Saturday, February 03, 2007

Case o' The Week: Ninth's DisDaane for Fraud Victims' Self-Help, United States v. William Daane

While taking justice into one's own hands is a great tradition in the Great West, the Ninth doesn't buy it in the fascinating Daane decision. United States v. Daane, __ F.3d __, No. 05-50282, Slip. Op. at 1195 (Ninth Cir. Feb. 1, 2007), decision available here. The opinion creates little new law of interest, but is worth the read simply because the facts sound like a movie treatment.

Players: Rawlinson authors.

Facts: Leslie Darwin Murdock was a fraudster who caught many folks (including Daane) in a multi-million dollar Ponzi scheme. Id. at 1199. Investor Trent, with Daane’s help, demanded repayment from Murdock; they didn’t get far. Id. at 1201. Eventually Daane and the co-Ds drove to Pasadena with draw ties, duct tape, gloves, and guns to “duct tape [Murdock’s] feet, put him in a car, and take him out to the desert.” Id. at 1201. When they found Murdock fleeing down the street, over a two-way radio Daane exclaimed, “The rabbit’s on the run.” Id. at 1202. The defendants grabbed the fraudster, a struggle ensued, the police arrived, and all were arrested. Id. William Daane and his co-Ds were charged with attempted interference with commerce (Hobbes Act) and traveling in interstate commerce for the purpose of extortion. Id. 1199. The district court refused to instruct the jury on the defendants’ “claim of right” instruction. Id. at 1198.

Issue(s): “[A]ppellants argue that the district court erred when it rejected their proffered “claim of right” instruction. In particular, appellants assert that they had a rightful claim to the funds in Murdock’s possession and therefore their actions were not ‘wrongful’ as required for extortion.” Id. at 1205-06.

Held: “[W]hatever the contours of [the claim of right] defense may be, they do not reach extortions based on threats of physical violence outside the labor context. [Y]ou cannot beat someone up to collect a debt, even if you believe he owes it to you.” Id. at 1207 (quoting United States v. Castor, 937 F.2d 293 (7th Cir. 1991)).

Of Note: Not surprisingly, Daane’s plight works better as a jury nullification argument than as a legal defense to extortion charges. It is interesting, though, that there has been an exception carved out for non-violent labor disputes – a vestige of the union battles of old. See id. at 1206 (discussing relationship between Hobbs Act charges and collective bargaining disputes).

How to Use: Maybe there is a very thin distinction in this case, because the defendants got greedy – they demanded $1.3 million more from fraudster Murdock than they had lost. Id. at 1208. Judge Rawlinson seizes on that fact to say that the jury instruction sought wasn’t factually warranted. Id. Nonetheless, even with that factual distinction it would be hard to dodge the precedent rejecting the use of violence in a “claim to right” defense. Id. at 1207. The best use of the case is to give it to fraudster clients, and remind them that federal charges aren’t the only dangers that arise from Ponzi schemes . . . .

For Further Reading: Murdock was the “mastermind of a $26 million pyramid scheme.” See article here. He duped over 600 investors, and was ultimately sentenced in federal court to almost ten years in custody and $13 million in restitution. Id. He was allowed to self-surrender late, to see his son play in a baseball tournament. Id. District Judge Timlin observed at sentencing that Murdock’s “comments suggest he doesn't understand the depth of his criminal conduct.” Id.

According to his J&C, William Daane (lead defendant in this case) was sentenced to eighteen months of custody and two years of supervised release.

Steven Kalar, Senior Litigator N.D. Cal. FPD. Website available at



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