Lustiger v. United States

386 F.2d 132 (1967) United States Court of Appeals for the Ninth Circuit 1967-11-16

criminal; bench-trial conviction on 17 mail fraud counts (mail-order sale of remote Arizona desert lots as "Lake Mead City"), general finding with no special findings; defendant appeals sufficiency of the evidence of a scheme to defraud, plus suppression, grand jury, First Amendment and evidentiary rulings (result: claimant-won)

Facts

1 Scheme or artifice to defraud satisfied proved
Lustiger caused the company to advertise its property in newspapers and other publications throughout the country. Those who answered were sent an “Investor’s Kit,” consisting of a thirty-two page color brochure, a “Fact Sheet,” and a land reservation form.
1 Scheme or artifice to defraud satisfied proved
Although the accompanying “Fact Sheet” warned that no streets were presently available, prospective customers were not told that the terrain in many of the units made actual construction of a road physically impracticable or unreasonably expensive.
1 Scheme or artifice to defraud satisfied proved
The trial court was warranted in finding that the use of the words “Lake Mead City” in the subdivision name, taken in conjunction with the phrases quoted above were intended to mislead prospective customers into believing that a planned city or community had already been started and was rapidly growing.
1 Scheme or artifice to defraud satisfied proved
In fact, no city or community of residents, or building improvements of any kind, were in existence up to March, 1963, except for a small field office used by the company and a temporary dwelling occupied by a guide and caretaker.
1 Scheme or artifice to defraud satisfied proved
There was no plan to construct or provide housing or shopping facilities, or provide the utilities necessary to the development of a planned city or community.
1 Scheme or artifice to defraud satisfied proved
If a scheme is devised with the intent to defraud, and the mails are used in executing the scheme, the fact that there is no misrepresentation of a single existing fact is immaterial. It is only necessary to prove that it is a scheme reasonably calculated to deceive, and that the mail service of the United States was used and intended to be used in the execution of the scheme.
1 Scheme or artifice to defraud satisfied proved
While it is true that exaggeration within reasonable bounds under the circumstances will not support a finding of a scheme to defraud, a substantial deception, as evidenced here, is sufficient.
1 Scheme or artifice to defraud satisfied proved
Moreover, here prospective buyers were expected to rely almost entirely on the advertising materials in making their purchase. Only a few buyers saw the property before signing the purchase contract.
1 Scheme or artifice to defraud satisfied proved
We conclude that the evidence is sufficient to support a finding that Lustiger intentionally engaged in a scheme to defraud.
3 Material deception satisfied proved
Another picture shows a large metal water tank lying horizontally alongside a windmill, with the printed declaration: “IMPORTANT! Plenty of Water.”
3 Material deception satisfied proved
Our examination of Lustiger’s advertising materials reveals that the statements, photographs and maps, unaccompanied by true statements concerning the lack of available water, could reasonably have led a person of average intelligence and experience to believe that all parcels offered for sale had reasonable access to a water supply.
3 Material deception satisfied proved
While the statements in the advertising materials may not have been literally false, taken as a whole they were fraudulently misleading and deceptive.
3 Material deception satisfied proved
It is true that, measured by a straight line, Lake Mead is only five miles from the boundary of Lake Mead City.
3 Material deception satisfied proved
However, Lustiger did not reveal that by existing roads Lake Mead is fifteen miles from the nearest and forty miles from the farthest Lake Mead City unit.
3 Material deception satisfied proved
Undisclosed to the prospective purchaser, however, was the fact that none of the pictured bodies of water were on land owned or optioned by Lustiger’s company.
3 Material deception satisfied proved
Lustiger failed to disclose that the only source of water on the property owned by the company and available to purchasers during the period charged in the indictment was the Clearwater Well, located in the far northwest corner of the Lake Mead City units, a distance of twenty-eight miles from some subdivision units.
3 Material deception satisfied proved
The brochure stated that all Lake Mead City properties “are within the franchised area of Citizen’s Utilities Company, with regard to power and telephone.” This statement is literally true.
3 Material deception satisfied proved
Although the “Fact Sheet” stated that utilities were not presently available, Lustiger failed to disclose that the nearest existing electric power lines and telephone lines are approximately twenty-one miles from the nearest, and thirty-eight miles from the farthest of the Lake Mead City subdivision units.
3 Material deception satisfied proved
Customers were not informed that the company owned only the odd-numbered sections, the even-numbered sections belonging to the federal government for grazing, mining and recreational purposes.
3 Material deception satisfied proved
Finally, customers were not told that large washes, rocky hills, and steep cliffs separated many of the subdivision parcels, making reasonable travel between them in the future highly unlikely.
3 Material deception satisfied proved
The evidence is overwhelming that Lustiger’s advertising materials were in some respects false and, apart from falsity were, when considered as a whole, fraudulently deceptive and misleading, exhibiting an intent and purpose to defraud.
3 Material deception satisfied proved
Moreover, deceitful statements of half truths or the concealment of material facts is actual fraud violative of the mail fraud statute.
4 Knowing participation with intent to defraud satisfied proved
Land which cost Lustiger from $33.20 to $125 an acre was in this way sold in one and a quarter acre parcels for from $395 to $495.
4 Knowing participation with intent to defraud satisfied proved
Under the exchange policy, customers who had purchased lots in the ten units within which the company had not installed roads, staked lots, or provided parcel identification markers, could trade for property in the “improved” building area.
4 Knowing participation with intent to defraud satisfied proved
Under the refund policy, if for any reason a customer changed his mind or was not completely satisfied within thirty days, his money was returned without question.
4 Knowing participation with intent to defraud satisfied proved
As long as a sufficient number of the statements were shown to be knowingly false, deceptive or misleading to permit the trial court to infer that defendant intentionally engaged in a scheme to defraud, the conviction must be affirmed.
4 Knowing participation with intent to defraud satisfied proved
Lustiger also argues that his refund and exchange policies negate any finding of fraudulent intent. We disagree.
4 Knowing participation with intent to defraud satisfied proved
While such policies may be evidence of good faith, they do not necessarily negate a finding of bad faith.
4 Knowing participation with intent to defraud satisfied proved
Here the exchange policy was conditioned on building within a certain period of time, and the refund policy was limited to thirty days.
5 Statutory mailing or carrier act satisfied conceded
It was stipulated prior to trial that appellant used the mail in connection with his land sales.
5 Statutory mailing or carrier act satisfied conceded
The company, through Lustiger, informed all customers that mail should be sent to the company at P.O. Box 13349, Phoenix, Arizona.