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United States v. Ramer

United States Court of Appeals, Sixth Circuit

February 26, 2018

United States of America, Plaintiff-Appellee,
v.
Henry Irving Ramer (15-6014 & 15-6402); John G. Westine, Jr. (16-5356), Defendants-Appellants.

          Argued: December 6, 2017

         Appeal from the United States District Court for the Eastern District of Kentucky at Frankfort. No. 3:14-cr-00010-Gregory F. Van Tatenhove, District Judge.

         ARGUED:

          David J. Guarnieri, MCBRAYER MCGINNIS, LESLIE & KIRKLAND, PLLC, Lexington, Kentucky, for Appellant.

          Kevin M. Schad, FEDERAL PUBLIC DEFENDER, Cincinnati, Ohio, for Appellant.

          David B. Goodhand, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

         ON BRIEF:

          David J. Guarnieri, MCBRAYER MCGINNIS, LESLIE & KIRKLAND, PLLC, Lexington, Kentucky, for Appellant.

          Kevin M. Schad, FEDERAL PUBLIC DEFENDER, Cincinnati, Ohio, for Appellant.

          David B. Goodhand, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., Charles P. Wisdom, Jr., Kenneth Taylor, Neeraj K. Gupta, UNITED STATES ATTORNEY'S OFFICE, Lexington, Kentucky, for Appellee.

          Before: CLAY, GIBBONS, and BUSH, Circuit Judges.

          OPINION

          CLAY, CIRCUIT JUDGE.

         Defendants John Westine and Henry Ramer ("Defendants") appeal their convictions and sentences in their criminal cases involving charges of mail fraud, in violation of 18 U.S.C. § 1341; money laundering, in violation of 18 U.S.C. § 1956; and securities fraud, in violation of 15 U.S.C. § 78j(b). Defendants were convicted in separate jury trials. For the reasons set forth below, we AFFIRM both convictions and both sentences.

         BACKGROUND

         Factual History

         This case involves a group of individuals who schemed to defraud investors through the marketing of a series of spurious oil and gas drilling projects. Prosecutors indicted several individuals in connection with the scheme, including Defendants. The evidence presented at Defendants' trials supports the following timeline of events.

         In October 2011, Defendant Westine completed a 235-month sentence following his conviction for securities fraud, whereupon he returned to his home in California. The crime that led to this prior term of imprisonment involved the sale of fraudulent Kentucky oil and gas interests as well as non-existent shares of crude oil from Saudi Arabia. Investors knew Westine by his aliases, John Scott and Michael Fairchild. Westine operated through a company he called TriState Development, and he hired a sales team that worked out of a Los Angeles call center.

         Less than a year after Westine was released from prison, he began offering investments in Kentucky oil wells through three companies: Liberty Oil Leasing, Three Star Leasing, and Clementsville Oil & Gas Leasing. The companies published promotional materials claiming that their wells were currently producing oil and would generate a steady stream of royalty payments. These promotional materials highlighted the leadership of "John Scott, " a "long-time oil and gas operator" (R. 357 at PageID #3415), and the companies rented virtual office space in Kentucky under the names Michael Fairchild and Michael Ross. Prospective investors were promised that they would receive their "[f]irst monthly check within 90 days." (R. 357 at PageID #3414.) The government refers to the operations of these three companies as "Phase I" of the fraud.

         When investors never received royalty checks from the Phase I companies, they began filing complaints with the Kentucky Department of Financial Institutions ("DFI"). DFI investigators concluded that the companies were selling unlawful securities. DFI's investigation culminated in the issuance of a restraining order that, among other things, prohibited the individuals affiliated with the companies from "making offers to sell and selling interests in oil and gas programs." (GEX 57 at 2.)

         By this point, Defendant Westine had recruited Defendant Ramer as a partner in his scheme. Together, Defendants began winding down the Phase I companies' operations and transitioning them to three new companies-the start of what the government calls "Phase II." Over the course of the following year, Royal Leasing of Tennessee, Royal Energy of Tennessee, and Royal Energy LLC collected over $2 million from 138 investors. When these investors complained about not receiving royalty payments, "Michael Ross" reassured them, blaming "freakish weather" for delays, telling them he had multiple wells generating 15-20 barrels of oil per day, and promising that checks were forthcoming. (R. 358 at PageID #3934-35, 3948, 3990.) But none of this was true, and investors never received the promised checks.

         Meanwhile, Defendant Ramer recruited new investors and persuaded existing investors to double down, sometimes even after they complained. To find new recruits, he oversaw two call centers in California and developed a promotional video that boasted a fictional production capacity of 75 barrels per day. Ramer helped Westine keep track of his many aliases, tutoring him on which identity to use during at least one meeting with Ramer's call center sales staff. For existing investors, Ramer organized a trip so that they could "see[] the oil wells" and "smell[] the oil." (R. 358 at PageID #3945-46; R. 473 at PageID #6005; R. 474 at PageID #6203.) On this trip, Ramer introduced investors to a third co-conspirator, Mark Cornell, who provided a tour of his JMack Energy oil facility. In reality, this facility was capable of producing only a small amount of oil-nowhere near 75 barrels per day-but it served to create an appearance of legitimacy. During the tour, Cornell even gave the investors jars of oil, purportedly produced by JMack Energy.

         Not all the investors were placated. In mid-2014, investor complaints again started to weigh on Defendants. Defendants began to wind down the Phase II companies and to shift operations to a new company called Marathon Leasing. Defendant Ramer also proposed that they form a company called Midwest Leasing "so . . . there will not be a link to Marathon or Royal." (GEX 501; see R.476 at PageID #6753-54.) During a period of less than two months, which prosecutors referred to as "Phase III, " Defendants collected $242, 233 from twelve investors. But before Defendants could fully transition from Phase II to Phase III, prosecutors had Defendant Westine arrested. Upon learning of the arrest, Defendant Ramer directed his associates to "take [out] as much money" as possible from the corporate accounts and send it to him. (R. 356 at PageID #3277; R. 237 at Page ID #1301-02; GEX 371 (audio recording); R.450 at PageID #5507.) Ramer's arrest followed shortly thereafter.

         Procedural History

         On October 9, 2014, the government indicted two individuals in connection with the scheme, including Defendant Westine. A superseding indictment named additional individuals, including Defendant Ramer. The superseding indictment charged Defendants with 29 counts of mail fraud, in violation of 18 U.S.C. § 1341; conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h); securities fraud, in violation of 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5; and three forfeiture allegations.

         Defendants were tried separately. The government presented overwhelming evidence implicating both Defendants in the scheme, including extensive testimony from oil and gas experts, victims, co-conspirators, and federal investigators. At the conclusion of each trial, a jury found each Defendant guilty of multiple counts of mail fraud, conspiracy to commit money laundering, and securities fraud. The district court sentenced Defendant Westine to 480 months' imprisonment and Defendant Ramer to 156 months' imprisonment.

         The government also obtained a conviction for co-conspirator Mark Cornell. In connection with Cornell's sentencing, which took place after Defendants' sentencing, the government submitted evidence that Cornell had conducted a separate criminal securities fraud scheme. The government described a "side deal" that resembled the one for which Cornell, Westine, and Ramer were indicted, but which Cornell conducted on his own. (R. 496 at PageID #7352-57.) An independent team of state investigators discovered Cornell's scheme based on a web page he created to recruit investors.

         On September 3, 2015, Ramer filed a Motion for New Trial "pursuant to Brady v. Maryland evidence or, in the alternative, newly discovered evidence pursuant to F.R.C.P. 33." (R. 388 at l.) Westine, who represented himself through the trial, filed several motions that the district court construed as also requesting a new trial. The district court concluded that neither Defendant was entitled to a new trial and denied their motions.

         Defendants then filed timely appeals, raising numerous challenges to the trial proceedings. We address each of their challenges in turn.

         DISCUSSION

         I. PRIOR ACTS EVIDENCE

         The government's theory of mail fraud involved allegations that both Defendants failed to disclose material facts to prospective investors, including that Defendant Westine had been convicted in 1992 for "conducting essentially the same oil production scam" and that Defendant Ramer was "the subject[] of state regulatory cease and desist orders for selling unregistered securities." (R. 51 at PageID #217-18.) The district court permitted the introduction of prior acts evidence showing that Defendant Westine had indeed been convicted for the fraudulent sale of oil and gas interests. The court also permitted the jury to learn of regulatory actions in California and Arizona that directed Defendant Ramer to cease and desist the sale of unregistered securities.

         The government also alleged that Defendants made affirmative misrepresentations to investors regarding the production capacity of their oil wells and the corresponding returns on investment. In their defense, Defendants largely focused on the knowledge and intent elements of mail fraud; they asserted that they were not sophisticated enough to recognize or understand that the representations they made to investors were false or misleading. Westine also disputed that he used aliases such as Michael Fairchild and John Scott. In response to these defenses, and over Defendants' objections, the district court permitted the government to introduce additional details regarding Defendant Westine's previous fraud conviction (such as his use of the aliases Michael Fairchild and John Scott) as well as the California cease and desist letter directed to Defendant Ramer. Defendants now argue that all prior acts evidence should have been excluded.

         This court reviews evidentiary rulings for abuse of discretion. United States v. White, 492 F.3d 380, 398 (6th Cir. 2007); see United States v. Churn, 800 F.3d 768, 774-80 (6th Cir. 2015). Pursuant to Rule 404(b), "a court may admit evidence of a defendant's 'other' or 'similar' bad acts or crimes only if the evidence is probative of a relevant fact, and not to show the defendant's 'character' or 'propensity' to commit bad acts." United States v. Mack, 258 F.3d 548, 552-53 (6th Cir. 2001) (quoting United States v. Clemis, 11 F.3d 597, 600 (6th Cir. 1993)). Relevant facts include "motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident." Fed.R.Evid. 404(b)(2). "To admit evidence under Rule 404(b), the trial court must follow three steps: (1) make a preliminary determination that enough evidence exists that the prior act actually occurred; (2) determine whether the other acts evidence is being offered for a proper purpose under Rule 404(b); and (3) determine whether the other acts evidence is more prejudicial than probative under Federal Rule of Evidence 403." United States v. Thompson, 690 Fed.Appx. 302, 307 (6th Cir. 2017). Rule 403 states, "[t]he court may exclude relevant evidence if its probative value is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence." Fed.R.Evid. 403.

         Defendants argue that the prior acts evidence was improperly offered to suggest a propensity for wrongdoing. But the record shows that the evidence was offered for a number of proper purposes. One such purpose was to prove Defendants' knowledge. To prove mail fraud, the government needed to 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). The government alleged that Defendants concealed their prior conduct from investors and that the investors would have chosen not to invest if they had known the full truth. Because the facts of Defendants' prior conduct were the same facts that Defendants were alleged to have concealed from investors, the facts were relevant for purposes of Rule 404(b). "A contrary ruling would place the government in the thoroughly untenable position of attempting to prove that [the defendants] failed to disclose material facts without allowing the government to demonstrate the existence of those facts." United States v. Monea, 129 F.3d 1266, 1997 WL 704935, at *2 (6th Cir. 1997) (per curiam) (unpublished).

         Another proper purpose was to prove Defendants' intent. Defendants argued that they were merely "acting as part of the company" and that other individuals "made false promises that duped everyone." (Def. W. Br. 16; see Def. R. Br. 38.) The details of Defendants' prior acts evidence tended to prove that they were not so naive. Defendant Westine previously orchestrated a scheme selling fake oil and gas securities under a fake identity, and Defendant Ramer had previously been sanctioned in California for, as he describes it, "contact[ing] investors by telephone about purchasing fractional interests in oil and gas leases, which the California Department of Corporations (DCOC) deemed unregistered securities." (Def. R. Br. 37.) Defendants both knew about this information, and their deliberate effort to conceal it from investors severely undermines their credibility in telling the jury that they were just as surprised as their investors were to learn that the securities they sold were fraudulent.

         Furthermore, the evidence was admissible for the proper purpose of proving Defendant Westine's identity. Evidence of prior acts is admissible for the purpose of proving identity when the act is so "unusual or distinctive as to be like a signature." United States v. Woods, 613 F.2d 629, 634-35 (6th Cir. 1980). The details of Westine's prior conviction show that he used the same aliases (John Scott and Michael Fairchild) and nearly the same techniques (fake companies, virtual offices, and California-based call centers) when perpetrating his previous fraud. These aliases and techniques are sufficiently distinctive to qualify as Westine's "signature" for purposes of Rule 404(b).

         Nevertheless, Defendants also argue that the evidence should have been excluded as unfairly prejudicial. Given the many proper purposes for which the prior acts evidence was admissible and highly probative, Defendants face a heavy burden to show, as they must, that the probative value of the evidence was substantially outweighed by the risk of unfair prejudice. See Fed. R. Evid. 403. Defendants' argument falls short. Defendants assert that the government repeatedly showcased the prior acts evidence and encouraged the jury to consider it as propensity evidence when it asked witnesses questions along the following lines: "If you had known Henry Ramer had been sanctioned in California and Arizona for selling unregistered securities, would you have invested?" (Def. R. Br. at 30; see Def. W. Br. at 17-18.) But these questions merely demonstrate the significance of Defendants' omissions to their investors and, by extension, the relevance of Defendants' prior acts. Although admission of the prior acts evidence carried some risk of unfair prejudice, this risk was not amplified by the cited government conduct.

         The district court also recognized a risk that jurors might consider the evidence for an improper purpose, and it abated this risk by instructing both juries to consider Defendants' prior acts only if the jurors "find the defendant did commit those [prior acts]" and only "as it relates to the government's claim on the defendant's intent, knowledge, identity, absence of mistake, or lack of accident." (R. 195 at PageID #956; R. 306 at PageID #2854.) The district court concluded that the probative value of this evidence, combined with its jury instruction, was sufficient to satisfy Rule 404(b), [1] and we are not persuaded that the district court abused its discretion in reaching this conclusion.

         II. NEW TRIAL MOTIONS

         Both Defendants appeal based on information that came to light during the sentencing of their co-conspirator Mark Cornell. Cornell was charged in connection with the same oil securities scheme for which Defendants were also charged. Cornell pleaded guilty, cooperated with the government's investigation, and agreed to testify against Defendants at trial. Cornell's initial testimony downplayed his role in the scheme, potentially to the point of perjury. Cornell initially testified that he was unaware of the fraud and that he merely served as Defendants' unwitting agent. After his examination, the government obtained evidence that Cornell had knowingly embraced an active role in the scheme. The government put Cornell back on the stand, treated him as a hostile witness, and obtained an admission that he had lied about his true level of involvement.

         What the jury did not know-and what the government later disclosed during Cornell's sentencing-is that DFI was building a separate file on Cornell as the government's case unfolded. Cornell was operating a "little side deal"-essentially a smaller scale carbon copy of the oil securities scam that he operated with Defendants. (R. 497.) Indeed, Cornell had been using many of the same techniques and the same false documentation he used with Defendants, but he did so through his own company, JMack Energy. DFI's investigation of Cornell was conducted by an independent team of civil investigators. By the time of Defendant Westine's trial, these investigators had issued a cease-and-desist letter to Cornell regarding a web page that marketed unregistered securities. Whether the investigators at this point understood the interplay between this web page, the criminal investigation of Defendants, and Cornell's side deal is unclear, but the investigators knew enough to make the cease-and-desist letter available to the criminal division; the government turned the letter over to Defendant Westine as Brady material. See Brady v. Maryland, 373 U.S. 83, 87 (1963). By the time of Defendant Ramer's trial, which was four months later, civil investigators had received a complaint from an additional Cornell investor and pieced together that Cornell was running "some side deals." (R. 497 at PageID #7454.)

         Both Defendants request a new trial under Rule 33, arguing that the Cornell file constitutes newly discovered evidence. Defendant Westine argues in the alternative that the Cornell file is Brady material that the government suppressed. This Court "review[s] the denial of a motion for new trial based on Brady violations or newly discovered evidence under an abuse of discretion standard." United States v. Jones, 399 F.3d 640, 647 (6th Cir. 2005); United States v. Barlow, 693 F.2d 954, 966 (6th Cir. 1982). "However, the district court's determination as to the existence of a Brady violation is reviewed de novo." United States v. Graham, 484 F.3d 413, 416-17 (6th Cir. 2007).

         To successfully obtain a new trial under either Rule 33 of the Federal Rules of Criminal Procedure or Brady, a criminal defendant must show that the undisclosed evidence would have affected the outcome of the original trial or affected his sentence. Under Rule 33 specifically, the defendant must show, among other things, that "the evidence . . . would likely produce an acquittal if the case were retried." Barlow, 693 F.2d at 966. Meanwhile, under the Brady standard, a defendant must show, among other things, that the evidence was "material" to his conviction or sentence. See Strickler v. Greene, 527 U.S. 263, 281-82 (1999); Jones v. Bagley, 696 F.3d 475, 486 (6th Cir. 2012). Undisclosed evidence is material "if there is a reasonable probability that, had the evidence been disclosed to the defense, the result of the proceeding would have been different." United States v. Bagley, 473 U.S. 667, 682 (1985). A "reasonable probability" is a probability sufficient to undermine confidence in the outcome. United States v. Hawkins, 969 F.2d 169, 175 (6th Cir. 1992). "The question is not whether the defendant would more likely than not have received a different verdict with the evidence, but whether in its absence he received a fair trial, understood as a trial resulting in a verdict worthy of confidence." Kyles v. Whitley, 514 U.S. 419, 434 (1995). The materiality inquiry involves weighing "the value of the undisclosed evidence relative to the other evidence produced by the state." Eakes v. Sexton, 592 Fed.Appx. 422, 427 (6th Cir. 2014). "[W]here the undisclosed evidence merely furnishes an additional basis on which to challenge a witness whose credibility has already been shown to be questionable or who is subject to extensive attack by reason of other evidence, the undisclosed evidence may be cumulative, and hence not material." Bales v. Bell, 788 F.3d 568, 574 (6th Cir. 2015) (alteration in original) (internal quotation marks omitted); see Byrd v. Collins, 209 F.3d 486, 518 (6th Cir. 2000).

         Neither Defendant has made the showing required for remand. With regard to Defendant Westine, the district court found that the information from the civil division's file on Cornell was immaterial in light of overwhelming evidence of Westine's guilt and because the information is "plainly cumulative of the substantial evidence already establishing Cornell's history of fraud and deception." (R. 472 at PageID #5725.) We agree.

         The district court articulated its rationale and provided a concise summary of the extensive inculpatory evidence presented to the jury regarding both Westine and Cornell:

Although Westine argues the "newly discovered evidence shows that Mark Cornell had the intent to commit fraud, " he overlooks the fact that Cornell's intent to commit fraud was never in dispute. In his testimony at Westine's trial, Cornell expressly admitted that he had been indicted as a co-conspirator in the scheme, that he intended to enter a guilty plea in the case, and that he had previously lied to investigators about his involvement in the fraud. [R. 360 at 101-105.] Moreover, the jury in Westine's trial was aware of Cornell's dishonesty not only as a result of his guilty plea, but also as a result of his false testimony at trial. The United States severely impeached his testimony after discovering an email exchange that flatly contradicted his previous statements on direct examination. [R. 361 at 74-92.] As Westine himself emphasized in his closing argument, "Mark Cornell pled guilty ... and he lied, and he lied, and he lied." [R. 354 at 94.] Placed alongside this existing evidence, any additional information undermining Cornell's credibility is immaterial. See Robinson v. Mills, 592 F.3d 730, 736 (6th Cir. 2010) ("Where the undisclosed evidence merely furnishes an additional basis on which to challenge a witness whose credibility has already been shown to be questionable or who is subject to extensive attack by reason of other evidence, the undisclosed evidence may be cumulative, and hence not material."). . . .
Additionally, when measuring the impact this evidence might have had on the outcome of each Defendant's trial, this Court must situate that information beneath the weight of the evidence establishing the Defendants' guilt. In the case of both Westine and Ramer, the United States provided a sweeping and exhaustive body of evidence demonstrating that both Defendants were guilty of the crimes charged. Moreover, the majority of this evidence was wholly independent of Cornell's participation in the scheme. Although the evidence adduced at trial is far too voluminous to recount in full, the following summary provides a snapshot of the evidence available to the jury prior to the Defendants' convictions.
At Westine's trial, the United States introduced abundant evidence showing that his fraudulent scheme commenced long before he ever met Cornell. Throughout the time period identified by the United States as "Phase I, " Westine had no association with Cornell. During this period, Westine assured prospective investors that he had "dozens of wells" and announced a plan "to put 50 on line, " yet made no attempt to describe the location of the wells or the ownership of the purported leases. [R. 362 at 13.] Marni Gibson, an enforcement branch manager at DFI, testified that, "[f]rom all appearances, " these 50 wells were "just made up." [R. 297 at 21.] In July 2013, Westine distributed a sales script to employees in which he encouraged them to suggest the company had "been in business for over 25 years" and that investors should expect to "receive [their] first royalty check with[in) 60 days after filing." [Id. at 22.] Also in July 2013, Westine sent an email to a victim promising a "300 barrel a day target before November, " despite the absence of any evidence indicating that such a target was remotely reasonable. [Id. at 97.] By October 2013-the month in which Cornell provided the production guarantee to investors-there were about "five pages of investments that had nothing to do with the 75 barrel a day promise of Mr. Cornell." [R. 359 at 160.]
The jury also heard evidence that Westine failed to inform investors he had recently served a 22-year prison sentence for devising a similar oil and gas investment scheme. [R. 362 at 199.] In an effort to prevent victims from uncovering his criminal history, Westine used at least five aliases. [Id. at 204.] He sent "email after email" to victims in which he variously identified himself as John Scott, Michael Fairchild, Michael Ross, John Gorman, and Michael Hicks. [Id. at 207-08.] When an employee in his virtual office discovered that his name was John Westine, he fired her and replaced her with someone who was not yet aware of his identity. [R. 354 at 96.] Some of the fake names used in this scheme were the same names used in the previous oil and gas fraud for which Westine served the 22-year prison term. [R. 362 at 207.] Relatedly, the prosecution also ...

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