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United States v. Kimoto

May 27, 2008


The opinion of the court was delivered by: Reagan, District Judge


I. Introduction and Procedural Background

On June 20, 2007, the Government charged Kyle Kimoto with one count of Conspiracy, in violation of 18 U.S.C. § 371, one count of Mail Fraud, in violation of 18 U.S.C. § 1341, and twelve counts of Wire Fraud, in violation of 18 U.S.C. § 1343.*fn1 A ten-day jury trial commenced on March 31, 2008, before the undersigned District Judge. The trial culminated on April 18, 2008, with jury verdicts of guilty on all fourteen counts against Defendant Kimoto. (Docs. 33-53).

Kimoto timely filed a motion seeking either a judgment of acquittal or a new trial (Doc. 58). The Government timely filed a response opposing Kimoto's post-trial motion on April 29, 2008 (Doc. 59). Kimoto's reply was filed May 7, 2008 (Doc. 65). The post-trial motion having been fully briefed, the Court now rules thereon, beginning with a factual overview and a reference to the legal standard governing these motions.

II. Summary of Facts

The indictment alleged that Kyle Kimoto and his primary operating company, Assail Inc., with Peter Porcelli and a variety of corporations, engaged in a fraudulent telemarketing scheme. Consumers with poor or no credit were led to believe that, in exchange for an advance fee, they would receive a pre-approved MasterCard or Visa credit card with a credit limit. Rather than receiving a credit card, consumers generally received either an application for a Stored Value MasterCard (a form of debit card) or an unusable plastic card that looked like a MasterCard credit card emblazoned with the MasterCard logo. As a fee for providing this card*fn2, Kimoto and his co-conspirators debited each consumer's account $159.99 or more, processing several million dollars in electronic debit charges against consumers' bank accounts. Neither Visa nor MasterCard authorized Kimoto to market credit cards on its behalf, and no consumer received a credit card. Kimoto and his co-conspirators also made it extremely difficult for consumers to cancel recurring charges and obtain refunds. Use of the Stored Value MasterCard was also misrepresented in that purchasers were led to believe that using it would improve their credit scores.

III. Applicable Legal Standards

FEDERAL RULE OF CRIMINAL PROCEDURE 29(c) governs motions for judgment of acquittal made following a jury verdict. A motion for judgment of acquittal should be granted only where there is insufficient evidence to sustain the conviction. U.S. v. Galati, 230 F.3d 254, 258 (7th Cir. 2000); United States v. Jones, 222 F.3d 349, 351-52 (7th Cir. 2000).

In considering the sufficiency of the evidence, the Court views the evidence in the light most favorable to the Government and overturns a conviction only "if the record contains no evidence on which a rational jury could have returned a guilty verdict." U.S. v. O'Hara, 301 F.3d 563, 569-70 (7th Cir. 2002). Accord United States v. Duprey, 895 F.2d 303, 310 (7th Cir. 1989)(evidence and inferences are viewed in the light most favorable to the government). Additionally, in assessing the sufficiency of the evidence, the Court may not re-weigh the evidence or judge the credibility of the witnesses. "As long as there is a reasonable basis in the record for the jury's verdict, it must stand." Galati, 230 F.3d at 258 (citing Dallis v. Don Cunningham & Assocs., 11 F.3d 713, 715 (7th Cir. 1993)).

Unlike motions for judgment of acquittal made following a jury verdict, a different standard governs motions for new trials in criminal cases. Federal Rule of Civil Procedure 33 provides that, upon a Defendant's motion, the Court may vacate any judgment and grant a new trial, "if the interest of justice so requires." As explained by the United States Court of Appeals for the Seventh Circuit, "A defendant is entitled to a new trial if there is a reasonable possibility that a trial error had a prejudicial effect upon the jury's verdict." United States v. Van Eyl, 468 F.3d 428, 436 (7th Cir. 2006) (citing United States v. Berry, 92 F.3d 597, 600 (7th Cir. 1996)). The district court may consider the credibility of the witnesses in making this determination. United States v. Washington, 184 F.3d 653, 657 (7th Cir. 1999). But the district court may notreweigh the evidence or set aside the verdict just because the court "feels some other result would be more reasonable." United States v. Reed, 875 F.2d 107, 113 (7th Cir. 1989).Rather, the evidence must preponderate so heavily against the verdict that it would be a miscarriage of justice to let the verdict stand. Id. Stated another way, the focus in a new trial motion is on whether the verdict is against the manifest weight of the evidence, taking into account the credibility of the witnesses. Id. Additionally, the Seventh Circuit has warned that when considering a motion for new trial, "Courts are to grant them sparingly and with caution, doing so only in those really 'exceptional cases.'" Id. Accord United States v. DePriest, 6 F.3d 1201, 1216 (7th Cir. 1993) (explaining that motions for new trial must be approached with great caution and that judges should be wary of second-guessing determinations made by juries).

In the case at bar, having carefully reviewed Kimoto's motion, the Court concludes that neither a judgment of acquittal nor a new trial is appropriate. The Court addresses each of the multiple grounds, taking them in the order of Kimoto's allegations.

IV. Analysis

A. Motion for Judgment of Acquittal

Kimoto contends that the evidence at trial was legally insufficient to sustain a conviction for Conspiracy to Commit Money Laundering,*fn3 Wire Fraud or Mail Fraud. Essentially, Kimoto makes four arguments in support of this thesis, as follows. First, Kimoto argues that the Government failed to present any evidence to establish that a conspiracy existed beyond a reasonable doubt. Instead, Kimoto asserts that several of the Government's exhibits acted to prove the absence of any specific intent to defraud or deceive, and there was extensive testimony that Kimoto had "zero tolerance" for any misrepresentation even though some misrepresentation in the telemarketing industry is unavoidable. Second, Kimoto argues that the Government failed to prove that he had "knowledge" as is required for a conviction on any of the Counts in the indictment. Specifically, according to Kimoto, (1) there was no testimony which would show that he knew that the scripts were misleading or that customers felt misled; and (2) there was no evidence that he did anything other than spending vast amounts of money on refunds, ensuring triple checks for compliance and focusing on keeping the consumer happy. Third, Kimoto contends that the Government offered no proof of any acts in furtherance of the conspiracy. In support of this contention, Kimoto states that the jury's verdict was contradictory in that its finding as to paragraph B is contradictory to its finding as to paragraph A.*fn4 Fourth, Kimoto argues that the Government's failure to produce the exhibits to the Jencks material, which contradicted Mr. Howard's testimony, prejudiced him by preventing adequate cross examination and impeachment of Mr. Howard.

"Challenging the sufficiency of the evidence is an uphill battle," in which "the defendant bears a heavy burden." United States v. Wallace, 212 F.3d 1000, 1003 (7th Cir. 2000). As to Kimoto's argument that the Government failed to present any evidence to establish that a conspiracy existed beyond a reasonable doubt, the Government easily wins the battle. "Where 'two or more persons conspire ... to commit any offense' under Title XVIII of the United States Code 'one or more of such persons [who commit] any act to effect the object of the conspiracy' may be held criminally liable therefor under 18 U.S.C. § 371." United States v. Hausmann, 345 F.3d 952, 955 (7th Cir. 2003). Here, the indictment clearly and correctly alleged that Kimoto, Porcelli, various business enterprises and others known and unknown, unlawfully, willfully and knowingly devised a scheme to obtain money through false pretenses and committed specified overt acts in furtherance of the conspiracy. Porcelli, although not a co-defendant, was separately indicted for conspiracy regarding the same scheme as Kimoto, pled guilty and testified at trial as a cooperating government witness. Porcelli's testimony, taken in conjunction with that of Kimoto's employees, Clifford Dunn, Assail's vice president and manager of its St. George, Utah, office, and Tully Herd, an Assail account manager, provides ample evidence that a conspiracy existed to mislead consumers and that Kimoto was a part of that conspiracy. Porcelli testified that Kimoto intended to sell a debit card as a credit card as follows:

Q: ...[C]an you tell us how this product was sold?

A: It boils down to that you are leaving the unmistakable impression in the customer's mind they are going to get a credit card.

Q: That was the intent of the program, to create that impression. Is that true?

A: That was the way he [Kimoto] told me it had to be sold and I went along with it. Porcelli (4/2/08) 25:11-18; see also 15:15-16:9.

Herd testified that he was familiar with programs sold by Assail - Advantage Capital, Capital First and Premier One - and had worked as a telemarketer selling "one or two" of those programs. Herd, 20:4-10. According to Herd, the scripts that were used by Assail on these programs were "very similar to the scripts used by Bay Area Business Council and American Leisure Card." Id. 20:11-15. He agreed that the essential thrust of these programs was "to create the impression in the mind of the consumer that their application for credit card had come home, had been approved and that they were going to get a Master Card credit card...." Id. 20:16-21.

Dunn testified that the scripts for the various companies were substantially the same.

Dunn, 121:3-6. When asked if all of the scripts were "crafted to create the impression that the consumer was going to get a credit card," Dunn responded, "Visa or MasterCard credit card." Id. 121:7-9. Dunn testified that the design of the sales scripts and the basis of the whole program was to create the impression that the consumer was being offered a credit card when, in fact, what was being provided was "a stored value card that did not have any credit value already on it." Id. 122:17-123:1.

The testimony of these witnesses is compelling evidence upon which the jury could conclude that a conspiracy existed to mislead consumers into believing that they would get a credit card and that Kimoto was a part of the conspiracy.

Kimoto's contention that he is not guilty because he had "zero tolerance" for misrepresentation made during verification fails because the scripts themselves are fraudulent on their face. See F.T.C. v. Bay Area Business Council, Inc., 423 F.3d 627, 635 (7th Cir. 2005)("One look at the scripts used by telemarketers for BABC and American Leisure confirms that the corporate defendants misled reasonable consumers into believing they would receive a credit card."). Thus, Kimoto's contention that he did not tolerate going "off script" does not serve as a defense to the indictment.

Nor does the evidence support Kimoto's contention that there was no testimony that he knew that the scripts were misleading. Porcelli testified that Kimoto deliberately set out to mislead consumers through the scripts. The following ...

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