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Crosby v. United States.

June 30, 1950

CROSBY
v.
UNITED STATES.



Huxman

Before PHILLIPS, Chief Judge, and HUXMAN and PICKETT, Circuit Judges.

HUXMAN, Circuit Judge.

This appeal is from a conviction of violation of 18 U.S.C. 338, (now 18 U.S.C.A. ยง 1341), (use of mails to defraud). Crosby was tried in the United States District Court for the Western District of Oklahoma. Trial was had to the court without jury and Crosby was found guilty and sentenced to three years upon each of thirty counts, the sentences to run concurrently. This appeal followed.

The alleged scheme to defraud arose out of a publication venture by Crosby and G. L. Shepard. On or about March 12, 1943, he and his partner, G. L. Shepard, began a publishing business in Oklahoma City under the name of the Victory Publishing Company. The purpose of the business was to sell space for photographs and war-service biographies, which, when compiled, would be printed in a history to be known as "The Fighting Men of Oklahoma."

At the outset of the business an agreement was drawn up providing for the establishment of a trust fund as a reserve to be used in the production of the history.*fn1 Thereafter the partnership employed salesmen and started business.*fn2 The salesmen promised prospective customers a sixvolume work and as per instructions, they relied heavily in their sales talk on the trust agreement. The booklet employed by the salesmen in securing subscriptions contained a letter from the Liberty National Bank dated July 5, 1945, stating that the trust account had a balance of $50,000.00. It also contained a letter from Clyde H. Hale, an attorney in Oklahoma City, interpreting the trust agreement.*fn3 The booklet also included a letter from the Liberty National Bank dated October 5, 1945, showing a credit balance of $81,142.96 in the trust fund. A note was attached by the Victory Publishing Company stating that the trust fund had been kept up in accordance with the trust agreement and that the trust fund was "devoted exclusively to underwriting the cost of publication." Also included was an affidavit by Crosby stating that the Victory Publishing Company had been depositing and would continue to deposit the requisite thirty per cent. Sales to subscribers went on until May, 1946. On June 30, 1947, all funds having been exhausted, the books were closed. During its operation, the business took in a total of $660,820.55. It delivered only two of the promised six volumes.

The indictment charged Crosby with using the mails to defraud in that he committed or acquiesced in numerous fraudulent practices and representations during the course of business.*fn4

The elements which constitute the offense are the formation of a scheme to defraud and the use of the mails in furtherance thereof. The use of the mails stands admitted so we are concerned solely with the question whether there is substantial evidence supporting the trial court's finding that appellant employed a fraudulent scheme with intent to defraud.

The parties are not in agreement as to the proper permissible charges against the trust fund. Appellant contends that costs of gathering data and material for biographical sketches which were charged against the trust account were proper charges against such account. The Government, on the other hand, contends that the costs of printing and publishing the books were the only charges that could be made against the account. The trial court ruled that only costs of printing and publishing the books could be charged against the trust fund. While the trust agreement, considered alone, authorizes a broader use of the trust funds than found by the trial court, the interpretation placed on the trust agreement by Hale's letter and conveyed to the subscribers by use of the mails, supports the conclusion of the trial court. Hale's leter specifically stated that the trust funds would be used exclusively for printing and publication of the books. The prospectus also contained the letter from the Liberty National Bank dated October 9, 1949 showing a credit balance in the fund of $81,142.96, with a note by the Victory Publishing Company stating that the trust fund had been accumulated in accordance with the trust agreement and that the trust fund is "devoted exclusively to underwriting the cost of the publication, The Fighting Men of Oklahoma," and an affidavit by Crosby stating that the Victory Publishing Company had been depositing and would continue to deposit in the Liberty National Bank thirty per cent of all net receipts, meaning receipts less commissions paid to salesmen from contracts entered into with subscribers. We think the record supports the court's construction placed upon the trust agreement.

It is clear from the record that the funds were not being deposited in compliance with the trust agreement or as represented in Crosby's affidavit. In fact, Crosby admitted that the trust fund requirements were $125,141.01 and that only $90,655.47 was actually deposited in the trust fund. His contention, however, was that he should be credited with certain expenditures in which he by-passed the trust fund. None of these expenditures, however, were for printing and distribution costs. Some of them were for salesmen's salaries and traveling expenses of salesmen while they were attempting to sell subscribers a better binding for the work.

Appellant's defense was good faith or absence of fraudulent intent. Fraudulent intent is an essential element of the crime with which Crosby was charged. As has been said many times, fraudulent intent is in many instances not susceptible of proof by direct evidence. In numerous cases it must be inferred from a series of acts and pertinent circumstances.*fn5 One will not be heard to say that he did not intend the natural consequences of his conduct. "If a man intentionally adopts certain conduct in certain circumstances known to him, and that conduct is forbidden by the law under those circumstances, he intentionally breaks the law in the only sense in which the law ever considers intent."*fn6

It is true, as urged by Crosby, that the increase in publication costs which could not have been foreseen contributed to the failure of the venture. We, however, think there is sufficient evidence in the record to support a finding that Crosby wilfully failed to carry out the promises made with respect to the trust fund in the trust instrument under the interpretation placed thereon by Hale's letter, the letter of the Liberty National Bank, the note of the Victory Publishing Company attached thereto stating that the trust fund had been kept up in accordance with the trust agreement and that the trust fund was "devoted entirely to underwriting the cost of the publication," and Crosby's affidavit stating that the Victory Publishing Company had been depositing and would to deposit the requisite thirty per cent.

The large withdrawals made by both Crosby and his wife during the period of time when the trust fund was not being administered as represented in the agreement and in the interpretative letters and affidavits is a circumstances worthy of consideration in determining intent. In 1943, Crosby withdrew $2700.00 from the receipts from subscribers. Between January 1, 1944 and September 30, 1944, he withdrew $19,750.00. Between October 1, 1944 and July 31, 1945, he withdrew $15,844.74, and his wife, L. M. Crosby, withdrew $1,894.50. Between August 1, 1945 and July 31, 1946, Crosby withdrew $35,297.27 and his wife withdrew $19,852.40. Between August 1, 1946 and July 31, 1947, he withdrew $6,677.41, and his wife withdrew $1,129.31. In all, during this period of time, he withdrew $80,269.42, and his wife withdrew $22,876.21.

It is our conclusion that considered in their entirety, the admitted facts, the letters and writings and the circumstances and inferences deductible therefrom support the findings of the trial court. We cannot say, as a matter of law, that ...


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