Business Law 11th Edition by Kenneth Clarkson,Roger LeRoy Miller,Gaylord Jentz,Frank Cross

تمرين 2

United States v. Lyons
United States Court of Appeals, Ninth Circuit, 2007. 472 F.3d 1055.
• Background and Facts In 1994, in California, Gabriel Sanchez formed the First Church of Life (FCL), which had no congregation, services, or place of worship. Timothy Lyons, Sanchez's friend, formed a fund-raising company called North American Acquisitions (NAA). Through FCL, Sanchez and Lyons set up six charities-AIDS Research Association, Children's Assistance Foundation, Cops and Sheriffs of America, Handicapped Youth Services, U.S. Firefighters, and U.S. Veterans League. NAA hired telemarketers to solicit donations on the charities' behalf. Over time, more than $6 million was raised, of which less than $5,000 was actually spent on charitable causes. The telemarketers kept 80 percent of the donated funds as commissions, and NAA took 10 percent. Most of the rest of the funds went to Sanchez, who spent it on himself. In 2002, Lyons and Sanchez were charged in a federal district court with mail fraud and other crimes. Throughout the trial, the prosecution referred to the high commissions paid to the telemarketers. The defendants were convicted, and each was sentenced to fifteen years in prison. They asked the U.S. Court of Appeals for the Ninth Circuit to overturn their convictions, asserting that the prosecution had used the high cost of fund-raising as evidence of fraud even though the defendants had not lied about the cost.
McKEOWN, Circuit Judge.
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Rare is the person who relishes getting calls from those great patrons of the telephone, telemarketers. Yet many charities, especially small, obscure or unpopular ones, could not fund their operations without telemarketers. Some professional telemarketers take the lion's share of solicited donations, sometimes requiring and receiving commission rates of up to 85%. Most donors would probably be shocked or surprised to learn that most of their contributions were going to for-profit telemarketers instead of charitable activities. But * * * under the First Amendment, the bare failure to disclose these high costs to donors cannot, by itself, support a fraud conviction. Evidence of high fundraising costs may, nonetheless, support a fraud prosecution when nondisclosure is accompanied by intentionally misleading statements designed to deceive the listener. [Emphasis added.]
* * * Timothy Lyons and Gabriel Sanchez challenge their convictions for mail fraud and money laundering on the basis that they never lied, and never asked the telemarketers in their employ to lie, about the fact that around 80% of donations to their charities were earmarked for telemarketing commissions.
Lyons and Sanchez did, however, misrepresent to donors how they spent contributions net of telemarketer commissions. Their undoing was not that the commissions were large but that their charitable web was a scam. Donors were told their contributions went to specific charitable activities when, in reality, almost no money did.* * *
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* * * [A] rule in criminal prosecutions for fraud involving telemarketing [is that] the bare failure to disclose the high cost of fundraising directly to potential donors does not suffice to establish fraud. That is, the mere fact that a telemarketer keeps 85% of contributions it solicits cannot be the basis of a fraud conviction, and neither can the fact that a telemarketer fails to volunteer this information to would-be donors.* * *
* * * [But] when nondisclosure is accompanied by intentionally misleading statements designed to deceive the listener, the high cost of fundraising may be introduced as evidence of fraud in a criminal case. * * * [T]he State may vigorously enforce its antifraud laws to prohibit professional fundraisers from obtaining money on false pretenses or by making false statements. [Emphasis added.]
* * * Lyons and Sanchez urge that unless the government could show that they lied to donors about how much the telemarketers would receive, the government was barred from introducing evidence of the high commissions paid to telemarketers.
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* * * [T]he government both alleged in its indictment and offered evidence at trial of specific misrepresentations and omissions [that Lyons and Sanchez] made regarding the use of donated funds. Specifically, the government's evidence underscored the fact that virtually none of the money that ended up in the bank accounts of the six FCL charities went to any charitable activities at all, let alone the specific charitable activities mentioned in the telemarketers' calls or promotional pamphlets.* * *
* * * [A]dmission of evidence regarding the fundraising costs was essential to understanding the overall scheme and the shell game of the multiple charities. The government did not violate Lyons' or Sanchez's * * * rights by introducing evidence that third-party telemarketers received 80% of funds donated to the various FCL charities because the government had also shown that Lyons and Sanchez, through their respective organizations, had made fraudulent misrepresentations regarding disposition of the charitable funds.
• Decision and Remedy The U.S. Court of Appeals for the Ninth Circuit upheld the convictions. Evidence of the commissions paid to the telemarketers could be introduced even though no one lied to the would-be donors about the commissions. The defendants' "undoing was not that the commissions were large but that their charitable web was a scam."
• The Ethical Dimension It may have been legal in this case, but was it ethical for the prosecution to repeatedly emphasize the size of the telemarketers' commissions Why or why not
• The Legal Environment Dimension In what circumstance would the prosecution be prevented from introducing evidence of high fund-raising costs Why