People v. Mills

Convicted on 10 charges of violation of the Corporate Securities Act, two counts of grand theft and one accusation of conspiracy to commit those crimes, defendant Mills appeals from the judgment and from an order denying his motion for new trial. His codefendant, Cavanaugh, was jointly charged with him and convicted on the conspiracy count and three counts of violation of the Corporate Securities Act. He appeals from an order granting him probation (Pen. Code, § 1237, subd. 1) and from an order denying his motion for new trial. Each defendant also attempts to appeal from an order denying his motion in arrest of judgment. The conspiracy charge originally included one Paul H. Kroger, as did certain other counts of the information. Near the close of the People’s case he was dismissed on motion of the prosecution because of insufficiency of the proof against him. The appeals will be considered separately for reasons which will be readily apparent as the discussion progresses.

Mills raises three major contentions, (1) former jeopardy, (2) unlawful search and seizure, and (3) insufficiency of the evidence.

As to former jeopardy. At a previous trial upon the same information the judge, when he resumed the bench for the afternoon session, stated that the prosecutor and police lieutenant William C. Hull had that morning been guilty of misconduct of such grievous nature that a motion for mistrial would be entertained if defendants should elect to make one, pointing out that they alone could take advantage of the situation. Defendants promptly made the motion and it

What happened in that connection is told by Lieutenant Hull in his testimony: “I told the officers that were with me at that time and the investigators from the Division of Corporations that . . . Jack Stern and Naslund from the Division of Corporations, and Lorrettivich and James and one or two other officers from the Bunco Division, Detective Bureau, Los Angeles Police Department. ... I told Mr. Stern and Mr. Naslund and Officer Nelson and James and the other officers that I wanted the entire office searched as well as the adjoining room. I told them that I was looking for all things having to do with stock, stock promotion, assays, mines, ores, letters, letters that showed, that would reveal other investors, books and ledgers and various papers that would pertain to stock promotion, stock activities, and to call my attention to anything they found, and to let me see, and see where it was before they removed it and we would obtain— I directed one of them to obtain two or three cartons, cardboard cartons, and then Mr. Mills was seated there in the office and the various officers and investigators began a search of the premises. . . . Various pieces of— various items were called to my attention and I reached the decision as to whether they were of evidentiary value. . . . Various items were called to my attention. I directed items to be placed in the cartons and other items to be left where they were.” The witness further testified that the officers searched through file cabinet drawers, the desk, the table, desk drawers, a correspondence file, all in the front room; that he directed Jack Stern of the Division of Corporations to make a thorough search of the bedroom, which Stern reported he had done. There were at least six persons conducting the search in addition to Lieutenant Hull and Mrs. Asdell. It took 45 minutes or more and produced a large volume of incriminating evidence, somewhere from 500 to 1000 documents. It was not directed toward discovery of the instrumentalities or evidence of the crime for which Mills was arrested, but for evidence of commission of other

“Applying these principles and distinctions to the facts of the present ease we are satisfied that the officers did not act unreasonably or in violation of defendant’s constitutional rights.” (Pp. 378-380.)

This condemnation of exploratory searches is fully supported by decisions of the United States Supreme Court and other federal and state tribunals; and the exclusion of illegally seized documents extends to other evidence which is derived from those documents directly or indirectly.

The vice of such searches has been exposed often. United States v. Lefkowitz, 285 U.S. 452 [ 52 S.Ct. 420 , 76 L.Ed. 877 , 82 A.L.R. 775 ], involved a charge of conspiracy to violate the National Prohibition Act. Government agents made a search of office desk drawers, towel cabinets, waste baskets and other containers and delivered all seized papers to the prosecutors. Upon a motion to suppress that evidence the government contended “that, since the arrests were lawful, the search of the place where they were made was lawful, and that, having the right to search the premises, the officers were bound to do it thoroughly.” (P. 462.) The court said, in holding that the motion should have been granted: “The only question presented is whether the searches of the desks, cabinets and baskets and the seizures of the things taken from them were reasonable as an incident of the arrests. And that must be decided on the basis of valid arrests under the warrant. Save as given by that warrant and as lawfully inei

“Here, the searches were exploratory and general and made solely to find evidence of respondents’ guilt of the alleged conspiracy or some other crime. Though intended to be used to solicit orders for liquor in violation of the Act, the papers and other articles found and taken were in themselves unoffending. The decisions of this court distinguish searches of one’s house, office, papers or effects merely to get evidence to convict him of crime from searches such as those made to find stolen goods for return to the owner, to take property that has been forfeited to the Government, to discover property concealed to avoid payment of duties for which it is liable, and from searches such as those made for the seizure of counterfeit coins, burglar’s tools, gambling paraphernalia and illicit liquor in order to prevent the commission of crime. . . . [Pp. 465-466.]

“An arrest may not be used as a pretext to search for evidence. The searches and seizures here challenged must be held violative of respondents’ rights under the 4th and 5th Amendment.” (P. 467.) To the same effect are: Go-Bart Co. v. United States, 282 U.S. 344 [ 51 S.Ct. 153 , 75 L.Ed. 374 ] ; Harris v. United States, supra, 331 U.S. 145 ; Nardone v. United States, supra, 308 U.S. 338 ; United States v. 1013 Crates of Empty etc. Whiskey Bottles, (2 C.C.A.) 52 F.2d 49 , 51; Drayton v. United States, (5 Cir.) 205 F.2d 35 ; Lott v. United States, (5 Cir.) 218 F.2d 675 , 678.

Though some of the authorities would limit the search to instrumentalities of the crime (Freeman v. United States, (C.C.A. 9th Cir.) 160 F.2d 72 ; Henderson v. United States, (4 Cir.) 12 F.2d 528 [ 51 A.L.R. 420 ]; Worthington v. United States, 166 F.2d 557 , 566; Takahashi v. United States, 143 F.2d 118 , 123), the right is not so narrowly confined in this jurisdiction. It may,be exercised in aid of discovery of evidence of the particular crime for which the arrest is made. In People v. Allen, 142 Cal.App.2d 267 , 280 [ 298 P.2d 714 ], this court, referring to United States v. Rabinowitz, 339 U.S.

Where the bounds of a reasonable search have been exceeded, as here, neither the evidence wrongfully seized nor any of its derivatives may be used against defendant. Silverthorne Lbr. Co. v. United States, 251 U.S. 385 [ 40 S.Ct. 182 , 64 L.Ed. 319 , 24 A.L.R. 1426 ], is the leading case on this point. After unlawful seizure of certain documents, which were ordered to be returned to the defendant, the prosecutors made photostats and other copies of same, brought a new indictment and subpoenaed the originals of the papers previously returned to the defendant. In holding that there was no contempt in refusal to obey those subpoenas the court, through Mr. Justice Holmes, said at page 391: “The proposition could not be presented more nakedly. It is that although of course its seizure was an outrage which the government now regrets, it may study the papers before it returns them, copy them, and then may use the knowledge that it has gained to call upon the owners in a more regular form to produce them; that the protection of the Constitution covers the physical possession, but not any advantages that the government can gain over the object of its pursuit by doing the forbidden act. . . . The essence of a provision forbidding the acquisition of evidence in a certain way is that not merely evidence so acquired shall not be used before the court, but that it shall not be used at all. Of course this does not mean that the facts thus obtained become sacred and inaccessible. If knowledge of them is gained from an independent source they may be proved like any others, but the knowledge gained by the government’s own wrong cannot be used by it in the way proposed.”

The same holding was made in People v. Berger, 44 Cal.2d 459 [ 282 P.2d 509 ], where an attempt was made to use photostats of documents which had been wrongfully seized, the court saying, at page 462: “Since the photostats are as much a product of the illegal search and seizure and are as tainted by it as the original papers themselves (Silverthorne Lbr. Co. v. United States, 251 U.S. 385 , 392 [ 40 S.Ct. 182 , 64 L.Ed.

The Silverthorne doctrine was recognized and applied in Badillo v. Superior Court, supra, 46 Cal.2d 269 , 273, and People v. Dixon, 46 Cal.2d 456 , 458 [ 296 P.2d 557 ]. In the latter case it was held that defendant’s own testimony “was impelled by the erroneous admission of the illegally obtained evidence and cannot be segregated from that evidence to sustain the judgment.”

People v. Martin, 382 Ill. 192 [ 46 N.E.2d 997 ], is factually foursquare with the case at bar, and it was held that the witnesses discovered through the wrongfully seized documents could not testify to the other crimes disclosed by those documents. At page 1002 [46 N.E.2d] it is said: “To permit the illegal action of the officers of the law in this case to redound to its advantage would impair the constitutional safeguards under consideration. Under the circumstances presented here it requires more than a mere assertion by the State’s Attorney that the evidence used against defendants was obtained from an independent source. On the face of it it could not be an independent source. No showing is made of any kind that the name of any one of the witnesses was obtained in any other manner than by an examination of the papers of the plaintiffs in error. . . .

“It is only necessary for us to determine whether it has been shown the testimony of the witnesses was received from independent sources, and upon that question we find there is nothing in the record to substantiate the claims of the proseen

At all stages of the case Mills objected to the use of the seized documents and sought to exclude evidence based thereon or derived therefrom. This is true of all counts except 14, which deals with the Hull transaction and which was expressly excluded from the motion to strike made after the close of the prosecution’s case. The evidence of count 14 being sufficient, as we shall see, to sustain the conviction without the direct or indirect aid of wrongfully seized matters, that conviction may stand regardless of the disposition of the other counts. (See People v. Tarantino, 45 Cal.2d 590 , 596-597 [ 290 P.2d 505 ].)

Mills asserts the evidence to be insufficient to sustain a conviction upon the charge of count 14. In support of this position he asserts that the evidence shows only a loan transaction or a sale made by him of individually owned stock, and that it falls within the exemption of section 25152, Corporations Code, which reads: “Except as expressly provided in this division, the Corporate Securities Law does not apply to the sale of securities when (a) made by or on behalf of a .vendor not the issuer or underwriter thereof who, being a bona fide owner of the securities, disposes of his own property for his own account, and (b) the sale is not made, directly or indirectly, for the benefit of the issuer or an underwriter of the security, or for the direct or indirect promotion of any scheme or enterprise with the intent of violating or evading any provision of the Corporate Securities Law.” Defendant’s own testimony would have sustained a finding in his favor on this issue, but it was disbelieved by the trial judge; moreover, he was impeached by the former conviction of a felony, issuing checks without sufficient funds.

The rule governing a court of review with respect to sufficiency of the evidence is stated in People v. Newland,

Clearly, the sale of an interest in the proceeds of the mine does not fall within the exemption of section 25152, unless perchance Mills was, as he represented, the sole owner

Mills’ evidence as to the transaction having been rejected by the trial judge, that which was accepted established him to be the issuer of the stock which he sold. He represented to Hull that he owned all the stock of the corporation, was sole owner of the mine, and that Hull would be the first outside holder of stock. Those statements, adverse to his own present interests, constitute independent and affirmative evidence of the fact. “ It is true in a criminal case as in civil actions that a statement against interest made by a party constitutes original and independent evidence of the facts so stated.” (People v. Goldstein, 136 Cal.App.2d 778 , 785 [ 289 P.2d 581 ].) A sale of stock or other undivided interest in a corporation which is the seller’s alter ego spells a sale by the issuer in legal contemplation. So held in People v. Murphy, 17 Cal.App.2d 575 , 582-584 [ 62 P.2d 592 ].; People v. Smith, 111. Cal.App. 177, 186 [ 295 P. 105 ]; People v. Allen, 47 Cal.App.2d 735 , 745 [ 118 P.2d 927 ]. Especially is this true where the seller’s own shares are transferred to the corporation and it in turn issues a certificate to the buyer. That is what was done in this ease, assuming the truth of defendant’s testimony. (Castle v. Acme Ice Cream Co., 101 Cal.App. 94 , 99 [ 281 P. 396 ].)

Referring to the exemption provision of the former statute (in .language almost identical with present section 25152), fhe court said, in People v. Mason, 86 Cal.App.2d 445 , 454 [ 195 P.2d 60 ] : “This language is tantamount-to declaring it to be a felony if by the sale of a security prior to the issuance of a permit to the issuer by the Corporation Commissioner the vendor causes the issuer thereof to profit or to be advanced by such sale,” That Mills was selling for the benefit of the corporation is fairly inferable. If it, not Mills, was the issuer, then the statutory exemption would not apply. The representations -made to Hull by defendant as an inducement for the purchase by- him support an implied finding that the sale was being made for the benefit of the corporation. Indeed, that is the only -fair deduction to be made from the terms of the memorandum, Exhibit 4. Otherwise, Hull would not be receiving 10 per. cent of the smelter checks directly from United States Smelting Refining and Mining Compapy, of Salt Lake City, as his “percentage'in the production -from the mine.-” In fact, appellant’s opening brief says, at' page 2, that - Hull “as such potential investor was to advance $3,000.00 to did in carrying on such mining operations.”

It follows that the judgment against Mills and the order denying his motion for a new trial must be affirmed as to count 14.

Defendant Cavanaugh, who is a layman, appeared in propria persona. At the beginning of the trial defendant Mills stated the following stipulation to which Cavanaugh and Kroger agreed: “The three defendants want to agree to a stipulation amongst themselves that any questions which I may ask any witness, or any statement I make, or any motion in the case, will be agreeable to them unless they object to it at the time. I will bear the brunt of the work in this case because of my experience, and any testimony introduced on behalf of either of us may be considered the testimony in favor of each of us, wherever material.” To this Cavanaugh added: “I have decided to let Mr. Mills handle it.” This course was pursued throughout the hearing, Mills speaking for Cavanaugh and the latter following his lead.

The evidence against Cavanaugh consisted of documents seized in the search of Mills’ rooms and testimony flowing from them and built upon them; aside from that type of evidence there was not enough to hold Cavanaugh on any count. His own testimony related to transactions disclosed by the seized documents.

The violation of Mills’ constitutional rights was available to Cavanaugh, as has been held in People v. Martin, supra, 45 Cal.2d 755 , 761; People v. Kitchens, 46 Cal.2d 260 , 264 [ 294 P.2d 17 ] ; People v. Gale, 46 Cal.2d 253 , 257 [ 294 P.2d 13 ]; People v. Silva, 140 Cal.App.2d 791 , 794 [ 295 P.2d