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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