United States District Court, E.D. Kentucky, Central Division, Frankfort
MEMORANDUM OPINION & ORDER
GREGORY F. VAN TATENHOVE, District Judge.
The Government argues that evidence of John G. Westine's prior bad acts should be admissible at trial. Westine objects on the grounds that evidence of his prior bad acts is irrelevant and prejudicial. [R. 112; R. 151.] Having heard argument from both parties on the subject, reviewed the briefing and the applicable case law, the issue is now ripe for resolution.
On October 9, 2014, Westine was charged by superseding indictment with twenty-nine counts of mail fraud, a single count of conspiracy to commit money laundering, and one count of selling unregistered securities. [R. 51.] A couple weeks later, the Government filed notice of its intent to present evidence of prior bad acts at trial. [R. 79.] Westine objects, suggesting that these acts have "no relationship to the offenses charged" and that their introduction would be unfairly prejudicial. [R. 112.] He asks that if the prior judgments are allowed into evidence that he should be able to "attack these judgments as void ab initio' or its failure to state or charge a known crime." [R. 151.] First, the Government argues that Westine, who they characterize as a "convicted oil investment fraudster, " had a duty to make his investors privy to this information when he was asking them to invest in an oil operation with him. [R. 154 at 4-6.] They argue that evidence of his past history and convictions should be admissible as intrinsic to the offense or background evidence. Id. Second, they argue that details of his 1991 conviction are admissible for non-propensity purposes under Federal Rule of Evidence 404(b). [ Id. at 6-11.] Finally, if Westine decides to testify at trial, the Government seeks to use these convictions for impeachment under FRE 608 and 609. [R. 79.]
In some limited circumstances the Government may introduce evidence of past conduct if the conduct is sufficiently tied to the presently charged offense. As has been explained by the Sixth Circuit:
[p]roper background evidence has a causal, temporal or spatial connection with the charged offense. Typically, such evidence is a prelude to the charged offense, is directly probative of the charged offense, arises from the same events as the charged offense, forms an integral part of a witness's testimony, or completes the story of the charged offense.
United States v. Marrero, 651 F.3d 453, 471 (6th Cir. 2011) (quoting United States v. Hardy, 228 F.3d 745, 748 (6th Cir. 2000)). When background or res gestae evidence is presented in this way, it is not subject to the strictures of Rule 404(b). United States v. Adams, 722 F.3d 788, 810 (6th Cir. 2013) (citing United States v. Clay, 667 F.3d 689, 697 (6th Cir. 2012)).
The Government argues that evidence of Westine's 1992 oil scheme conviction, 1990 tax fraud, and his 1985 injunction relating to his operation of an oil scheme are all admissible as background evidence because they are "intrinsic to, " and "directly probative of the allegations contained in the Superseding Indictment." [R. 154 at 3-4.] It is to this analysis which the Court now turns.
First, the Court must consider whether the evidence the Government seeks to introduce has a sufficient "causal, temporal or spatial connection with the charged offense." Marrero, 651 F.3d at 471(quoting Hardy, 228 F.3d at 748). While each of the convictions took place far before the crime currently being prosecuted, the Government argues that Westine's past convictions and injunction are sufficiently connected because they are "intrinsic to" and "directly probative" of the present allegations. [R. 154 at 4.] In Counts 1-29 of the Superseding Indictment, Westine is charged with mail fraud. [R. 51-1.] Therein it is alleged that Westine failed to disclose "material facts" to investors, one being that Westine had a "criminal record involving fraudulent conduct, including a conviction in 1991 for conducting essentially the same oil production scam." [ Id. at 7.] To prove mail fraud, the Government must show that "the scheme included a material misrepresentation or concealment of a material fact." Sixth Circuit Pattern Jury Instructions, 10.01 Mail Fraud (18 U.S.C. § 1341). In Count 31, where it is charged that Westine sold unregistered securities, the Government alleges that Westine did "make untrue statements of material facts and omit to state material facts necessary in order to make the statements made... not misleading." [R. 51-1 at 13.] As articulated by the Government, information is "material" when "there is a substantial likelihood [that] a reasonable investor would have considered it important in deciding whether to buy." United States v. Sayre, 434 F.Appx. 622, 623 (9th Cir. 2011) (citing Basic Inc. v. Levinson, 485 U.S. 224, 231-232 (1988)). In the Government's eyes, investors would have considered Westine's criminal history as important when deciding whether or not to invest with him. And so, they argue that Westine's past unlawful conduct is admissible to show that he made material misrepresentations when promoting the oil scheme
The Eleventh Circuit faced a substantially similar question in United States v. Rafferty, 296 F.Appx. 788 (11th Cir. 2008). In that case, the defendant was charged with securities fraud and the Government was tasked with proving that he "omit[ed] material facts in communications with investors." Id. at 794. The Eleventh Circuit affirmed the district court's ruling that evidence of the defendant's prior securities fraud convictions, a permanent injunction entered against the defendant, and two civil fraud judgments were correctly admitted. Id. The Court found no abuse of discretion when the district court adopted the Government's argument that the above noted evidence was "part of the offense charged and thus intrinsic, as witnessed by the reference to the specific material omissions." Id. at 795.
The Government also argues that evidence of Westine's prior bad acts are "inextricably intertwined" to the current charges because they provide integral details, necessary to understanding the narrative of the crime. [R. 154 at 5.] Specifically, they note that promotional materials held the principals out as "experienced and proven oil producers who had been in the business for 30 or 40 years, " despite the fact that Westine had just completed serving a 22-year prison sentence before perpetrating the presently charged fraud. [R. 51-1 at 7; R. 154 at 5.] As the Government puts it, Westine's prison term proves that his statements were false, serving as both a "prelude to" and "complet[ing] the story of the charged offense." [R. 154 at 4 (quoting Adams, 722 F.3d at 810).]
To obtain a conviction, the Government must prove that Westine made material misrepresentations or concealed material facts. Whether or not Westine is, as was represented to his investors, an "experienced and proven" oil producer or, as the Government argues, a "fraudster" is directly probative of whether such misrepresentations were made. Consequently, references to the above convictions are admissible without considering Rule 404(b) because proof on these issues is intrinsic to or inextricably intertwined with evidence of the charged offenses. Furthermore, because Westine was serving a prison sentence at the same time that he claimed to have been gaining experience in the business of oil production, that fact is "inextricably intertwined with the charged offense" and it is "necessary to complete the story of the charged offense." United States v. Joseph, 270 F.Appx. 399, 405 (6th Cir. 2008) (quoting Hardy, 228 F.3d at 748); see also United States v. Martinez, 430 F.3d 317, 335 (6th Cir. ...