United States v. Bowling , 343 F. App'x 359 ( 2009 )

FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
September 3, 2009
TENTH CIRCUIT Elisabeth A. Shumaker
Clerk of Court
UNITED STATES OF AMERICA,
Plaintiff-Appellee, No. 08-6184
v. (W.D. Okla.)
DANIEL J. BOWLING, (D.C. No. 5:07-CR-00196-C-1)
Defendant-Appellant.
ORDER AND JUDGMENT *
Before TACHA, McWILLIAMS, and TYMKOVICH, Circuit Judges.
Daniel J. Bowling was convicted of bank fraud stemming from his
Oklahoma cattle ranching operations. The charges arose after he obtained a
consolidated loan—secured by his cattle, property, and equipment—from Farmers
Exchange Bank (FEB). Less than six months later, both the money and the cattle
were gone.
At trial, the government argued that Bowling’s conduct—such as his cattle
sales in the name of his mother and son, his failure to make any payments on his
*
This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
consolidated loan (or other indebtedness to FEB), and his failure to deposit the
proceeds from cattle sales with FEB—was evidence of his intent to defraud FEB.
Bowling, on the other hand, elicited testimony and admitted evidence that he
simply went about his cattle ranching business as he always had (including
dilatory loan payments) and therefore lacked any fraudulent intent.
At the close of trial, Bowling requested a good faith instruction to the jury,
arguing that his good faith business practices, though perhaps a violation of the
express terms of the relevant loan agreements, demonstrated a lack of the
requisite mental state to commit bank fraud. The district court denied Bowling’s
request, and he was subsequently convicted by the jury.
On appeal, Bowling argues the district court erred by failing to instruct the
jury on his proffered good faith defense. We agree. Having jurisdiction under 28
U.S.C. § 1291, we REVERSE Bowling’s § 1344(1) conviction and REMAND for
a new trial.
I. Background
Bowling’s Ranching Operations
Daniel Bowling is a cattle rancher and farmer in Oklahoma. Since the mid-
1990’s, Farmers Exchange Bank and its predecessor, Service Exchange Bank,
have financed Bowling’s cattle ranching operations as well as his land, personal
vehicles, and ranching equipment.
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According to Bowling, he would buy and sell cattle for two types of
commercial ranching activities on his farm land. One type, which he describes as
cow farming, involved purchasing adult cows and breeding them to produce
calves. The second, a “stocker” operation, consisted of purchasing smaller cattle,
increasing their weight, and then selling them.
Bowling and FEB executed dozens of loan agreements over the past decade.
In exchange for a security interest in Bowling’s cattle, FEB loaned hundreds of
thousands of dollars to Bowling for use in his ranching operation—mostly to
purchase cattle. Each loan agreement contained similar provisions: Bowling was
required to provide invoices evidencing any cattle purchases, to obtain prior
written approval for any cattle sales, to remit any proceeds to the order of FEB
and himself as co-payees, and to make principal and interest payments as
necessary. Throughout the years, Bowling would make payments on his loans,
but rarely, if ever, obtained prior written approval from FEB for his sales.
Similarly, Bowling did not always provide FEB his cattle purchase invoices or
have the proceeds from his cattle sales written to the order of FEB as a co-payee.
In some instances, Bowling sold cattle in the name of his mother, Edna Bowling,
and his son, Brian Bowling. It appears as though FEB officers at least tacitly, if
not explicitly, approved of Bowling’s practices despite the loan agreements’
express terms to the contrary.
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Between October 2003 and March 2005, Bowling obtained six loans from
FEB totaling $611,240. According to the loan documents, Bowling requested
these loans in order to purchase stocker cattle. Under the terms of these loans and
their associated security agreements, FEB obtained, among other things, a
perfected security interest in Bowling’s ranching operations including:
All farm products, inventory, documents and accounts, all proceeds
thereof, including but not limited to all cattle and their products and
offspring, feed additives and any other farm products and inventory
now owned or hereafter acquired and wherever located and all increases
or substitutions thereof and all proceeds therefrom.
Supp. App. at 5, 8, 11, 14, 17. As all the agreements between Bowling and FEB
before, these security agreements also required Bowling to (1) obtain prior
written permission from FEB to sell any of his cattle and (2) make any proceeds
from such cattle sales payable to the order of both FEB and himself. Bowling and
FEB, however, continued to operate informally under these agreements. Bowling
never obtained written permission for his cattle sales, and he usually did not have
the proceeds remitted to FEB as a co-payee.
Despite this “business as usual,” by late 2005 the relationship between
Bowling and FEB began to deteriorate.
September 2005 Loan Consolidation
During 2005, although Bowling made several substantial payments on his
indebtedness to FEB, he also began to request loan advances to purchase more
cattle. Additionally, Bowling’s checking account with FEB had several
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substantial overdrafts. 1 Because of FEB’s concern over Bowling’s financial
situation, on September 27, 2005, FEB required Bowling to consolidate his
outstanding cattle loans and these overdrafts into one note totaling $904,134.10.
This note also included a line of credit for Bowling’s ranching operations.
Concomitant with this new loan, FEB conducted a cattle inspection at
Bowling’s various locations. During this inspection, Bowling directed his FEB
loan officer and an FEB director to his various grazing lands in and around
Tonkawa, Oklahoma. The FEB loan officer counted the cattle, noted their brands,
and recorded their approximate weight and dollar-value. Bowling also stated he
had cattle at a Pratt, Kansas location. An FEB shareholder audited that location
sometime later. Based on these audits, FEB determined Bowling had a total of
759 steers.
Bowling and FEB then executed a new agreement to secure the
consolidated loan. In addition to a perfected security interest in Bowling’s cattle
and farm products, the agreement granted FEB an interest in all of Bowling’s
accounts, inventory, and equipment. And, just like all the previous loans, this
agreement imposed the same conditions on Bowling with respect to his cattle
sales and proceeds.
1
Throughout the years, Bowling’s payment history was fairly inconsistent,
and his checking account at FEB often had insufficient funds and overdrafts.
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In October 2005, within a month of executing the new loan, Bowling wrote
several checks on the new credit line, ostensibly for cattle purchases and supplies.
He did not, however, submit invoices evidencing any cattle purchases. Nor did
Bowling respond to requests by FEB to come to the bank and address several
other notes on his real estate that had matured and were up for renewal. Later, in
January 2006, FEB attempted to schedule another cattle inspection but was
unsuccessful, allegedly because of Bowling’s lack of cooperation.
By February 2006, Bowling had not made any payments on the
consolidated loan, yet continued to draw upon his line of credit under the new
note. It also appears Bowling was past due on his home and real estate mortgages
with FEB at that time. As a result, FEB declared Bowling in default on all his
indebtedness, including the September 2005 consolidated loan, and sued in state
court to foreclose on Bowling’s property, cattle, and ranching operations.
In July 2006, during the pendency of the state foreclosure action, FEB
deposed Bowling. FEB’s counsel asked Bowling where his cattle were being
kept; FEB had been unable to locate the cattle at any of the previous locations
Bowling had formerly permitted FEB to inspect. Bowling responded that the
cattle were either missing or stolen. Upon receiving this information, FEB
contacted Oklahoma Ranger Joe Rector to investigate the cattle’s disappearance.
As part of his investigation, Rector obtained a warrant and conducted a
search of Bowling’s property and records. He also obtained records from local
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cattle barns. Rector discovered that, beginning in February 2005, Bowling had
sold much of his cattle at sale barns in Oklahoma and Kansas. Many of these
sales were made in the names of Bowling’s mother and son. The proceeds from
these sales were allegedly deposited in Bowling’s accounts at other banks (not
FEB), and were never remitted to FEB. Upon learning this information, FEB
contacted the Federal Bureau of Investigation (FBI) and filed a “Suspicious
Activity Report.”
Indictment on Bank Fraud & Trial
On August 7, 2007, based upon the FBI’s independent investigation into
Bowling’s business dealings since the beginning of 2005, Bowling was indicted
on one count of bank fraud, a violation of 18 U.S.C. § 1344(1). The indictment
alleged Bowling had—since February 2005—“knowingly executed and attempted
to execute a scheme and artifice to defraud Farmers Exchange Bank in a material
manner.” App., Vol. I at 15. Specifically, the government contended Bowling, as
part of his scheme, “sold the cattle he had pledged to FEB in names of other
people,” and then “used the proceeds for his own personal benefit rather than
applying the proceeds to his indebtedness at FEB.” Id.At trial, Bowling attempted to raise two defenses. First, he argued FEB had
waived its security interest in his cattle as well as in any proceeds as a matter of
commercial law. FEB loan officers testified on cross-examination that Bowling
had never been required to obtain written permission from FEB prior to any sales
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of his collateralized cattle despite the security agreements’ express terms
otherwise. Similarly, FEB officers testified that Bowling did not always have
proceeds from these sales made payable to FEB as a co-payee. Bowling also
admitted evidence that he had routinely made cattle sales in other’s names.
Bowling argued FEB, by not enforcing the specific terms of its security
agreements, had waived its interest in his cattle and proceeds through its course
of conduct over the previous decade. He asserted that this defense was supported
by the Uniform Commercial Code (UCC) as adopted by Oklahoma. According to
Bowling, if FEB waived its interest in his cattle and the associated proceeds, he
could not have engaged in a scheme to defraud FEB by selling his cattle. He
requested the district court submit jury instructions on this theory. The district
court, determining the Oklahoma UCC precluded a waiver based on a course of
conduct, denied Bowling’s request.
Second, Bowling requested a jury instruction on a good faith defense. He
argued the evidence and testimony introduced at trial established that he had
simply been operating his cattle ranching business in the same way he always
had—he had never obtained prior written permission from FEB, he had previously
made sales in other people’s names, and rarely had proceeds from those cattle
sales issued in FEB’s name. He contended this evidence suggested he did not
have any intent to defraud FEB. The district court refused to instruct the jury on
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this theory as well, concluding “there is no evidence that the jury could apply this
instruction to and it should not be given.” 2 App., Vol. IV at 1287.
On November 28, 2007, a jury found Bowling guilty of bank fraud. The
district court subsequently sentenced Bowling to 8 months’ imprisonment,
ordered a forfeiture of $876,747.95, and imposed $833,747.95 in restitution.
II. Analysis
On appeal, Bowling raises numerous challenges to his conviction and
sentence. Bowling contends the district court erred by: (1) denying his motion for
a judgment of acquittal based on FEB’s alleged waiver of its security interest in
his cattle and proceeds; (2) excluding some of his proffered evidence of FEB’s
waiver; (3) refusing to instruct the jury on his theories of waiver and estoppel; (4)
refusing to instruct the jury on his good faith theory; (5) denying his motion to
suppress evidence based on his challenge to Ranger Rector’s jurisdiction to obtain
a warrant and search his property; and (6) awarding both restitution and forfeiture
as remedies. Bowling also argues the accumulation of errors by the district court
warrants a reversal.
We find the district court committed reversible error by failing to submit
Bowling’s requested good faith instruction to the jury. In discussing this issue
2
In denying Bowling’s motion for a new trial, the district court elaborated
further, concluding Bowling’s prior ranching operations were simply uncharged
(criminal) conduct, and did not go to whether Bowling’s conduct in 2005, as
alleged in the indictment, was in good faith.
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below, we address Bowling’s other contentions only as necessary to explain our
rationale.
A. Bank Fraud Charges
Bowling was charged and convicted of bank fraud in violation of 18 U.S.C.
§ 1344(1). Under this provision:
Whoever knowingly executes, or attempts to execute, a scheme or
artifice—
(1) to defraud a financial institution; . . .
shall be fined not more than $1,000,000 or imprisoned not more than 30
years, or both.
§ 1344(1).
In order to obtain a conviction under § 1344(1), the government must prove
that: “(1) the defendant knowingly executed or attempted to execute a scheme or
artifice to defraud a financial institution; (2) the defendant had the intent to
defraud a financial institution; and (3) the bank involved was federally insured.” 3
United States v. Gallant, 537 F.3d 1202, 1223 (10th Cir. 2008) (quoting United
States v. Flanders, 491 F.3d 1197, 1212 (10th Cir. 2007)), cert. denied, 129 S. Ct.
2026 (2009).
A “‘scheme or artifice to defraud’ simply requires a design, plan, or
ingenious contrivance or device to defraud.” Id. (quotation omitted). Further,
3
Neither party takes issue with the third element of bank fraud under
§ 1344(1). FEB is a federally insured bank.
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“the intent necessary for a bank fraud conviction is an intent to deceive the bank
in order to obtain from it money or other property.” Id. (quoting United States v.
Kenrick, 221 F.3d 19, 26–27 (1st Cir. 2000) (en banc)). We have noted that
“Section 1344 was intended to reach a wide range of fraudulent activity that
undermines the integrity of the federal banking system, and courts have liberally
construed the statute.” Id. (quotation and internal quotation marks omitted).
B. Good Faith Instruction
Bowling contends he was entitled to have a separate good faith instruction
submitted to the jury. As Bowling frames the issue: “If FEB permitted [him] to
stray from the security agreement all of the time, how was [he] supposed to know
that what he was doing was wrong”? Aplt. Br. at 37. He maintains because he
“had been conducting his ranching operation with FEB exactly the same way for
the past ten years,” the jury should have been specifically instructed on the
possibility that his actions were in good faith. Id. Consequently, he argues that
by refusing to instruct the jury on good faith—separate from any instruction on
the intent element of bank fraud—the district court committed reversible error.
We agree.
We review a district court’s refusal to submit a defendant’s theory-of-
defense instruction de novo. United States v. Williams, 403 F.3d 1188, 1195
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(10th Cir. 2005). 4 A theory-of-defense instruction is usually “‘required only if,
without the instruction, the district court’s instructions were erroneous or
inadequate.’” Id. (quoting United States v. Alcorn, 329 F.3d 759, 767 (10th Cir.
2003)).
In fraud cases, however, we treat a defendant’s request for a good faith
instruction with some differences. A “defendant is entitled to a good faith
instruction when he has interposed the defense of good faith, has requested the
instruction, and when there is sufficient evidence to support it.” United States v.
Overholt, 307 F.3d 1231, 1247 (10th Cir. 2002) (emphasis added) (quoting United
States v. Janusz, 135 F.3d 1319, 1322 (10th Cir. 1998)). When a defendant meets
these requirements, the trial court must separately instruct the jury on good faith.
United States v. Hopkins, 744 F.2d 716, 718 (10th Cir. 1984). “In this circuit, we
have held that general instructions on willfulness and intent are insufficient to
4
In Williams, we stated that:
We review the instructions de novo to determine whether, as a
whole, they adequately apprised the jury of the issues and the governing
law. . . . It is true that we review a district court’s refusal to submit a
requested instruction to the jury for abuse of discretion. However, the
ultimate standard of review is de novo—to determine . . . whether the
instructions as a whole adequately apprised the jury of the issues and
the governing law. “Discretion” comes into play in that the district
judge has substantial discretion wording the instructions, as long as
they adequately present the law and the issues.
403 F.3d at 1195 n.7 (quoting United States v. Wolny, 133 F.3d 758, 765
(10th Cir. 1998)).
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fully and clearly convey a defendant’s good faith defense to the jury . . . .” United
States v. Haddock, 956 F.2d 1534, 1547 (10th Cir. 1992) (en banc), modified in
part on reh’g on other grounds by, 961 F.2d 933 (10th Cir. 1992), abrogated on
other grounds by, United States v. Wells, 519 U.S. 482 (1997); see United States
v. Platte, 401 F.3d 1176, 1184 (10th Cir. 2005) (reaffirming our holding in
Haddock, and noting that while such a good-faith instruction may be redundant
with the fraud offense’s intent element, our circuit requires a separate good faith
instruction). A district court’s “failure to give an adequate good faith instruction
is reversible error provided the evidence is sufficient such that a reasonable jury
could believe the defendant’s good faith defense.” Haddock, 956 F.3d at 1547
(citation omitted); see Platte, 401 F.3d at 1184.
Nevertheless, to justify the good faith instruction, “the defendant’s
evidence must have the capacity to rebut all evidence of false and misleading
conduct, all failures to disclose that which should have been disclosed and all
matters that deceive and were intended to deceive another.” United States v.
Chavis, 461 F.3d 1201, 1209 (10th Cir. 2006) (quotation omitted). “A benign
explanation of only some of the acts is insufficient”; the defendant must
“completely rebut evidence that he or she intended to defraud.” Id. (quotation
omitted).
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C. Bowling Was Entitled to a Good Faith Instruction
While we do not pass on the ultimate plausibility of Bowling’s contentions
of good faith, evidence and testimony presented at trial had the capacity to rebut
the government’s allegations against Bowling. A reasonable jury could have
believed Bowling was acting without the requisite intent to commit fraud. For
this reason, Bowling was entitled to a good faith instruction.
In rebutting Bowling’s theory of defense, the government focuses on two
pieces of evidence. First, Bowling made cattle sales from February 2005 through
October 2005 in other people’s names, usually in the name of his mother and son.
The government contends these surreptitious sales suggest Bowling was trying to
disguise FEB’s interest in his cattle. The Oklahoma and Kansas sales barns
would have been alerted to FEB’s security interest if those sales were in
Bowling’s name.
Second, the government contends Bowling’s failure to use proceeds from
these cattle sales to pay down his debt to FEB, as well as his depositing the
proceeds in non-FEB bank accounts, deprived FEB of its interest in both the
collateralized cattle as well as the associated proceeds. From September 2005,
when Bowling’s debt was consolidated, until February 2006, when FEB initiated
its foreclosure action in state court, Bowling made no payments to FEB on his
outstanding loans.
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The government’s theory of the case rests on the inference that this
behavior evinced not only Bowling’s fraudulent scheme, but his intent to defraud
FEB as well. In essence, the government’s case posits: Why would Bowling have
sold cattle in other people’s names and deposited the proceeds elsewhere if not to
defraud FEB of its ability to recoup on its loan? This is an attractive theory. But
Bowling, in contrast, advanced evidence at trial that supplies a benign or non-
culpable explanation to each of the inferences underpinning the government’s
case against him.
While the government’s evidence of Bowling’s cattle sales in the name of
his mother and son, on its face, permits an inference of willful or intentional
fraud, it does not necessarily follow that such sales were actually intended to
defraud FEB—the crime with which Bowling was charged. Bowling elicited
substantial testimony from both FEB’s chief executive officer and the local
branch president that he had frequently made sales in the names of his relatives,
at least since 1999. These sales—which FEB had known about for years—may
not have necessarily been staged to avoid Bowling’s obligation to submit the
proceeds to FEB. FEB’s branch president even admitted that over $300,000
worth of checks made payable to Bowling’s mother had been deposited with FEB
and applied to Bowling’s indebtedness over the course of their relationship. One
plausible conclusion is that, by making these straw sales, Bowling was attempting
to avoid some other legal consequences such as taxes, fees, or regulatory
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requirements. While this may still be evidence of wrongful or fraudulent conduct,
it is not necessarily bank fraud directed at FEB.
To rebut the government’s theory that Bowling’s failure to pay his loans
demonstrated an intent to defraud, Bowling offered evidence that his payment
history during his ten-year-long relationship with FEB was anything but
consistent. His loan payments were sporadic. Sometimes he paid down notes
before they were due; other times his payments were months late. FEB officers
testified that over the course of their lending relationship, Bowling had paid off
thirty-five of forty-one total loans, and paid approximately $250,000 in interest
and about $2 million in total on his debt to FEB. During 2005, but before the
consolidation, Bowling even repaid almost $700,000 of principal and interest on
several FEB notes.
Similarly, Bowling’s evidence also rebutted the government’s claim that, as
proof of his fraudulent intent, he was funneling his proceeds into other bank
accounts to avoid his FEB debt. Like apparently all his finances, Bowling’s cattle
operations were inconsistent. Proceeds from cattle sales did not always support
his purchasing needs. He often used money he did not have readily available to
buy cattle and supplies; his checking account was frequently overdrawn. And,
just because Bowling had several other bank accounts where he deposited his
proceeds, it does not necessarily follow that he was defrauding FEB. In fact, FEB
officers admitted at trial that Bowling had previously deposited proceeds from his
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cattle sales at other banks, occasionally writing checks from those banks to pay
down his FEB debt. All of this exemplified Bowling’s standard business practice.
Next, the government points to Bowling’s failure to make any payment on
the September 2005 consolidated loan as further evidence of Bowling’s intent to
defraud FEB. But Bowling’s lack of payments for less than six months—in light
of his previous history of sporadic payments—does not exclusively imply
fraudulent intent. A plausible alternative inference which could be drawn is that
Bowling hit a run of bad luck with his finances and chose to address other
obligations, but without any intent to mislead or defraud FEB. Either way, there
was evidence before the jury that pointed to both the government’s and Bowling’s
competing interpretations. A reasonable jury could have concluded that Bowling
was not really attempting to defraud FEB, and only acted in good faith based on
his past dealings with FEB.
We emphasize that the FEB loan officers’ approval of Bowling’s conduct
did not constitute a waiver or relieve Bowling of liability for bank fraud. See
Gallant, 537 F.3d at 1224 (“It is the financial institution itself—not its directors
or agents—that is the victim of the fraud the statute proscribes.” (quotation
omitted)); United States v. Winkle, 477 F.3d 407, 414 n.3 (6th Cir. 2007) (“[T]he
victim of a bank fraud is the bank, not the CEO of the bank, and approval of a
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bank officer does not relieve a defendant of liability for bank fraud.”). 5 Clearly,
if Bowling hatched a scheme to defraud FEB and intended to defraud the bank,
the FEB officers’ complicity with or ignorance of this conduct would be
irrelevant to Bowling’s criminal liability.
Rather, the parties’ course of conduct here is relevant to whether Bowling
had the requisite intent to commit bank fraud. See United States v. Hamaker, 455
F.3d 1316, 1326 (11th Cir. 2006) (recognizing that while bank officer’s conduct
does not relieve a defendant of liability for bank fraud, it can support the
defendant’s contention he “lacked the required mens rea to be found guilty of
fraud”). Bowling submitted evidence at trial that he merely went about his
business as he usually did: he did not obtain prior written approval from FEB for
his cattle sales, he did not always have the proceeds remitted to FEB (or even
himself) as a co-payee, and he did not always deposit the entirety of the proceeds
in his FEB accounts to pay down his loans.
Here, Bowling interposed a good faith defense, properly requested the
instruction, and managed to admit sufficient evidence to support his good faith
theory. However implausible, this theory was Bowling’s only leg to stand on at
5
For similar reasons, Bowling’s UCC arguments are unavailing. While the
FEB loan officers’ course of conduct—failing to enforce specific provisions of
the loan agreements—may have constituted a waiver under commercial law, it is
not relevant to whether Bowling is liable for criminal bank fraud. Rather, as we
note below, this course of conduct is only relevant to whether Bowling had the
requisite state of mind to sustain a § 1344(1) conviction.
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trial and implicates whether his conduct really was part of some artifice or
scheme he had contrived to intentionally defraud FEB. A reasonable jury could
have agreed with Bowling. And, it is on this basis that Bowling was entitled to a
good faith instruction.
III. Conclusion
For the foregoing reasons, we REVERSE the § 1344(1) conviction and
REMAND for a new trial.
Entered for the Court
Timothy M. Tymkovich
Circuit Judge
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