UNITED STATES OF AMERICA, Appellee, v. CRYSTAL GROTE, AKA CRYSTAL CRAM, AKA CRYSTAL CRAM-GROTE, AKA CRYSTAL STUBBS, Defendant, and TIMOTHY MUIR, SCOTT TUCKER, Defendants-Appellants.
Docket No. 18-181(L), 18-184(CON), 18-1802
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
Decided: June 2, 2020
August Term, 2018; (Argued: June 12, 2019)
LEVAL, POOLER, and PARKER, Circuit Judges.
THOMAS J. BATH, JR., Bath & Edmonds, P.A., Overland Park, KS, for Defendant-Appellant Timothy Muir.1
BEVERLY VAN NESS, Law Firm of Beverly Van Ness, New York, NY, for Defendant-Appellant Scott Tucker.
KARL METZNER (Hagan Scotten, Sagar K. Ravi, on the brief), Assistant United States Attorney, for Geoffrey S. Berman, United States Attorney for the Southern District of New York, New York, NY, for Appellee.
Defendants Scott Tucker and Timothy Muir appeal their criminal convictions after a five-week jury trial in the U.S. District Court for the Southern District of New York (P. Kevin Castel, J.) on fourteen counts of racketeering, conspiracy, and fraud offenses arising out of the Defendants’ operation of an illegal payday lending scheme. The evidence showed that from about 1997 to 2013, the Defendants lent money at interest rates far in excess of those permitted under the laws of New York and other states in which their borrowers resided, and deceived borrowers as to the terms of the loans.
The indictment included three counts of conducting an enterprise‘s affairs through the collection of unlawful usurious debt, in violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO“),
At trial, the parties agreed—as they do now—that the requisite mental state for the RICO counts was willfulness. The Defendants defended primarily on the ground that, because the lending business was operated by Native American tribes (the “Tribes“), the loans were not subject to state usury laws, and that even if the loans were unlawful, Defendants had a good faith belief that they were lawful by virtue of the tribal involvement, so that their conduct was not “willful.”
The Defendants’ principal claim on appeal is that the district court erred in instructing the jury that the Government could satisfy the required state-of-mind element of collection of unlawful debt by proving that the Defendants acted deliberately, “with knowledge of the actual interest rate charged on the loan[s],” App‘x at 264-65, notwithstanding any good faith belief that their conduct was lawful. Defendants contend that they could not be properly convicted on the charges of unlawful usurious lending unless they acted willfully, with knowledge that they were acting unlawfully.
Concluding also that the Defendants’ other contentions are without merit, we affirm the judgments of conviction on all fourteen counts. Additionally, we find that the district court did not abuse its discretion in denying Tucker‘s application to stay the execution of the forfeiture order entered against him following his conviction.
Payday loans are small loans typically to be repaid on the borrower‘s next payday. Such loans frequently carry high interest rates. Many states, including New York, have usury laws capping the permissible annual interest rate on such loans, with the highest lawful interest rate varying by state.
From approximately 1997 through 2013, Defendant Tucker owned and operated a payday lending business based in Overland Park, Kansas. Initially, the business offered loans primarily via fax and telephone. In about 2000 it began to solicit payday borrowers over the internet, operating through several different websites which were held out to the public as separate entities, but which were administered from the same building and by the same employees, and were referred to internally as different “portfolios.” Muir joined Tucker‘s business as an in-house attorney in 2005 or 2006. At its peak, the business had over 1,500 employees and 4.5 million customers, and generated more than a billion dollars in yearly revenue.
Tucker‘s loans were structured in the following manner. On each of the borrower‘s paydays following the loan disbursement (until the loan was repaid), the borrower‘s bank account was automatically debited a $30
Borrowers were entitled under the terms of the loans to opt out of the “automatic renewal” process and instead pay the full amount of the principal (in addition to the service charge) on their first payday. To opt out of automatic renewal, borrowers were required to notify the lender in writing. A borrower of $300 who elected to opt out would pay a service charge of $90. The interest rates charged on the loans exceeded what was permitted in some
The indictment alleged that Tucker‘s enterprise charged interest rates well in excess of the maximum rates allowed for payday loans in at least 25 states and Washington, D.C., and that Tucker and Muir willfully conducted the affairs of the enterprise through the collection of unlawful debt. The indictment included four RICO counts: three for participating in the conduct of an enterprise‘s affairs through the collection of unlawful debt (Counts 2-4), and one for conspiracy to do so (Count 1). Each of the three substantive RICO counts (Counts 2-4) listed five customers, located in various states, as to whom the Defendants were charged with collecting unlawful debts. The district court instructed the jury that, to convict Defendants on Counts 2-4, the jury had to find that Defendants engaged in collecting at least one of the five unlawful debts listed in that count.
As a second “front” strategy, during and subsequent to the County Bank scheme, Tucker attempted to hide his identity as lender by paying intermediaries to register a number of Nevada shell corporations, for which his loan portfolios served as the “doing business as” aliases. Rubin testified that Tucker used these aliases on certain documentation to make it harder for regulators to identify him as the lender. Tucker also used the Nevada addresses of the shell companies on loan documents to conceal the identity and location of his Kansas business from borrowers. This created problems when borrowers noticed that Tucker‘s employees called from a phone number with a Kansas area code of 913, which did not match with the company‘s purported address in Nevada, and asked the employees about the discrepancy. In response, Tucker told his employees to tell borrowers that the business was located in Nevada but that its phone calls were routed through an internet server located in Kansas; he later began to use a “1-800” phone number to avoid this issue.
Meanwhile, on actual tribal land, Tucker and Muir built and staffed sham business office facilities, designed to make it appear that the Tribes were performing work to administer the loans, while in reality all the loan processing took place in Kansas. The Tribes were given iPads from which tribal officials were to access a website once a day to “approve” large swaths
Tucker and Muir also arranged a sham transaction in which one of the Tribes purportedly purchased Tucker‘s loan processing company, CLK Management (“CLK“), which then changed its name to AMG Services (“AMG“). For the purchase of CLK, which made hundreds of millions of dollars in annual revenue, the Tribe ostensibly paid Tucker just over $135,000. However, the money in fact came from an account controlled by Tucker, meaning that Tucker paid himself in order to make it appear that the company had been purchased by the Tribe.
While at trial Tucker and Muir disputed any intention to deceive, they did not meaningfully dispute that the above described actions took place. Prior to trial, they filed a motion to dismiss the unlawful debt counts, contending in relevant part that the loans did not constitute “unlawful debt” under
As noted, after a lengthy trial, a jury convicted Tucker and Muir on all fourteen counts. The verdict sheet also posed a special interrogatory, to be answered subsequent to the jury‘s determination of guilt: “Has the government proven beyond a reasonable doubt that, at the time of collection of any of the loans you found as the basis of a guilty verdict on Counts Two through Four, the lender, in fact, was defendant Scott Tucker or an entity owned or controlled by him?” The jury answered, “Yes.”
Additionally, following the Defendants’ convictions, the court entered a preliminary forfeiture order against Tucker, including a money judgment in the amount of $3.5 billion and the forfeiture of certain specific property. Tucker moved for a stay of the forfeiture order pending appeal of his conviction, which the district court denied.
DISCUSSION
On this appeal seeking to set aside their convictions, Defendants’ principal contention is that the court gave an erroneous and prejudicial jury instruction as to the mental state element of the usury-based charges. In the court‘s instruction to the jury on element six of Count 1 (which charged a RICO conspiracy to lend at rates that were usurious under various state laws), and by extension on Counts 2-4 (which charged substantive RICO offenses based on unlawful usurious lending), the court told the jury that the Government could show Defendants “willfully” participated in the conduct of Tucker‘s enterprise through the collection of unlawful debt if it proved that they “acted deliberately, with knowledge of the actual interest rate charged on the loan[s].” App‘x at 264-65.
Defendants contend that this instruction was inconsistent with how willfulness is generally understood in the criminal context, which requires
We reject Defendants’ challenge. Because Defendants failed to preserve their objection to the instruction in the manner prescribed by
I. Willfulness Charge
a. Plain Error Review Applies
Where a claim of error in the court‘s instruction to the jury is properly preserved, we review that claim de novo, reversing if, “viewing the charge as a whole, there was a prejudicial error.” United States v. Quattrone, 441 F.3d 153, 177 (2d Cir. 2006). In order to be preserved, an objection to the jury instructions must be made by “inform[ing] the court of the specific objection and the grounds for the objection before the jury retires to deliberate.” See
The preclusion of de novo appellate review, however, is not absolute. If the party that failed to object following the jury charge had previously objected, making its position clear, and it was evident in the circumstances that renewal of the objection would be futile because the court had clearly manifested its intention to reject the objection, the failure to renew the objection as specified in
Although the Defendants had argued their position at a mid-trial charge conference, neither raised an objection to the instruction following the jury charge. App‘x at 300. Accordingly, their objection to the willfulness charge is subject to plain error review unless “taking further exception under the circumstances would have been futile.” See Rosemond, 841 F.3d at 107.
We see no basis for concluding that it would have been futile for Defendants to renew their objection. When the issue was earlier discussed at the charge conference, the court expressed uncertainty as to how to charge on state of mind. App‘x at 210-17. The next day, counsel for Muir raised the issue again, arguing that the statement in the proposed charge that the Government could show willfulness by proving that the Defendants “acted deliberately
On that record, it cannot be said that the district court had rejected the Defendants’ position, making clear that a further objection after delivery of the charge “would have been a mere formality, with no reasonable likelihood of convincing the court to change its mind on the issue.” Thornley, 104 F.3d at 30. Had the Defendants reasserted their argument after the charge, it is entirely possible that the court would have accepted the argument and given a new instruction on the required state of mind, conserving judicial resources by obviating the need for appeal and potential retrial. Accordingly, we review for plain error.
b. The Error, If Any, Does Not Satisfy the Requirements of “Plain Error”
When the plain error standard of review applies, the Court of Appeals may vacate a conviction on account of a challenged jury instruction if the
In its charge on Count 1, the court instructed the jury on willfulness twice: (1) in the context of element two, that the Defendants “knowingly and willfully joined the conspiracy;” and (2) in the context of element six, that the Defendants “willfully and knowingly agreed to participate . . . in the affairs of the Tucker payday organization through collection of an unlawful debt.” The portion of the instruction Defendants now challenge applied only to element
As to element two (knowingly and willfully joining the conspiracy), the court instructed the jury that “[w]illfully means to act deliberately and with a purpose to do something that the law forbids,” and that to be convicted under Count 1 the Defendants “must have been aware of the generally unlawful nature of [their] act[s].” App‘x at 258-59. The jury found the Defendants guilty under Count 1. Therefore, the jury necessarily found that they knew the unlawful nature of the lending they conspired to engage in—the same lending that formed the basis of element six and that was charged as a substantive offense in Counts 2-4. Because the jury found in connection with the conspiracy element that the Defendants were aware of the unlawful nature of their conduct, there is no risk that the jury could have found them guilty on the “collection of an unlawful debt” element of Counts 1-4, involving the loans that were the object of the conspiracy charged in Count 1, without being satisfied beyond a reasonable doubt that the Defendants were aware of the unlawful nature of their conduct.
Uncontradicted evidence showed that the Defendants: (1) prohibited employees from revealing the business‘s Kansas location, and instructed them to falsely claim that they were located on tribal land; (2) caused mail related to the lending business to be sent to the Tribes and then forwarded unopened to the Kansas office, giving a false impression that lending activity occurred on tribal lands; (3) required tribal officials to perform fake loan approvals on designated iPads in order to give the appearance that they were involved in the loan approval process; (4) set up a sham transaction in which AMG, a
The court‘s charge did not adversely “affect[] substantial rights,” Botti, 711 F.3d at 308, “seriously affect[] the fairness, integrity, or public reputation of judicial proceedings,” Johnson, 520 U.S. at 467, or cause a “miscarriage of justice” in these circumstances, Frady, 456 U.S. at 163. Defendants’ argument is that the jury should not have been allowed to convict on the substantive unlawful debt counts unless it found that the Defendants were aware of the unlawful nature of their conduct. Taking into account the charge as a whole, the jury did find (based on overwhelming evidence of that fact) that the Defendants were aware of the unlawful nature of the lending scheme.
In reaching this conclusion, we express no view on whether willfulness or awareness of unlawfulness was required for conviction under Counts 2-4. We note, however, that were it not for the fact that the Defendants failed to
For starters, our 1986 opinion in United States v. Biasucci, 786 F.2d 504 (2d Cir. 1986), written in the early days of RICO adjudications, ostensibly adopted two incompatible state-of-mind standards. The case, like this one, involved a RICO prosecution for collection of debts that were unlawful under state law. On the one hand, our opinion declared that RICO requires “that the defendant acted knowingly, willfully and unlawfully,” Biasucci, 786 F.2d at 513—
Apart from its internal inconsistency, the Biasucci holding that no proof of state of mind is required beyond what is required by the state statute can be difficult to reconcile with the Supreme Court‘s later insistence in X-Citement Video and Elonis on a “presumption [in the interpretation of criminal statutes] in favor of a scienter requirement,” applicable to “each of the statutory elements that criminalize otherwise innocent conduct.” Elonis, 135 S. Ct. at 2011. The Biasucci formulation would, under certain circumstances,
That difficulty is exacerbated if the principle espoused in Biasucci (and other cases)—that RICO imposes no knowledge requirement beyond what is imposed by the predicate state law—applies even when the unlawfulness under state law is predicated on a state civil statute.
RICO offenses may be predicated on a single instance of collection of unlawful debt, as well as on a pattern of racketeering activity. See
Some such state civil statutes render debt unlawful and unenforceable solely by reason of the rate of interest charged, without regard to the mental state of the lender or collector. Such statutes provide simply that loans carrying an interest rate above a specified threshold are void and unenforceable. A debt charging interest that exceeds the threshold rate and is incurred in connection with the business of lending money at twice the enforceable rate would thus appear to fit within the definition of “unlawful debt” under
Indeed, several of the state usury statutes underlying the RICO charges in this case are of precisely this nature. For instance, the payday loan statute in New Hampshire, which was the location of one of the customers named in Count 2, provides: “The annual percentage rate for payday loans shall not
Similarly, New York‘s civil usury statute, which was specifically listed in the indictment, and which applies to loans listed in all three substantive RICO counts, provides that the maximum interest rate “shall be sixteen per centum per annum.”
It is unclear whether the Biasucci court would have intended its holding, that “RICO imposes no additional mens rea requirement beyond that
Because, as explained above, the jury necessarily found that the Defendants acted willfully in rendering a guilty verdict on Count 1, and because the evidence of willfulness was overwhelming in any event, the Defendants have not met their burden of showing plain error. While the issues we have discussed will pose troublesome questions in future cases, we have no occasion to resolve those difficulties in this case, and do not purport to do so.
II. Defendants’ Other Arguments Are Without Merit
Defendants also argue (1) the district court erred by excluding the testimony of Defendants’ expert witness, attorney Gavin Clarkson, on the topic of tribal sovereign immunity; (2) there was insufficient evidence that Defendants engaged in wire fraud by misleading borrowers to believe that Native American tribes were the true lenders, because Defendants had a good faith belief that the Tribes were in fact the lender; and (3) the loans here did not constitute “unlawful debt” as defined under RICO because, due to
We reject Defendants’ contention that the district court erred by excluding Clarkson‘s testimony. A district court‘s decision to exclude expert testimony is reviewed for abuse of discretion. Zaremba v. Gen. Motors Corp., 360 F.3d 355, 357 (2d Cir. 2004). Regardless of whether Clarkson‘s testimony was being offered to show that Defendants had an innocent state of mind regarding the legality of their loans, or to show that their lending practices were in fact not illegal, the court committed neither error nor abuse of discretion in excluding it. As to the former issue, Clarkson did not advise the Defendants, and so his proposed testimony would not have been probative of what they understood. As for the legal issue of the lawfulness of the loans, “[w]e have consistently held . . . that expert testimony that usurps the role of the trial judge in instructing the jury as to the applicable law . . . by definition does not aid the jury in making a decision,” and is therefore inadmissible under
We reject Defendants’ argument that the loans were not “unlawful debt” as defined by RICO because, due to principles of tribal sovereign
III. The District Court Did Not Abuse Its Discretion In Denying Tucker‘s Application For a Stay of the Forfeiture Order
Tucker also argues that the district court erred in denying his application to stay execution of the forfeiture order against him pending his appeal of the underlying convictions. Following Tucker‘s conviction, in April 2018 the district court entered a preliminary forfeiture order against him, including a money judgment in the amount of $3.5 billion and the forfeiture of certain specific property, including ten cars, two residences, and jewelry. Tucker moved for a stay of the forfeiture order in the district court, arguing he was likely to succeed on the merits of his appeal, that the property at issue would likely increase in value and had intrinsic value to him, and that the
A district court may stay a forfeiture order pending appeal “on terms appropriate to ensure that the property remains available pending appellate review.”
The district court, like others in our circuit facing similar fact patterns, applied the slightly modified version of the traditional stay factors articulated by the district court in Silver: “1) the likelihood of success on appeal; 2) whether the forfeited asset is likely to depreciate over time; 3) the forfeited asset‘s intrinsic value to defendant (i.e., the availability of substitutes); and 4) the expense of maintaining the forfeited property.” Silver, 203 F. Supp. 3d at 385; see also United States v. Ngari, 559 F. App‘x 259, 272 (5th Cir. 2014) (analyzing denial of stay by considering “(1) the likelihood of success on appeal; (2) whether the forfeited assets will depreciate over time; (3) the forfeited assets’ intrinsic value to the defendant; and (4) the expense of maintaining the forfeited property”).
CONCLUSION
For the foregoing reasons, the judgment of the district court is AFFIRMED.