UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 96-50356
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
VERSUS
JLM AVIATION INTERNATIONAL, INCORPORATED;
JOSE L. MENDIOLA; ARTHUR STEWART,
Defendants-Appellants.
Appeal from the United States District Court
for the Western District of Texas
(SA-95-CR-78)
July 25, 1997
Before POLITZ, Chief Judge, DeMOSS, Circuit Judge, and DOHERTY,1
District Judge.
PER CURIAM:2
1
District Judge of the Western District of Louisiana, sitting
by designation.
2
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
Defendants were each involved in different aspects of the
aircraft part manufacturing business. As a result of a federal
investigation, they were each tried for charges relating to the
manufacturing of counterfeit, defective, and fraudulently
documented aircraft parts for resale and installation in civil
aircraft. Following a jury trial, Appellants JLM Aviation
International, Inc., Jose Mendiola, and Arthur Stewart were
convicted of conspiracy to defraud the United States, 18 U.S.C. §
371, to commit mail fraud, 18 U.S.C. § 1341, and to commit wire
fraud, 18 U.S.C. § 1343. JLM and Mendiola were additionally
convicted of making false statements in a matter within the
jurisdiction of the United States, 18 U.S.C. § 1001. Defendants
appeal their respective convictions. For the following reasons, we
AFFIRM the convictions and sentence as to JLM Aviation
International, Inc. and Jose Mendiola, and we VACATE the
convictions and sentence as to Arthur Stewart.
INTRODUCTION
In 1992, Jose Mendiola (“Mendiola”) was the owner, operator,
and president of JLM Aviation International, Inc. (“JLM”), in
Naperville, Illinois. JLM is a broker of aircraft parts.
Customers contact JLM for certain parts, which JLM attempts to
secure through third-party suppliers. Once the parts are obtained
from the supplier, JLM resells them to its customer for a profit.
2
Generally, the customer has no contact with, and does not know the
identity of, the third-party supplier. The supplier simply
provides the parts to JLM which repackages them, provides any
necessary certification forms, and ships the order to the customer.
In the spring of 1992, Mendiola attended an industry
conference in the Dominican Republic where he met Manuel Nieves
(“Nieves”) of Total Nacelle Systems, Inc. (“Total Nacelle”) of
Hondo, Texas. Shortly after the conference, Mendiola asked Nieves
if Total Nacelle could machine some Boeing bolt assemblies
identified by part number 69-13995-4.3 Mendiola sent Nieves a
purported sample of the Boeing bolt assembly (“sample bolt”).
Because Total Nacelle did not have the capability to make such
a bolt, Nieves referred Mendiola to his business partner, Arthur
Stewart (“Stewart”), who was General Manager of another aviation
repair and machine shop, Gary Aerospace, Inc. (“Gary Aerospace”),
also in Hondo, Texas. Nieves gave the sample bolt to Stewart at
Gary Aerospace.
3
Boeing Aircraft Company manufactured Boeing 727 aircraft from
1963-1984. Boeing is the original equipment manufacturer (“OEM”)
for airplanes that are still in service. Many of the aircraft
parts manufactured by Boeing are “proprietary design parts.” These
Boeing proprietary design parts have part numbers with distinctive
prefixes that are recognized throughout the industry. For example,
any part number beginning with “69" is a Boeing proprietary part.
The bolt at issue in this case, No. 69-13995-4, holds the roller
bearings of the tracks upon which the wing slats of a Boeing 727
aircraft extend and retract. Although Boeing proprietary parts may
be obtained at discounted prices in the surplus market, these
surplus parts were originally manufactured by Boeing.
3
Employees at Gary Aerospace determined that the sample bolt
was a modified National Aerospace Standard bolt, part number 6708-
52 (“NAS 6708-52”).4 It is undisputed that the Boeing proprietary
bolt was manufactured by making certain modifications to the NAS
6708-52 bolt. Stewart’s employees told him that they could
replicate the Boeing proprietary bolt by copying or “reverse
engineering” the sample. Gary Aerospace notified JLM that it could
provide the modified bolts and that “[c]ertification will be
provided from the manufacture [sic] of the NAS6708-52 bolt. Also,
Gary Aerospace will certify ‘manufactured’ as per sample provided.”
Gary Aerospace did not state that it could offer bolts which would
certify to the Boeing proprietary number; Gary Aerospace promised
only JLM that it could offer bolts which would certify to the NAS
number.
In the summer of 1992, JLM sent Gary Aerospace purchase orders
for over 1,200 bolts. After soliciting bids from several
companies, Gary Aerospace ordered and received approximately 1,200
unmodified NAS bolts from Ameritech Fastener Manufacturing, Inc.
(“Ameritech”). Ameritech provided documentation showing that these
bolts were certified to NAS standards.
4
NAS parts are “standard” parts, which require no special
certification by the FAA for use in aircraft. Boeing proprietary
bolt 69-13995-4 was manufactured by making certified modifications
to the NAS 6708-52 bolt.
4
Upon receiving the NAS bolts from Ameritech, Gary Aerospace
modified them to meet the specifications of JLM’s sample bolt. In
the fall of 1992, Gary Aerospace made five shipments of bolts to
JLM. The first shipment contained a copy of the NAS certification
from Ameritech, with Ameritech’s name blacked-out.5 The following
four shipments contained shipping orders which read, “Bolts,
NAS6708-52 modified to 69-13994-4 per sample.” All of the shipping
orders displayed the Gary Aerospace corporate logo.
After JLM and Mendiola received the bolts from Gary Aerospace,
Mendiola sold 1,301 of them to Mexicana Airlines. The
certification which accompanied these bolts described them as “new”
and “originally manufactured by Boeing or one of their authorized
licensees.” JLM’s certification further provided that “[t]his
certification is based on documentation supplied by our vendor and
is on file.” Mexicana Airlines purchasing agent Roberto Garcia
believed that he was buying genuine Boeing parts from JLM.
In September 1992, Nieves and Stewart had a financial dispute
and ended their business relationship. In November 1992, Nieves
reported Gary Aerospace’s activities to the FAA and provided the
agency with a sample of the modified NAS bolts which were being
sold by Stewart and JLM, along with a copy of the purported
certification.
5
Gary Aerospace’s purchasing agent testified that this practice
was not uncommon in the industry, because it prevented suppliers
like Gary Aerospace from being circumvented in subsequent orders.
5
In cooperation with the FBI, the Inspector General’s Office of
the Department of Transportation (“DOT”) opened an investigation.
Acting undercover, government agents contacted JLM for price quotes
and placed orders for certified Boeing parts. In one instance, the
agents received four bolts with a certification stating that the
parts were new and manufactured by Boeing or one of its authorized
licensees. In another instance, the agents received eight bolts,
along with a certification that they had been obtained from
“Eastern Airlines.” In both instances, the bolt assemblies were
found to be counterfeit.
On September 2, 1993, federal agents executed a search warrant
at the offices of JLM. The agents seized counterfeit Boeing parts
and assorted paperwork. JLM employee Rita Downey informed the
agents that Mendiola had also contracted with a company called
Pride Maintenance to have other sample parts copied and mass
produced.
DISCUSSION
To prove conspiracy under 18 U.S.C. § 371, the government must
show (1) an agreement between two or more persons, (2) to commit a
crime, and (3) an overt act committed by one of the conspirators in
furtherance of the agreement. United States v. Mackay, 33 F.3d
489, 493 (5th Cir. 1994). The government must further prove “that
a conspiracy existed, that the defendant knew of the conspiracy and
6
that he knowingly and voluntarily joined it.” United States v.
Gray, 96 F.3d 769, 773 (5th Cir. 1996), cert. denied, 117 S. Ct.
1275 (1997). When the conspiracy is to commit mail or wire fraud,
the government must show that the conspirators had the requisite
intent to defraud. United States v. Sneed, 63 F.3d 381, 385 (5th
Cir. 1995), cert. denied sub nom. Polley v. United States, 116 S.
Ct. 712 (1996).
To prove mail fraud under 18 U.S.C. § 1341, the government
must show (1) a scheme to defraud (2) which involves the use of the
mails (3) to execute the scheme. United States v. Fox, 69 F.3d 15,
17 (5th Cir. 1995). To prove wire fraud under 18 U.S.C. § 1343,
the government must show (1) a scheme to defraud (2) involving the
use of, or causing the use of, wire communications in furtherance
of the scheme. United States v. Loney, 959 F.2d 1332, 1337 (5th
Cir. 1992); United States v. Leahy, 82 F.3d 624, 634 (5th Cir.
1996).
In determining whether the government has met its burden, we
view the evidence, and all reasonable inferences that may be drawn
from it, in the light most favorable to the government, and then
decide whether a rational trier of fact could have found each
essential element of the offense beyond a reasonable doubt. United
States v. Prieto-Tejas, 779 F.2d 1098, 1101 (5th Cir. 1986); United
States v. Leal, 30 F.3d 577, 582 (5th Cir. 1994), cert. denied, 115
S. Ct. 1172 (1995).
7
I. Stewart
Stewart argues that the evidence at trial was insufficient to
support his convictions for conspiracy to defraud, and conspiracy
to commit mail fraud and wire fraud. To successfully convict
Stewart, the government was required to show, beyond a reasonable
doubt, that Stewart intentionally participated in a scheme to
defraud by fraudulently selling certain bolt assemblies as original
Boeing products. We hold that the government did not meet its
burden.
In support of its position, the government points to evidence
in the record showing that Stewart asked his employees to modify
standard NAS bolts into bolts replicating Boeing bolts. The
evidence indicates that several of these employees expressed
concerns about the legality of making such modifications. The
evidence also indicates that Stewart was aware of their concerns.
In the government’s words, “Stewart knew that it was illegal for
Gary Aerospace to mass produce aircraft parts.”
The problem with the government’s argument is that it offers
no evidence showing that such conduct, even if true, is illegal.
Regardless of what his employees may have thought, there is no
evidence that Stewart’s modification of an NAS bolt to resemble a
Boeing bolt is, of itself, a criminal act. While replicating a
proprietary bolt may violate some civil regulation (an issue about
8
which we offer no opinion), there is no evidence that such conduct
violates any criminal statute. In short, construing the evidence
in a light most favorable to the government, Stewart’s act of
modifying NAS bolts was not illegal.
Next, the government argues that “a rational jury could
conclude that Stewart knew that JLM and Mendiola intended to sell
the bolts as Boeing parts, and thus knowingly participated in
Mendiola’s scheme.” We hold that a rational jury could not reach
such a conclusion.
There is absolutely no evidence in the record, circumstantial
or otherwise, which would allow a jury to conclude, beyond a
reasonable doubt, that Stewart intended to defraud JLM, Mendiola,
Mexicana Airlines, or any other party. Piling inference upon
inference, the government summarily asserts that Stewart must have
known that JLM and Mendiola were going to use the bolts to defraud
end-users because “there was no legal authorized use for the
substandard aircraft parts manufactured by Gary.” Again, the
government’s argument is without merit. The usage of bolts,
modified or otherwise, is not governed by criminal law. While some
NAS-modified bolts may be used in aircraft (in which case their
usage is governed by civil and regulatory law), other bolts may
theoretically be used for different purposes, such as in the
building of a particularly sturdy backyard woodshed. Regardless of
how the bolts are used, or what proprietary design they bear, mere
9
possession of them is not criminal. It stands to reason, then,
that the maker of such bolts cannot be held criminally liable on
the premise that their only purpose is illegal. In other words, it
cannot be assumed, beyond a reasonable doubt, that Stewart knew, by
virtue of his having made the bolts, that they would ultimately be
used to commit fraud.
To the extent that there is evidence in the record showing
Stewart’s intent, Stewart argues that Gary Aerospace’s
certifications to Mendiola never represented the bolt assemblies as
being Boeing products. The invoices state, “CERTIFICATION WILL BE
PROVIDED FROM THE MANUFACTURE (sic) OF THE NAS6708-52 BOLT. ALSO,
GARY AEROSPACE WILL CERTIFY ‘MANUFACTURED’ AS PER SAMPLE
PROVIDED.”6 Stewart did not make any assertion (oral, written, or
otherwise) that the bolts were genuine Boeing bolts. He merely
agreed to modify the NAS bolts “as per sample.” As discussed
earlier, the making of such modifications is not illegal.
Construing the evidence in a light most favorable to the
government, we hold that a reasonable jury could not find that
Stewart intended to defraud.
Mindful of the great deference that we must pay to the jury’s
verdict, Gray, 96 F.3d at 772, we nevertheless agree with Stewart
and hold that, construing the evidence in a light most favorable to
6
The first invoice did not contain this language. All
subsequent invoices did contain this language.
10
the government, a reasonable jury could not find that Stewart had
the requisite intent to defraud. For these reasons, the judgment
against Stewart is reversed.
II. JLM & Mendiola
JLM and Mendiola raise several issues on appeal. First, they
argue that the district court erred by admitting against them
evidence of the illegal acts of others. At trial, the government
introduced evidence that Mendiola and JLM had purchased other
counterfeit Boeing parts from Pride Maintenance and sold them to
Mexicana Airlines. This evidence was introduced, over objection,
through the testimony of Paul Carlson ("Carlson"), whose company
had manufactured the counterfeit parts and sold them to JLM through
Pride Maintenance. Carlson testified that Mendiola had supplied
Pride Maintenance with sample parts to be reproduced. Carlson and
Mendiola spoke only twice and, although Carlson usually went
through Pride Maintenance, he once shipped the products directly to
JLM.
The district court did not indicate whether it allowed this
evidence under FED. R. EVID. 4027 or 404(b).8 The government
7
“All relevant evidence is admissible except as otherwise
provided ....” FED. R. EVID. 402.
8
“Evidence of other crimes, wrongs, or acts is not admissible
to prove the character of a person in order to show action in
conformity therewith. It may, however, be admissible for other
purposes, such as proof of motive, opportunity, intent,
11
contends that the evidence was admissible under either rule. The
government argues that the evidence was relevant under Rule 402
because Mendiola’s transactions with Pride Maintenance were
“inextricably intertwined” with the conduct of which he is accused
in this case. Furthermore, the government argues that the evidence
shows Mendiola’s modus operandi, which was to send samples of
Boeing parts, have copies made, and distribute them as genuine.
The government argues that the evidence was admissible under
Rule 404(b) because it tends to prove notice, intent, plan, and
knowledge. While evidence of prior bad acts may not be used to
show that a defendant had a propensity to act in a particular way,
it is admissible to show that the defendant knew what he was doing
because he has done it before. The government argues that the
probative value of this evidence is not outweighed by its
prejudicial effect. Alternatively, the government argues that any
error would be harmless.
JLM and Mendiola disagree and argue that the evidence is not
admissible because the government failed to show that Mendiola knew
that Carlson was making illegal parts. Mendiola also argues that
the evidence was improperly used to show propensity. JLM and
Mendiola argue that the probative value of this evidence is
outweighed by its prejudicial effect.
preparation, plan, knowledge, identity, or absence of mistake....”
FED. R. EVID. 404(b).
12
“We apply a two-pronged test to determine the admissibility of
evidence under Fed. R. Evid. 404(b). First, the evidence must be
relevant to an issue other than the defendant's character. Second,
the evidence must have probative value that is not substantially
outweighed by undue prejudice.” United States v. Misher, 99 F.3d
664, 670 (5th Cir. 1996).
Step two of the test requires that the testimony
not be unduly prejudicial. We have held that
under the Rules of Evidence, there is a strong
presumption that probative evidence should be
admitted. United States v. Leahy, 82 F.3d 624, 637
(5th Cir. 1996) (noting that "while some danger of
prejudice is always present, exclusion of extrinsic
evidence based on its prejudicial effect 'should
occur only sparingly.'") (quoting United States v.
Pace, 10 F.3d 1106, 1115 (5th Cir. 1993), cert.
denied, 511 U.S. 1149, 114 S. Ct. 2180, 128 L.Ed.2d
899 (1994)).
Misher, 99 F.3d at 670. “We review a district court's decision to
admit extrinsic evidence for abuse of discretion.” Leahy, 82 F.3d
at 636. After reviewing the record, we find that the district
court did not abuse its discretion by allowing the introduction of
the Carlson evidence.9
Second, JLM and Mendiola argue that the district court abused
its discretion by admitting evidence of a profit sharing payment
made to former employee and witness Janice Todd. At trial, the
9
It is unclear whether the district court instructed the jury
that this evidence also applies to Stewart. The question of
admissibility against Stewart is moot, however, because we have
already determined that Stewart’s conviction must be reversed on
other grounds.
13
government introduced evidence that former JLM employee Janice Todd
received a payment of $2,025 from JLM shortly after the trial date
was set. This money was characterized as a “profit-sharing
payment,” and was sent through the investment firm of Dean Witter
Reynolds, which administers JLM’s profit-sharing plan. Sigrid
Jones, a sales assistant at Dean Witter Reynolds, testified that
only three employees had ever been enrolled in JLM’s profit-sharing
plan: Jose Mendiola, his wife, Marie Mendiola, and Janice Todd.
Todd was employed by JLM for over two years, from January 1992 to
May 1994. Her responsibilities included taking requests for quotes
and researching prices. Approximately one year after Todd had left
JLM, and after a trial date had been set, Marie Mendiola instructed
Dean Witter Reynolds to establish a profit-sharing account for
Todd. The account was paid-out and terminated several weeks later.
The government argues that evidence of the payment was
admissible because it tends to show that Mendiola and JLM were
attempting to influence Todd’s testimony at trial, thereby evincing
a consciousness of guilt. See United States v. Gordon, 987 F.2d
902, 907 (2d Cir. 1993) (attempts to influence witness testimony
are admissible to prove consciousness of guilt). Mendiola and JLM
argue that the payment was for a legitimate purpose and, therefore,
evidence concerning it should have been excluded because its
probative value was outweighed by the danger of unfair prejudice.
14
After reviewing the record, we hold that the district court did not
abuse its discretion by allowing the admission of this evidence.
Third, JLM and Mendiola argue that the district court erred by
considering the Carlson transactions as relevant conduct for
sentencing purposes.10 JLM and Mendiola argue that the Carlson
transactions could not be considered relevant conduct because the
government failed to show by a preponderance of the evidence that
JLM or Mendiola knew that Carlson was engaging in illegal conduct.
“We review the district court's application and legal
interpretation of the sentencing guidelines de novo ... and its
findings of fact for clear error.” United States v. Ismoila, 100
F.3d 380, 394 (5th Cir. 1996).
Under U.S.S.G. § 1B1.3, a sentencing court must consider
“relevant conduct” in determining a defendant’s guideline range.
Relevant conduct includes all acts and omissions, committed by the
defendant or by others, if reasonably foreseeable, “that were part
of the same course of conduct or common scheme or plan as the
offense of conviction.” U.S.S.G. § 1B1.3 (a)(1) & (a)(2). “For
10
At sentencing, the district court determined that the loss
caused to Mexicana Airlines by Appellants’ conduct was
approximately $97,000. This loss amount would have required a 6-
level increase in Appellants’ offense levels. See U.S.S.G. §
2F1.1. The district court found, however, that the involvement of
JLM and Mendiola in the Carlson transactions constituted relevant
conduct under U.S.S.G. § 1B1.3, and added approximately $500,000 to
the loss calculations. The resulting total loss figure, of between
$500,000 and $800,000 required a 10-level increase in Appellants’
offense levels.
15
two or more offenses to constitute part of a common scheme or plan,
they must be substantially connected to each other by at least one
common factor, such as common victims, common accomplices, common
purpose, or similar modus operandi.” U.S.S.G. § 1B1.3 n.9
(emphasis in original). “Factors that are appropriate to the
determination of whether offenses are sufficiently connected or
related to each other to be considered as part of the same course
of conduct include the degree of similarity of the offenses, the
regularity (repetitions) of the offenses, and the time interval
between the offenses.” Id. “Under the sentencing guidelines, a
defendant is accountable for all relevant conduct, United States v.
Sotelo, 97 F.3d 782, 799 (5th Cir. 1996), a concept that includes
his own conduct and the foreseeable acts of co-conspirators.”
United States v. Gray, 105 F.3d 956, 970 (5th Cir.), cert. denied,
117 S. Ct. 1326 (1997); U.S.S.G. § 1B1.3(a)(1)(B). After reviewing
the record, we hold that the district court did not commit clear
error by determining that the Carlson transactions were relevant
conduct for sentencing purposes.
Next, JLM and Mendiola argue the district court abused its
discretion by instructing the jury on deliberate indifference,11 and
11
The district court instructed the jury as follows:
The word “knowingly,” that is a term that has
been used from time to time in these instructions,
means that the act was done voluntarily and
intentionally and not because of mistake or an
accident. You may find that the defendant had
16
by failing to give an instruction on subjective knowledge.12 “We
review challenges to jury instructions to determine whether the
court's charge, as a whole, is a correct statement of the law and
whether it clearly instructs jurors as to the principles of law
applicable to the factual issues confronting them." Gray, 105 F.3d
at 967 (internal citations omitted). “The district court's charge
knowledge of a fact if you find that the defendant
deliberately closed his eyes to what would
otherwise have been obvious to him.
While knowledge on the part of the defendant
cannot be established merely by demonstrating that
the defendant was negligent, careless, or foolish,
knowledge can be inferred if the defendant
deliberately blinded himself to the existence of a
fact.
12
Appellants requested that the following language be included
in the charge:
The Defendant’s ignorance must be solely and
entirely the result of his having made a
conscious purpose to disregard. In that
regard, the defendant must be all but certain
of the particular crime and of particular
matter, and its existence, and that there is a
higher probability that the fact exist. In
that regard you must judge defendant’s actions
subjectively from his perspective at the time
of the transactions and not what may have been
reasonable only after a review of all the
evidence and documents. In other words, you
are not to judge the defendant from what
appears an average person would have done at
the time. You must judge the defendant’s
action based upon what he alone subjectively
knew at the time. Furthermore, neither
reckless disregard nor suspicion is
sufficient. Also remember that an act is not
done knowingly if it is done by mistake or
accident or other innocent purpose.
17
must be legally accurate and factually supported by the evidence.“
Id. In evaluating whether the evidence is sufficient to support
the jury charge, we view the evidence, and all reasonable
inferences that may be drawn therefrom, in the light most favorable
to the government. Id. A district court’s refusal to give a
requested jury instruction is reviewed for abuse of discretion.
United States v. Clements, 73 F.3d 1330, 1338 (5th Cir. 1996).
"The purpose of the deliberate ignorance instruction is to
inform the jury that it may consider evidence of the defendant's
charade of ignorance as circumstantial proof of guilty knowledge.”
United States v. McKinney, 53 F.3d 664, 676 (5th Cir.), cert.
denied, 116 S. Ct. 261 (1995). “It should only be given when a
defendant claims a lack of guilty knowledge and the proof at trial
supports an inference of deliberate indifference.” Id.
JLM and Mendiola based their defense upon, inter alia, lack of
guilty knowledge or intent to deceive. Furthermore, we have
approved this instruction as being a correct statement of law. See
United States v. Investment Enterprises, 10 F.3d 263 (5th Cir.
1993). After reviewing the record, we hold that there is enough
evidence to support the deliberate indifference instruction, and
the instruction, as given, was a correct statement of the law. The
district court did not commit clear error.
18
To the extent that JLM and Mendiola raise issues pertaining to
the sufficiency of the evidence, we have reviewed the record and
find no error.
CONCLUSION
For the foregoing reasons, the convictions and sentence of
Arthur Stewart are VACATED. The case against Arthur Stewart is
REMANDED to the district court for entry of dismissal. The
convictions and sentence against JLM Aviation International, Inc.
and Jose Mendiola is AFFIRMED.
19