Opposition Brief — Whitehead v. United States

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Gu the Supreme Court of the Gnited States

OcToBER TERM, 1970

No. 1519

Henry GRaDY WHITEHEAD, SR., AND ARMEL DayTON

O’NEAL, PETITIONERS

v.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINION BELOW

The court of appeals wrote no opinion.

JURISDICTION

The judgment of the court of appeals was entered

on February 4, 1971. A petition for rehearing was

denied on March 1, 1971. On March 29, 1971, the peti-

tion for a writ of certiorari was filed. The jurisdiction

of this Court is invoked under 28 U.S.C. 1254(1).

QUESTIONS PRESENTED

1. Whether the evidence was sufficient to support

petitioner Whitehead’s conviction as a co-conspirator

in the scheme to defraud.

(1)

423-879—71

2

2. Whether a series of judgments recorded against

Whitehead were properly admitted into evidence

against petitioner O’Neal.

STATEMENT

After a jury trial in the United States District

Court for the Northern District of Texas, petitioners

and a third defendant, Bailey, were convicted of eight

substantive counts and one conspiracy count charging

use of the mails and interstate telephone communica-

tions to defraud, in violation of 18 U.S.C. 1341 and

1343. On March 10, 1970, petitioner Whitehead was

sentenced to concurrent terms of five years’ imprison-

ment on all counts. Petitioner O’Neal was sentenced to

eoncurrent terms of five years’ imprisonment on five

counts and five years’ probation on the remaining

counts to commence upon expiration of the term of

imprisonment. The court of appeals affirmed.

The evidence disclosed that, in the early part of 1967,

O’Neal, Bailey, and one Applewhite met in White-

head’s office in Fort Worth to discuss the formation of

a corporation to be known as XIT Corporation (here-

inafter referred to as “XIT’’)* ostensibly for the

*The name “XIT” was selected to convey the false impres- ‘

sion that the corporation was a successor to the XIT Ranch

(“XIT” meant “Ten in Texas”) which had been a successful

and well-known ranching operation in the region. The offices

of the corporation were decorated with the XIT branding iron

and pictures of ranch scenes. In dealing with prospective sup-

pliers of XIT, as well as with the landlord for the offices,

Bailey, O’Neal and one Starkey, named in the indictment as

a co-conspirator and the purchasing agent for XIT, deliberate-

ly misrepresented that XIT was connected with the famous

ranch and therefore had substantial financial backing (See,

) e.g., Tr. 73-74, 346-347, 446, 601-602).

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development of oil leases (Tr. 6-13). On May 19,

1967, O’Neal and Whitehead secured a loan from the

Mansfield State Pank for $3,000 with their promissory

note. ‘The loan was then deposited ir the White Settle-

ment National Bank in the name ot XIT (Tr. 28a-

29a; 44-48). This opening amount was the highest

balance achieved on the XIT account during the life of

the corporation (Tr. 59-60). A suite of offices was

rented in the name of XIT on the same day (Tr. 19a,

69-70). XIT was incorporated on June 7, 1967 (Tr.

101-104). A spurious financial statement was prepared

showing net assets totalling approximately three mil-

lion dollars including stocks and land holdings never

owned by XIT, and a hank balance falsely inflated by

$131,000 (Tr. 56-59, 316-334). O’Neal became presi-

dent of XIT and Bailey became vice-president. They

hired Starkey to act as purchasing agent.

On June 5, 1967, Starkey telephoned the Universal

Supply Company of Kansas City, Kansas, from the

XIT office to arrange the purchase of television sets

(Tr. 172-175). In response, the co-owner of Univer-

sal Supply, Robert Marvin, flew to Fort Worth and

met with O’Neal, Bailey, and Starkey. After being as-

sured of the corporation’s solvency (Tr. 347-348),

Marvin agreed to supply XIT with a large quantity

of television sets and other home appliances on thirty-

day credit for an agreed price of $25,626. He was told

the sets would be resold in Jamaica (Tr. 211, 214, 216-

217, 354-367). Universal Supply shipped the merchan-

~ 2“TY? refers to the three-volume transcript of trial pro-

ceedings. We are lodgiag a copy of this transcript with the

Clerk of this Court.

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dise to Starkey, who then shipped it to a warehouse in

Fort-Worth under the control of Whitehead : (Tr.

‘223-232, 371-373, 728-729, 745). Whitehead pur-

chased the. goods from XIT, paying a small sum in

eash and securing the rest with promissory notes. He,

in turn,. resold. them. for assis cash ane 765-767,

774-775, 792-798).

' In like manner, XIT purchased on credit quan-

tities of lawn mowers and bicycles from the Huff-

man Manufacturing Company of Dayton, Ohio, and

two fork-lift trucks from the Baker Truck Division

of Otis Elevator Company, Dallas, Texas. These were

also sold by XIT to Whitehead with his promissory

notes as security and resold by him at about half their

original purchase price (Tr. 163, 533-564, 589-593, 621,

637, 760-762, 800-810). Other orders were mailed

on behalf of XIT for merchandise from the Sony

Company and Merit Enterprise, both of New York,

the Durham Corporation in Cincinnati, Ohio, and

others. These companies, however, never shipped any-

thing to XIT (Tr. 493-528). Altogether, XIT pur-

chased close to $47,000 of merchandise which White-

head later resold for approximately $24,000. White-

head defaulted on the seven promissory notes he ex-

ecuted in favor of XIT. XIT was dissolved at the end

of August, 1967. XIT’s suppliers were never paid

for merchandise shipped to the emneanen aad CY,

Tr. 367, 563, 621-622).

ee T

1. Petitioner, Whitehead argues that the ertdene

was insufficient to support his conviction. The con-

a

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tention is frivolous in view of the facts. previously

set forth. Whitehead was instrumental in obtaining

the funds used to set up XIT and, throughout XIT’s

existence, remained its only customer. XIT purchased

goods solely on credit and then, despite representa-

tions to suppliers that the merchandise would imme-

diately be sold at substantial profit, resold them to

Whitehead at a nominal profit to the corporation.

Whitehead paid for the merchandise with a small

amount of cash, the rest of the purchase price being

secured by worthless promissory notes. Whitehead

then resold the goods at what on paper appeared to

be a substantial loss. Significantly, however, White-

head sold only for cash and was therefore the only

one to receive any actual return from the sales which

took place. The jury was clearly warranted in con-

cluding under the circumstances that Whitehead wil-

fully participated in a scheme to defraud XIT’s

suppliers.

Since the evidence sacele established Whitehead’s

role in the conspiracy, it is of no consequence that

there was no proof he had actual knowledge that in-

terstate mailing and telephone facilities would be used

to order merchandise. XIT’s obtaining goods from

out-of-state suppliers was a necessary part of the

scheme to defraud. The jury could readily infer that,

as a conspirator, Whitehead reasonably contemplated

that the orders would be negotiated and placed

through the use of such facilities, as indeed they were.

Pereira v. United States, 347 U.S. 1, 8: Buie v.

Unted States, 420 F. 2d 1207 (C.A. 5), certiorari

6

denied, 398 U.S. 932; Sherwood v. United States, 300

F. 2d 603 (C.A. 5), certiorari denied, 371 U.S. 838.

2. One of the allegations in the indictment was that

the defendants knew Whitehead did not intend to

honor the promissorv notes he executed in favor of

XIT. In support of this ailegation, the government

introduced a series of judgments against Whitehead

rendered in 1963 in Tarrant County, Texas. These

were based upon his default on 127 promisory notes

having a total value of $175,000 (Tr. 702-723). Other

evidence showed that, while NIT instituted a lawsuit

against Whitehead after his default on the notes, the

corporation made no attempt to pursue the suit and

it was finally dismissed for want of prosecution in

1969 (Tr. 752-787). The evidence showed that the

promissory notes, and hence the supposed transactions

between XIT and Whitehead, were a sham.

There is no basis for petitioner O’Neal’s contention

that the judgments were inadmissible with respect

to him. The judgments were properly introduced as

part of an effort to show that the conspirators in-

tended to cloak the purchases from XIT by White-

head with an apparent air of legitimacy, although

the defendants knew the XIT notes would be dis-

honored. Whitehead’s failure to honor his own prom-

issory notes in the past, which was a matter of pub-

lic record, was a fact the jury was entitled to consider

in determining the fraudulent intent of the defend-

as

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ants.’ New England Enterprises, Inc. v. United States,

400 F. 2d 58 (C.A. 1), certiorari denied, 393 U.S. 1036;

United States v. Cobb, 397 F. 2d 416 (C.A. 7),

certorari denied, 393 U.S. 924. Cf. Nye & Nissen v.

United States, 336 U.S. 613, 618. ae

CONCLUSION

For the reasons stated, it is respectfully submitted

that the petition for a writ of certiorari should be

denied.

Erwin N. GRIswoLp,

Solicitor General,

WiLL WIsor,

Assistant Attorney General,

BEATRICE ROSENBERG,

RonaLp G. SCHERAGA,

Attorneys.

Aprib 1971.

8’ Even assuming that the judgments were not properly ad-

mitted against O’Neal, he makes no showing that he was

prejudiced in any way by their admission. He was not a party

to the judgments and had no connection with them. Any in-

cidental prejudice to O’Neal resulting from their introduction

into evidence was obviated by the trial judge’s careful instruc-

tion to the jury not to consider the acts of one defendant

against another unless done in his presence, adopted by him, or

done in furtherance of the conspiracy (Tr. 877-881).

US. GOVERNMENT PRINTING OFT ICE: 1971