United States v. Kilbride

Defendants-Appellants Jeffrey Kilbride and James Schaffer (“Defendants”) appeal their convictions and sentences for fraud and conspiracy to commit fraud in connection with electronic mail, interstate transportation and interstate transportation for sale of obscene materials, and conspiracy to commit money laundering. We affirm, but remand for a clerical correction.

Defendants’ convictions arose from conduct relating to their business of sending unsolicited bulk email, popularly known as “spam,” advertising adult websites. See United States v. Kelley, 482 F.3d 1047, 1055 & n. 2 (9th Cir.2007) (Thomas, J., dissenting) (discussing origins of “spam” label). Defendants argue that 1) the district court committed reversible error in its jury instructions defining obscenity; 2) 18 U.S.C. § 1037, which criminalizes fraud in connection with electronic mail, is unconstitutionally vague as applied to Defendants and on its face; 3) the district court committed a clerical error in its written judgment by labeling as felonies Defendants’ convictions for fraud in connection with electronic mail; 4) Defendants’ money laundering conspiracy convictions should be reversed because the required related activity charged in the Indictment was not shown beyond a reasonable doubt to be unlawful as defined in 18 U.S.C. § 1462; and 5) the district court erred in applying an obstruction of justice enhancement to Kilbride’s sentence. We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291.

I. Background

A. Defendants’ Bulk Email Advertising Business

Defendants began their bulk email advertising business in 2003. They initially operated the business through an American corporation, using servers in Arizona. In response to new legislation regulating email communication, the Defendants shifted the operation of their business overseas, running it through Ganymede Marketing (“Ganymede”), a Mauritian company, and using servers located in the Netherlands. Although Defendants used a business structure preventing a direct link to Ganymede, Defendants were its true owners and operators. If a recipient of Defendants’ emails signed on to the advertised website and paid a fee, Defendants earned a commission from the entity promoted. The advertisements appearing in Defendants’ emails included sexually explicit images, two of which formed the basis for the obscenity convictions.

Defendants had their employees place fictitious information in the headers 1 of their bulk emails. Defendants’ employee Jennifer Clason created nonsensical domain names and matched them with generic user names to generate a series of different email addresses that were almost certainly nonfunctional. These were placed in the “From” field of the headers of each email sent out. 2 Another employee of Defendants, Kirk Rogers, designed a program utilized by Defendants that gen *1245 erated non-functioning email addresses in the “From” field by combining the domain name used to send each email with the recipient of the email’s user name. In addition, the email address appearing in the “From” field and “Return-Path” field of the headers of Defendants’ emails differed, indicating at least one was false.

Defendants also falsified information appearing in the registration of the domain names they used. The registrant for each of the emails was listed as Ganymede Marketing. The correct physical address for Ganymede was listed, but the contact person and phone number listed were false. The email listed in the registration was never tested for functionality, though the evidence indicates that at some point it became invalid. A reverse look-up of the internet provider address appearing in the email headers came back to a different entity, Kobalt Networks, registered in the Netherlands.

B. Indictment and Tñal

On August 25, 2005, Defendants were indicted for conspiracy to violate 18 U.S.C. § 1037(a)(3) through fraud in connection with electronic mail (Count 1), violation of § 1037(a)(3) and (a)(4) through such fraud (Counts 2 and 3), interstate transportation of obscene materials in violation of 18 U.S.C. § 1462 (Counts 4 and 5), interstate transportation of obscene materials for sale in violation of 18 U.S.C. § 1465 (Counts 6 and 7); conspiracy to commit money laundering in violation of 18 U.S.C. § 1956 (Count 8), and failure to meet record keeping requirements in violation of 18 U.S.C. § 2257 (Count 9). Jennifer Clason was indicted as a co-conspirator. She pled guilty and testified against Defendants.

Defendants were convicted on all counts following a three-week jury trial. The two sexually explicit images forming the basis of the obscenity charges were introduced. Jennifer Clason testified to sending these images on behalf of Defendants using the Defendants’ bulk email interface. Evidence was presented at trial as to the obscenity of the two images. The Government called eight witnesses from various parts of the country who had complained to the Federal Trade Commission (“FTC”) about Defendants’ emails. These witnesses testified to the circumstances under which they received Defendants’ emails, their reactions to and attitude towards the images sent by Defendants, and their views on pornography generally. Some of the witnesses did not specifically recall receiving the two images at issue. The Government also presented evidence of over 662,000 complaints received by the FTC from around the country concerning Defendants’ emails, including the text of some of the complaints. Defendants called Jay Pirouznia, a private investigator, who testified as to various digital video discs containing images similar to those at issue that he purchased in the Phoenix metropolitan area and other counties in Arizona.

Prior to the reading of the jury instructions at trial, Defendants objected to instructions relating to Counts 1 through 7 on various grounds, some of which are raised in this appeal. Following their convictions, Defendants filed a motion for judgment of acquittal or a new trial raising grounds not at issue in this appeal. The motion was denied, but a separate motion to dismiss Count 9 was granted.

C. Sentencing

Jeffrey Kilbride (“Kilbride”) was sentenced to 78 months and Robert Schaffer (“Schaffer”) was sentenced to 63 months. The district court determined that Defendants’ convictions under Counts 1, 2, and 3 were misdemeanors under the terms of § 1037 because the jury had not been asked to make the necessary findings under the statute to render Defendants’ con *1246 victions felonies. However, despite referencing the misdemeanor penalty provisions of § 1037, the written judgments for Defendants designated these convictions as felonies.

Over Kilbride’s objection, the district court applied a two-level obstruction of justice enhancement to his sentence. The enhancement was based on Kilbride’s attempts to prevent Laval Law, an officer of Ganymede, from testifying. Law traveled to the United States from Mauritius to testify for the Government in Defendants’ trial. 3 On June 8, 2007, several days prior to Law’s testimony, Defendant Kilbride filed an action in the courts of Mauritius against Law and other entities, alleging the illegal disclosure of Ganymede documents. He obtained a temporary injunction prohibiting Law and the other respondents from testifying concerning the affairs of Ganymede and related entities and beneficiaries. Kilbride filed his action shortly prior to the time for Law’s scheduled testimony, despite the fact that the Ganymede documents at issue in the action were obtained by the Government in 2005, and had been disclosed in discovery, and the fact that the Government had made arrangements in May 2007 for Law to travel and testify. In addition, in filing the action, Kilbride asserted an interest in Ganymede in contradiction to his attempts at trial to distance himself from Ganymede. Law subsequently declined to testify out of fear that he would be held in contempt in Mauritius. On June 11, 2007, in light of the injunction, the Government filed an emergency motion requesting that the district court enter a protective order determining the scope of Law’s testimony. When confronted by the district court at a hearing on the matter, Kilbride’s trial counsel agreed to take action that eventually led to the lifting of the injunction as to Law, allowing Law to testify. Rejecting Kilbride’s explanations for obtaining the order, the district court found that Kilbride filed the action as an intentional tactical maneuver to prevent Law from testifying and, therefore, merited application of the obstruction of justice enhancement.

II. Discussion

A. Challenge to Jury Instructions Defining Obscenity

The Defendants challenge their convictions on Counts 4 through 7 on the ground that the district court erred in instructing the jury as to the definition of obscene expression regulated by 18 U.S.C. §§ 1462 and 1465. Obscene expression is not protected by the First Amendment. Kois v. Wisconsin, 408 U.S. 229, 230, 92 S.Ct. 2245, 33 L.Ed.2d 312 (1972). Since the Supreme Court’s holding in Miller v. California, the test for determining whether a work is subject to regulation as obscenity has the following three prongs:

(a) whether the average person, applying contemporary community standards would find that the work, taken as a whole, appeals to the prurient interest; (b) whether the work depicts or describes, in a patently offensive way, sexual conduct specifically defined by the applicable ... law; and (c) whether the work, taken as a whole, lacks serious literary, artistic, political, or scientific value.

413 U.S. 15, 24, 93 S.Ct. 2607 (1973) (internal citations and quotation marks omitted). Though Miller involved application of a state obscenity statute, the Miller test has subsequently been found to define *1247 regulated speech for purposes of federal obscenity statutes such as §§ 1462 and 1465, as well. See Hamling v. United States, 418 U.S. 87, 106, 94 S.Ct. 2887, 41 L.Ed.2d 590 (1974); United States v. Schales, 546 F.3d 965, 973 (9th Cir.2008).

Defendants’ challenge to the adequacy of the jury instructions’ definition of obscenity focuses on the instructions’ explication of the meaning of the term “contemporary community standards.” The application of contemporary community standards in defining obscenity is intended to ensure that “so far as material is not aimed at a deviant group, it will be judged by its impact on an average person, rather than a particularly susceptible or sensitive person — or indeed a totally insensitive one.” Miller, 413 U.S. at 33, 93 S.Ct. 2607. The Court, in line with this view, has held, in a case involving obscenity disseminated via the regular mails, that for purposes of federal obscenity statutes no “precise geographical area” need be applied in defining “contemporary community standards.” Hamling, 418 U.S. at 105, 94 S.Ct. 2887. As a result, in federal obscenity prosecutions, a juror may simply “draw on knowledge of the community or vicinage from which he comes” in determining contemporary community standards. Id.

Defendants raise alternative arguments as to why the district court improperly instructed the jury about the meaning of “contemporary community standards.” Defendants first assert that the district court erred by instructing the jurors to apply the standards of communities beyond their own community or of a global community in determining contemporary community standards, contravening Ham-ling’s, expectation that jurors would look only to their own local community’s standards. Second, Defendants argue that as the obscenity at issue was transported via email, the district court erred by failing to hold that existing precedent was inapplicable and instructing the jury to determine contemporary community standards by reference to the national community. Hence, in a sense, Defendants argue the instructions fell between two stools. In the view of Defendants, the instructions neither complied with the localized definition of contemporary community standards mandated by existing precedent, nor complied with the national definition of contemporary community standards that Defendants propose we should now hold is applicable to expression disseminated through email. We review these alternative contentions in sequence.

1. Standards of Review

We “review de novo whether a jury instruction misstates an element of a crime, and we review for abuse of discretion a district court’s formulation of an instruction.” United States v. Peterson, 538 F.3d 1064, 1070 (9th Cir.2008). Any omission or misstatement of an element of an offense in the jury instructions is constitutional error and, therefore, requires reversal unless we find the error “harmless beyond a reasonable doubt.” Chapman v. California, 386 U.S. 18, 24, 87 S.Ct. 824, 17 L.Ed.2d 705 (1967); see Hedgpeth v. Pulido, — U.S. —, 129 S.Ct. 530, 532, 172 L.Ed.2d 388 (2008). However, “ ‘[i]n the absence of a timely objection to the jury instructions, we review for plain error.’ ” Peterson, 538 F.3d at 1070 (quoting United States v. Moran, 493 F.3d 1002, 1009 (9th Cir.2007) (per curiam)). “Plain error review requires us to find (1) an error that is (2) plain and (3) affects substantial rights. Even if these conditions were met, we may only exercise our discretion to correct the error if it seriously affects the fairness, integrity or public reputation of judicial proceedings.” Id. at 1071-72 (quoting United States v. Nash, 115 F.3d 1431, 1437 (9th Cir.1997)) *1248 (internal quotation marks and alterations omitted).

2. Adequacy of Jury Instructions

Defendants assert first that the jury-instructions failed to comply with the prevailing definition of contemporary community standards for purposes of federal obscenity prosecutions outlined in Hamling. Defendants object specifically to various phrases in the district court’s Jury Instruction Number 36 defining obscenity, claiming they impermissibly allowed the jurors to rely on standards outside their own community or on some broad global standard in determining contemporary community standards. First, Defendants object to the instruction’s reference to contemporary community standards as involving

what is in fact accepted in the community as a whole; that is to say by society at large, or people in general, and not merely by what the community tolerates nor by what some persons or groups of persons may believe the community as a whole ought to accept or refuse to accept.

(Emphasis added.) Second, Defendants object to the portion of the instruction stating: “The ‘community’ you should consider in deciding these questions is not defined by a precise geographic area. You may consider evidence of standards existing in places outside of this particular district.” Finally, Defendants object to the portion of the instruction stating: “The parties have presented evidence concerning contemporary community standards. You should consider the evidence presented, but you may also consider your own experience and judgment in determining contemporary community standards.” Defendants assert this final portion is problematic because the only evidence of community standards presented by the Government related to communities outside the district where the prosecution occurred. Defendants objected to all these portions of the instruction in the district court.

We conclude, applying the prevailing definition of contemporary community standards put forth in Hamling, that the challenged portions do not constitute prejudicial error. See Chapman, 386 U.S. at 24, 87 S.Ct. 824 (reversal required unless error is harmless beyond reasonable doubt). The portion of the instruction stating that the relevant community lacks a precise geographic definition follows directly from Hamling’s holding that the relevant community is not to be geographically defined in federal obscenity prosecutions, permitting the jury to apply their own sense of what contemporary community standards are, based on their own community. Hamling, 418 U.S. 104-05, 94 S.Ct. 2887; see also United States v. Cutting, 538 F.2d 835, 841 (9th Cir.1976) (en banc) (stating contemporary community standards “is a general standard, not a geographic one”); United States v. Dachsteiner, 518 F.2d 20, 22 (9th Cir.1975) (“Neither Miller nor Hamling ... requires the trial court to define the relevant community in metes and bounds.”). No authority supports the Defendants’ contrary notion that a district court must provide a clear geographic definition of the relevant community in a federal prosecution. Hence, the geographic definition instruction in of itself was entirely appropriate.

Similarly, the challenged portion of the instruction explicitly and implicitly allowing jurors to consider evidence of standards existing in places outside of the district is clearly permitted under Hamling. There, the Court found that, though jurors would most likely draw from the standards of the community they came from in determining contemporary community standards, “this is not to say that a district court would not be at liberty to admit *1249 evidence of standards existing in some place outside of this particular district, if it felt such evidence would assist the jurors in the resolution of the issues which they were to decide.” 418 U.S. at 106, 94 S.Ct. 2887; cf. United States v. Danley, 523 F.2d 369, 370 (9th Cir.1975) (“While ... it is permissible in federal prosecution to define the state as a community, it is clear from Hamling that consideration may be given to standards without the state.” (citations omitted)). We read this statement in Hamling as recognizing the entirely logical proposition that evidence of standards of communities outside the district may in a court’s judgment help jurors gauge what their own sense of contemporary community standards are. Allowing jurors to consider such evidence is acceptable as long as jurors are properly instructed that they are to apply their own sense of what contemporary community standards are. The challenged instructions did exactly this and, therefore, in no way contravene Hamling.

Furthermore, at trial neither the Government nor Defendants argued that the jury should apply anything other than their own sense of what contemporary community standards are. Both parties referenced the evidence of community standards outside the district merely as one piece of evidence to consider in determining contemporary community standards. Hence, even were we to accept Defendants’ view that the instructions could be read as permitting application of the standards of some community other than that of the jurors, neither party made any argument urging them to do so. 4

The instruction’s references to “society at large” and “people in general” are also not objectionable. Defendants assert that these references indicated that the relevant contemporary community standard is a global or societal one. However, the two references instead simply form part of a general instruction to apply the standards of the community as a whole and not of specific persons or groups, which is the rationale for defining obscenity by reference to contemporary community standards. Miller, 413 U.S. at 33, 93 S.Ct. 2607. This may have been made clearer had the instructions said “the community at large,” rather than “society at large,” but even as written we see no likelihood that the jury would have drawn from the challenged references, read in context, the view that the community standard they must apply is that of all of society or of the world. See Hamling, 418 U.S. at 107-08, 94 S.Ct. 2887 (“[J]ury instructions are to be judged as a whole, rather than by picking isolated phrases from them.”); Dachsteiner, 518 F.2d at 21 (“We have frequently held that jury instructions are to be judged as a whole, rather than by picking isolated phrases from them.”) 5

*1250 Even assuming the challenged references erroneously allowed the jury to apply a global community standard, we conclude Defendants were not prejudiced. The Government at no point presented evidence to the jury purporting to illustrate a global or societal community standard and at no point argued to the jury for application of such a standard. The only reference to a global or communal community standard was in fact made by Defendants, necessarily implying that such a standard would be more tolerant of sexually explicit material than a local standard. Absent any argument or evidence presented to the jury illustrating a global or societal community standard less tolerant than that of the jurors’ own sense of contemporary community standards, instruction to the jury allowing application of a global standard or societal standard is harmless. Cf. Cutting, 538 F.2d at 841 (“[W]hen an instruction has been given in terms of a ‘national’ standard, the essence of the question of prejudice is whether the instruction may have led the jury to apply some specialized test that might differ to the defendant’s disadvantage from a generalized ‘average person, applying contemporary community standards’ test.”); Dachsteiner, 518 F.2d at 22 (finding no probability of prejudice from instructions referencing national community standard because “[t]he record contains no evidence that would have tended to persuade the jury that national standards of obscenity are more strict than those in the Northern District of California”). 6

Hence, we conclude the district court’s instruction on the meaning of contemporary community standards was not prejudicial error according to the prevailing definition of obscenity in federal prosecutions. We now turn to Defendants’ alternative claim that the district court erred in not finding the prevailing definition of obscenity inapplicable to works disseminated via email communication.

3. Necessity of National Community Standard

Defendants assert in the alternative that Hamling’s prevailing definition of contemporary community standards is not appropriate for speech disseminated via email. Because persons utilizing email to distribute possibly obscene works cannot control which geographic community then-works will enter, Defendants argue that applying Hamling’s definition of contemporary community standards to works distributed via email unavoidably subjects such works to the standards of the least tolerant community in the country. This, Defendants assert, unacceptably burdens First Amendment protected speech. To avoid this constitutional problem, Defendants argue, obscenity disseminated via email must be defined according to a national community standard. Defendants, however, did not raise this argument in the district court. Accordingly, we review the district court’s failure to instruct the jury to apply a national community standard for plain error. Peterson, 538 F.3d at 1070. We agree with Defendants that the district court should have instructed the jury to apply a national community standard, but we do not conclude that the district court’s failure to do so was plain error.

Defendants’ argument is not an entirely novel one. In Sable Communications of *1251 California, Inc. v. FCC, 492 U.S. 115, 109 S.Ct. 2829, 106 L.Ed.2d 93 (1989), the Court rejected in part a facial challenge to a federal statute criminalizing the interstate transmission of obscene commercial telephone recordings. The appellant there offered sexually oriented telephone recordings nationally through the " Pacific Bell telephone network. Id. at 117-18, 109 S.Ct. 2829. The appellant argued in part that the federal obscenity legislation under which it was prosecuted “place[d] message senders in a ‘double bind’ by compelling them to tailor all their messages to the least tolerant community.” Id. at 124, 109 S.Ct. 2829. The Court, relying on its previous holding in Hamling, reaffirmed that the relevant contemporary community standards for defining obscenity under federal laws were not that of the national community and that the burden thereby placed on distributors of complying with varying local standards did not violate the First Amendment. Id. at 124-26, 94 S.Ct. 2887. However, in so ruling, the Court noted that the appellant was “free to tailor its messages, on a selective basis, if it so chooses, to the communities it chooses to serve” and that if the appellant’s “audience is comprised of different communities with different local standards, [the appellant] ultimately bears the burden of complying with the prohibition on obscene messages.” Id. at 125-26, 94 S.Ct. 2887.

Defendants assert that speech disseminated via email is distinguishable from the speech disseminated via regular mails or telephone at issue in Hamling and Sable because there is no means to control where geographically their messages will be received. Hence, they cannot tailor their message to the specific communities into which they disseminate their speech and truly must comply with the standards of the least tolerant community in a manner the defendants in Hamling and Sable did not.

The Supreme Court has analogously recognized that the application of localized community standards to define regulated indecent and obscene Internet speech may generate constitutional concerns for exactly this reason. In Reno v. ACLU, 521 U.S. 844, 117 S.Ct. 2329, 138 L.Ed.2d 874 (1997), the Supreme Court declared certain provisions of the Communications Decency Act (“CDA”) facially overbroad in violation of the First Amendment. The CDA provisions at issue in Reno sought to regulate obscene or indecent expression on the Internet relying on contemporary community standards to define regulated speech. Id. at 858-60, 117 S.Ct. 2329. The Court listed as one among several issues of facial overbreadth in the CDA that “the ‘community standards’ criterion as applied to the Internet means that any communication available to a nation wide audience will be judged by the standards of the community most likely to be offended by the message.” Id. at 877-78, 117 S.Ct. 2329. 7 Reno did not address, however, Defendants’ argument that the application of local community standards to regu *1252 late Internet obscenity by itself renders a statute fatally overbroad.

The Supreme Court’s fractured decision in Ashcroft v. ACLU, 535 U.S. 564, 122 S.Ct. 1700, 152 L.Ed.2d 771 (2002), most directly addresses Defendants’ argument. In Ashcroft, the Court reviewed the constitutionality of the Child Online Privacy Act, the narrower successor law to the Communications Decency Act, which sought to regulate material “harmful to minors” transmitted via the World Wide Web “for commercial purposes.” Id. at 569, 122 S.Ct. 1700. The Third Circuit concluded that COPA was facially overbroad on the narrow ground that it identified material “harmful to minors,” utilizing a test that relied on contemporary community standards. ACLU v. Reno, 217 F.3d 162, 173-74 (3d Cir.2000). The Third Circuit found that COPA’s use of contemporary community standards was constitutionally problematic because “Web publishers are without any means to limit access to their sites based on the geographic location of particular Internet users.” Id. at 175. The Supreme Court vacated the Third Circuit judgment, holding that “COPA’s reliance on community standards ... does not by itself render the statute substantially over-broad for purposes of the First Amendment.” Ashcroft, 535 U.S. at 585, 122 S.Ct. 1700 (emphasis in original); see id. at 597, 122 S.Ct. 1700 (Kennedy, J., concurring in the judgment). However, the eight Justices concurring in the judgment applied divergent reasoning to justify the Court’s holding.

Justice Thomas, joined by two other justices, recognized that, regardless of whether a national or local community standard was used for defining material harmful to minors under COPA, “the variance in community standards across the country could still cause juries in different locations to reach inconsistent conclusions as to whether a particular work is ‘harmful to minors.’ ” Id. at 577, 122 S.Ct. 1700. Justice Thomas, nonetheless, did not find this variance in community standards constitutionally problematic because COPA was, unlike the CDA, narrow in application. Id. at 578-84, 122 S.Ct. 1700. As a result, Justice Thomas found controlling the rulings of Hamling and Sable condoning variance in local community standards. Id. Justice Thomas did not view as constitutionally significant that distributors of potentially obscene material via the Internet could not control where the material was read. Id. at 583, 122 S.Ct. 1700. Justice Thomas explained: “If a publisher wishes for its material to be judged only by the standards of particular communities, then it need only take the simple step of utilizing a medium that enables it to target the release of its material into those communities.” Id. Were Justice Thomas’s opinion the opinion of the Court, we would likely be compelled to reject the Defendants’ position. Justice Thomas’s opinion both denies the utility of and need for applying a national community standard in defining Internet obscenity.

But Justice Thomas’s blanket dismissal of the overbreadth problem identified by the Third Circuit was not joined by a majority of the Court. The remaining two Justices forming the majority were much less sanguine about the application of local community standards in defining Internet obscenity. Justice O’Connor, writing for herself, agreed with Justice Thomas that the respondents had failed to demonstrate on the record before the Court that any variance in local community standards supported a finding that COPA was facially overbroad. Id. at 586, 122 S.Ct. 1700. However, Justice O’Connor believed that “respondents’ failure to prove substantial overbreadth on a facial challenge in this case still leaves open the possibility that the use of local community standards will cause problems for regulation of obscenity on the Internet, for adults as well as chil *1253 dren, in future cases.” Id. at 587,