Opinion
Opinions on pages 50-77 omitted.
[173 Cal.Rptr. 399]David B. Birenbaum, San Francisco, for Gonda and Sullivan.
George Deukmejian, Atty. Gen., Robert H. Philibosian, Chief Asst. Atty. Gen., Edward P. O'Brien, Asst. Atty. Gen., Robert R. Granucci, Donna Petre, Deputy Attys. Gen., San Francisco, for plaintiff and respondent.
NEWSOM, Associate Justice.
Gerald Sullivan and John Gonda (sometimes hereinafter appellants) were charged with nine counts of violation of section 31110 of the Corporations Code (unlawful offering and selling of franchise without prior registration), nine counts of violating section 31201 of the same code (selling franchise by means of untrue statements) and nine counts of grand theft in violation of Penal Code section 487.
After a jury trial, appellants were convicted on all but counts 24 (Corp.Code, § 31201) and 26 (Pen.Code, § 487). The court granted a motion as to each appellant dismissing counts 9 (Corp.Code, § 31110), 16 (Corp.Code, § 31201), and 23 (Pen.Code, § 487) notwithstanding the jury's verdicts. The present appeal is therefore taken from judgments entered on guilty verdicts on 22 counts.
A brief recapitulation of the factual background shows the following. Appellants, who had had wide experience in the consulting field, met and decided in the mid-1970's to merge their respective businesses [173 Cal.Rptr. 400] as the Logan Company (hereinafter Logan), which was to be a management consulting business with emphasis on small and medium-size firms. Advertisements were placed in the Wall Street Journal and other newspapers inviting inquiry by two classes of prospective personnel: salesmen, who would be expected, after training, to develop new clients, and consultants, who, after being trained, were to render consulting services to such new clients.
There can be no doubt that, from the inception of the venture appellants consciously exaggerated the financial stability, expertise and prospects of the new firm.
Essentially, their business scheme took the following form: A format for a "registered management consultant" contract was devised, under the terms of which each prospective management consultant would pay $3,750 for the "privilege" of joining Logan as an independent contractor. Such persons would, in exchange for their payment, service what was represented to be an extensive number of existing clients who required Logan's management consultation. A review of the record reveals a variety of misrepresentations to seven prospective "franchisees"; and while it is unnecessary to give in detail the substance of every such misrepresentation, it may be useful to summarize them as follows:
All of the prospective "franchisees" were informed of Logan's "extensive" clientele and "bright" prospects, and of "excellent" earning potential and "valuable" training opportunities.
After paying all or part of the $3,750 "fee," some entrants received fairly extensive training, and a few were actually assigned to and worked for Logan's few clients, and received some remuneration. In no case, however, could it reasonably be said that the "franchisee" received anything like what he had been led to expect by Gonda's and Sullivan's blandishments.
After a number of complaints to the district attorney from irate Logan franchisees, an investigation was commenced, charges were filed, and the convictions outlined above were obtained.
On appeal, Gonda and Sullivan raise a number of arguments, some explicitly and others implicitly and rather obliquely. Having reviewed these arguments, we conclude that certain instructional and procedural errors deprived appellants of a fair trial, necessitating reversal, and now proceed to state the reasons for our conclusion.
I
Appellants contend that the court erred prejudicially in giving the CALJIC instruction No. 4.36 relating to "innocent" intent.
The question of intent to defraud under Penal Code section 487 is of course one of fact. (People v. Kiperman (1977) 69 Cal.App.3d Supp. 25, 30, 138 Cal.Rptr. 271.) Ordinarily, therefore, where conflicting inferences might reasonably be drawn from the evidence, we would on settled principles of appellate review leave undisturbed the findings of the jury on the issue of the specific intent necessary for a conviction of grand theft. (People v. Thornton (1974) 11 Cal.3d 738, 754, 114 Cal.Rptr. 467, 523 P.2d 267; People v. Redmond (1969) 71 Cal.2d 746, 755, 79 Cal.Rptr. 529, 457 P.2d 321.)
Here, however, the evidence supportive of the theft allegations is at best feeble; it consists essentially of the representation that appellants had more clients than in truth they had, broken promises concerning the number of hours of training a "franchisee" would receive, and exaggerated statements of potential income.
The latter representations are close to the line of mere puffery or exaggerated expression of opinion, which, by itself, cannot serve as the basis for a grand theft conviction. (People v. Bennett (1953) 122 Cal.App.2d 244, 251, 264 P.2d 664.) Likewise, mere nonperformance of the promise that prospective salesmen would receive 100 hours of training, standing alone, is insufficient to prove appellants' intention at the time of making the promise not to perform it (People v. Ashley (1954) 42 Cal.2d 246, 263, 267 P.2d 271), especially since, as earlier indicated, the evidence shows that in fact many of the complaining witnesses did receive considerable training. Even in the [173 Cal.Rptr. 401] aggregate, therefore, evidence of felonious intent to defraud seems at best exiguous, and the case a close one.
Given the indecisiveness of this evidence, we agree with appellants' contention that the trial court's instructions were prejudicially confusing. CALJIC No. 4.36, requested by the People, reads as follows: "When the evidence shows that a person voluntarily did that which the law declares to be a crime, it is no defense that he did not know that his act was unlawful or that he believed it to be lawful."
Originally, No. 4.36 was said by the court to apply only to the franchise sections of the Corporations Code, without distinction between those involving fraud where it was proper and those not involving fraud where, for reasons we will state, it was not. Later, upon request of the People, the instruction was said to have been read "the wrong way," and was reread as applicable to the grand theft counts, but not as to the corporate fraud counts.
Under the bewilderingly complex circumstances of the case, the instruction was not merely inapposite, but also must inevitably have confused and probably misled the jurors, who were faced with a welter of overlapping charges involving the same conduct but requiring proof of different mental states for conviction. Its tendency was to lead them to suppose that the various crimes charged involved the same acts, but different mental states. In fact, however, the intent to defraud was necessary whether what was sold was or was not a franchise.
While it is abstractly correct that one who voluntarily does an act malum in se must be convicted for so doing, in the case of a theft such as this, the concept of volition includes not only the intent to sell securities, but also the intent to defraud. The jury must find both of these to be present in order to convict. Finally, as earlier noted, the confusion was here intensified, not only by the number and duplication of charges, but by the court's first having stated that the "ignorance of law" instructions applied only to the Corporate Securities Act violations.
Without delimiting its application to those Corporate Securities Act violations requiring fraud as opposed to those allegedly criminal per se ; the former admittedly require proof of mens rea in addition to proof that the prohibited act was wilfully performed.
Under the circumstances described, and in spite of attempted clarification, we believe the instructional error to have been prejudicial, warranting reversal. (Cf. People v. Gonzales (1967) 66 Cal.2d 482, 493, 58 Cal.Rptr. 361, 426 P.2d 929; People v. St. Andrew (1980) 101 Cal.App.3d 450, 465, 161 Cal.Rptr. 634.)
II
A separate issue concerns the manner in which appellants' convictions under Corporations Code section 31110 were obtained: it raises questions touching upon the controversial concept of so-called "strict liability" in the California criminal law.
Section 31110 proscribes the offering and selling of franchises without prior registration. It reads as follows: "On and after April 15, 1971, it shall be unlawful for any person to offer or sell any franchise in this state unless the offer of the franchise has been registered under this part or exempted under Chapter 1 (commencing with Section 31100) of this part."
Appellants, in an attempt to negate what they regard as the proof of criminal intent required for conviction under section 31110, offered testimony from counsel intended to establish their good faith belief that, in offering their service, or "franchise," they were in compliance with the requirements of the Corporations Code.
The issue, sufficiently difficult when clearly presented, becomes much more so under the instant circumstances. Thus, counsel for appellant Gonda, in submitting what we liberally construe as an offer of proof that, if called to testify, his business lawyer would testify he advised his client "that they were not breaking any laws," conceded that such advice would not be a defense to the charge of violating Corporations Code section 31110.
[173 Cal.Rptr. 402]While a concession of this nature may or may not have been correct with reference to the violation of other criminal statutes, it was ill-taken here, since Corporations Code section 31410 not only requires proof of "wilfulness," but specifically exempts from its strictures any person who "had no knowledge of the rule or order" involved.
It is argued that there are precedents holding that one may be convicted for doing a prohibited act wilfully, as distinguished from doing it with criminal intent, in instances where the statute is silent upon the question of the mental state required; however, the statute (Corp.Code, § 31511) here expressly states that: "No provision of this law imposing any liability applies to any act done or omitted in good faith in conformity with any rule, forum, order, or any written interpretive opinion of the Commissioner or any opinion of the Attorney General." (Emphasis added.)
The accused is thus by the terms of the statute expressly entitled to assert as a defense to the criminal charge of failure to register a franchise for sale, the fact that he relied upon an opinion erroneous or not of the Commissioner.
Compare 47 State Bar Journal 300, at page 349, where (former) Deputy Corporations Commissioner Hans Matters affirms the department's recognition of such defenses.
It therefore follows that the trial court's refusal to allow testimony from the attorney who purportedly advised appellants that their conduct was lawful, or to permit appellants themselves to so testify, was erroneous doubly so in the context of a prosecution for failure to "register" an agreement which fits badly, if at all, into the conventional understanding of a "franchise."
It can scarcely be doubted that, to lay persons, the word "franchise" connotes simply a right to sell another company's goods, or services, and not the exceedingly broad and nebulous concept set out in section 31005 of the Corporations Code as follows: " 'Franchise' means a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which:
(a) A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services, under a marketing plan or system prescribed in substantial part by a franchisor: and
(b) The operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and
(c) The franchisee is required to pay, directly or indirectly, a franchise fee."
The vagueness of this definition is evident: Appellants argue that it is so imprecise and all-embracing as to be unconstitutionally void for vagueness, a phrase which simply means that criminal responsibility should not attach where one could not reasonably understand that his conduct is proscribed. (United States v. Harriss (1954) 347 U.S. 612, 617, 74 S.Ct. 808, 811, 98 L.Ed. 989.) In passing upon the sufficiency of the notice a statute must of necessity be examined in the light of the conduct with which a defendant is charged. (Robinson v. United States (1945) 324 U.S. 282, 65 S.Ct. 666, 89 L.Ed. 944; cf. also People v. Belous (1969) 71 Cal.2d 954, 960, 80 Cal.Rptr. 354, 458 P.2d 194; cert. den., 397 U.S. 915, 90 S.Ct. 920, 25 L.Ed.2d 96.) American Civil Liberties Union v. Board of Education (1963) 59 Cal.2d 203, 28 Cal.Rptr. 700, 379 P.2d 4, cert. den., 375 U.S. 823, 84 S.Ct. 64, 11 L.Ed.2d 56, states: " 'Reasonable certainty is all that is required. A statute will not be held void for uncertainty if any reasonable and practical construction can be given its language. ' " (Id., 59 Cal.2d at p. 218, 28 Cal.Rptr. 700, 379 P.2d 4.)
While we do not consider it necessary to pass upon the constitutionality of section 31005 on the facts of this case, it may be appropriate to observe that the Logan contracts do not seem to us to have required the alleged franchisee to "engage in business" or operate a "franchisee's business." These statutory phrases import [173 Cal.Rptr. 403] some degree of independence for the franchisee; whereas, here, the Logan Company, rather than appellants, "owned" the clients to whom appellants were to render services. Consequently, even if the word "franchise" as used in the Corporations Code is susceptible in general of being understood, and is reasonably calculated to forewarn the prospective violater, its application to the agreements at issue here seems sufficiently dubious that given the necessity of proving bad faith (i. e., means rea ) exclusion of evidence of advice of counsel became error necessitating reversal of the so-called "strict liability" corporate code violations.
III
For the possible guidance of the trial court in the event of retrial, we will briefly consider the issue of double punishment.
Appellants were convicted of and sentenced for both grand theft (Pen.Code, § 487) and unlawful sale of securities by means of untrue statements (Corp.Code, § 31201). This was improper, since it is well settled that, "Where one offense is necessarily included in another, both double conviction ... and double punishment are prohibited ...." (People v. Johnson (1978) 81 Cal.App.3d 380, 387, 146 Cal.Rptr. 476; see also People v. Montano (1979) 96 Cal.App.3d 221, 230, 158 Cal.Rptr. 47.) A person cannot be convicted of both the included and greater offense because, in essence, only one offense has been committed. (People v. Doolittle (1972) 23 Cal.App.3d 14, 19, 99 Cal.Rptr. 810.) The rule is designed to prevent harassment and save both the state and defendant time and resources. (In re Dennis B. (1976) 18 Cal.3d 687, 692, 135 Cal.Rptr. 82, 557 P.2d 514.) It is to be liberally construed in favor of the defendant. (People v. Bauer (1969) 1 Cal.3d 368, 375, 82 Cal.Rptr. 357, 461 P.2d 637.)
A necessarily included offense is established " '... where one offense cannot be committed without committing another offense, ...' " (In re Stanley E. (1978) 81 Cal.App.3d 415, 419, 146 Cal.Rptr. 232; see also People v. Swearington (1977) 71 Cal.App.3d 935, 943, 140 Cal.Rptr. 5.) An examination of the underlying facts of the present case, reveals that the seven counts of violation of section 31201 of the Corporations Code are part of the same transaction, and, indeed, are based upon the same acts, as the seven counts of grand theft by false pretenses. A single, indivisible objective and course of conduct characterized both offenses, so that appellants necessarily committed the offense of unlawfully selling franchises in violation of section 31201 each time they committed grand theft/false pretenses by the sale of the very same franchises. (People v. Pater (1968) 267 Cal.App.2d 921, 926, 73 Cal.Rptr. 823; People v. Armstrong (1950) 100 Cal.App.2d Supp. 852, 857-858, 224 P.2d 490.) Accordingly, in the event appellants are retried judgments of convictions for both offenses will be prohibited. (People v. Johnson, supra, 81 Cal.App.3d 380, 390, 146 Cal.Rptr. 476; People v. Lobaugh (1971) 18 Cal.App.3d 75, 80, 95 Cal.Rptr. 547.)
The judgments of conviction are reversed and the cause remanded for proceedings not inconsistent with the views expressed herein.
RACANELLI, P. J., and GRODIN, J., concur in the result only.