of the living trial is lost in the search
for error in a dead record.’’** When the issue is close,
relevance is primarily for the trial judge to gauge,“ and
we will not lightly overrule his considered judgment.”

* The complexities of appellants’ operations are portrayed
vividly in the enormous record built in the District Court. The
trial consumed 34 days over an eight-week period. Numerous
witnesses testified on the ramified factual issues, and each side
introduced scores of exhibits. The jury deliberated for 20 hours
over four days, returning once to have the entire charge repeated,
and again to report its then inability to agree. See note 3, supra.

* Herman Schwabe, Inc. v. United Shoe Mach. Corp., 297 F. 2d
906, 912 (2d Cir.), cert. denied 369 U.S. 865 (1962).

% Luck v. United States, 121 US. App. D.C. 151, 157, 348 F. 2d
763, 769 (1965).

™ Glasser v. United States, supra note 23, 315 U.S. at 88 (dis-
senting opinion).

*8 *‘Even in judicial trials, the whole tendency is to leave rulings
as to the illuminating relevance of testimony largely to the dis-
cretion of the trial court that hears the evidence. [Citations
omitted] Courts of appeal are less and lecs inclined to base error

on such ralings.”” NLRB v. Donnelly Garment Co., 330 U.S. 219,
236 (1947).

°“*Tn the absence of a showing of a clear abuse of discretion, we
will not say that he erred ....’’ Frank R. Jelleff, Inc. v. Braden,
supra note 21, 98 U.S. App. D.C. at 189, 233 F. 2d at 680. See
also Hannan v. United States, 76 U.S. App. D.C. 118, 120, 131 F.
2d 441, 443 (1942) ; Maryland Cas. Co. v. Citizens State Bank, 84
F. 2d 172, 174 (5th Cir. 1936) ; Brigham Young Univ. v. Lillywhite,
118 F. 24 836, 841, 187 A.L.R. 598 (10th Cir. 1941). And see the
cases Cited supra notes 22 and 27.

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In opposition to the Government’s charge of conspira-
torial and fraudulent conduct, appellants maintained that
their constant aim was to provide the Lakewood members
with all that had been promised. To support that claim,
appellants were permitted to introduce evidence tending
to show efforts, after as well as before the conservator’s
appointment, to extricate the club from its financial diffi-
culties. On the same theory—relevance to good faith—
appellants proffered a post-conservatorship proposition
which, if consummated, would have provided one of several
possible solutions of the problem.

This proposition was an offer, made subject to approval
by the members and the court, to pay appellants $100,000
for their interests in the club, the offeror to complete the
club’s facilities and operate them for the members. The
offer called for the alternative imposition of monthly dues
or a minimum spending requirement upon life members,
the option in this regard to be theirs. The membership,
however, rejected this proposal, and the trial judge ex-
cluded it from the evidence. Because the offer was nego-
tiated after the conservatorship,” and was conditioned
upon a relationship between the members and the club
different from that which appellants had represented, the

® The offer, and the evidence excluded by the rulings considered
in Parts III and IV infra, emanated from transactions occurring
after the appointment of the conservator for the Lakewood-con-
nected corporations. From this circumstance, appellants argue
that the trial judge established the date of the conservator’s ap-
pointment as an arbitrary cutoff point for evidence that might
illuminate appellants’ conduct. We do not find this to be so. Ap-
pellants were permitted to undertake proof of other transpirations
after as well as before the conservatorship. Only with respect to
the offer discussed in this Part did the judge deem the pust-con-
servaiorship character of the proffered item of sufficient importance
to the ruling to justify mention, and even here the ruling also
rested upon an additional consideration.

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judge did not consider its virtues sufficient to elevate it
to a good faith showing.

Acts occurring subsequent to a supposed criminal offense
may in particular circumstances constitute admissible evi-
dence bearing on innocence.*' By the same token, an event
superficially indicative of bad faith conceivably may be
shown by a later transpiration to have actually involved a
completely wholesome state of mind.® On the other hand,
an ever-present reason demanding latitude for the ruling
on admissibility is that what takes place, particularly after
the fact, is ‘‘often feigned and artificial.’?** While the
judge's function does not extend to a flat decision as to
whether it is or not, it is his responsibility to calculate
and weigh the propensities of the proffered evidence in
both directions in determining whether it has a ‘‘plus
value’’ favoring its admission.*

Even if, in the case at bar, the trial judge believed that
the proposition in question was free from taint of artificial-
ity, the fact remains that it embodied rights and liabilities
of membership dissimilar to what they had previously
appeared to be. The most salient feature of life member-
ships, as advertised in appellants’ campaign, was their
freedom from additional financial burdens. In specifying
the onus of dues or a minimum spending requirement on
life memberships, the offer departed radically from the
assurances that had inspired their purchase.

Moreover, one of the principal complaints against ap-
pellants was that they concealed their proprietary interests

51 See Starke v. State, 322 Ala.App. 31, 16 So.2d 426, 427 (1944) ;
Boston v. State, 94 Ga. 590, 21 S.E. 603 (1894).

52 See, e.g., Hayes v. United States, 227 F.2d 540, 543 (10th Cir.
1955), cert. denied 353 U.S. 983 (1957).

832 J. Wigmore, Evidence § 293 at 189 (3d ed. 1940).
34 Text supra at note 21.

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in the club and their arrangements for personal profit.
The offer called for the payment of $100,000 to appellants
for those interests, and the vesting of the club’s ownership
and operation solely in the offeror. Viewed, as well it
could be, as a salvage effort by appellants at the expense
of the life members, the proposal had little or no tendency
to demonstrate appellants’ good faith in the dealings to
which the indictment referred.

Ill

We have mentioned that some of the monies collected
from the sale of memberships in Lakewood Country Club
were devoted to projects unrelated to the development of
the club.* One such diversion served a complicated trans-
action involving Golf Contractors, Inc., a Texas corporation
owned by appellants, and Glen Haven Club, Inc., another
Texas corporation. Appellants and Golf Contractors con-
tracted to construct a golf course for Glen Haven, and two
of the Lakewood-related corporations,® then dominated by
appellants, advanced approximately $63,000 to Golf Con-
tractors for the job. This loan, to be liquidated from
Glen Haven’s payments to Golf Contractors, was evidenced
by notes payable to Golf Contractors and secured by a
deed of trust on the Glen Haven property.

After appellants were removed from control of the Lake-
wood complex, the Texas club®™ obtained a $500,000 loan.

5 Text supra at note 11.

36 These were Lakewood Country Club, Inc., and Country Club
Developers, Inc. See note 5, supra.

37 Through a change of name accompanying the amendment and
restatement of its articles of incorporation, Glen Haven Club, Inc.,
had in the meanwhile become Sandy Lakes Country Club, Inc.

13a

On settlement of that loan, $52,000°* was deducted and
forwarded to the Lakewood conservator, pursuant to ar-
rangements previously made by him, to enable a release of
Golf Contractor’s deed of trust on the Texas property.®

The Government’s case revealed the $63,000 advance to
Golf Contractors, and appellants sought to show its even-
tual repayment as a circumstance signifying their good
faith and the soundness of the loan from a business view-
point. The trial court, after hearing counsel extensively,
held that they could not do so, and this determination we
are invited to upset.

Appellants’ proffer did not intimate that, aside from
arranging the terms and security for repayment of the
loan, they played any role in connection with the return
of the monies to the conservator.*® The tendered evidence
could hardly have shed light upon appellants’ earlier in-
tentions when the memberships were solicited; at best, it
might have suggested that the advance was a sound busi-
ness investment rather than a reckless disposal of funds.*!
But this fact was also irrelevant for, despite the apparent
safety of the maneuver, it was nonetheless an impermissible
diversion of the club’s cash for appellants’ own gain. They

88 The reason for the discrepancy between the $63,000 borrowed
and the $82,000 repaid is not apparent from the record. Ap-
pellant Post testified that Golf Contractors spent about $102,000
on the Glen Haven course, evidenced by Glen Haven’s notes total-
ling that amount, but only three of the notes, aggregating ap-
proximately $53,000, were placed in evidence. From this we can
only assume that Golf Contractors had some additional source of
funds.

89 Golf Contractors came into the conservatorship several months
after it was established.

4#°So far as the proffer discloses, the arrangement therefor was
made and conducted solely by the Lakewood conservator and the
title insurance company settling the loan.

“1 That fact was inferable from the notes evidencing the promise
to repay and the deed of trust securing the notes, both of which
were placed in evidence at the trial.

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solicited the funds by representing that they would be
devoted to construction of the Lakewood club in Maryland,
but used the funds, with a view to personal profit, for
the construction of the Glen Haven course in Texas. ‘That
the loan was safeguarded, or was eventually repaid, could
not alter the situation; the calculated, improper use of
the money was itself an act of fraud which, when coupled
with the precedent use of the mails to enable its per-
petration, made the offense complete.*? And the fact of
repayment could, in the circumstances, contest neither
the deliberate nature of the digression nor its underlying
motivation.** Moreover, we are alert to the possibility of
which the trial judge was forewarned, that admission of
the evidence would have added a broad collateral area to
an already lengthy and complicated trial.44 We think the
trial judge remained on firm ground in rejecting it.

42 Use of the mails in furtherance of a scheme to defraud consti-
tutes mail fraud, Pereira v. United States, 347 U.S. 1, 8 (1954);
Deaver v. United States, 81 U.S.App.D.C. 148, 151, 155 F.2d 740,
743, cert. denied 329 U.S. 766 (1946), and pecuniary loss by the
victim.is not an element of the offense. Deaver v. United States,
supra, 81 U.S.App.D.C. at 150, 151, 155 F.2d at 742, 748; United
States v. Andreadis, 366 F.2d 423, 431 (2d Cir. 1966), cert. denied
385 U.S. 1001 (1967) ; Adjmi v. United States, 346 F.2d 654, 657
(5th Cir.), cert. denied, 382 U.S. 823 (1965). See also Shaddy
v. United States, 30 F.2d 340 (8th Cir. 1929); Butler v. United
States, 53 F.2d 800 (10th Cir. 1931).

*8 This is particularly true in light of the fact that the funds
were actually returned to Golf Contractors, the Texas company
wholly owned by appellants, not to the Lakewood complex, in
payment of the notes and for release of the deed of trust held by
Golf Contractors, not the Lakewood complex. There was nothing
in the proffer to connect either the security arrangements to
appellants’ dealings on behalf of Lakewood Country Club, as op-
posed to their dealings on behalf of their own corporation, Golf
Contractors.

*The prosecuting attorney informed the trial judge that ad-
mission of the evidence would impel him to demonstrate the con-
servator’s efforts to retrieve the funds, and appellants’ attempts
to interfere with the conservator’s efforts.

15a

Lakewood Country Club’s litigation against appellants -
was terminated by a consent order following a settlement
agreement pursuant to which appellants relinquished their
interests in the Lakewood-connected corporations in ex-
change for a general release from civil liability arising
out of their promotional and managerial activities. The
settlement agreement in part provided:

‘‘Tt is agreed that all sums heretofore disbursed to
or for the benefit of [appellants] or any of them,
and/or their agents, whether corporate or otherwise,
shall be considered to be full and reasonable considera-
tion for any and all services heretofore rendered by
them to . . . Lakewood Country Club, Inc.’’

Appellants sought to introduce this provision into evi-
dence as a recognition by the representatives* of the
allegedly defrauded club members that the monies which
appellants had used personally were but fair compensation
for their services to the club.** This, appellants say, in
turn indicated that the members were satisfied, and bore
importantly upon their good faith while in control of the
club’s affairs. The trial judge disagreed and rejected
the proffer, and we think that he was entirely correct in
doing so.

45 Lakewood Country Club, Inc. v. Post, supra note 13, was a
class action brought by the club’s then directors on behalf of the
club. Lee v. Post, supra note 13, was brought by the conservator.
These actions were later consolidated.

46 Appellants, pointing to the fact that the civil litigation had
been mentioned at the trial, also urge that considerations of fair-
ness dictated admission of the settlement agreement to inform the
jury that their ‘‘final disassociation’’ from the club came in con-
sequence of an inter-parties accord rather than permanent ouster
by the court.. Any need in this regard was supplied by appellant
Post’s testimony that the suit had been settled and that appellants
thereafter had no further association with any of the Lakewood-
related corporations.

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16a

The settlement agreement does not purport to compose
any criminal transgression, and we would deny it legal
effect to that extent if it did.” We do not, however, gain-
say the value to appellants of a showing that they earned
the money which they kept for themselves, nor do we
dispute their contention that evidence of satisfied customers
is admissible in a mail fraud case to show an absence of
fraudulent intent.** But the settlement instrument states,
consistently with what is evident from its context, that its
‘“‘only purpose [is] to prevent further litigation and to
secure a release and discharge of all controversies and
disputes which might exist between the parties by virtue
of the claims asserted, as well as those which might have
been asserted... .’’

In a transaction so obviously a product of the parties’
mutual desire to buy peace, we cannot isolate a reflection
of the members’ satisfaction with appellants’ handling of
the club’s funds, or a recognition of their entitlement to
those which they appropriated.” Relinquishment of rights,
cancellaticn of liabilities, acceptance of unwanted covenants,
and suppression of hostile emotions are commonplace, if
indeed not well nigh inevitable, in the give-and-take of com-

*" See Savitt v. United States, 59 F.2d 541, 544 (3d Cir. 1932) ;
Seals v. United States, 221 F.2d 243, 249 (8th Cir. 1955) ; Com-
monwealth v. Spiegel, 169 Pa.Super. 252, 82 A.2d 692 (1951) ;
State v. Cooper, 120 S.C. 280, 113 S.E. 132 (1922). Cf. Chambers
v. Buroughs, 44 App.D.C. 168, 173-74 (1915), cert. denied 239 U.S.
649 (1916).

“® Worthington v. United States, 64 F.2d 936, 940 (7th Cir. 1933) ;
United States v. Hanrahan, 255 F.Supp. 957, 969 (D.D.C. 1966),
aff’d sub nom. Tynan v. United States, supra note 3.

“Compare Ecklund v. United States, 159 F.2d 81, 83-85 (6th
Cir. 1947).

17a

promise,” and we discern nothing in this situation to
provide an exception. The settlement agreement offered
the triers of fact no clear choice respecting the member-
ship’s real attitude toward appellants’ financial diversions,
and it was well within the province of the trial judge to
refuse to allow the jury to speculate.

V

. Appellants, as we have observed, also challenge the so-
called ‘‘promoter instruction’? by which the trial judge
delineated for the jury’s edification appellants’ obligations
as promoters toward Lakewood Country Club and its
members. They argue for reversal on the ground that

* As Dean Wigmore has stated, a compromise effort “does not
ordinarily proceed from and imply a specific belief that the ad-
versary’s claim is well founded, but rather a belief that the fur-
ther prosecution of that claim, whether well founded or not, would
in any event cause such annoyance as is preferably avoided by the
payment of the sum offered.’’ 3 J. Wigmore, Evidence § 1061 at 28
(3d ed. 1940).

5. The instruction reads:

“*The jury are instructed that a promoter is a person who sets in
motion machinery that brings about the incorporation and organiza-
tion of a corporation, brings together the persons interested in the
enterprise to be conducted by the corporation, aids in inducing
persons to become members of the corporation, and in procuring
from them membership fees to carry out purposes set forth in
the corporation’s articles of incorporation.

**If from the evidence in this case the jury should find beyond
a reasonable doubt that the defendants were promoters of Lake-
wood Country Club, Inc., then you are instructed that the defend-
ants stood in a fiduciary relation to both the corporation as a
separate legal entity and the members, including those persons
who it was to be anticipated would make application to and would
become members in Lakewood Country Club, Ine. Such a fiduciary
relationship on the part of the defendants, should you find them
to be the promoters of the Lakewood Country Club, Inc., required
that they exercise the utmost good faith in their relations with

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18a

the promoter concept obtsins in criminal lew only with
respect to stock corporations, and that it bscomes anomalous
when applied to a nonprofit enterprise such as was involved
here. They insist, too, that the instruction equated a breach
of the promoter’s fiduciary duty with the knavery essen-
tial tc a conviction for mail fraud, thereby lowering the
Governmen!’s bur:len of proof. We disagree with each of
these contentions.

By elementary legal principles, promoters stand in a
fiduciary relationship exucing good faith in their intracom-
pany activities and deraanding adherence to a high stand-

the corporation and the members, including fully advising the
corporation and members, and persons who it wes to be anticipated
would become members, of any interest which the defendants had
thet would in any way affect the corporation, the members and
anticipated memvers. Such a fui! disclosure requirement, if you
should find the cefendants to be promoters, would obligate them
to faithfully make known all facts which might have influenced
prospective members in deciding wheilier or rot te narchase mem-
berships. And this fuil disclosure would include the duty to re-
frain from misrepresenting any material facts, as well as the duty
te make known any personal interest the defendants had in any
transaction relating to the country club enterprise.

*““Also you are iastrucied that if you should find beyond a
reasonable doubt that the defendants were promoters of the Lake-
wood Country Club, Inv:, and that the funds obtained by them
from members of the club corporation to accomplish the purposes
of the corporation were used by them for the club’s benefit, they
were properly used. On the other hand, if you should find beyond
a reasonable doubt that the defendants were the promoters of the
club corporation, and that they had intentionally converted those
funds to their own personal use, such would be a «ud on the
members of the club corporation, since such funds were in the
nature of trust tunds as to which the defendants had a fiduciary
obligation. And in that connection you are farther instructed
that for promoters to knowingly use their fiduciary position to ob-
tain secret profits at the expense of the corporation or its members
would not orly be a breach of that fiduciary duty bat an act of
fraud.’’

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19a

ard of honesty and frankness.” Not the lesser of the pro-
moter’s manifold responsibilities outlaw secret profit-
making and command the dedication of corporate funds
to corporate purposes. And it cannot be doubted that
promoters of stock corporations who employ the mails in
deceitful violation of their fiduciary obligations may incur
the fuli condemnation of the law.“

We perceice no basis, either in !aw or in logic, for restrict-
ing these precepts to stock corporations.“ The under-
girding considerations are equally germane and potent
when a person buys his membership in a nonstock cor-
poration as when stock in a business corporation is pur-
chased. In each case, the purchaser relinquishes his money
in the expectation that it will be used in a manner beneficial
to his interest in the corporation and consistent with the
representations that induced the transaction. We see no
reason why the fiduciary concept, which does service in
mail fraud prosecutions in the context ef both membership
and stock organizations,® should not have the same range
specifically in relation to promoters. We hold that the
promoter of a corporation, whether stock or nonstock, as
& fiduciary owes a corporate constituent, be he stockholder

52 See generally, H. Ballantine, Corporations §§ 356-60 (rev. ed.
1946) ; 1 W. Fletcher, Corporations §§ 192-96 (1963 rev. vol.).

53 Thid.
4 United States v. Painter, 314 F.2d 939 (4th Cir.), cert. dened
374 U.S. 831 (1963). See United States v. Holtzman, 288 F.2d 141

(7th Cir. 1956) ; Bobbroff v. United States, 202 F.2d 389 (9th Cir.
1953).

*’We are unaware of any case treating the applicability of the
promoter concept to a nonstock corporation.

*° See United States v. Groves, 122 F.2d 87, 90 (2d Cir.), cert.
denied 314 U.S. 670 (1941) ; United States v. Hoffa, 205 F.Supp.
710, 716 (S.D. Fla.), cert. denied 871 U.S. 892 (1962).

i

or member, the same duties of good faith and fair deal-

ing.”

We do not quarrel with the doctrines upon which appel-
lants pitch their second protest against the instruction.
Active rather than constructive fraud is prerequisite to
conviction for mail fraud.*® Mere breach of fiduciary ob-
ligation does net itself constitute active fraud; there
must be a specific intent to defraud.” The flaw in appel-
lants’ argument, however, is that the instruction given in
this case is entirely harmonious with these rules. Among
other things, it informed the jury:

‘“f1]f you should find beyond a reasonable doubt that
the defendants were the promoters of the club corpora-
tion, and that they had intentionally converted those
funds to their own personal use, such would be a fraud
on the members of the club corporation, since such
funds were in the nature of trust funds as to which the
defendants had a fiduciary obligation. And in that
connection you are further instructed that for pro-
moters to knowingly use their fiduciary position to
obtain secret profits at the expense of the corporation
or its members would not only be a breach of that
fiduciary duty but an act of fraud.’’™

57 The situation here is essentially unlike that presented in Old
Dominion Copper Co. v. Lewisohn, 210 U.S. (1908), relied on by
appellants. Compare McCandless v. Furland, 296 U.S. 140, 157-59
(1935).

58 Shushan v. United States, 117 F.2d 110, 115 (5th Cir. 1941) ;
Epstein v. United States, 174 F.2d 754, 765-66 (6th Cir. 1949).

59 See Epstein v. United States, supra note 58, 174 F.2d at 766;
United States v. Hoffa, supra note 56, 205 F.Supp. at 715-16.

© United States v. Brandt, 196 F.2d 653, 657 (2d Cir. 1952) ;
United States v. Shavin, 287 F.2d 647, 649-50 (7th Cir. 1961), cert.
denied 375 U.S. 944 (1963); Williams v. United States, 278 F.2d
535, 537 (9th Cir. 1960).

*! The emphasis is supplied.

2la

By explicating a knowledgeable or purposeful breach of
fiduciary duty as an essential characteristic of the conduct
upon which a conviction might be rested, the instruction
plainly and correctly defined a major type of dishonesty for
the facilitation of which the mail fraud statute penalizes
the use of the postal service.”

Our review of appellants’ several claims against the test
of the record thus fails to disclose error. The convictions

are accordingly iis
rmed.

Fany, Senior Circuit Judge, concurring in affirmance: In
my view appellants should have been permitted to show the
eventual repayment of the advance to Golf Contractors,
Ine., discussed in Part III of the court’s opinion. As the
court points out, the notes were secured by deed of trust,
arranged by appellants, on the Glen Haven property. The
full Greumstances of this transaction, of which the jury
were permitted to have only a part, I think were relevant
on the issue of criminality. I do not dissent, however, from
affirmance, deeming this restriction upon the evidence not
so harmful as to call for reversals.

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*2 See the cases cited supra note 56. See also United States v.
Buckner, 108 F.2d 921, 926-27 (2d Cir.), cert. dented 309 U.S. 669
(1940).

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385604_0444%3A2. Public record. Not legal advice.