Schrader v. State

KARWACKI, Judge. ' Erik E. Schrader, the appellant, was convicted at a bench trial in the Circuit Court for Montgomery County (Irma S. Raker, J.) of conspiracy to establish an illegal pyramid promotional scheme in violation of Md.Code (1957, 1982 Repl.Vol., 1985 Supp.), Article 27, § 233D. He was sentenced to a one year term of imprisonment, which was suspended, five years of supervised probation, and a fine of $10,000 to be paid within 60 days. The General Assembly enacted Article 27, § 233D by Chapter 507 of the Acts of 1984, which took effect on July 1, 1984. Section 233D(a)(4) defines a “pyramid promotional scheme” as any plan or operation by which a participant gives consideration for the opportunity to receive compensation to be derived primarily from any person’s introduction of other persons into participation in the plan or operation rather than from the sale of goods, services, or other intangible property by the participant or other persons introduced into the plan or operation.

Subsection (b) states that “[a] person may not establish, operate, advertise, or promote a pyramid promotional scheme.” Violation of that prohibition renders a person guilty of a misdemeanor punishable by fine and/or imprisonment. Article 27, § 233D(c). Pyramiding is a type of multi-level marketing operation which theoretically serves as a method of distributing a company’s products to the public. Annot., 54 A.L.R.3d 217 , 219 (1973).

Participants in the operation are spread out over various distribution levels through which products are resold until they reach the consumer. Id. However, because “one profits merely by being a link in the product distribution chain, the emphasis is on recruiting more investor-distributors rather than on retailing products.” Note, ³⁸¹ Pyramid Schemes: Dare to be Regulated, 61 Georgetown L.J. 1257, 1259 (1973). A participant’s recruitment of others into the pyramid operation results in creation of that participant’s “down-line,” consisting of those persons recruited by the participant himself and by the participant’s recruits.

The down-line is created by recruiting a preestablished number of individuals into the first level of the operation, each of whom then recruits an equal number of additional persons. The original participant moves up to the next level of the operation each time the bottom level of recruits in his downline is completed, with the process ideally continuing until the original participant’s downline reaches a maximum figure determined by the number of levels in the pyramid. A participant may earn commissions from the sale of products to the distributors within his downline, but commissions are also received from entry fees paid by new recruits into one’s downline. The type of pyramid operation with which § 233D is concerned is one in which a participant’s compensation is “derived primarily” from the participant’s recruitment of others into the operation rather than from the sale of goods or services.

With that consideration in mind, we now review the evidence in this case. On February 4, 1985, the Montgomery County Police Department received a complaint concerning C.I. Systems (“CIS”), which was owned and operated by the appellant. Initiating an investigation into the company, Montgomery County Vice and Intelligence Officer John Sheridan called a telephone number obtained from a CIS flyer and heard a recorded message to the effect that “C.I. Systems would act as a consultant for a person that became involved. One could earn $300 to $700 a month in approximately three months.

This amount could double every six to nine months.” The recording further advised that “[n]o selling was involved, and four to six hours per week is all that it would be necessary to work.” Two additional telephone ³⁸² numbers, one in Virginia and the other in Maryland, were then provided. Officer Sheridan called the Maryland number and heard another recording, this one giving directions to CIS meetings at an office located in Bethesda, Maryland and requesting that callers leave their names and the date of the meeting they would attend. Officer Sheridan gave an undercover name and stated that he would attend the meeting on February 6, 1985. On February 6, Officer Sheridan attended a meeting at the address indicated in the second recorded message.

Conducting the meeting was one Robert Schaffer, who identified himself as a member of CIS’s board of directors. 1 Mr. Schaffer informed those gathered at the meeting that an initial payment of $45 could result in earnings of $300 to $700 a month within 3-6 months and of $2,000 a month within 6-12 months, without any selling required. He also advised that Erik Schrader was the founder and head of CIS. Eight days later, on February 14, 1985, Officer Sheridan attended a second meeting at the same location. The meeting was again conducted by Robert Schaffer, who this time explained the various recruiting methods used by CIS.

Among the methods discussed were flyers, tear-off slips, advertisements in newspapers and magazines, and the wearing of buttons to prompt inquiries from others. Mr. Schaffer stated that a $65 fee was required to join CIS, at which time flyers could be purchased at a special initial rate of $25 per 1,000. He then explained in further detail the overall nature of the operation, which involved the recruitment of others into the enterprise at different “levels.” 2 According to Officer Sheridan’s testimony at the appellant’s ³⁸³ trial, recruitment was emphasized as the focus of the operation; selling and the product line were incidental. To the extent products were involved, participants in the programs were generally buyers rather than sellers. 3 On March 28, 1985, Officer Sheridan attended a third meeting, this one at the CIS home office in Springfield, Virginia.

The appellant was introduced at this meeting as the president of CIS. He spoke about a new plan he was introducing that would allow someone, for a payment of $475, to go directly into the VIP Program without progressing through the other programs. Again, the explanation of the program indicated that recruitment of others was the primary means by which participants could earn money. Based on Officer Sheridan’s investigation, search warrants were obtained for the CIS offices in Maryland and Virginia. 4 The ensuing searches resulted in the seizure of various records and documents from those offices.

William L. Holmes, a special agent with the Federal Bureau of Investigation, testified for the State at the appellant’s trial as “an expert on the examination and interpretation of records for pyramid schemes.” Based on his review of the materials seized from the CIS offices, Agent Holmes gave extensive testimony over two days, outlining the way in which CIS and its connected programs worked. He concluded that the various programs promoted by CIS—the Flyer Program, Mom’n Sun, Success Synergistics, the Silver Letter Program, Yurika Foods, and the VIP Program— were interrelated parts of the same system. At the trial judge’s request, Agent Holmes presented an overview of the CIS operation. Agent Holmes testified that an individual had to join the Flyer Program in order to ³⁸⁴ qualify for Morn’n Sun.

Once qualified for Morn’n Sun, the participant was to recruit other individuals to participate in that program. In Phase One of Morn’n Sun, a participant recruited three individuals, each of whom then recruited three additional persons, for a total of nine. In the third level of Phase One, those nine individuals each recruited three more persons, who became part of the original participant’s downline. This completed Phase One for the original participant, who then advanced to Phase Two of Morn’n Sun, which involved similar multi-level recruitment.

The participant would continue to build his downline by bringing people into successive levels of Phase Two, followed by the same process in Phase Three. The participant received commissions based upon his recruitment of others into certain levels, but Agent Holmes explained that it was necessary to bring over seven million people into the organization in order to gain full commission benefits. With respect to payment of commissions, the trial judge had the following exchange with Agent Holmes: THE COURT: So, in your view, the only thing a participant has to do to get money or commissions is to keep bringing people in. THE WITNESS: That’s correct.

THE COURT: He gets more people, he gets more people, and he gets more. THE WITNESS: That’s correct. Agent Holmes further testified that a participant was required to join Success Synergistics and the Silver Letter Program within six months after entry into the Flyer Program. In return for an initial payment, Success Synergistics and Silver Letter distributed training aids, such as a newsletter and an instructional cassette, which enabled an individual to continue operating in Morn’n Sun.

The next stage of the CIS operation was Yurika Foods, which, according to Agent Holmes, was distinguishable from the other CIS programs in that advancement was based on the volume of food sales rather than on the number of individuals recruited. The final CIS program was the VIP Pro ³⁸⁵ gram, which was another recruitment operation similar to Morn’n Sun except that YIP involved five phases rather than three and a greater investment by participants. Agent Holmes, when asked whether his review of the records seized from the CIS offices revealed any evidence that the programs involved the sale of products to anyone other than participants in the program, responded, “No, ma’am, I did not.” On the ultimate issue of whether the CIS operation constituted a pyramid promotional scheme, the following colloquy took place: [PROSECUTOR]: Agent Holmes, if a pyramid promotional scheme is defined as an operation to which a participant gives consideration or money for the opportunity to receive money or compensation which is derived primarily from introducing other people into the same program, rather than from the sale of goods—based on that definition, what would your opinion of Cl Systems be? [AGENT HOLMES]: That all of the designated programs would fit within that category except Yurika Foods. Moreover, Agent Holmes testified that, in his opinion, even if the various programs were separately owned and operated, CIS would still be a pyramid operation because it was “using those companies to facilitate the down liner system or programs.” In addition to Agent Holmes and Officer Sheridan, the State called one other witness, Richard Retta, who testified about his personal experience as a member of CIS.

According to Mr. Retta, the only time a participant received products was when he first joined and paid the initial fee of $45. 5 Mr. Retta received commissions for getting new recruits to join the company. He was not required to sell ³⁸⁶ any products. For a fee of $50, CIS kept track of Mr. Retta’s “down line” of recruits. After the State rested its case, the appellant moved for judgment of acquittal.

In conjunction with that motion, he filed what he titled a “Motion to Declare Maryland Code, Article 27 Sections [sic] 233(D) Unconstitutionally Vague as Applied to this Defendant.” The trial court treated the latter motion as a motion to dismiss and denied it. After the motion for judgment of acquittal was also denied, the appellant chose to rest his case without offering any evidence. Following closing arguments, the trial court found the appellant guilty of conspiring with Robert Schaffer to establish an illegal pyramid promotional scheme. The appellant’s contentions on appeal can be reduced to the following: I. The trial court erred in denying the appellant’s motion seeking to have Article 27, § 233D declared unconstitutionally vague as applied to him.

II

The trial court erred in according the testimony of the State’s expert witness any evidentiary value because that testimony was based on documents which were not admitted into evidence for their truth.

III

The evidence was insufficient to support the appellant’s conviction. I. At the conclusion of the State’s case, the appellant moved for judgment of acquittal and also filed a “Motion to Declare Maryland Code Article 27 Sections [sic] 233(D) Unconstitutionally Vague as Applied to this Defendant.” The latter motion was supported by a memorandum of authorities. The trial judge treated the latter motion as one to dismiss the prosecution and excused its untimeliness under Rule 4-252 over the objection of the prosecutor. After considering the written and oral arguments of counsel, the motion was denied.

Under these circumstances, we believe the issue has been preserved for our review. Cf ³⁸⁷ Vuitch v. State, 10 Md.App. 389, 393-401 , 271 A.2d 371 (1970), cert. denied, 261 Md. 729 , cert. denied, 404 U.S. 868 , 92 S.Ct. 44 , 30 L.Ed.2d 112 (1971), where this Court declined to consider a constitutional attack upon a penal statute where there had been no pretrial motion to dismiss filed pursuant to former Rule 725 b. There the issue was raised for the first time in a motion for judgment of acquittal at the conclusion of the State’s case, and the record failed to indicate that the trial judge had considered the constitutional issue in denying the defendant’s motion for judgment of acquittal. The appellant correctly asserts that legislative acts creating crimes must be clear and certain. 6 As stated by the Supreme Court, such laws must “give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly.” Grayned v. City of Rockford, 408 U.S. 104, 108 , 92 S.Ct. 2294, 2298-99 , 33 L.Ed.2d 222, 227 (1972).

Furthermore, “where a statute imposes criminal penalties, the standard of certainty is higher” than the standard applicable to statutes imposing only civil penalties. Kolender v. Lawson, 461 U.S. 352 , 359 n. 8, 103 S.Ct. 1855, 1859, n. 8 , 75 L.Ed.2d 903, 910 (1983). A comprehensive discussion of the void-for-vagueness doctrine is found in Bowers v. State, 283 Md. 115 , 389 A.2d 341 (1978). The Court of Appeals there stated: The cardinal requirement is that a penal statute “be sufficiently explicit to inform those who are subject to it what conduct on their part will render them liable to its penalties.” Connally v. General Const.

Co., 269 U.S. 385, 391 , 46 S.Ct. 126 , 70 L.Ed. 322 (1926). “[A] statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its ³⁸⁸ application, violates the first essential of due process of law.” Id. The Fifth and Fourteenth Amendments guarantee that “[n]o one may be required at peril of life, liberty or property to speculate as to the meaning of penal statutes. All are entitled to be informed as to what the State commands or forbids.” Lanzetta v. New Jersey, 306 U.S. 451, 453 , 59 S.Ct. 618 [619], 83 L.Ed. 888 (1939). Accord, Hynes v. Mayor of Oradell, 425 U.S. 610, 620 , 96 S.Ct. 1755 [1760], 48 L.Ed.2d 243 (1976); United States v. Mazurie, 419 U.S. 544, 553 , 95 S.Ct. 710 [715], 42 L.Ed.2d 706 (1975); Smith v. Goguen, 415 U.S. 566 , 572 n. 8, 94 S.Ct. 1242 [1247 n. 8], 39 L.Ed.2d 605 (1974); Grayned v. City of Rockford, 408 U.S. 104, 108 , 92 S.Ct. 2294 [2298], 33 L.Ed.2d 222 (1972); Bouie v. City of Columbia, 378 U.S. 347, 350-51 , 84 S.Ct. 1697 [1700-01], 12 L.Ed.2d 894 (1964); United States v. Harriss, 347 U.S. 612, 617 , 74 S.Ct. 808 [811], 98 L.Ed. 989 (1954); Winters v. New York, 333 U.S. 507, 515-16 [670-71], 68 S.Ct. 665 , 92 L.Ed. 840 (1948).

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