F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
OCT 15 1999
TENTH CIRCUIT
PATRICK FISHER
Clerk
UNITED STATES OF AMERICA,
Plaintiff - Appellee, No. 98-6273
v. (W.D. Oklahoma)
DAVID RAY GADDIS, (D.C. No. CR-97-105-C)
Defendant - Appellant.
ORDER AND JUDGMENT *
Before ANDERSON , BRORBY , and BRISCOE , Circuit Judges.
David Gaddis was convicted after a jury trial 1
of one count of conspiracy in
violation of 18 U.S.C. §§ 2, 371, three counts of wire fraud in violation of 18
U.S.C. §§ 2, 1343, four counts of engaging in monetary transactions derived from
unlawful activities in violation of 18 U.S.C. §§ 2, 1957(a), and one count of
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
The district judge declared a mistrial in Gaddis’ first trial. The jury found
1
Gaddis guilty on all counts in his second trial.
money laundering in violation of 18 U.S.C. §§ 2, 1956(a)(1)(A)(i). He was
sentenced to 46 months in prison, three years of supervised release, and payment
of $309,000 in restitution. 2
Mr. Gaddis appeals both his conviction and sentence
alleging as follows: (1) the evidence was insufficient to sustain his conviction on
all counts; (2) the district court erred in allowing evidence of other bad acts under
Fed. R. Evid. 404(b); (3) for sentencing purposes the district court erred in
refusing to group his convictions for fraud and money-laundering under the
United States Sentencing Guidelines § 3D1.2; and (4) the testimony of David
Aitken should have been excluded because it was procured by an improper
gratuity from the prosecution. We exercise jurisdiction pursuant to 28 U.S.C.
§ 1291 and 18 U.S.C. § 3742 and affirm.
I. BACKGROUND
Mr. Gaddis’ conviction arose from a partnership between Sears Roebuck
Company and Gaddis’ company, International Service Co. (ISC). The
partnership, Sears Commercial Installation Services (SCIS), was formed in 1991
and provided that Sears would market, and ISC would perform, commercial sign
installations. The partnership established a billing procedure in which ISC would
The restitution obligation is joint and several to that of co-conspirator
2
David Aitken.
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invoice Sears for the cost of a project. Sears would subtract its commission of 10
to 15 percent and then wire funds to SCIS to pay the ISC invoice. The customer
was then billed by Sears for the full amount and would pay Sears directly for the
work. Gaddis worked with Sears through its employee, David Aitken.
Mr. Aitken believed that the partnership also had the potential to develop a
“Smart House” home automation business. Aitken convinced Sears to loan the
partnership $500,000 to be used to pay off ISC’s debts and to develop the home
automation business. The loan agreement also required that ISC provide Sears
with monthly financial statements and that no portion of the loan proceeds was to
be used to pay the salary of Gaddis or anyone related to him. On October 22,
1991, Gaddis received the loan proceeds and paid ISC’s line of credit down from
a balance of $160,000 to $5000. The same day Gaddis, on behalf of ISC,
borrowed an additional $60,000 against the line of credit and deposited it in ISC’s
account. He then transferred the $60,000 into an account for Home Systems, Inc.
(HSI), a corporation controlled by Gaddis and formed that same day. Gaddis
prepared a corresponding invoice from HSI to ISC for $60,000 for research and
development. The evidence shows that no research and development occurred.
The next day Gaddis transferred $44,000 out of the HSI account to purchase a
Corvette titled to Gaddis and his company, HSI.
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By early 1992, ISC was experiencing financial difficulties and Gaddis and
Aitken failed to secure additional funding from Sears. So, to keep ISC “afloat”
Aitken suggested that Gaddis submit invoices to Sears “identical to the legitimate
invoices” through the partnership billing procedure. Aplt. App. at 189, Tr. at 129.
Thereafter, Gaddis sent weekly invoices to Sears through SCIS showing the
customer as HSI (the corporation controlled by Gaddis). The invoices represented
that “Installation Services” were performed for HSI although no services were
performed. Aitken would approve Sears to pay the invoices, knowing that
Installation Services did not occur. Count 1, conspiracy, is based on this invoice
scheme agreement between Gaddis and Aitken.
Between March and September 1992, Sears wired a total of $324,000 to the
SCIS partnership account to pay 24 separate invoices submitted by Gaddis for
work never performed for HSI. Thus, under the partnership billing arrangement,
Sears wired funds to the partnership for the invoices from ISC but the purported
customer, HSI, failed to pay Sears. Gaddis claimed the funds were advances on
future sales that HSI would repay to Sears when the Smart House work
materialized. Counts 2 through 4, wire fraud, are based on these invoices
inducing Sears to wire funds to SCIS. Gaddis would transfer these funds obtained
by the invoices from the SCIS account to the ISC account. Counts 5 through 8,
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money laundering, are based on this monetary transaction of alleged criminally
derived property.
In June 1992, Aitken indicated to Gaddis that the first of the 24 invoice
payments due from HSI to Sears would soon be 90 days delinquent, triggering
Sears accounting department action. Thereafter, Gaddis transferred $15,000 from
ISC to HSI and prepared a corresponding invoice from HSI to ISC in the amount
of $15,000 for research and development. Again, the evidence shows that no such
research and development occurred. Gaddis then directed a payment from HSI to
Sears for $15,000 to pay the first invoice. 3
This payment delayed Sears discovery
of the invoice scheme and allowed Gaddis to receive additional funds from Sears.
Count 9, money laundering, is based on this transfer of $15,000 from ISC to HSI
allegedly designed to conceal the source and ownership of the funds derived from
unlawful activity.
In September 1992, Gaddis directed the preparation of an invoice from HSI
to ISC for non-existent research and development in the amount of $345,000.
Since ISC had no funds, the invoice was not paid but HSI listed the amount as a
receivable. The indictment did not include charges related to the $500,000 loan
in 1991 or the $345,000 invoice.
3
Thus, after HSI’s $15,000 payment to Sears, the damage from fraud, and
restitution ordered, was $309,000 ($324,000 minus the $15,000 payment).
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II. DISCUSSION
A. Sufficiency of the Evidence
Mr. Gaddis argues that the evidence is insufficient to establish his intent to
commit wire fraud and argues that because all nine counts of his conviction rest
on wire fraud, 4
his conviction should be reversed on all counts. The crime of wire
fraud consists of two elements: 1) a scheme or artifice to defraud or obtain
money by false or fraudulent pretenses, representations, or promises; and 2) the
use of interstate wire communications to facilitate that scheme. See United States
v. Drake , 932 F.2d 861, 863 (10th Cir. 1991); 18 U.S.C. § 1343. “[A] scheme to
defraud is conduct intended or reasonably calculated to deceive persons of
ordinary prudence or comprehension.” United States v. Hanson , 41 F.3d 580, 583
(10th Cir. 1994).
Rarely is direct evidence of a defendant’s intent available. “Intent can be
proven, however, from surrounding circumstances.” United States v. Johnson ,
971 F.2d 562, 566 (10th Cir. 1992) (upholding jury inference of intent in wire
fraud and money laundering conviction). See also United States v. Prows , 118
F.3d 686, 692 (10th Cir. 1997) (finding that intent may be inferred from a variety
of circumstantial evidence including defendant's misrepresentations and whether
4
Count 1, conspiracy, requires an agreement to defraud; Counts 2 through 4
are the wire fraud counts; and Counts 5 through 9, money laundering, require
monetary transactions of funds acquired through the wire fraud.
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defendant profited or converted money to his own use) (citing Kathleen Flavin &
Kathleen Corrigan, Eleventh Survey of White Collar Crime: Mail Fraud and Wire
Fraud , 33 Am. Crim. L. Rev. 861, 869-70 (1996)).
Applying these principles, we review the sufficiency of the evidence to
support a jury verdict “de novo and ask only whether, taking the evidence–both
direct and circumstantial, together with reasonable inferences to be drawn
therefrom–in the light most favorable to the government, a reasonable jury could
find the defendant guilty beyond a reasonable doubt.” United States v. Voss , 82
F.3d 1521, 1524-25 (10th Cir. 1996) (internal quotation marks and citations
omitted). Thus, here we review whether a jury could reasonably find from all the
evidence that Gaddis intended a scheme to defraud or obtain money from Sears by
false representations.
Mr. Gaddis asserts that the evidence failed to demonstrate that he intended
to defraud Sears. He contends that he was properly conducting business in the
manner legitimately authorized and directed by Aitken. He argues that he
“understood these invoices to be payments in advance of future sales, after
Aitken’s suggestion of this method as a way to keep ISC afloat until the Smart
House project came through . . . [and that he] acted reasonably in relying on
Aitken’s apparent authority to approve the invoices on Sears’ behalf.” Aplt. Br.
at 17 (emphasis in original).
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Viewing the evidence most favorably to the government, a jury could
reasonably find otherwise. As indicated above, Aitken testified that he and
Gaddis established and concealed an improper invoice scheme. 5
The 24 invoices
prepared at Gaddis’ direction listed “Installation Services” never performed and
Gaddis used HSI (his other company–unknown to Sears) as the customer on the
invoices. Gaddis transferred $15,000 from ISC to HSI so that HSI could make an
overdue payment to Sears to avoid detection of the invoice scheme and in doing
so, falsely represented the nature of the transfer by another false invoice for
research and development. He also directed the preparation of an invoice from
HSI to ISC in the amount of $345,000 for research and development shown to
have never occurred. The jury also heard evidence that during the six-months of
the false invoices, Gaddis and his wife received over $106,000 in salary and
benefits from ISC while employees were asked to defer their salaries due to ISC’s
financial difficulties. This multitude of false invoices, fund transfers, and efforts
5
The following exchange is an example:
Q. [by Assistant U.S. Attorney Lillard] “And did you tell Gaddis
whether anyone from Sears could know about this?”
A. [Aitken] “. . . I said that this had to be – it would be totally a
secret because there is no way that I could get anyone to approve
doing this. It was not legitimate to pass the invoice.”
Aplt. App. at 185, Tr. at 125.
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to conceal the identity and solvency of Gaddis’ companies goes far beyond any
plausible, legitimate business practice.
Thus, despite Gaddis’ arguments that he did not realize that his actions
constituted criminal fraud, a jury could reasonably find from all the evidence that
Gaddis intended a scheme to defraud and/or to obtain money from Sears by false
representations.
B. Evidence of Other Bad Acts
Mr. Gaddis claims that the district court erred in allowing evidence of other
bad acts under Fed. R. Evid. 404(b) 6
. We review a district court’s decision to
admit evidence, including under Fed. R. Evid. 404(b), only for abuse of
discretion. See United States v. Grissom , 44 F.3d 1507, 1513 (10th Cir. 1995).
Gaddis contends that the evidence of his Corvette purchase and other breaches of
the loan agreement with Sears was prejudicial. To review the trial court's
admission of the evidence,
we apply a four-part test examining whether: (1) the prosecution
offered the evidence for a proper purpose under Rule 404(b); (2) the
evidence is relevant under Fed. R. Evid. 401; (3) the evidence's
Fed. R. Evid. 404(b) provides in relevant part: “Evidence of other crimes,
6
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, preparation, plan,
knowledge, identity, or absence of mistake or accident. . . .”
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probative value is not substantially outweighed by its potential for
unfair prejudice under Fed. R. Evid. 403; and (4) the district court,
upon request, gave a proper instruction limiting the jury's
consideration of the evidence to the purpose for which it was
admitted.
United States v. Segien , 114 F.3d 1014, 1022-1023 (10th Cir. 1997) (citing
Huddleston v. United States , 485 U.S. 681, 691, 108 S. Ct. 1496, 1502, 99 L.
Ed.2d 771 (1988)). We noted in Segien that Fed. R. Evid. 404(b) is a rule of
“inclusion, rather than exclusion, unless the evidence is introduced for the
impermissible purpose or is unduly prejudicial.” Segien at 1022.
The government argues that the evidence was material and admissible for
the proper purposes of showing Gaddis’ motive, intent, knowledge, and the
absence of mistake. We agree and find Gaddis’ prior conduct relevant to these
proper purposes. The similarity of conduct in the prior transactions shows that
Gaddis knew how to hide his inappropriate use of Sears funds and how to create
and use false invoices. The $60,000 invoice for non-existent research and
development to purchase the Corvette is relevant to show the lack of mistake in
the later 24 invoices for non-existent installation services to facilitate the
$324,000 transfers from Sears. As we have noted, “[e]vidence of lack of mistake
or accident is relevant in proving fraudulent intent, an element of . . . wire fraud.”
United States v. Litchfield , 959 F.2d 1514, 1519 (10th Cir. 1992). The district
court did not abuse its discretion in finding that this evidence’s probative value
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was not substantially outweighed by unfair prejudice. See United States v.
Reddeck , 22 F.3d 1504, 1508 (10th Cir. 1994) (“The trial court has broad
discretion to examine whether the probative value of evidence substantially
outweighs the danger of unfair prejudice.”). Furthermore, we note that the court
gave a proper limiting instruction to the jury. Thus, finding the four-part test
satisfied, we cannot say the district court abused its discretion, and therefore
affirm its evidentiary ruling.
C. Grouping of Convictions for Sentencing Purposes
Mr. Gaddis next argues that, under the United States Sentencing
Guidelines, his convictions for fraud and money-laundering should be grouped to
reduce his sentence. We review a district court’s legal interpretation of the
Sentencing Guidelines de novo, see United States v. Kunzman , 54 F.3d 1522,
1531 (10th Cir. 1995), and fact finding under the clear error standard, giving
deference to the court’s application of the Sentencing Guidelines to the facts, see
United States v. Hargus , 128 F.3d 1358, 1364 (10th Cir. 1997). This issue is
controlled by our prior cases. The Guidelines state: “All counts involving
substantially the same harm shall be grouped together in a single Group.”
U.S.S.G. § 3D1.2. In United States v. Johnson , 971 F.2d 562, 575-576 (10th Cir.
1992), and Kunzman , 54 F.3d at 1530-31, we held that convictions for money
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laundering and fraud may not be grouped under section 3D1.2 for sentencing
purposes because they involve different harms and different victims. We, of
course, are bound by circuit precedent 7
as was the district court, who correctly
ruled on this issue.
D. Testimony of Co-conspirator
Mr. Gaddis last argues that testimony by Aitken was procured by an
“improper gratuity” from the government, and therefore should have been
excluded. Gaddis failed to raise this issue below. Further, our en banc decision
in United States v. Singleton , 165 F.3d 1297 (10th Cir.) (en banc), cert. denied , --
U.S. ----, 119 S. Ct. 2371, -- L. Ed.2d ---- (1999), disposes of the argument.
7
As we noted in United States v. Allen, 129 F.3d 1159, 1167 (10th Cir.
1997), circuits have disagreed on grouping such related offenses. See United
States v. Napoli, 179 F.3d 1, 7 (2d Cir. 1999) (examining and citing deep circuit
split and holding that fraud and money laundering counts should not be grouped).
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III. CONCLUSION
For the reasons set forth above, Gaddis’ conviction and sentence are hereby
AFFIRMED.
ENTERED FOR THE COURT
Stephen H. Anderson
Circuit Judge
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