Opinion
No. 1 CA-CR 18-0308
04-30-2019
STATE OF ARIZONA, Appellee, v. JAMES THORNTON, Appellant.
COUNSEL Arizona Attorney General's Office, Phoenix By Michael O'Toole Counsel for Appellee Rowley Chapman Barney LTD, Mesa By Brian Dale Strong Counsel for Appellant
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. CR2016-005397-001
The Honorable Ronda R. Fisk, Judge
AFFIRMED
COUNSEL Arizona Attorney General's Office, Phoenix
By Michael O'Toole
Counsel for Appellee Rowley Chapman Barney LTD, Mesa
By Brian Dale Strong
Counsel for Appellant
MEMORANDUM DECISION
Presiding Judge David D. Weinzweig delivered the decision of the Court, in which Judge Kent E. Cattani and Judge James P. Beene joined. WEINZWEIG, Judge:
¶1 James Thornton appeals his convictions and sentences for fraudulent schemes and artifices and theft. He argues the superior court erred by not dismissing the theft charge before trial, and he challenges the sufficiency of evidence supporting his convictions. Thornton also contends the court erroneously limited his experts' testimony, and he argues the court fundamentally erred in failing to instruct the jury about his legal duties. For the following reasons, we affirm.
FACTS AND PROCEDURAL BACKGROUND
We view the facts in the light most favorable to upholding the verdicts and resolve all reasonable inferences against Thornton. See State v. Harm, 236 Ariz. 402, 404, ¶ 2, n.2 (App. 2015).
¶2 Keith Colson obtained two loans from First Tennessee Bank ("First Tennessee") in 2007 to purchase land on North Canyon Wash Circle and build a house. He borrowed more than $1.4 million. The loans were secured by two deeds of trust. Bayview Asset Management ("Bayview") later acquired the first loan of and lien position for $1,335,000.
¶3 Colson defaulted on both loans with over $1.4 million outstanding. Colson declared bankruptcy in 2012 and was personally discharged. The lenders did not commence foreclosure proceedings, but instead allowed Colson to conduct a short sale.
A short sale occurs when a debtor sells his house for less than the outstanding loan balance and the lender agrees to accept the proceeds in full satisfaction of the debt.
¶4 Colson retained Thornton to conduct the short sale. Thornton was a part-time, Arizona-licensed real estate agent in 2012. Thornton removed various items from the house before placing it on the market, including the swimming pool pump, custom kitchen appliances and light fixtures. Thornton told Colson that removing the items would benefit Colson because Thornton would separately pay Colson for the items after the short sale.
¶5 Thornton listed the Canyon Wash house for sale on June 28, 2012, choosing an asking price of $580,000. He used the Multiple Listing Services ("MLS") to market the house. Agents use the "Public Remarks" section of an MLS listing to generate interest in a house, but Thornton went in the other direction. Thornton briefly depicted a 35-word cautionary tale, warning that "buyer[s] must be patient," "repairs are needed," the "floorplan is desirable once property is restored to top-notch condition," and the property is encumbered by two loans. Thornton also misstated the details, describing a less desirable house with fewer square feet, bedrooms and bathrooms; missing major appliances; and without the bells and whistles, including an RV garage, casita, library and media room. And Thornton offered only one obstructed photograph of the house, taken from the street. A green pool awaited interested buyers who toured the property because Thornton had removed the pool pump.
¶6 Despite Thornton's masking efforts, the house attracted substantial interest. Thornton fielded at least 12 offers—ranging from $870,000 to $525,000, including 7 offers above the $580,000 asking price. At one end, Thornton received an $870,000 offer from a pre-approved buyer who promised a cash down payment of $440,000 and non-refundable earnest money deposit. At the other end, Thornton received "one of the lowest offers" of $525,000 from JK Shares, LLC, a holding company owned by Thornton's parents, Joel and Karen Thornton.
¶7 Thornton never informed Bayview, First Tennessee or Colson about the flood of offers, but instead accepted the second lowest offer of $525,000 from his parents' holding company—one of five offers below the $580,000 asking price, with a refundable earnest money deposit.
¶8 Colson and JK Shares executed a purchase agreement for $525,000. Bayview told Thornton it would not release its lien unless the price was increased to $580,000. Colson and JK Shares amended the purchase agreement to reflect the increased price, and the transaction closed on October 12, 2012. A Bayview representative testified the lender would not have approved the short sale had it known about Thornton's flipping scheme; it would have wanted to realize the higher sales price before releasing its lien.
¶9 Having sold the property to his parents' holding company, JK Shares, Thornton then returned the Canyon Wash house to its original condition, reinstalling all the items he had removed.
¶10 JK Shares then immediately retained Thornton to flip the house and secure an enormous profit. Only 56 days after JK Shares purchased the house for $580,000, Thornton relisted it for $1,100,000. Thornton again crafted an MLS listing. This time, however, the listing described a singular opportunity to acquire prime real estate in 113 words. The Canyon Wash house was now described as a "[v]acation retreat luxury home," "[m]agnificent," and "[m]eticulously move in ready for the discriminating buyer." The listing touted "all top-of-the line fixtures & finishes," and raved about "[m]ountain views," "[a]ll natural stone travertine granite and woodwork throughout with solid wood doors," heated pool and waterfall, a steam shower, barbeque, "mother-in-law casita with private bathroom," "[e]xtended length over height RV garage," "[f]ully equipped theater room" and a "surround sound" system. Thornton featured 45 photographs of the house (44 more than before).
¶11 Ten weeks later, Thornton and JK Shares sold the house for $1,050,000, an 81 percent profit ($470,000). Thornton secured this second sizable commission on the property in a few months' time.
¶12 At least two prospective buyers complained to the FBI and law enforcement initiated an investigation into Thornton, the short sale and rapid resale. A grand jury indicted Thornton on two counts: (1) fraudulent schemes and artifices, and (2) theft of $25,000 or more.
A third charge of forgery was dismissed with prejudice on the first day of trial.
¶13 Before trial, Thornton moved to dismiss the theft charge based on an exception in the statute, which provides that "[p]roperty in possession of the defendant is not deemed property of another person who has only a security interest in the property, even if legal title is in the creditor pursuant to a security agreement." A.R.S. § 13-1801(13). The State countered that Thornton never possessed the property and clarified that Thornton committed theft by depriving Bayview of "the amount of money . . . the bank could have received in the payoff of the loan." The superior court denied the motion.
The State amended the indictment at trial to remove First Tennessee as a victim of the alleged theft.
¶14 The jury found Thornton guilty on both counts. The court imposed a mitigated prison term of three years for the fraudulent schemes conviction, followed by a six-month term of probation for the theft conviction. Thornton timely appealed, and we have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1), 13-4031, and -4033(A)(1).
DISCUSSION
A. Motion to Dismiss: Theft Count
¶15 Thornton first claims the court should have dismissed the theft charge because his actions did not involve or implicate the "property of another" under A.R.S. § 13-1802(A)(3). The State counters that the "property at issue was the increased value of the home that was unrealized because of Thornton's actions."
¶16 Arizona has merged all common law theft offenses into one statute, A.R.S. § 13-1802, including "the common law crimes of larceny, fraud, embezzlement, obtaining money by false pretenses, and other similar offenses." State v. Tramble, 144 Ariz. 48, 52 (1985). Thornton was convicted for violating A.R.S. § 13-1802(A)(3), which provides:
A person commits theft if, without lawful authority, the person knowingly . . . [o]btains services or property of another by means of any material misrepresentation with intent to deprive the other person of such property or services.
¶17 The statute defines "[o]btain," which "means to bring about or to receive the transfer of any interest in property, whether to a defendant or to another, or to secure the performance of a service or the possession of a trade secret," A.R.S. § 13-1801(A)(10), and "[p]roperty of another," which "means property in which any person other than the defendant has an interest on which the defendant is not privileged to infringe," A.R.S. § 13-1801(A)(13). The statute also includes a debtor exclusion: "Property in possession of the defendant is not deemed property of another person who has only a security interest in the property, even if legal title is in the creditor pursuant to a security agreement." Id.
¶18 Thornton argues the theft statute "specifically exclude[s]" his conduct under the debtor exclusion because (1) he possessed the Canyon Wash house and (2) the victim (Bayview) only held "a security interest in the property." This argument misses the mark for at least two reasons. To begin, this exception, taken almost verbatim from the Model Penal Code, is intended to prevent debtors from "being held criminally liable for the act of theft for merely defaulting on a loan" secured by an interest in real property. Model Penal Code § 223.2 cmt., at 170-71 (explaining "it is not appropriate to permit a conviction for theft" where "the debtor in possession of property subject to a security interest," noting that a "debtor's fraudulent disposition of encumbered property is dealt with [elsewhere]"); see also State v. Collyns, 99 A.3d 300, 304 (N.H. 2014) (construing "property of another" language in theft statute to exempt "property that is in the possession of an individual pursuant to an agreement that creates a property interest in the other person to secure the performance of an obligation"). Second, Thornton never possessed the Canyon Wash house as the debtor exception requires. Thornton was merely the seller's real estate agent.
¶19 Thornton next argues that "speculative lost value" is not a property interest that can be stolen under A.R.S. § 13-1802. He claims a security interest is not "property" and "[he] could not steal something that did not actually exist." We are not persuaded. The Legislature has broadly defined "property" to include "any thing of value, tangible or intangible." A.R.S. § 13-1801(A)(12) (emphasis added). Bayview held a legal right to collect the outstanding balance on its loans before Thornton fraudulently induced the company to accept the proceeds of his hand-crafted short sale. The banks approved the short sale based on misleading information and, in doing so, relinquished their mortgage interest for less money than they could and would have. Money falls squarely under the definition of "property."
B. Sufficiency of Evidence: Fraudulent Schemes Count
¶20 Thornton next argues the record contains insufficient evidence to support his fraudulent schemes conviction. We disagree.
¶21 We review the sufficiency of evidence presented at trial only to determine if substantial evidence exists to support the verdict. State v. Scott, 177 Ariz. 131, 138 (1993); see Ariz. R. Crim. P. 20(a) (directing courts to enter judgment of acquittal "if there is no substantial evidence to warrant a conviction"). Substantial evidence is that which "reasonable persons could accept as adequate and sufficient to support a conclusion of defendant's guilt beyond a reasonable doubt." State v. Mathers, 165 Ariz. 64, 67 (1990) (quotation omitted).
¶22 Thornton was indicted for violating A.R.S. § 13-2310(A), which states: "Any person who, pursuant to a scheme or artifice to defraud, knowingly obtains any benefit by means of false or fraudulent pretenses, representations, promises or material omissions is guilty of a class 2 felony." The statute covers "frauds in which the perpetrator takes advantage of the victim by inducing the latter to turn over property or money based on a false picture painted by the perpetrator." State v. Johnson, 179 Ariz. 375, 378 (1994). Our supreme court has stated that a defendant commits fraud when he "knowingly [leads] the adverse party to believe a state of facts which is not true and when this has been accomplished either by active misrepresentations, or omitting material facts which defendant knew were being misunderstood, or by stating half-truths, or by any combination of these methods." State v. Haas, 138 Ariz. 413, 423 (1983) (emphasis added) (examining the predecessor statute).
¶23 The record includes substantial evidence to support the jury's verdict. Thornton removed custom built appliances from within the house before listing it for sale. He also removed pool equipment, causing the pool water to turn green. He sought to quell rather than generate interest in the house. Thornton's MLS listing lamented that "[r]epairs are needed" and that the "floorplan [would be] desirable once property is restored to top-notch condition." He understated the house's size (fewer square feet, bedrooms and bathrooms), neglected to mention the detached casita, or include an RV garage, library and media room. And he offered only one obstructed photograph of the house for prospective buyers. He engaged in this affirmative misconduct and painted this false picture to devalue the Canyon Wash house and facilitate or justify a fire-sale to his parents' holding company, JK Shares, which could then flip the house and reap enormous profits.
¶24 Above that, Thornton failed to inform Bayview of at least 11 offers—seven above the asking price and all (but one) higher than JK Shares' offer. He lied when the highest bidders asked questions, claiming the homeowner picked the winning offer. Then, after JK Shares owned the house, Thornton returned the appliances and quickly relisted the house for $1,100,000. This time, the published marketing materials described a "magnificent," "vacation retreat luxury house" that was "[m]eticulously move in ready for the discriminating buyer." Thornton touted the house's size, location, custom appliances and amenities, including 45 pictures to pique the market interest.
¶25 And it worked. Thornton resold the house and secured a huge profit of $470,000 for his parents' holding company. When confronted by the ultimate purchaser about the sudden leap in price (from $580,000 to $1,100,000 in ten weeks), Thornton again lied, claiming the first buyer needed to pay-off a "substantial" lien outside of escrow.
¶26 Based on the foregoing evidence, a reasonable juror could have concluded that Thornton purposely misled Bayview to believe a false state of facts—namely, the artificially low value of the house at the time of the short sale; actively sought to conceal the true nature of the short sale from other bidders and the ultimate resale buyer; and intended from the start for his parents to purchase the Canyon Wash house in the short sale. The record contains sufficient evidence to support the fraudulent schemes conviction.
¶27 Thornton also argues his conviction must be vacated because he was only Colson's real estate agent and thus had no legal duty to the secured creditors. He points to A.R.S. § 13-201, which directs that a "minimum requirement for criminal liability is the performance by a person of conduct which includes a voluntary act or the omission to perform a duty imposed by law which the person is physically capable of performing." But Thornton's argument assumes the jury's verdict hinged exclusively on Thornton's omissions rather than his affirmative misstatements. The general verdict forms said no such thing.
C. Motion in Limine and Jury Instruction
¶28 Thornton claims his expert witnesses should have been permitted to tell the jury that the Arizona Department of Real Estate's administrative regulations prevented him from disclosing the higher offers to Bayview. We review the court's ruling on a motion in limine for an abuse of discretion. State v. Gamez, 227 Ariz. 445, 449, ¶ 25 (App. 2011). "The decision whether to admit or exclude evidence is left to the sound discretion of the trial court." State v. Murray, 162 Ariz. 211, 214 (1989).
¶29 The court did not abuse its discretion. The regulations governing real estate professionals are not relevant to whether Thornton violated criminal statutes for fraud and theft. This was not an administrative proceeding to determine whether Thornton should lose his real estate license. The court properly recognized that such testimony "would serve to confuse the jury as the jury is not charged with evaluating whether Defendant complied with the regulatory code." See State v. Haskie, 242 Ariz. 582, 586, ¶ 18 (2017) ("Deciding whether expert testimony will aid the jury and balancing the usefulness of expert testimony against the danger of unfair prejudice are generally fact-bound inquiries uniquely within the competence of the trial court.") (quotation omitted).
What is more, the court permitted expert testimony on "the short sale process, including issues unique to the process, the parties involved in a short sale transaction, the required approvals for closing, or other testimony related to short sale transactions and the relationship between the short sale market and the real estate industry."
¶30 Thornton further argues the court committed fundamental error by failing to instruct the jury sua sponte that real estate agents owe no legal duty to disclose short sale offers to lienholders. But criminal liability for fraudulent schemes does not turn on an agency relationship. See Haas, 138 Ariz. at 424 (concluding criminal liability under former fraudulent schemes statute not based on presence of agency relationship; therefore, trial court not required to instruct jury that defendant, a buyer's real estate agent and broker, had no duty to inform sellers of their security interest status). Nor does Thornton show prejudice. Here again, this instruction is only relevant to whether an omission is criminal under A.R.S. § 13-201, and the jury's verdict did not delineate between omissions and affirmative acts. No fundamental error occurred. See State v. Escalante, 245 Ariz. 135, 142, ¶ 21 (2018) (first step in fundamental error review is determining whether error exists).
CONCLUSION
¶31 We affirm Thornton's convictions and sentences.
Thornton filed a motion to exceed the word limit in his reply brief. We grant the motion.