Lead Opinion
Opinion
{1 Defendant Joshua Paul Chapman appeals his conviction for securities fraud, a second degree felony. We affirm.
BACKGROUND
{2 In 2005, Sterling Madsen, who had known Chapman and his family for many years, invested $30,000 in a "hard money loan"
13 Madsen wanted to think the proposal over for a week and expressed concern to Chapman as to whether Rowley "could pull this off" because the interest rate was "astronomical" and the terms of the proposed written agreement indicated that the note was not secured. Chapman reassured Madsen that he believed Rowley was capable, which Madsen interpreted as an indication that Chapman "had checked [Rowley] out well enough that [Chapman] had confidence in him" and that this deal would go smoothly "just like the last client" with the $30,000 loan. Madsen also recalled Chapman de-seribing having "some kind of ... a doeument that would allow [them] to go and get that property if Mr. Rowley couldn't perform." Chapman did not show Madsen any such document but assured him that Row-ley's house had " 'plenty of equity in it'" and that they could " 'easily get [Madsen's] principal and interest back'" if it came to that.
14 Madsen ultimately agreed to the deal because of the trust he had developed in Chapman "over years of knowing him and his family and of ... having at least one prior
15 Two weeks later, Madsen entered into another hard money loan with Chapman as the intermediary and Rowley as the borrower. This time, Madsen agreed to lend Row-ley $140,000 at 4% monthly interest, which Rowley intended to use on a completely different project. Madsen borrowed the funds needed for this second transaction through a home equity loan on a rental property he owned.
T6 The $70,000 note became due on December 15. Madsen, having received no payments, contacted Chapman a week later. Chapman explained that Rowley had apparently encountered "some kind of water damage in this house that he was buying, and that now he was going to go sue the seller" and that he would be unable to pay the $70,000 note back until "he wrapped that up." Madsen followed up some time later, and Chapman informed him that things were still " 'kind of up in the air'" and that he did not know when Rowley would have Madsen's money.
T7 During this conversation, Madsen inquired about utilizing the document that Chapman had described in conjunction with the $70,000 loan that purportedly allowed them to "go get [Rowley's] house if anything went wrong and Mr. Rowley couldn't finish this project himself" Chapman admitted that he did not have "that document" and later testified that the document was for a lease option and provided no security for the note. Madsen also reminded Chapman that Chapman had promised to pay Madsen back himself if anything went wrong with the deal. Chapman denied personally guaranteeing the loan, but Madsen recalled Chapman indicating only that he could not afford to pay him back his investment. Madsen later discovered that the property was for sale. By then, Rowley had "disappeared." Chapman told Madsen that the last he knew of Rowley was that "he was living out of his car" and that "he just emailed [Chapman] now occasionally." Chapman then supplied Madsen with a copy of a promissory note between Chapman and Rowley signed on the same date the $70,000 note was executed, in which Madsen learned that Chapman expected to receive a $70,000 commission on the deal.
T8 The State charged Chapman with two counts of securities fraud based on his role as intermediary for the two hard money loans between Madsen and Rowley.
ISSUES AND STANDARDS OF REVIEW
19 Chapman raises two issues on appeal. First, he argues that the trial court erred by denying his motions for directed verdict because the State did not introduce sufficient evidence to prove the willfulness element of securities fraud. We reverse "a trial court's denial of a motion for directed verdict ... on the basis of insufficiency of the evidence ... only if, viewing the evidence in the light most favorable to the prevailing party, we conclude that the evidence is insufficient to support the verdict." Brewer v.
110 Second, Chapman argues that the trial court exceeded its discretion by allowing the State to elicit legal conclusions on ultimate issues from its expert witness. "It is within the discretion of the trial court to determine the suitability of expert testimony in a particular case, and we will not reverse that determination on appeal in the absence of a clear showing of abuse." State v. Johnson,
ANALYSIS
I. Directed Verdict
{11 Chapman argues that the trial court erred by denying his motions for directed verdict because the State failed to provide sufficient evidence that he acted willfully. The Utah Uniform Securities Act states,
It is unlawful for any person, in connection with the offer, sale, or purchase of any security, directly or indirectly to:
(1) employ any device, scheme, or artifice to defraud;
(2) make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the cireumstances under which they are made, not misleading; or
(3) engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
Utah Code Ann. § 61-1-1 (LexisNexis 2011). In addition, the Act provides, "[A] person who willfully violates Section 61l-1-1 ... is guilty of a second degree felony if, at the time the crime was committed, the property, money, or thing unlawfully obtained or sought to be obtained was worth $10,000 or more." Id. § 61-1-21(2)(b). In this context, to act willfully "means to act deliberately and purposefully, as distinguished from merely accidentally or inadvertently," and "when applied to the intent with which an act is done or omitted, [willful] implies a willingness to commit the act" but "does not require an intent to violate the law or to injure another or acquire any advantage." State v. Larsen,
(a) a reasonable person would attach importance to its existence or nonexistence in determining his or her choice of action in the transaction in question; or
(b) the person making the omission knows or has reason to know that the person regards or is likely to regard the matter as important in determining his or her choice of action, although a reasonable person would not so regard it.
112 As Chapman points out, there is evidence in the record suggesting that inexperience and bad luck are to blame for Madsen's losses, rather than willfulness on Chapman's part. This includes evidence of Chapman's young age at the time of the loans (mid-twenties), his limited education, and his few years of experience in the real estate market, which occurred entirely during a "boom" in the local housing market. Likewise, Chapman's testimony of his and Madsen's preexisting friendship and their families' connections could negate a finding of willfulness on his part.
1 13 However, there is also evidence in the record supporting the State's contentions. The State argued that Chapman made several willful misstatements or omissions of mate
€ 14 The State also argues that Chapman falsely represented the existence of collateral for the $70,000 loan. Chapman testified that he was aware that the document Madsen believed created a security interest in Row-ley's property was actually an assignment of contract rights and did not create a security interest but that he nonetheless informed Madsen that he "had a document to hopefully back up [the] deal," Chapman testified that he clearly communicated the risks associated with the $70,000 loan, including that the loan was not secured and that this lack of collateral was why he was able to negotiate such a high interest rate. And Madsen testified that he had read the terms of the promissory note describing the note as unsecured and then indicated that this was a "sticking point" for him. Nonetheless, there is sufficient evidence in the record for the jury to determine that Chapman misstated a material fact by representing the document as more than it was in order to assuage Madsen's concerns about the risk of the investment. Accordingly, the trial court did not err in denying Chapman's motions for directed verdict based on insufficient evidence of willfulness.
II. Expert Testimony
{15 Next, Chapman argues that his conviction should be reversed because the trial court erroneously permitted the State to elicit legal conclusions on ultimate issues from its expert witness, Michael Hines.
116 "The trial court has wide discretion in determining the admissibility of expert testimony, and such decisions are reviewed under an abuse of discretion standard. Under this standard, we will not reverse unless the decision exceeds the limits of reasonability." State v. Stringham,
{17 An expert witness may testify in the form of an opinion and can opine on an ultimate issue at trial "as long as that testimony is otherwise admissible under the rules of evidence." Id. at 1863 (construing rule 704 of the Utah Rules of Evidence); see also Utah R. Evid. 704(a) ("An opinion is not objectionable just because it embraces an ultimate issue."). An expert witness exceeds the seope of permissible testimony when "the witness's legal conclusions blur the separate and distinct responsibilities of the judge, jury and witness, or there is danger that a juror may turn to the [witness's legal conclusion] rather than the judge for guidance on the applicable law." State v. Johnson,
T18 Chapman raises three specific challenges to Hines's testimony. He claims that Hines impermissibly testified as to the meaning of the terms "security," "material fact or omission," and "predicate statement," which had the effect of telling "the jury what result to reach." We address each challenge in turn.
A. The Meaning of "Security"
119 First, Chapman contends that for the jury to convict him on the first count of securities fraud,; it needed to decide whether the unsecured promissory note for the $70,000 loan constituted a security. Chapman argues that Hines "told the jury that the transaction at issue would constitute a security" by testifying that promissory notes and "notes that are issued for investment purposes and are not collateralized" are seeu-rities.
120 Hines testified that there are "two different forms" of securities-those that are explicitly enumerated in the Utah Code as a security, see Utah Code Ann. § 61-I-13(1)(ee) (LexisNexis 2011), and those "that need an explanation in which elements are met to define the transaction as a security." In response to the State's question as to whether promissory notes, in general, can be securities, Hines explained that "notes that are issued for investment purposes and are not collateralized are" recognized in the industry as securities while "[nlotes that are issued in which there is collateral attached ... [are] less likely a security." Hines explained in broad terms how those in the industry may characterize a transaction that is not clearly enumerated in the Securities Act as a security. Hines did not tell the jury that the transaction at issue was a security, couch his opinion specifically in terms of what is required under Utah law, or otherwise tell the jury what conclusion to reach. Compare, e.g., Larsen,
B. Meaning of "Material Information"
121 For the jury to convict Chapman on the first count of securities fraud, it also
(1) the "risks associated with an investment"; (2) any "compensation or commission"; (8) "your ability to get your money back"; (4) "all financial information concerning the issuler]," including whether "the principals have civil histories, bankruptcies, criminal histories"; (5) whether "the individuals who are offering and selling the securities are [] licensed"; and (6) "the financial condition of the issuer."
(Alterations and omission in original.) Chapman has taken these statements out of context. Hines did not list these items as required disclosures but as "some examples" of the information that he believed is important "flor a purchaser of a security to make an intelligent investment decision." While these observations by Hines "express an opinion regarding the ultimate resolution of [a] disputed issue," the testimony does not eross the line drawn by rule 704 of the Utah Rules of Evidence. See State v. Larsen,
C. Meaning of "Predicate Statements"
122 Last, Chapman argues that Hines explained the concept and identified specific examples of "predicate statements" made by Chapman in his dealings with Mad-sen that are prohibited by the Securities Act.
{23 In context, however, Hines's testimony was far more generalized than Chapman lets on. In response to questions based on Chapman's statement vouching for Rowley, Hines stated,
It is my opinion [if] that is said in connection with a securities transaction, in connection with the offer, sale or the purchase of a security, that is what I referred to . earlier as a predicate statement, a statement that may or may not need more information to be clarified. A statement of that nature then needs to be followed up to be complete with, "This is how I know that he's dependable," or that, "This is merely my opinion, and I haven't done any verification," before the investor can understand the importance of that statement.
Hines's unremarkable opinion that "a statement [like] that" "may" require clarification does not "transgress([ ] into the area reserved for the jury by instructing the jury as to what legally constitutes" a predicate statement or material omission. See Larsen,
CONCLUSION
24 The trial court correctly denied Chapman's motions for directed verdict The State presented sufficient evidence to prove that Chapman acted willfully in connection with the $70,000 loan. The trial court did not abuse its discretion by admitting Hines's testimony as to the meaning of "security," "materiality," and "predicate statements" and Hines did not offer impermissible legal conclusions in his testimony. We affirm the trial court's decision.
Notes
. Hard money loans are most commonly used in connection with real estate transactions and offer an alternative to conventional loans "[when financing is difficult to obtain." Mortgages: Hard Money, 40-Mar. Real Est. L. Rep. 6, 6 (2011). Hard money loans "carry much higher interest rates than conventional loans" and are generally secured by the property in which the loan is invested. Id. The lenders involved "are not commercial banks or other traditional lenders; instead they often are private investors familiar with their local economy." Id. An individual involved in flipping houses may seek out "hard money loans for short-term financing, with the first proceeds of a sale used to pay off the loan." Id. at 7.
. We recite the facts in a light most favorable to the jury's verdict. State v. Kruger,
. Chapman was acquitted of a second count of securities fraud based on the $140,000 loan.
. Rowley was a co-defendant in this case and pleaded guilty.
. Chapman did not object to Hines's qualifications to testify as an expert witness. Consequently, there is no issue of qualification in this case. ©
. Chapman also argues that Hines's testimony explaining that "a transaction is 'more likely a security' if 'the people involved use the term investment'" was improper because "[dJuring trial, the witnesses repeatedly called the loan an investment." This argument is without merit, particularly in light of the fact that the only individuals that used the term "investment' to refer to the $70,000 loan during trial were Chapman, defense counsel, and the prosecutor.
. Judge Pearce's concurring opinion concludes that the trial court abused its discretion in admitting Hines's testimony regarding materiality because that testimony was within the knowledge and experience of an average layperson and therefore unhelpful. See generally Utah R. Evid. 702(a) (requiring an expert's testimony to "help the trier of fact to understand the evidence or to determine a fact in issue"). While we agree that the trial court failed to address "whether the testimony would actually be helpful to the jury," see infra 128, the reason for the omission is obvious: counsel never raised those specific questions. Chapman has maintained a fairly narrow position throughout the proceedings, requesting only that Hines be prohibited from offering legal conclusions in his testimony, specifically, that he be prohibited from testifying as to whether the individual promissory notes at issue in this case amounted to securities and whether
. Chapman also asserts that Hines "incorrectly asserted that the securities fraud statute imposed an affirmative duty to investigate and disclose certain material information." The record contains no such statement by Hines; indeed, Hines testified to, the opposite: "Individuals selling securities] have to make sure that any statement they make is truthful, and that they do not omit any material fact if they make a predicate statement. An omission by itself is not actionable. The fact that there is some fact available is not actionable." (Emphasis added.) We therefore do not reach this issue. Cf. State v. Wallace,
. This argument implies that the phrase "predicate statement" refers to an abstract legal concept. We have not found any support for such a presumption. Utah courts and other jurisdictions employing the phrase in securities cases have not used it in association with any specific legal definition; rather, the term is used as short
. Chapman also argues that Hines's testimony should have been excluded under rules 702 and 403 of the Utah Rules of Evidence because its probative value was outweighed by the danger of unfair prejudice and because he was in fact prej'udiced by the testimony. In making this argument, Chapman simply repackages the assertions addressed above to claim that any probative value of Hines's testimony was outweighed by the prejudice resulting from the legal conclusions contained in the testimony because such legal conclusions "blur{red] the separate and distinct responsibilities of the judge, jury, and witness." See State v. Davis,
Concurrence Opinion
(concurring in part and concurring in the result in part):
T26 I concur that the trial court did not err in denying Chapman's motion for a di
1 27 The trial court allowed Hines to testify concerning materiality, reasoning,
I think that the Courts have made a determination that securities fraud cases and securities are very technical in nature. I think that the Courts have ruled in respect that the experts can make-can testify in regards to what securities are and what facts they would state they consider to be material or not material if omitted or provided.
Although the trial court did not provide the basis for its ruling, both parties have briefed this matter as if the court relied upon State v. Larsen,
128 To the extent the trial court read Larsen to require the admission of expert testimony in every securities fraud case, it greatly expanded Larsen's reach,. Larsen held that a trial court did not abuse its discretion in permitting expert testimony concerning the materiality of information that a securities fraud defendant had omitted from documents provided to investors. However, Larsen specifically disavowed the suggestion that "the trial court must allow expert testimony regarding materiality, especially testimony utilizing the term (material"" Id. at 1863 n. 12 (emphasis added). Larsen did not alter the requirement that to be admissible, expert testimony must be "helpful to the finder of fact" under rule 702 of the Utah Rules of Evidence. See State v. Rimmasch,
129 In other words, the trial court never examined whether Hines's testimony would help the jury "understand the evidence or to determine a fact in issue." Utah R. Evid. 702(a). Unlike many securities fraud cases, where the issues are complex, the questions presented to the jury concerning materiality in this case were straightforward. The State alleged that Chapman had made misrepresentations, including that there was equity in Rowley's property, that Chapman possessed a document that would allow him to access that equity in case of default, and that Chapman would personally guarantee repayment.
{30 Hines testified on direct examination that "an important fact is the same as a material fact." He then testified as to examples of "important facts," including: (1) "if the principals in the issuing company have civil histories, bankruptcies, criminal histories"; (2) "facts relative to your ability to get your money back"; (8) "the actual risks associated with an investment"; and (4) "what compensation or commission, if any, is paid to individuals." In addition, Hines testified that "it would be important for the investor to actually see financial statements, preferably audited financial statements" and that "if the individuals who are offering and selling the securities are not licensed, that's a fact that would be important to the investor to know."
131 To determine whether Hines's testimony would aid the jury, the trial court first needed to "decide whether the subject [of the expert's testimony] is within the knowledge or experience of the average individual." Larsen,
1 32 It is well within the experience of the average layperson to know that a reasonable investor would likely be influenced by basic information about a financial transaction, such as "facts relative [to an investor's] ability to get [his or her] money back." For example, Chapman was alleged to have misrepresented that he had "a document that would allow [them] to go and get" the borrower's property in the case of default. The jury did not need an expert's help to understand that such information would likely influence a reasonable investor.
€33 Hines's testimony reflected that lack of complexity. Hines simply listed categories of information and told the jury that an investor would deem them to be important. Hines made no attempt to explain why such information would be important to an investor. Hines may not have explained his conclusions because they needed no explanation. An average person would already know that a reasonable investor would be influenced by the kind of information the State accused Chapman of misrepresenting or omitting.
" 34 Moreover, the trial court never examined whether it would be helpful for the jury to have the sitting Director of Enforcement for the Division of Securities recite categories of information he opined investors would consider important without explanation of the information's import. On the facts of this case and the allegations leveled against Chapman, Hines's materiality testimony was not helpful.
135 Chapman also argues that Hines's testimony should not have been admitted, because the danger for unfair prejudice outweighed its probative value. See Utah R. Evid. 403. Chapman specifically contends that Hines's testimony crossed the line into improper legal conclusions and blurred the "separate and distinct responsibilities of the judge, jury, and witness." See State v. Davis,
136 In cases concerning materiality, the question turns on whether the experts "tie their opinions to the requirements of Utah law." Tenney,
137 In an apparent effort to stay on the right side of that less-than-bright line, Hines attempted to avoid directly opining that a fact was "material," preferring instead to define "material" as "important" and then testify as to what a reasonable investor would find important. Hines's testimony was not quite so cleanly on the right side of the line, however. Immediately after listing the "important information," Hines opined that the securities laws "require total disclosure of all important facts to potential purchasers." Although not as blatantly explicit as the testimony Tenney found improper, Hines's testimony implicitly tied his opinion to the requirements of Utah law. Hines also testified on direct examination that "the financial condition of the issuer is an important fact that needs to be disclosed," a statement that also implicitly ties its conclusion to a requirement of Utah law. These portions of Hines's testimony constituted improper legal conclusions and should not have been admitted into evidence.
1 38 In order for Chapman to obtain relief based on a showing of erroneously admitted
Moreover, we have previously held that in some cireamstances a trial court can ameliorate "any potentially prejudicial ef-feets" of an expert offering an improper legal conclusion by "correctly and promptly" instructing the jury. Johnson,
{40 For these reasons, I concur in the majority opinion's holding with respect to the directed verdict but concur only in the result with respect to the admission of Hines's expert testimony.
. The majority opinion suggests that Chapman failed to raise this argument in the trial court. Chapman conceded below that Hines could testify to "any other question that would help an average layman understand the concept of securities" but argued that Hines "should be excluded from providing an opinion as to what a reasonable purchaser in this particular situation would want to know." The State's opposition to the motion in limine specifically argued that Hines's testimony would be helpful under rule 702. The State quoted State v. Larsen,
. The Utah Supreme Court has also defined a "material fact' as 'something which a buyer or seller of ordinary intelligence and prudence would think to be of some importance in determining whether to buy or sell." Gohler v. Wood,
. This is not to suggest that expert testimony concerning materiality can never be helpful to a finder of fact. As Larsen recognized, there are cases where the "technical nature of securities is not within the knowledge of the average layman or a subject within the common experience."
. The trial court also failed to analyze whether Hines's testimony regarding promissory notes and predicate statements would be helpful to the jury. But Chapman has not demonstrated that these topics were within the knowledge and experience of an average person and that, therefore, Hines's testimony should have been deemed unhelpful and inadmissible.
. The supreme court also noted that the defendant in Larsen had lodged his objection to the expert's use of the term "material" under rule 702 of the Utah Rules of Evidence, not rule 403. See
Concurrence Opinion
(concurring):
1125 I concur in Judge Greenwood's opinion but write separately to note that I share Judge Pearce's concerns regarding the admissibility of the State's expert's testimony with respect to the materiality of Chapman's statements and omissions. I agree with Judge Greenwood, however, that this matter is not properly before us on appeal, and, as a consequence, I believe it would be imprudent to reach the issue. I therefore concur.