Before Moore and Friendly, Circuit Judges, and Dimock, District Judge*fn*
Isidore Press, T. C. Fry, Jr., Buy-Rite Buyers Club, Inc., Factory Supply Co., Inc., Standard Distributors, Inc. and American Wholesalers, Inc. appeal from judgments of conviction entered upon a jury verdict in the District Court for the District of Vermont. The individual appellants were found guilty of 24 counts under the Federal Mail Fraud Statute, 18 U.S.C.A. § 1341, and of one count of conspiracy, 18 U.S.C.A. § 371. The corporations were convicted on the conspiracy count. The indictment named, in addition to appellants, Lawrence Press, Selmajane Stuchell and William Stuchell. Defendant Lawrence Press was acquitted of the conspiracy charge and has not appealed from his conviction on the mail fraud counts. Selmajane and William Stuchell were acquitted on all counts.
Count 1 of the indictment charged that the individual defendants, while managing and operating the corporate defendants (October 1960 to the date of indictment, June 27, 1962), unlawfully devised a scheme and artifice to defraud by "obtaining money * * * from the class of persons to be defrauded by means of false, fraudulent and misleading pretenses, representations, and promises made by Buy-Rite Buyers Club, Inc., and the [individual] defendants, the defendants well knowing at the time that the pretenses, representations, and promises were false, fraudulent, and misleading when they were made." Count 1 cited with great particularity magazine advertisements, promotion literature and numerous other aspects of the alleged scheme which were repeated by reference in counts 2 through 77. Counts 1 through 77 charged the receipt of specific pieces of mail and telephone calls all in furtherance of a scheme to defraud in violation of 18 U.S.C.A. §§ 1341, 1342, or 1343. Count 78, which included the corporate defendants, was for conspiracy, and alleged as overt acts the specific transactions enumerated in counts 1 through 77. Fifty-three of the 78 counts, including those charging a violation of 18 U.S.C.A. §§ 1342 and 1343, were dropped by the Government; thus, there remained 24 substantive counts and one conspiracy count for the jury.
It is undisputed that appellants Press and Fry were the central figures in the appellant corporations. They were engaged in mail-order merchandising. For a yearly membership fee, solicited through volume mailings and magazine advertisements, appellants undertook to supply members with various purchasing benefits including catalogs from which merchandise might be selected at costs substantially below retail. Headquarters for these enterprises was in Lodi, New Jersey, and the warehouse was located in nearby Paterson. While the Government's case necessarily covered the overall operation of the appellant corporations, it centers on the facts surounding the business of Buy-Rite Buyers Club, Inc.
Appellants organized Buy-Rite, a Vermont corporation, in Bennington, Vermont in the latter months of 1960, ostensibly to take advantage of the absence of Fair Trade laws in Vermont. They leased a small office, took a post office box, hired three or four people (including the Stuchells) for clerical help and opened a bank account. Activities in Vermont were generally limited, however, to processing mail and forwarding it to New Jersey. Beginning in March and continuing until December of 1961, Buy-Rite conducted a campaign of magazine advertisements and bulk mailings of solicitation literature. During that period a total of 3,600,000 pieces of the basic promotion matter was mailed. All mailing was done in the New York City area, but the return addresses and letterheads gave the Bennington office.
The solicitation literature must be reviewed in some detail. It consisted of four items: a four page covering letter, a yellow "Factory Price List," a four page blue flyer and a two page combination membership application form and club member order blank. Each of the four items was an artfully drawn document trumpeting in flamboyant terms the merits of Buy-Rite membership. In the unlikely event that recipients had pored meticulously and critically through these enticing circulars they might well have been perplexed as to exactly what Buy-Rite would deliver for the seven dollar yearly fee.
The four page covering letter, signed by appellant Fry as "Matthew Grady, Membership Director," explained that "buying right" with Buy-Rite enabled one to select from a vast assortment of commodities at prices "25% BELOW wholesale resale quotations to retail dealers!" As "solid evidence" of the merits of Buy-Rite, the letter urged recipients to take advantage of the order blank and "Factory Price List"; Buy-Rite's references, which were said to include Dun & Bradstreet, "are the best," the letter continued, and they would affirm that Buy-Rite was a "bona fide organization" which dealt "reliably, promptly and honestly." The seven dollar yearly membership fee would provide five basic services:
"1. You can buy directly from us all the merchandise we offer STRICTLY at Factory or Importers' quotations to wholesalers.
2. As a BUYERS CLUB we publish a comprehensive BLUE BOOK BUYERS GUIDE * * * [which] directs you to other merchandise sources * * * AT THE LOWEST PRICES OUR RESEARCHERS HAVE TURNED UP. * * *
3. We cause to be sent to you by other firms or enable you to secure from other firms a whole host of catalogs * * * price lists. * *
4. We operate a consultation and quotation service for ONE FULL YEAR for our club members.
5. We function as a unique introduction service and as such, offer this.Upon joining our club we'll send you $14 in CREDIT CERTIFICATES. These are good with other firms. * * * THESE CERTIFICATES ARE JUST AS GOOD AS CASH!"
"YOU WON'T LOSE A CENT WITH US IN ANY EVENT!" continued the letter, and "if you aren't FULLY SATISFIED * * * IF YOU ARE NOT WITHIN THIRTY FULL DAYS CONVINCED THAT ITS VALUE IS MUCH MUCH GREATER THAN A $7.00 membership fee, then just return everything to us. We don't ask questions. We'll promptly refund you membership fee FULLY."
The factory price list contained about 600 products, many bearing well-known nationally advertised trade names.Retail, wholesale and "factory" prices were listed, but the products were available to Buy-Rite members at "factory" prices. Prospects were assured that "most orders are shipped complete from our own warehouse within 24 hours after receipt." The four-page blue brochure in the Buy-Rite material further developed the benefits set forth in Matthew Grady's covering letter. "A huge catalog" of over 700 pages was described as one of the many features included in the membership fee, and the prospect was asked: "How much more do you feel such a catalog is worth when you can buy substantially all its contents at factory or importers' prices?" The brochure also discussed the "Buy-Rite Blue Book Buyers Guide," the Buy-Rite consultation and quotation service and the $14.00 in credit certificates. The fourth item included in the solicitation package was the membership application form. Listed there among the numerous membership benefits was "an introduction to a unique Factory Buying Plan thru which [the member] can buy over 20,000 items. * * *" in addition to a "tremendous color catalog exceeding 700 pages. * * *" to be used through the Factory Plan.
Sometime after the new Buy-Rite member had parted with his seven dollar membership fee, he again received a letter from Matthew Grady (Fry).This letter stated that under separate cover the member could expect to receive, among other things, introductory literature to a "bona fide Factory Buying Club" and a wholesale catalog of around 700 pages from appellant Standard Distributors, Inc. Shortly, the situation became clear when the member received a letter from appellant Factory Supply Company, explaining that Buy-Rite had requested Factory Supply to forward a copy of its Factory Buying Plan. Because of their Buy-Rite membership, the fee for the Factory Buying Plan was reduced from $18.75 to $13.75. "Why should you join the Factory Buying Club?" the letter asked.
"As a Buy-Rite member you can buy only about 2,000 items from them at Factory prices. But, as a member of Buy-Rite you have received several catalogs, notably a large 700 page wholesale catalog containing well over 12,000 items. * * * We supply EVERY item in this large catalog PLUS THOUSANDS MORE! * * *
YOU'LL RECEIVE the following additional material:
1. A comprehensive Master Factory Price Index showing Factory or Importer's quotations on the items in the large 700 page catalog.* *"
Buy-Rite members thus learned that the 20,000 items at factory or importers' quotations could be purchased only with the "Master Factory Price Index" obtained at the expense of joining another plan for $13.75.
That members were misled by the initial solicitation material was admitted by appellant Press, who testified that Buy-Rite members inquired as to when they would receive the 700 page catalog, "so they could buy the 20,000 items at factory cost," and that "it became evident that some of the people who were reading the literature, didn't fully understand, or weren't reading all of the literature. * * *" Buy-Rite, therefore, distributed the so-called "disclaimer letter" wherein Matthew Grady (Fry) explained:
"I hope you are wise enough to realize that $7 cannot possibly cover an offering of 20,000 items. In our literature we stated we would introduce you to Factory Buying Club. This Club does sell some 20,000 items at Factory or Importer's quotations. You'll receive this offer from Factory Supply Company * * *. We managed to secure a $6 consideration against a membership in this Factory Buying Club in your behalf."
A large part of the Government's proof was devoted to the manner in which Buy-Rite handled orders from members. Those employees in the Bennington office did little more than process orders and correspondence and fend off telephone inquiries by saying that the fictitious "Mr. Grady" and his equally fictitious associates were "in the warehouse" or "on the road" and could not be reached. Replies to complaints of undelivered merchandise were evasive, particularly where refunds were demanded. More than thirty disillusioned Buy-Rite members took the stand and described their persistent efforts to secure refunds of payments and membership fees after having waited months for merchandise that was never delivered. They also told of what the solicitation material had led them to believe Buy-Rite offered. In addition, officers of a Chamber of Commerce organization, the Greater Bennington Association, testified that a large number of complaints had been received by their office and that they had been called to Buy-Rite's attention.
Three witnesses took the stand for the defense. B. D. Venner, a "drop shipper," said that on one occasion he had shipped merchandise to a Buy-Rite customer who had testified for the Government but that Railway Express had lost or misplaced the shipment. While Venner said that he had put a "tracer" on this shipment, he admitted that he had made no attempt to follow it up with Railway Express even though the merchandise was not delivered. David J. Raibert, a Certified Public Accountant and appellants' "business adviser" testified that the four corporations comprised one integrated economic group, and that they were financially responsible. Raibert had conferred frequently over problems with postal authorities and with Dun & Bradstreet. He described generally the sudden growth in business in mid-1961 and said he had arranged for the installation of electronic IBM equipment to speed customer service.
Appellant Press told of his background in merchandising the growth of his mail order business, the difficulties experienced in obtaining competent help, the engagement of an efficiency expert and of conferences with his lawyer and a Postal Inspector wherein he sought to alleviate Buy-Rite's severe growing pains. Press insisted that his intentions were honest, and his lengthy testimony pictured the good-faith efforts of enterprising businessmen to keep pace with the enormous response which greeted their merchandising plan.Any difficulties encountered by customers, he asserted, were due to careless business methods and inadequate clerical help and did not reflect the existence of a fraudulent scheme.
On this appeal appellants urge numerous points for reversal: 1) the guilt of the defendants was not established beyond a reasonable doubt, that the Government's evidence was entirely circumstantial and did not exclude every hypothesis of innocence; 2) prejudicial hearsay evidence of customer complaints was improperly allowed; 3) various errors in the court's charge; 4) that appellants were victims of local prejudice which was not remedied by the court's charge; 5) that the court erred in allowing the indictment to go to the jury room; and, 6) that appellant Fry was deprived ...