United States v. Ranney

United States Court of Appeals
For the First Circuit
_________________
Nos. 01-1912
01-2531

UNITED STATES OF AMERICA,
Appellee,
v.
WILLIAM RANNEY, SR.

Defendant, Appellant.

_________________________
No. 01-1913

UNITED STATES OF AMERICA,

Appellee,
v.

DENNIS CIOFFI,

Defendant, Appellant.
_________________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Edward F. Harrington, Senior U.S. District Judge]

__________________________
 Before

Torruella and Lipez, Circuit Judges,

and Schwarzer,* Senior District Judge.

__________________

Miriam Conrad, with whom Terrance J. McCarthy was on briefs,
for appellants.
Joshua S. Levy, Assistant United States Attorney, with whom
Michael J. Sullivan, United States Attorney, was on brief for
appellee.

August 1, 2002

*
The Honorable William W Schwarzer, Senior United States
District Judge for the Northern District of California, sitting by
designation.
 SCHWARZER, Senior District Judge: Defendants William

Ranney, Sr. ("Ranney") and Dennis Cioffi ("Cioffi") (collectively,

"defendants") were named in a twenty-five-count indictment charging

conspiracy to commit mail and wire fraud, along with several

substantive counts of mail and wire fraud. Following a jury trial,

Ranney was convicted of conspiracy in violation of 18 U.S.C. § 371,

four counts of wire fraud in violation 18 U.S.C. § 1343, and one

count of mail fraud in violation of 18 U.S.C. § 1341. Cioffi was

convicted of one conspiracy count and two wire fraud counts.

On appeal, defendants press four contentions, the first

by both defendants and the others by Ranney alone. First,

defendants challenge the court's denial of their motion for a

hearing pursuant to Franks v. Delaware, 438 U.S. 154 (1978).

Second, Ranney contends that the court's jury instructions

improperly lessened the government's burden of proof. Third,

Ranney argues that the court committed clear error in calculating

the loss attributable to the fraud. Fourth, Ranney challenges the

district court's denial of his motion to correct the judgment under

Rule 36.

PROCEDURAL BACKGROUND

On December 17, 1998, a magistrate judge signed a search

warrant authorizing the search of the premises occupied by Big Top

Gumball, a company engaged in the marketing of the “Big Top”

gumball vending machine. In support of its search warrant

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application, the government submitted a thirty-page affidavit by

F.B.I. agent Geoffrey Kelly, detailing how Big Top had defrauded

twelve customers. Pursuant to this warrant, the government seized

several boxes of business records, including promotional materials,

telephone sales scripts, customer files, invoices, customer waiting

lists, a customer "temperature" list (indicating a customer’s

degree of irritation), and related records. This evidence was

eventually received at defendants’ trial.

On July 14, 2000, defendants moved for a Franks hearing,

alleging that the government had intentionally misled the

magistrate judge in seeking this warrant. On December 1, 2000, the

court held a hearing on the Franks motion. Defendants argued that

the affidavit wrongly implied that Quick Silver Development

Corporation (“Quick Silver”), the manufacturer of the machines,

held a patent on an essential element of the machine and that it

failed to disclose bias on the part of Greg Malavazos, a Quick

Silver employee. When the court inquired further, the government

acknowledged that it had taken no steps to confirm the patent's

existence.

On December 4, 2000, the court denied the motion, and the

government filed a report stating that it had discovered that Quick

Silver did not own the patent at issue. The court then denied

defendants' motion for reconsideration.

After a thirteen-day trial, defendants were convicted on

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all counts. The court sentenced Ranney to fifty-seven months'

imprisonment and three years' supervised release and ordered him to

pay restitution of $407,647. It sentenced Cioffi to twenty-four

months' imprisonment and three years' supervised release and

ordered restitution of $309,090.

Following entry of judgment Ranney filed a Rule 36 motion

to amend the judgment to deduct losses incurred before the

inception of the conspiracy and by one customer who had received an

incomplete machine. The amendment would have reduced Ranney’s

Guideline range from 57-71 months to 51-63 months. The court

denied the motion.

Defendants now appeal. We have jurisdiction pursuant to

28 U.S.C. § 1291 and 18 U.S.C. § 3742, and affirm.

FACTUAL BACKGROUND

Defendants were convicted of running a telemarketing

fraud operation using their company, Big Top Gumball ("Big Top").

In April 1996, Big Top contracted with Quick Silver to manufacture

vending machines. By the time Quick Silver began full-scale

production in September 1996, Big Top had approximately 200

unfilled orders. Quick Silver manufactured roughly 250 machines

before halting production in December 1996. In February 1997, when

Quick Silver canceled its contract, Big Top found itself without a

manufacturer. Nonetheless, Big Top continued to market its

product, soliciting new orders and promising delivery within six to

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eight weeks. By July 1997, Big Top owed 175 machines to more than

60 customers who had already paid deposits. Twenty-one customers

on this list had paid in full, but had not received their machines.

Big Top continued to solicit new orders until the end of 1998

despite never having secured new production capacity.

The Kelly affidavit, apart from chronicling the

activities of the defendants’ scheme, related the experiences of

eighteen of Big Top's customers who had paid 50-100% of the

purchase price but never received delivery despite Big Top's

repeated promises of imminent delivery. The affidavit also

contained information regarding Big Top's lack of access to

production capacity and Quick Silver's alleged patent on certain

parts. Specifically, paragraphs 14 and 21 of the affidavit

contained the following information:

[Malavazos] advised me that Big Top lacks the
patented computer hardware necessary to
manufacture [the] machines themselves. Thus,
for nearly two years, even though it has not
purchased any machines from its supplier and
it does not apparently have the capability to
manufacture these gumball machines on its own,
Big Top has solicited orders and accepted
money based, in part, on the representation of
guaranteed delivery within six to eight weeks.
. . . The only way that Big Top could
manufacture such a machine themselves would be
if [it was] able to secure another
manufacturer for these computer electronics
board [sic], which have been patented by Quick
Silver.

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 DISCUSSION

I. DENIAL OF FRANKS MOTION

We review the court's denial of the Franks hearing for

clear error. United States v. Grant, 218 F.3d 72, 76 (1st Cir.

2000).

A Franks hearing is warranted where the defendant makes

a "substantial preliminary showing" that (1) a false statement,(2)

knowingly and intentionally, or with reckless disregard for the

truth, was included in the warrant affidavit, and (3) the allegedly

false statement is necessary to the finding of probable cause.

Franks, 438 U.S. at 155-56. As the government conceded below, the

affidavit contained a factual error; Quick Silver in fact held no

patents to parts of the machines so as to preclude Big Top's

securing another manufacturer. Because defendants do not allege

the statement to have been made with actual knowledge of its

falsity, we consider only whether it was made with reckless

disregard for the truth and, if it was, whether it was necessary to

the finding of probable cause.

A. Reckless Disregard for the Truth

To prove reckless disregard for the truth, the defendant

must prove that the affiant “in fact entertained serious doubts as

to the truth" of the allegations. United States v. Williams, 737

F.2d 594, 602 (7th Cir. 1984) (internal quotations omitted)

(agreeing with United States v. Davis, 617 F.2d 677, 694 (D.C.

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Cir. 1979) holding that the First Amendment definition should be

applied by analogy in the Franks setting); see also Beard v. City

of Northglenn, 24 F.3d 110, 116 (10th Cir. 1994) (same).

Recklessness may be inferred "from circumstances evincing obvious

reasons to doubt the veracity of the allegations." Williams, 737

F.2d at 602 (internal quotations omitted).

Defendants’ principal contention is that Kelly should

have checked whether Quick Silver actually had the patent Malavazos

claimed it had. Although Kelly could have made such an

investigation, defendants have shown no circumstances indicating

that he had reason to doubt the patent’s existence. Under the

circumstances, his failure to probe further does not amount to

reckless disregard. United States v. Dale, 991 F.2d 819, 844 (D.C.

Cir. 1993) (“failure to investigate fully is not evidence of an

affiant’s reckless disregard for the truth.”).

Defendants also argue that Kelly should have entertained

serious doubts as to Malavazos’s credibility because he had

provided different estimates of Big Top's debt to Quick Silver in

three interviews. We agree with the government that these

discrepancies are tangential, and that Kelly rightly focused on

Malavazos's chief assertion, that Big Top had no production

capacity to manufacture machines after February 1997, constituting

the heart of the fraud. This assertion was corroborated by

information Kelly obtained from Big Top customers who had purchased

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machines after February 1997, but had never received them.

B. Probable Cause

Even had defendants been able to clear the reckless

disregard hurdle, they failed to make the requisite substantial

preliminary showing that absent the false information the affidavit

contained insufficient evidence to support a finding of probable

cause. Franks, 438 U.S. at 171-72.

They contend that in the absence of the false patent

ownership statement, the allegations in the affidavit of Big Top’s

conduct amounted to no more than "poor customer service" or

"puffing" regarding anticipated delivery time, not sufficient to

support a probable cause finding of mail fraud. But these

statements, far from being mere opinion or puffing, were specific

factual representations about product shipment schedules.

Moreover, the undisputed portions of the affidavit

establish probable cause that Big Top was engaged in fraud in 1997

and 1998. By the close of 1996, Quick Silver had ceased

manufacturing and Big Top owed forty machines to customers who had

paid in full. By February 1997, Big Top had an extensive waiting

list of customers who had paid for machines that did not exist,

were not scheduled to be manufactured, and could not be

manufactured given Big Top's complete lack of production capacity.

Nonetheless, over the next twenty-two months, Big Top continued to

actively solicit new orders and obtain deposits from customers,

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promising delivery in six to eight weeks. Furthermore, twenty-one

individuals had filed complaints with the Massachusetts Attorney

General alleging fraud, and thirty-two complaints had been filed

with the Federal Trade Commission. The affidavit also described

Big Top bank records corroborating individuals' assertions and

suggesting improper activity (such as large cash withdrawals). In

sum, the detailed customer complaints, Malavazos's other

statements, and the bank records, taken together, support a finding

of probable cause. The false statement regarding the patent was

unnecessary to this finding. Therefore, the district court

properly denied the defendants' motion for a Franks hearing.

II. JURY INSTRUCTIONS

Ranney contends that the court gave improper and

confusing instructions regarding reasonable doubt. The jury

instructions at issue read as follows:

It may be that the evidence is susceptible to
one of two interpretations, one favoring
guilt, one favoring non-guilt. If that is the
case, a defendant is entitled to the benefit
of the interpretation that favors not guilty.
. . . [A] defendant is never to be convicted
on mere suspicion or conjecture. The burden
is always upon the prosecution to prove guilt
beyond a reasonable doubt. . . . If the jury .
. . has a reasonable doubt that a defendant is
guilty of the charge, it must acquit.

If the jury views the evidence in the case as
reasonably permitting either of two
conclusions, one of guilt, the other of non-
guilt, the jury must, of course, adopt the
conclusion of non-guilt. . . . [U]nless the
government proves beyond a reasonable doubt

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 that a defendant has committed each and every
essential element of the offense with which he
is charged, you must find him not guilty.

(Emphasis added.)

Ranney having objected below, our review is for abuse of

discretion “to determine whether the instructions adequately

explained the law or whether they tended to confuse or mislead the

jury on the controlling issues.” United States v. DeLuca, 137 F.3d

24, 37 (1st Cir. 1998) (quoting United States v. Alzanki, 54 F.3d

994, 1001 (1st Cir. 1995) (internal quotations omitted)). “When

the asserted deficiency implicates the government’s burden of

proof, we inquire whether there is a ‘reasonable likelihood’ that

the jury understood the appropriate standard (viz., proof beyond a

reasonable doubt).” Id.

Ranney argues that the use of instructional language

equating guilt and innocence has been criticized as undercutting

the government’s burden and sounding too much like a preponderance

standard. See United States v. Andujar, 49 F.3d 16, 24 (1st Cir.

1995) (admonishing that “district courts should refrain wherever

possible form using a ‘guilt or innocence’ comparison in their jury

instructions.”). Because here the court referred to guilt and non-

guilt, rather than innocence, a term less susceptible to a lay

response, we find the instruction less troublesome. Nevertheless,

telling jurors that the question is one of guilt or non-guilt,

without more, could risk undercutting the government’s burden by

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suggesting that the defendant is guilty if they do not think he is

not guilty. Cf., id. (warning against the use of guilty or

innocent). See also United States v. Guerrero, 114 F.3d 332 , 344

(1st Cir. 1997), and United States v. Inserra, 34 F.3d 83, 90 (2d

Cir. 1994), both involving guilt/innocence instructions. But even

given the use of an inappropriate “tie breaker” instruction, we

will affirm if in the light of the entire jury charge there was no

"reasonable likelihood" that the jury misunderstood the

government's burden. Victor v. Nebraska, 511 U.S. 1, 6 (1994).

Here, the court repeated its instruction that the government was

required to prove guilt “beyond a reasonable doubt” on some twenty-

three occasions, it reiterated the instruction seven times in

responding to jury questions, it complemented its tie-breaker

instruction with a reasonable doubt instruction, and it did not use

the questionable guilt/innocence language. There being no

reasonable likelihood that the jury failed to understand the

government’s burden as proof beyond a reasonable doubt, we find no

abuse of discretion.

III. CALCULATION OF LOSS ATTRIBUTABLE TO RANNEY

The district court found Ranney to be responsible for a

loss of between $350,000 and $500,000. It determined the loss by

adding the amounts paid by each Big Top customer during the

conspiracy period for machines never received. The calculation was

supported by the trial testimony of Big Top customers, victim

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impact statements, the Presentence Investigation Report (“PSR”) and

Agent Kelly’s sentencing affidavit. It did not include sums paid

by victims the government had not contacted.

Ranney contends in essence that the evidence supporting

the court’s calculation was insufficient. He argues that because

the company started as a legitimate business, the district court

was required to make a determination whether defendants’ conduct

with regard to the disputed loss was actually criminal conduct.

But there was evidence from which the court could find that all Big

Top customers who did not receive the machines they paid for during

the conspiracy period were victims of defendants’ common scheme and

plan. This was evident from the trial testimony that Big Top

representatives followed a similar sales pitch using scripts issued

to them by Ranney, gave a money-back guarantee, and promised

delivery within six to eight weeks. Ranney offered no testimony

disputing that of customers or suggesting that any loss occurred

under different circumstances. United States v. Grant, 114 F.3d

323, 328 (1st Cir. 1997) (finding that "the court was justified in

relying on the contested facts" in the PSR where the defendant did

not "provide the sentencing court with evidence to rebut the

factual assertions" in dispute).

We review the district court's interpretation and

application of the sentencing guidelines de novo and its factual

findings for clear error. United States v. Skrodzki, 9 F.3d 198,

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203 (1st Cir. 1993). A defendant "dissatisfied with the sentencing

court's quantification of the amount of loss in a particular case

must go a long way to demonstrate that the finding is clearly

erroneous." United States v. Rostoff, 53 F.3d 398, 407 (1st Cir.

1995). The district court's findings as to factual matters need

only be "supported by a preponderance of the evidence." United

States v. Ovalle-Marquez, 36 F.3d 212, 221-22 (1st Cir. 1994).

In determining the sentence, the district court may

include as relevant conduct "the same course of conduct or common

scheme or plan as" the underlying offense. Skrodzki, 9 F.3d at 201

(quoting U.S. SENTENCING GUIDELINES MANUAL § 1B1.3(a)(2) (2000)). To

constitute a "common scheme or plan," multiple offenses "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. SENTENCING GUIDELINES MANUAL § 1B1.3,

cmt. 9. In engaging in this analysis, the district court may rely

on the PSR, affidavits, documentary exhibits, and submissions of

counsel. Skrodzki, 9 F.3d at 201.

"[T]he loss [calculation] need not be precise"; the court

simply needs to "make a reasonable estimate of the range of loss,

given the available information." U.S. SENTENCING GUIDELINES MANUAL

§ 2F1.1, cmt. 8; Rostoff, 53 F.3d at 407 ("[Loss calculation] is

more an art than a science. Courts can, and frequently do, deal

with rough estimates."). Loss calculations "may be based on the

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approximate number of victims and an estimate of the average loss

to each victim." U.S. SENTENCING GUIDELINES MANUAL § 2F1.1, cmt. 9.

The PSR recommended a loss range of $500,000-850,000.

The government set the loss at $410,000, including only sales that

occurred during the charged conspiracy and excluding intended loss

for attempted sales and back-end frauds as well as losses by

victims it had not contacted. (After judgment, the government

moved to amend the judgment to remove two victims it had not

contacted and add one it had.) We find no clear error.1

IV. DENIAL OF MOTION TO CORRECT THE JUDGMENT UNDER RULE 36

Ranney's final contention is that the district court

erred when it denied his Rule 36 motion to correct the judgment by

revising the loss calculation so as to reduce his sentencing range.

Rule 36 permits the district court to correct only "[c]lerical

mistakes" and "errors in the record arising from oversight or

omission" despite the district court's divestment of jurisdiction

once the notice of appeal has been entered. FED . R. CRIM . P. 36.

The Rule applies to straightforward clerical and technical errors;

it is not meant to provide an opening for litigation over the

merits and is therefore "generally inapplicable to judicial errors

and omissions." United States v. Fahm, 13 F.3d 447, 454 n.8 (1st

1
Ranney also contends that the district court failed to make
findings on certain factual disputes in violation of Federal Rule
of Criminal Procedure 32(c). Having failed to raise the issue
below, Ranney has waived it.

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Cir. 1994) (internal quotations and citations omitted). Because

Ranney's motion fell outside the scope of Rule 36, it was properly

denied.

Affirmed.

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