Lockhart v. State

⁶⁰⁹ IIrner, J., delivered the opinion of the Court. As members of the firm of ¡Smith, Lockhart and Company the appellants were engaged from August 1st, 1920, to August 9th, 1922, in the stock and bond brokerage business in the City of Baltimore. The business was owned principally by the appellants, only small proportionate interests being held by the three other members of the firm. The appellants and two of their co-partners were charged by the indictment in this case with having conspired to cheat and defraud the firm’s customers.

All of the defendants were convicted and were sentenced to pay certain fines and to be confined in the penitentiary for specified terms. The imprisonment provisions of the sentences were suspended as to the two defendants who had minor interests in the partnership, and they have not appealed. The transactions of the firm with its customers were mainly conducted upon what was known as the partial payment plan. Pfirchasers of stocks or bonds who bought on that plan Would make initial deposits on account of the price and would pay the balance in monthly instalments.

In consideration of an extra commission the firm guaranteed the purchasers against any additional calls, if the monthly instalments were regularly paid. It was agreed that the firm should retain title to the securities purchased until the monthly payments were completed. The securities were to be delivered to the purchasers upon their request. In the meantime the firm was at liberty to- hypothecate the stocks and bonds so bought, but all dividends or interest payments received by the firm, were to be credited to the buyer’s accounts.

In the event of the failure of a purchaser to make his initial or any stipulated monthly payment, the firm had the right, after due notice, to close his account and to secure a settlement. A booklet issued by the firm, for the purpose of inducing investors to deal with it on the partial payment plan, contained the assurances, among others, that its capital was “more than ample” to carry on a business of the kind de ⁶¹⁰ scribed, that the firm would pay for and receive the securities ordered by its customers, that it would not sell them without giving the purchasers prior notice, and that they could direct the sale of securities at any time and obtain the profit from their appreciation, thus having “all the advantages of speculation without the attendant risk.” The salesmen of the firm, in soliciting business, acted under instructions to tell prospective investors that that stocks or bonds bought by them would not be sold unless ’their accounts were not properly maintained or unless they ordered a sale. The volume of the firm’s business was large. .It conducted about a hundred and twenty-five stock and bond transactions daily. The number of its accounts approximated twenty-five hundred.

During the two-year period we have mentioned its commissions amounted to $274,000, and its expenses to $182,-000. When its operations ended on August 9, 1922, it was insolvent to the extent of more than $2',500,000. It was then accountable to its customers for 180,000 shares of stock, of which it had only about 57,000 shares, and for bonds of the par value of $1,273,400, which was $690,750 in excess of the par value of those it could have delivered. The serious losses thus incurred by the numerous patrons of the partnership were chiefly due to the fact that it was without the necessary capital to finance their purchases on the plan which it specially promoted.

It bought on a marginal basis the securities required to fill the orders of its customers, and it was subject to calls for cash or collateral to cover depreciations. It was prevented by its agreement from having recourse to its customers to make additional payments because of any decrease in the value of stocks and bonds bought for their account. But the securities they had purchased, and on which they were making monthly payments, were utilized by the firm as the principal means of meeting the requirements of its marginal contracts. Compulsory sales of the securities pledged for that purpose resulted from a decline in their market value and from the inability of the firm to sufficiently protect the' margins with cash or other collateral.

The funds produced by the monthly payments of investors were applied, ⁶¹¹ but were not adequate, to tbe purchase of securities to replace those which had been hypothecated and sold. An advance in market prices in the fall of 1920' placed the firm for a short time in a condition of solvency. Except during that brief period its liabilities always largely exceeded its assets. The partnership began its existence on August 1, 1920, with an excess liability of $240,444.58.

This was assumed by it as the successor of the corporation by which the business was previously conducted and which the appellants had controlled. Notwithstanding the fact that securities bought for customers had been sold, amounts representing the dividends or interest thereon were regularly credited to their accounts with the firm. When a customer completed his monthly payments and asked for his securities, the firm would buy them in the market, if necessary, in order to make the delivery. The effect of this course of dealing was to leave the customer in ignorance of the fact that the securities he originally bought had been sold because the firm was unable to pay its debt for which they had been pledged.

The operations of the firm were terminated on the withdrawal by its New To-rk correspondent of the tele-graphic quotation service upon which it was dependent. Its members thereupon applied for the benefit of the bankruptcy law'. The defendants wore prosecuted upon the theory that the representations they made and the methods they employed, in the prosecution of their brokerage business, were in pursuance of a conspiracy to defrand by inducing their patrons to make investments under deceptive and unsafe conditions by which they were exposed and subjected to large pecuniary losses. It was insisted by the defendants that no such purpose was conceived or sought to he accomplished, that they made no sales of their customers’ securities, voluntarily, that they were not insolvent in the usual business sense of the term, and that, but for the action of their New Tork correspondent, their operations would have been continued, and a future improvement of market conditions might reasonably have been expected to retrieve all the losses which were sus ⁶¹² tained.

It is with reference to the facts and theories which we have briefly indicated that many of the rulings questioned by the appeal must be considered. There was a demurrer to the indictment. By our recent decision in the case of Archer and Wilson v. State ante p. 128, an indictment similar to the present one was held not to be demurrable. The reasons assigned for that ruling, in the opinion delivered by Judge Auxins, support our views that the demurrer in this case was properly overruled.

It was argued on the present appeal that the indictment is defective in not alleging that the defendants knew of the insolvency which it describes during the course of the dealings to which it refers. This is not a well-founded criticism. The indictment, in e'ach of its counts, charges that the defendants’ firm was insolvent, and that, well knowing this fact, they conspired to defraud its customers by certain false pretenses. It is suggested also that in referring to the definition of insolvency in the former indictment as surplusage, we may have been influenced by the fact that a jury trial was waived in that case, and it is urged that such a theory of insolvency, which is said to be incorrect, was prejudicial to the defendants in the trial of this case before a jury.

The sufficiency of the indictment must be considered without regard to the method of trial adopted. The allegation as to the financial condition of the defendants was material because of its relation to the other averments of the indictment. It was with reference to the defendants’ alleged knowledge of the insufficiency of the film’s assets to pay its liabilities, and not with a view to any particular standard of insolvency, that the charges of conspiracy to deceive their customers by false pretenses was preferred. This is clearly explained in the prior opinion.

An application for a change of venue was made and refused. The grounds of the application were similar to those upon which a petition for the same purpose in the Archer and Wilson case was based. It was held that the refusal of the trial court to grant that petition was not an abuse of its discretion. It is said, however, that the recent trial and convie ⁶¹³ tion of Archer and Wilson in the same court, on a similar charge, probably had the. effect, of intensifying the feeling against these defendants which their petition for removal described.

This was not one of the reasons assigned in the petition, but it may have been suggested to the court below when the petition was submitted. It does not, in our opinion, afford sufficient ground for a decision that the discretion of the court was abused in its ruling upon the application. Archer and Wilson v. State, supra; Lanasa v. State, 109 Md. 602 ; Downs v. State, 111 Md. 241 . There were motions for a bill of particulars and for severances., upon which the lower court ruled adversely.

These rulings will be affirmed in conformity with our decision on motions to the same effect in the Archer and Wilson case. Some of the most important questions to' be decided on this appeal arise on exceptions taken to the refusal of the trial court to allow the defendants certain challenges for cause when the jury was being selected. By statute the defendants were given the privilege, also accorded to the State; of striking four from a list of twenty jurors drawn from the whole panel. Code, art. 51, secs. 13, 17.

Before exercising this right the State and the defendants were entitled to have a preliminary examination for the purpose of securing a list of twenty jurors who were free of any bias or prejudgment, and as to whom no other ground of disqualification existed. Hamlin v. State, 67 Md. 333 . The procedure adopted in this case was to call talesmen and examine them successively as to whether they had formed or expressed any opinion as to the guilt or innocence of the accused, and to ask them other questions in reference to their competency to render an impartial verdict. It was announced by the court that both sides would be given every facility, without regard to their legal rights, to secure a satisfactory jury, and that the court would not “within reason” be “bound by the number of challenges, and assumed that each side would make its objections honestly.” After forty-four talesmen had been called and examined, of whom eleven were accepted and thirty-three excused, the court stated that “each side would ⁶¹⁴ be permitted to strike from the eleven talesmen so accepted as many as they chose without giving reasons therefor, and that thereafter and until the jury panel should -be completed, each side would be allowed four more peremptory challenges.” Thereupon, as the record states, “counsel for the traversers and for the State each availed themselves of this privilege and struck three men from the.eleven so accepted as aforesaid, leaving five men in the jury box.” The selection of the jury then proceeded, and when it was completed four additional peremptory challenges had been used by the defendants and the same number by the State.

Two of the additional challenges used peremptorily by the State were applied to jurors who had been accepted before the court’s change of policy as to the selection was announced. It is complained by the appellants that they were in effect deprived of the benefit of three peremptory challenges because it was necessary to use them in excluding three jurors as to whom valid challenges for cause are said to have been improperly disallowed. One of those challenges was applied to a talesman who testified that he did not 'know the defendants, and that he had neither formed nor expressed any opinion as to their guilt or innocence. He stated that he read newspaper reports of their failure, but that he had. reached no' conclusion as to the ease, and any opinion which he may have formed as the result of his newspaper reading could be removed by the evidence.

In that connection he used the expression, “It would require simply evidence enough -to convince me the man is not guilty.” The court then asked the talesman whether he understood that the State would be required to prove the defendants guilty beyond a reasonable doubt. His answer was in the affirmative. He Was then told that when “a man comes in a court charged with a crime, the presumption of innocence is in his favor,” and the question was then asked: “Now in passing upon the evidence in this case if you are selected as a juror, could you give the benefit to the traversers here of that reasonable doubt and determine from all the evidence whether they are innocent or guilty ?” To this the ⁶¹⁵ talesman replied: “I could say that I would give them a fair trial, and go according to the evidence.” An exception was taken to the refusal of the court to permit the counsel for the defendants to ask the talesman whether he would expect them to prove that they were innocent. There was no error in this ruling.

The same question had previously been asked and the talesman answered that he would give them the benefit of a reasonable doubt and “a fair and square trial.” It was properly ruled that the talesman was qualified. Garlitz v. State, 11 Md. 293 . There was no reasonable ground for the apprehension that he would consider the defendants guilty unless they proved their innocence, but his answers to the questions propounded to him clearly showed that he understood it to be the duty of-the State to prove them guilty beyond a reasonable doubt. It appears to have been solely because he was supposed by the defendants to have an uncertain conception as to the burden of proof in the case that the challenge for cause was interposed.

After it Was disallowed the defendants challenged the talesman peremptorily. Objection was made by the defendants to another talesman because of their impression that he had indicated some prejudice against the business of stock brokers. In the course of his examination he said that he did not have “anything particular” against such brokers, but that he “let them alone” and had “no use for them,” and did not “believe in” the business. In answer to the court’s question as to whether he had any feeling against stock brokers, he said, “Well, yes, your Honor.” He had previously said: “I have no prejudice against them, but I don’t want to do any business with them.” He assured the court that he had not formed or expressed any opinion as to the guilt or innocence of the accused, and that he would render “a proper verdict” according to the evidence in the case.

A challenge for cause was attempted by the defendants, but it was denied. In 16 R. C. L. 268 it is said: “The courts nearly all agree that where the prejudice is simply against the par ⁶¹⁶ ticular business, and not against the defendant, the juror is not thereby disqualified.” This statement is supported by a reference to citations in 20' Annotated Gases, 1312. It does not appear from the answers of the talesman to whom the objection was made that he had any prejudice against stock brokers as a class that would affect his ability or disposition to fairly consider the evidence and to reach a just conclusion. There is no sufficient reason for a decision that the ruling of the trial court on the challenge was wrong.

Blit by the use of another of the defendants’ peremptory challenges, the talesman was dismissed. After further examinations had been conducted and eleven talesmen had been accepted, the next one called was found from his testimony to be office manager for an employer who was a creditor of the defendants’ firm, and who incurred a loss through its failure. For that reason, and 'because he had heard his employer discuss the case, the defendants challenged him for cause. The challenge was overruled by the court on the ground that, according to the talesman’s testimony, he had not formed any opinion as to the guilt or innocence of the defendants.

The talesman thereupon took his seat in the jury box, and if he had been finally accepted, the panel would have been complete. Immediately after the ruling that the last-mentioned talesman was qualified, the State peremptorily challenged one of the talesmen who were accepted before the order allowing four additional challenges to each side became effective. Two other talesmen were called, examined and accepted. The State challenged another of the group first chosen.

There were then in the jury box eleven talesmen who 'had been approved by both sides and the one whom the defendants had unsuccessfully challenged, because of his employer being a creditor of their firm, but against whom a peremptory challenge had not yet been used. The examination of other talesmen was continued until the court adjourned for the day. On the next morning, before the jury was completed and sworn, counsel for the defendants proffered the testimony of four jurors, ⁶¹⁷ serving in the Superior Court of Baltimore 'City, that the talesman last objected to had expressed to them an opinion unfavorable to the defendants, and had stated his desire to become a member of the jury by whom they would be tried. This proffer was rejected, the court stating that it saw no reason to change its ruling, but would still rely upon the talesman’s own testimony, and would not disqualify him even if the impeaching testimony were received.

The third of the defendants’ four additional peremptory challenges was then utilized and the talesman was discharged. Another talesman was called, and after examination was accepted both by the defendants and by the State. A previously accepted talesman was then peremptorily challenged by the defendants, by which action their peremptory challenges wore exhausted. The next talesman testified that he was not acquainted with any of the defendants, that he had not formed or expressed any opinion as to their guilt or innocence, and that he had no prejudice of any kind that would prevent him from rendering an impartial verdict upon the evidence.

It was proposed by the defendants to challenge this talesman peremptorily, but the court rejected the proposal, and he was accepted as the twelfth member of the jury, who were then sworn. The refusal of the court to allow the last challenge for cause to which we have referred was erroneous. The relations sustained by the talesman to one of the class of persons whom the defendants were accused of having defrauded should in itself have been a sufficient inducement to favorable action on the defendants’ objection. As office manager for an employer who suffered loss from the very conduct which the jury would investigate, the talesman had an interest which naturally raised a doubt as to whether he would be able to exercise an impartial judgment upon the important issue to be decided.

If the employer had been a technical party to the case, there could be no question but that the talesman would be disqualified. 2 Poe's Pl. & Pr., sec. 254; 16 R. C. L. 273; 24 Cyc. 276; Crawford v. United States, ⁶¹⁸ 212 U. S. 183 . It was because of a wrong alleged to have been committed against the talsman’s employer and others with whom the defendants had dealt that they were being prosecuted. There is ample reason for applying to a tales-man having such an interest the same rule of disqualification to which he would be subject if his employer had been a party to the proceeding. But in addition to that consideration ther’e was the proffer made by the defendants to prove that the talesman’s attitude towards them was antagonistic.

If he had actually expressed an unfavorable opinion as- to their innocence and a desire to serve on the jury impaneled to hear and decide their case, there is no reason why such a vitally important fact should not have been considered by the court and held to be conclusive proof of ineompetency. The testimony of the tales-man that he had not formed or expressed an opinion a3 to the guilt or innocence of the accused, and was not prejudiced against them, should not have been regarded as having a controlling effect upon the court’s judgment. In 16 R. C. L. 283 it is said: “While the juror must decide for himself whether his opinion is such as to prevent an unbiased verdict, yet he is not the judge of his own competency, of his own impartiality, and of his own freedom from prejudice. No statute can clothe him with such judicial discretion and power.

The competency of the juror is left to the discretion of the court; and in the exercise of this duty the trial court is not limited to the answers made by the juror, but must be satisfied from all the circumstances, as well as the examination, that the juror is competent.” Independent investigation of a juror’s competency may be obviated by the exercise of the court’s discretionary right to excuse. This would obviously be the proper course when a juror’s qualifications are challenged on the basis of such a definite proffer of proof as the one made in this instance. Under the circumstances shown by the record we are of the opinion- that the challenge for cause directed against the talesman referred to should have been allowed, and if the ⁶¹⁹ necessary use of a peremptory challenge to exclude him had involved an abridgment of the defendants’ legal challenge rights, we should not hestitate to> reverse the judgment and remand the case for a new trial. If the statutory limitation as to the number of peremptory challenges had been duly applied in the selection of the jury, a ruling which rejected a valid challenge for cause, and thus required the employment of a peremptory challenge to dismiss the objectionable talesman, would be reversible error because of its practical reduction to that extent of the number of such challenges which the defendants were legally entitled to use in the exercise of their own discretion.

But the jury was selected in pursuance of an extra-statutory procedure in which the defendants acquiesced, and in the course of which they were accorded and used peremptory challenges in excess of the 'four permitted by the statute. In originally and correctly ruling that each side was entitled to only four peremptory challenges, the trial judge informed the counsel for the State and defendants that every opportunity would be giveu to secure a panel of jurors against whom there could be no reasonable objection, even if the legal number of peremp'tory challenges should be exceeded. It was not until eleven talesmen had been accepted out of forty-four examined that a limitation was imposed by the court upon the previously' unlimited challenge privilege which it had granted. - Subsequently the defendants used seven peremptory challenges, and the State an equal, number, including the “four more” which the court had announced its intention to allow. It thus appears that the. defendants had the benefit of peremptory challenges beyond the statutory number, independently of the one which an erroneous ruling compelled them to use for the exclusion of a talesman whose competency was disputed.

In the exercise by the State of its equal privilege to challenge there was no impairment of the defendants’ right to be tried by a properly qualified jury. As tbe Supreme Court said in Hayes v. Missouri, 120 U. S. 71, “The right to challenge is the right to reject, and not to- select a juror.” ⁶²⁰ The announcement by the court .below that