U.S. v. Saks ( 1992 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 91-5568
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
DAVID M. SAKS,
Defendant-Appellant,
No. 91-5572
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
JAMES DOYLE SPRUILL,
Defendant-Appellant.
Appeals from the United States District Court
for the Western District of Texas
(June 23, 1992)
Before WILLIAMS, JOLLY, and HIGGINBOTHAM, Circuit Judges.
HIGGINBOTHAM, Circuit Judge:
A jury convicted Doyle Spruill and David Saks on one count of
conspiracy to defraud the United States, 18 U.S.C. § 371, and five
counts of bank fraud, 18 U.S.C. § 1344. Spruill and Saks challenge
the jury instructions and the sufficiency of the evidence. Saks
also argues that the court erred in admitting testimony of Spruill
given in a deposition in a civil suit, contrary to the
Confrontation Clause of the Sixth Amendment. Both defendants also
contend that their convictions on the bank fraud counts were
multiplicitous. We find that the evidence was sufficient and that
any error in the jury instructions was harmless beyond a reasonable
doubt. We also find that Spruill's testimony given in the
deposition was properly admitted. Finally, we find the bank fraud
counts multiplicitous under the rule set forth in United States v.
Lemons, 941 F.2d 309 (5th Cir. 1991), and remand with instructions
to vacate these convictions and resentence on one of them.
I.
Spruill and Saks were business partners in Omni Interests,
Inc., a commercial real estate development company, based in San
Antonio. Omni specialized in the development of office buildings,
shopping centers, and apartment projects in different locations
throughout Texas. In 1983, Spruill and Saks formed a limited
partnership, Omni/Corpus Christi Limited, to acquire and develop a
large tract of land in Corpus Christi. They purchased the property
for $3 million in 1984 as a location for a large shopping center.
They had the property rezoned and began negotiations with major
mall developers. By year end, however, Omni had financial
problems. Spruill and Saks needing cash for the company's short
term financial obligations, decided to borrow, with the Corpus
Christi property as collateral.
They approached Peoples Savings & Loan Association, where
officials informed them that they would need about $14 million to
pay existing debt on the property and keep their company afloat.
2
Peoples could not handle a loan of that size, and referred them to
Security Savings Association. That was a fateful day. In December
of 1984, Spruill and Saks met with Cliff Brannon and Don Jones, co-
chairmen of the board of Security and owners of a controlling
interest in it. They asked Brannon and Jones for a loan of $14
million. They had obtained an appraisal valuing the property at
$24 million, based on its potential as a site for a regional
shopping mall. Brannon and Jones listened and promised to let them
know soon. The prospective lender, it seems, saw in this
prospective loan a solution to its own unrelated but serious
problem.
The year before, Security had loaned Ray Stockman about $20
million to develop Chaucer Village, a condominium project in
Dallas. When Saks and Spruill walked in, Chaucer Village had
failed. Officials of the Federal Home Loan Bank Board had
determined that the Chaucer Village loan had been "overfunded" by
about $5 million. The Board had directed Brannon and Jones either
to write down the loan, that is, to establish a loss reserve
against the overfunded amount, or cover it with new capital.
Without an infusion of funds from some outside source, Brannon and
Jones would effectively be out of business or under supervisory
control, since Security's net worth would fall below the minimum
regulatory requirements. They did not have the money.
Brannon and Jones explained to Stockman that Spruill and Saks
had requested a $14 million loan, but that by lending $19 million,
with Stockman as a business partner, Saks and Spruill could pay
3
Stockman $5 million of the loan proceeds. Stockman would then pass
the $5 million to Security for the troubled Chaucer Village loan.
Stockman's name would not appear on any loan documents, hiding from
federal regulators the tied transactions. In short, the proposal
was a shuffle of the $5 million debt from Stockman and the Chaucer
Village project, in which the regulators were keenly interested, to
Spruill and Saks and the Corpus Christi project, where there was no
apparent impropriety. There would be no real infusion of capital,
since the source of the funds to cover the Chaucer Village loan
would originate with Security itself. The transaction would create
the appearance of such an infusion, however, so as to placate the
FHLBB.
Brannon and Jones persuaded Stockman with the suggestion that
he would receive no further funding absent his help. The two
bankers then told Spruill and Saks that the loan came with Stockman
as a partner and the $5 million added would never leave the bank
but would flow through Stockman to Security. They explained the
Chaucer Village loan and why Stockman could not appear on any of
the paper work. Spruill and Saks objected at first, but succumbed.
Spruill later said that he felt that their backs were against the
wall and they would lose everything they had if they did not agree
to the deal.
So then, on January 14th of 1985, Omni/Corpus Christi borrowed
$19 million from Security and two closely affiliated banks,
Meridian Savings Association and Peoples Savings and Loan
4
Association.1 The Corpus Christi property was pledged as
collateral. Spruill and Saks signed a loan agreement reciting that
the loan was for the sole benefit of the lender and borrower and
was not for the benefit of any third party. Stockman's name was
not on any of the closing documents. Robert Brown, Meridian's
attorney and the preparer of the closing documents, later said that
he was completely unaware of Stockman's role. The same day,
Spruill, Saks, and Stockman formed Crosstown Joint Venture to
develop the Corpus Christi property. At the insistence of Spruill
and Saks, Stockman also signed a separate guaranty of the $19
million that Omni/Corpus Christi had borrowed.
A few days later, Spruill took $5 million of the loan proceeds
and made out a cashier's check to Stockman for this amount,
ostensibly for his services as an "advisor" in Crosstown Joint
Venture. Stockman rendered no such services. Spruill gave the
check to Jones, who met with Stockman, gave him the check, and had
him purchase a certficate of deposit in the name of his company,
Condo Homes Corporation. Condo Homes then wired the money to
Security to pay down the Chaucer Village loan. Security informed
federal regulators that a purchaser had been found to take over
Chaucer Village and pay off the loan, but did not disclose the true
source of the funds. With the shuffle complete, Omni was left to
carry a $19 million debt, over 25% of which it had never received.
1
The principals at Security, Meridian, and Peoples were
involved in a web of personal loans to each other and often acted
in concert in financial transactions.
5
In 1986, Meridian sued for foreclosure on the Corpus Christi
property. Spruill and Saks counterclaimed against Meridian,
Security, and Peoples, asserting that the loan was usurious. They
argued that part of the loan transaction was a sham, since $5
million was not in fact loaned to Omni/Corpus Christi but was
diverted to Security for Stockman's debt. Crosstown Joint Venture
was merely an artifice conceived by Security to hide the true
nature of the relationship between Spruill, Saks, and Omni/Corpus
Christi on the one hand, and Stockman on the other. Spruill and
Saks signed pleadings detailing the fraudulent nature of the loan
arrangement, and Spruill testified at length about the transaction
in depositions.2 Spruill and Saks ultimately won a settlement in
this lawsuit dissolving the Omni note and requiring the banks to
pay them approximately $2 million.
In 1990, the government indicted Saks and Spruill on charges
of conspiracy to defraud the United States and aiding and abetting
bank fraud.3 There were two theories: first, that they defrauded
federal regulators by concealing Stockman's involvement in the loan
transaction, and second, that they defrauded the banks of their
money. Saks testified in his defense at trial. Spruill did not
but the court admitted Spruill's deposition testimony from the
civil suit into evidence. The jury found both defendants guilty on
2
Saks was present during at least part of these
depositions.
3
Brannon, Jones, and Ron Hertlein, the President of
Security, were also indicted. They all pled guilty. We are not
aware whether Stockman was prosecuted.
6
five counts of bank fraud, 18 U.S.C. §§ 2, 1344, and one count of
conspiracy to defraud the United States, 18 U.S.C. § 371.
II.
Spruill and Saks were convicted under § 1344(1), which
punishes the knowing execution or attempted execution of "a scheme
or artifice to defraud a federally chartered or insured financial
institution." 18 U.S.C. § 1344(1). The term "scheme to defraud"
is not readily defined, see United States v. Goldblatt, 813 F.2d
619, 624 (3rd Cir. 1987), but it includes any false or fraudulent
pretenses or representations intended to deceive others in order to
obtain something of value, such as money, from the institution to
be deceived. United States v. Lemons, 941 F.2d 309, 314-15 (5th
Cir. 1991); United States v. Church, 888 F.2d 20, 23 (5th Cir.
1989). The requisite intent to defraud is established if the
defendant acted knowingly and with the specific intent to deceive,
ordinarily for the purpose of causing some financial loss to
another or bringing about some financial gain to himself. United
States v. Gunter, 876 F.2d 1113, 1120 (5th Cir. 1989); United
States v. St. Gelais, 952 F.2d 90, 96 (5th Cir. 1992) (wire fraud).
Spruill and Saks argue that there was insufficient evidence of
their specific intent to defraud the banks. They contend that it
is undisputed that all parties to the loan transaction, the
putative victims as well as those accused, knew of Stockman's role;
that there was no effort to conceal Stockman from bank officers.
Indeed, it was Brannon and Jones, officers and directors of
Security, who insisted that Stockman be left off of the closing
7
documents. In defendants' view, the evidence established at most
that they intended to defraud federal regulators, because the banks
were not victims but participants.
We are not persuaded. It is the financial institution itself-
-not its officers or agents--that is the victim of the fraud the
statute proscribes. United States v. Briggs, 939 F.2d 222, 225
(5th Cir. 1991); United States v. Blackmon, 839 F.2d 900, 904-06
(2d Cir. 1988); S. Rep. No. 225, 98th Cong., 2nd Sess. 377 (1983),
reprinted in 1984 U.S. Code Cong. & Admin. News 3182, 3517 (§ 1344
was "designed to provide an effective vehicle for the prosecution
of frauds in which the victims are financial institutions that are
federally created, controlled, or insured."). Thus bank officers
with authority to bind their banks to others can nevertheless
defraud the institutions they serve. See, e.g., United States v.
Lemons, 941 F.2d 309, 317 (5th Cir. 1991); United States v. Hooten,
933 F.2d 293, 295 (5th Cir. 1991) (upholding convictions of bank
officers under § 1344 for fraudulent conduct). It follows that
bank customers who collude with bank officers to defraud banks may
also be held criminally accountable either as principals or as
aiders and abettors.4 Section 1344 was intended to reach a wide
range of fraudulent activity that undermines the integrity of the
federal banking system. See S. Rep. No. 225, supra.
4
Spruill and Saks were charged under 18 U.S.C. § 2,
which punishes those who aid or abet criminal offenses as
principals. If Brannon and Jones wre guilty of bank fraud, Saks
and Spruill could be punished for aiding and abetting them in
this offense.
8
Spruill and Saks defrauded the banks by falsely representing
on loan documents who the true recipients of the Corpus Christi
loan were and for what purposes the funds would be used. They
concealed Stockman's involvement from the financial institutions.
Brannon and Jones were aware of the fraud, indeed it was their
idea, but this does not mean that the banks were not defrauded.
Courts have on several occasions concluded that if a borrower
obtains funds at the insistence of and for the benefit of a bank
officer, without disclosing the officer's interest on the loan
documents, thereby knowingly flouting banking rules and regulations
designed to protect the financial integrity of the bank, a jury can
conclude that both borrower and officer acted with intent to
defraud the bank. See United States v. Castiglia, 894 F.2d 533,
536-38 (2d Cir. 1990); United States v. Walker, 871 F.2d 1298,
1306-07 (6th Cir. 1989); United States v. Shively, 715 F.2d 260
(7th Cir. 1983).5 This case is similar in its essentials. Spruill
and Saks knowingly assisted Brannon and Jones in flouting a
directive of the FHLBB designed to protect the financial integrity
of the bank. By helping Brannon and Jones evade the write down of
the Chaucer Village loan, they perpetuated the very financial risk
the Board sought to prevent. They not only put Security in
jeopardy of a loss, but also brought about their own financial gain
by obtaining a loan that they otherwise could not have obtained.
5
Although these cases for the most part involve
misapplication of bank funds under 18 U.S.C. § 656, both § 656
and § 1344 require proof that the defendant intended to defraud
or injure a bank, see Walker, 871 F.2d at 1305 n.6, which is the
element at issue here.
9
This constitutes an intent to defraud within the meaning of
§ 1344(1).
Defendants also contend that they could not have committed
bank fraud because the loan they obtained was amply secured, and
they assumed a legal obligation to repay it. They maintain that
under these circumstances, any omissions concerning Stockman's
involvement were simply not material. We disagree. The fraudulent
loan transaction plainly exposed Security and the other lenders to
a risk of loss, which is all that is required under § 1344.
Lemons, 941 F.2d at 316 n.3; United States v. Solomonson, 908 F.2d
358, 363-64 (8th Cir. 1990). Even if we were to assume that the
Corpus Christi property was worth its appraised value of $24
million because of its potential use as a shopping mall, a
proposition disputed by the government at trial, this does not mean
that banks would generally be willing to loan this amount up front
with undeveloped land as the sole security. The jury was entitled
to conclude that this refinancing of undeveloped property based on
speculative future development entailed high risk. Indeed, the
fact that Spruill and Saks had to go along with Brannon and Jones'
scheme is a strong indication that the risk involved in the Corpus
Christi loan was not one that most banks would have accepted. If
it were, Spruill and Saks could have shopped the property to other
lenders. Instead, they had their backs against the wall and agreed
to take on $5 million of additional debt to obtain the funds they
needed. Spruill conceded as much in his civil deposition
testimony. The jury could reasonably conclude that the quid pro
10
quo for agreeing to participate in the fraud was the lenders' ready
accession to a suspect loan request, no questions asked. Whereas
before the transaction Security had a $5 million troubled loan
outstanding, afterwards they had a dubious $8.3 million loan, and
Meridian and Peoples also had loans totaling more than $10 million.
Saks and Spruill helped Brannon and Jones dig Security deeper into
a financial hole, and they were taking Meridian and Peoples with
them. The misrepresentations and omissions were then material;
they were the driving force behind the entire transaction.
Defendants also argue that their convictions must be reversed
because they relied in good faith on the advice of counsel in
agreeing to the loan transaction. This argument is without merit.
The district court properly instructed the jury on the advice of
counsel defense, see Williamson v. United States, 207 U.S. 425, 453
(1908). Defendants cannot insulate themselves from criminal
prosecution by the presence of a lawyer, even if he knows what is
going on.
III.
The district court instructed the jury that the government had
to prove beyond a reasonable doubt that defendants knowingly
devised and executed or attempted to execute a scheme or artifice
to defraud a federally chartered or insured financial institution
to convict under § 1344. It explained that the term scheme or
artifice to defraud includes any plan or course of action intended
"to deceive others in order to obtain something of value such as
money from the institution to be deceived" or "to deprive a
11
federally insured financial institution of the intangible right to
honest services." Spruill and Saks argue it was error to instruct
on intangible rights because when they borrowed the $19 million,
§ 1344 applied only to frauds involving money or property, not
those involving an intangible right to honest services.
In McNally v. United States, 483 U.S. 350 (1987), the Supreme
Court held that the mail fraud statute, 18 U.S.C. § 1341, reached
only fraudulent schemes involving property rights, not those
involving intangible rights to good government. This holding has
been applied retroactively to reverse convictions under the mail
and wire fraud statutes that were based on an intangible rights
theory. United States v. Marcello, 876 F.2d 1147, 1153 (5th Cir.
1989); United States v. Huls, 841 F.2d 109, 111-12 (5th Cir. 1988).
In 1988, Congress responded to the McNally decision by enacting
§ 1346, which provides that "scheme or artifice to defraud"
includes a scheme to deprive another of the intangible right of
honest services. 18 U.S.C. § 1346. This statute is not to be
applied retroactively. United States v. Loney, (No. 91-1340) (5th
Cir. Slip Op. April 23, 1992) at 4281 n.6; United States v. Little,
889 F.2d 1367, 1369 (5th Cir. 1989). Thus for conduct before the
enactment of § 1346, defendants cannot be convicted of mail fraud
on the theory that they deprived someone of an intangible right to
honest services.
Our first question is whether McNally's interpretation of the
mail fraud statute extends to the bank fraud statute as well. It
is well settled that Congress modelled § 1344 on the mail and wire
12
fraud statutes, and that the usual practice is to look to
precedents under those statutes to determine its scope and proper
interpretation. See H.R. Rep. No. 901, 98th Cong., 2nd Sess. 2
(1984); S. Rep. No. 225, 98th Cong., 1st Sess. 377 (1983),
reprinted in 1984 U.S. Code Cong. & Admin. News 3182, 3519; United
States v. Stavroulakis, 952 F.2d 686, 694 (2d Cir. 1992); United
States v. Solomonson, 908 F.2d 358, 364 (8th Cir. 1990); United
States v. Bonallo, 858 F.2d 1427, 1432-33 (9th Cir. 1988). In the
usual case, there would be little question that the Court's
interpretation of § 1341 would also hold true for § 1344. Indeed,
the government has conceded that McNally applies here.
We are not quite so ready to endorse this position as the
parties are, however. This bank fraud statute was enacted in 1984,
at a time when the unanimous view of the mail and wire fraud
statutes in the lower courts was that they encompassed schemes to
defraud others of intangible services as well as property. See
McNally, 483 U.S. at 362-63, nn.1-5 (Stevens, J., dissenting)
(citing cases). Congress was well aware of the courts'
interpretation of these statutes when it adopted them as its model.
Indeed, the House Judiciary Committee in considering the proposed
bank fraud statute expressly noted the history of expansive
interpretations of the meaning of "scheme to defraud" in §§ 1341
and 1343, albeit with some concern. It stated that "the current
scope of the wire and mail fraud offenses is clearly greater than
that intended by Congress. Although the Committee endorses the
current interpretations of the language, it does not anticipate any
13
further expansions." H.R. Rep. No. 901 at 4. When Congress enacted
§ 1344, it anticipated that the provision would be given the same
broad construction that the mail and wire fraud statutes had been
given to that point. McNally was decided three years later and was
an abrupt reversal of the well entrenched judicial construction of
§ 1341. Thus there is an argument that we should interpret § 1344
in light of the case law on §§ 1341 and 1343 as it existed in 1984,
rather than considering the turnabout that occurred later.6
We need not decide this issue here, however, because even if
we assume that McNally does apply to § 1344, and that the court's
instruction was therefore erroneous, we find the error harmless.
This court and others have considered McNally error on many
occasions, and have found the error reversible or harmless
depending on the facts of the case. Compare Marcello, 876 F.2d at
1153; Huls, 841 F.2d at 111-12; United States v. Lew, 875 F.2d 219,
221-22 (9th Cir. 1989); United States v. Ochs, 842 F.2d 515, 525-27
(1st Cir. 1988); United States v. Shelton, 848 F.2d 1485, 1496-97
(10th Cir. 1988); United States v. Zauber, 857 F.2d 137, 144-48 (3d
Cir. 1988); United States v. Mandel, 862 F.2d 1067, 1072-74 (4th
Cir. 1988) (reversing on the basis of McNally error) with United
States v. Richerson, 833 F.2d 1147 (5th Cir. 1987); United States
v. Fagan, 821 F.2d 1002, 1010-11 (5th Cir. 1988); United States v.
6
As in the case of the mail fraud statute, this problem
only arises with respect to bank fraud that occurred before the
enactment of § 1346 in 1988. For conduct after this point, a
scheme or artifice to defraud a financial institution includes a
scheme involving intangible rights to honest services. United
States v. Hooten, 933 F.2d 293, 296 (5th Cir. 1991).
14
Madeoy, 912 F.2d 1486, 1492-93 (D.C. Cir. 1990); United States v.
Asher, 854 F.2d 1483, 1487-96 (3d Cir. 1988); United States v.
Doherty, 867 F.2d 47, 57-60 (1st Cir. 1989); United States v.
Moore, 865 F.2d 149, 152-54 (7th Cir. 1989); United States v.
Messinger, 872 F.2d 217, 224 (7th Cir. 1989) (finding McNally error
harmless). The Third Circuit has explained that "[a]lthough the
outcomes in the post-McNally cases . . . vary depending on the
facts, indictments, and jury instructions of the particular case,
a common thread running through each of these cases can be
discerned. . . . [T]hose cases that have sustained mail fraud
convictions [despite McNally error] have done so where the "bottom
line" of the scheme or artifice had the inevitable result of
effecting monetary or property losses to the employer or to the
state." Asher, 854 F.2d at 1494. We think this formulation of the
standard is sound. It reflects the idea expressed more generally
by the First Circuit that "[a]n erroneous instruction on an element
of the offense can be harmless beyond a reasonable doubt, if, given
the factual circumstances of the case, the jury could not have
found the defendant guilty without making the proper factual
finding as to that element." Doherty, 867 F.2d at 58; see also
Pope v. Illinois, 481 U.S. 497 (1987); Rose v. Clark, 478 U.S. 570
(1986).
We are persuaded that the scheme or artifice proved at trial
had the inevitable result of defrauding the banks of property
interests. The only reason Spruill and Saks participated in the
plan was to obtain a loan which they otherwise could not have
15
obtained. Security was deprived of the honest services of Brannon
and Jones in the process, but this was incidental to the scheme to
procure funds by whatever means necessary. We cannot conceive of
how the jury could have found that Spruill and Saks intended to
defraud the lenders of the honest services of their officers
without also concluding that they knowingly exposed them to a risk
of financial loss. This risk inhered not only in the $19 million
Omni loan but also in the fact that the defendants helped Brannon
and Jones evade a write down of the Chaucer Village loan which was
necessary to maintain the financial integrity of the institution.
The jury's guilty verdict on the bank fraud count reflects a
reasoned judgment that Spruill and Saks participated in the scheme
with full knowledge not only that bank employees were acting
dishonestly, but also that the scheme had financial consequences
for the banks.
Defendants did not object to the intangible rights instruction
at trial. They must demonstrate error "'so obvious that our
failure to notice it would seriously affect the fairness,
integrity, or public reputation of the judicial proceedings and
result in a miscarriage of justice." Richerson, 833 F.2d at 1147
n.26; see also Madeoy, 912 F.2d at 1493. We cannot find such an
unfairness or miscarriage of justice. The government presented
substantial evidence of Security's loss of money at trial. Indeed,
defendants were not indicted on the theory that they defrauded
Security and the other banks of the intangible right to the honest
services of their employees. Nor was this argument pressed at
16
trial. Rather, "the overriding and predominate theory of the
government's case" on the bank fraud counts involved the lenders'
loss of money. See Richerson, 833 F.2d at 1157. Under these
circumstances, it is less likely that a single potentially
erroneous jury instruction had a substantial impact on the jury's
decision.
Spruill and Saks also argue that the court erred in
instructing the jury on the conspiracy count.7 The court told the
jury that the government had to prove beyond a reasonable doubt
that two or more persons agreed to defraud the Federal Home Loan
Bank Board or the bank, as charged in the indictment. The court
explained the standard elements of a conspiracy. Defendants argue
that this instruction did not adequately define what it means to
defraud the Federal Home Loan Bank Board; that the district judge
gave inadequate guidance, and the jury may have filled the
instructional vacuum with an improper definition.
We are not persuaded. Defendants did not object to the
conspiracy instruction at trial, so that we review only for plain
error. See Richerson, supra. Furthermore, because defendants'
claim of prejudice is based solely on the failure to give adequate
explanation of the offense--beyond the reading of the statutory
language itself--their burden is especially heavy. Henderson v.
7
"If two or more persons conspire either to commit any
offense against the United States, or to defraud the United
States, or any agency thereof in any manner or for any purpose,
and one or more of such persons do any act to effect the object
of the conspiracy, each shall be fined not more than $10,000 or
imprisoned not more than five years, or both." 18 U.S.C. § 371.
17
Kibbe, 431 U.S. 145, 155 (1977). We are generally not inclined to
reverse on the basis of instructions which accurately state the law
and to which there was no objection simply because the court did
not provide more guidance as to the meaning of the offense.
Here, the court described the elements of a conspiracy and
properly stated the objects of the conspiracy as either defrauding
the Federal Home Loan Bank Board or committing bank fraud.
Although the court did not explain what it meant to defraud the
Board, it did read the jury the indictment, which explained this
object as "to hamper, hinder, impede, impair and obstruct by craft,
trickery, deceit, and dishonest means, the lawful and legitimate
functions and responsibilities of the Bank Board in regulating,
examining, and supervising the activities of Meridian, Security,
and Peoples." The government accurately explained the meaning of
this offense at length in closing argument. We must consider this
surrounding context in determining whether the court's instruction
was likely to have confused the jury. United States v. Chagra, 807
F.2d 398, 402-03 (5th Cir. 1986). On this record, we see no danger
of confusion, certainly none that rises to the level of plain
error.
Spruill and Saks also argue that the district court erred in
failing to give a cautionary instruction concerning a civil banking
regulation that was mentioned at trial. A savings and loan
examiner named James Hinman testified at trial about the general
role of examiners in overseeing savings and loans, the problems
that can arise with loans, how loan examiners evaluate loan
18
documents, and how they respond to bad or overvalued loans. Hinman
referred to a regulation "that requires that the institution show
the ultimate recipient of all of the loan proceeds." He mentioned
the regulation a few times in the course of his testimony and
cross-examination. Defendants contend that there was a substantial
danger that the jury based their convictions on violation of this
civil regulation rather than the criminal offenses with which he
was charged. They rely primarily on United States v. Christo, 614
F.2d 486, 492 (5th Cir. 1980), where we held that a conviction
resulting from the government's attempt to bootstrap violations of
a civil regulation into a criminal offense cannot be allowed to
stand.
Defendants did not request a cautionary instruction at trial.
If error at all, and we do not suggest that it was, the failure to
instruct the jury on the effect of the civil regulation was not
plain. Unlike Christo, the government did not base its case on
Spruill and Saks' violations of any banking regulation. Neither
the indictment nor the court's instructions to the jury referred to
a civil regulation, as they did in Christo. Nor did the government
argue that violation of a civil regulation was proof of defendants'
guilt.
This case is closer to United States v. Stefan, 784 F.2d 1093,
1098 (11th Cir. 1986), where the Eleventh Circuit held that if
evidence of civil violations is introduced for purposes other than
to show a criminal violation, and the evidence is not presented in
such a way that the jury's attention is focused on the civil
19
violations rather than the criminal ones, there is no error. The
limited references to banking regulations that occurred at trial
served to explain to the jury the role of federal regulators in
overseeing savings and loans. The government would be hard pressed
to prove that defendants defrauded federal regulators without
mention of the regulations these officials are responsible for
enforcing. It would also be difficult to explain the stakes in a
bank fraud case without some reference to the rules by which these
institutions are governed. The regulation played at most a minor
role at trial. We do not think it "impermissibly infected the very
purpose for which the trial was conducted," Christo, 614 F.2d at
492, and hence does not give us cause for reversal.
We have considered defendants' other contentions with respect
to the court's jury instructions. None of these objections were
raised at trial. Whatever their merit, we do not think they rise
to the level of plain error.
IV.
Saks argues that the district court erred in admitting
Spruill's prior deposition testimony from the civil suit. Spruill
made incriminating statements about the fraudulent nature of the
Omni loan at several depositions in 1986 in an effort to show that
the loan was usurious. He did not testify at the criminal trial,
however. Saks contends that this evidence was hearsay, and that
its introduction violated his Sixth Amendment right to
confrontation under the rule of Bruton v. United States, 391 U.S.
123 (1968).
20
The district court considered this objection and concluded
that Spruill's deposition testimony was admissible against Saks
under Federal Rule of Evidence 801(d)(2)(D). This rule says that
a statement is not hearsay if it is offered against a party and is
"a statement by the party's agent or servant concerning a matter
within the scope of the agency or employment, made during the
existence of the relationship." The court reasoned that Spruill
and Saks were partners and thus agents for each other. Spruill's
testimony related to matters within the scope of his agency as
general partner of Omni, and as such was admissible under Rule
801(d)(2)(D). Because Spruill's deposition testimony was legally
considered an admission by Saks, the court found that Bruton did
not apply.
First, we must consider whether Spruill was Saks' agent for
the purposes of Rule 801(d)(2)(D). Because the rule does not
define "agent," we assume Congress intended to refer to general
common law principles of agency when it used the term. Community
for Creative Non-Violence v. Reid, 109 S. Ct. 2166, 2172-73 (1989);
Boren v. Sable, 887 F.2d 1032, 1039 (10th Cir. 1989). There was
some ambiguity at common law as to whether a partner is an agent of
his co-partners or of the partnership as an abstract entity. See
Crane & Bromberg, Partnership 274 (1968). The Uniform Partnership
Act, adopted in Texas and most other states, has endorsed the
entity view. See UPA § 9 ("Every partner is an agent of the
partnership for the purpose of its business."). Regardless of
which is the better characterization, the general rule at common
21
law was that the declarations of one partner made during the
existence of the partnership and in relation to its affairs are
admissible against the other partners even if the declarant is not
a party to the action. Filesi v. United States, 352 F.2d 339, 342
(4th Cir. 1965). We have no reason to believe that Congress
departed from this rule when it enacted the Federal Rules of
Evidence in 1975. Moreover, courts have held that we should not be
hyper-technical in construing the agency relationship of Rule 801.
See United States v. Paxson, 861 F.2d 730, 734 (D.C. Cir. 1988)
(finding the vice president of a corporation to be an agent of the
president for the purposes of 801(d)(2)(D) because the factors
which normally make up an agency relationship were present).
Spruill and Saks were the general partners of Omni/Corpus Christi
Ltd., and they acted in concert in managing its affairs. We are
confident that they were agents for each other for the purposes of
Rule 801(d)'s agency exception. Cf. Anderson v. United States, 417
U.S. 211, 218 n.6 (1974) (conspiracy exception to hearsay rule is
rooted in the notion that conspirators are "partners in crime" and
hence agents of one another).
Next we ask whether Spruill's deposition statements concerned
a matter within the scope of his agency as Saks' partner. They
did. Spruill testified about the circumstances surrounding the $19
million Corpus Christi loan--a financial obligation which he and
Saks had incurred as partners of Omni/Corpus Christi Ltd.. This
matter arose from the business of Spruill and Saks' partnership and
was therefore within the scope of their agency relationship. The
22
fact that Spruill was noticed for deposition as an individual does
not mean that his statements were not about a partnership matter.
Finally, we must determine whether Spruill made his statements
during the existence of the agency relationship. If he did not,
the statements were inadmissible regardless of their substance.
Blanchard v. Peoples Bank, 844 F.2d 264, 267 n.7 (5th Cir. 1988);
United States v. Summers, 598 F.2d 450, 458 (5th Cir. 1979). As
Saks has observed, Omni/Corpus Christi Ltd. petitioned for
bankruptcy a few months before Spruill testified at the first
deposition, an act which dissolved the partnership under Texas law.
Texas Uniform Partnership Act § 31(5). Saks argues that this
precludes a finding of an agency relationship that could support
the admission of Spruill's statements against him.
The partnership does not terminate on dissolution, however.
It continues during the wind up of partnership affairs. Texas
Uniform Partnership Act § 30; Woodruff v. Bryant, 558 S.W.2d 535,
539 (Tex. Civ. App. -- Corpus Christi, 1977) ("Generally when the
partnership is dissolved, the partnership continues during the
period of winding up until all preexisting matters are terminated.
. . . It is only upon termination that the final partnership
relationship ceases to exist."); Bader v. Cox, 701 S.W.2d 677, 682
(Tex. App. 5 Dist. 1985). Texas partnership law dictates moreover
that "[a]fter dissolution a partner can bind the partnership . . .
[b]y any act appropriate for winding up partnership affairs or
completing transactions unfinished at dissolution." TUPA § 35(a).
23
"Winding up" is not defined in the Act, but generally refers
to the process of completing unfinished transactions and settling
partnership affairs after dissolution. Cates v. International
Telephone & Telegraph, 756 F.2d 1161, 1174 n.22 (5th Cir. 1985);
Childers v. United States, 442 F.2d 1299, 1303 (5th Cir. 1971). A
leading partnership treatise says that "litigation of claims by and
against partners is a part of winding up." Crane & Bromberg,
Partnership 460 (1968). We conclude that under Texas law, the
admissions of a partner made in the course of litigation over pre-
dissolution claims, incident to winding up the partnership affairs,
are admissible in evidence against co-partners. Compare Filesi,
352 F.2d at 342-43 ("[A] partner has the authority to bind the
other members of the firm by statements made after dissolution of
the partnership only when the statements are made while in the
process of winding up the partnership affairs.").
Spruill was in the process of settling partnership affairs
when he testified in the deposition about the Corpus Christi loan.
The partnership had been dissolved by the bankruptcy, but a large
debt remained in dispute. Litigation over repayment of this debt
was part of winding up and closing out a partnership transaction.
Spruill made statements in an effort to forestall repayment of the
loan and reap damages because it was usurious. These statements
were made as agent for Saks and were binding on him. They were
therefore admissible against Saks under Rule 801(d)(2)(D).
Saks also argues that the admission of Spruill's deposition
statements violated his rights under the Confrontation Clause of
24
the Sixth Amendment. He relies on Bruton, supra, where the Court
established a rule barring the admission in a joint trial of the
incriminating pre-trial statements of a non-testifying co-
defendant. See also Cruz v. New York, 481 U.S. 186 (1987); United
States v. Schmick, 904 F.2d 936 (5th Cir. 1990). Bruton has been
limited, however, to cases where the admission of the incriminating
statements was not within a firmly rooted exception to the hearsay
rule. In Bourjaily v. United States, 107 S. Ct. 2775 (1987), a
district court admitted the incriminating, out-of-court statements
of a non-testifying co-conspirator against the defendant, reasoning
that the statements fell within the hearsay exception for co-
conspirators under Rule 801(d)(2)(E). The Court upheld the
defendant's conviction against a Sixth Amendment challenge,
reasoning that "no independent inquiry into reliability is required
when the evidence 'falls within a firmly rooted hearsay exception'"
like that for co-conspirators. 107 S. Ct. at 2782-83 (quoting Ohio
v. Roberts, 448 U.S. 56, 66 (1980). Thus both of the independent
inquiries generally required to satisfy the Sixth Amendment--that
the declarant be unavailable and that the statements bear
sufficient indicia of reliability--could be dispatched in cases
where the statements met the requirements of Rule 801(d)(2)(E).
Id.; see also United States v. Inadi, 475 U.S. 387 (1986). The
Court has since applied the same reasoning to the "spontaneous
declaration" and "medical examination" exceptions to the hearsay
rule. White v. Illinois, 112 S. Ct. 736 (1992).
25
We see no reason to distinguish between Rule 801(d)(2)(D) and
these other hearsay exceptions. The agency exception is equally
rooted in our jurisprudence. See Hitchman Coal & Coke Co. v.
Mitchell, 245 U.S. 229, 250 (1917) ("[T]he declarations and conduct
of an agent, within the scope and in the course of his agency, are
admissible as original evidence against the principal, just as his
own declarations or conduct would be admissible."); Vicksburg &
Meridian Railroad v. O'Brien, 119 U.S. 99, 104 (1886) (agent's
statements admissible against principal if made contemporaneously
with acts that bind the principal).8 Indeed, agency theory
underlies the co-conspirator exception. See Anderson, supra;
Bourjaily, 107 S. Ct. at 2785 (Brennan, J., dissenting). The two
exceptions are hand in hand. We conclude that if statements meet
the requirements of Rule 801(d)(2)(D), as they do here, the
Confrontation Clause is satisfied.
V.
Spruill and Saks also argue that their conviction on several
counts of bank fraud arising from a single scheme was
multiplicitous. They rely on United States v. Lemons, 941 F.2d
309, 316-18 (5th Cir. 1991), where we found multiplicity in
defendant's bank fraud convictions because § 1344 imposes
8
Vicksburg's limitation on the admissibility of an
agent's declarations against the principal is not violated here.
Spruill was testifying about past events, but he did so in the
course of fulfilling his duties as partner to wind up the
partnership's extant transactions. Thus he is different from the
engineer in Vicksburg, whose authority did not include the power
to make statements about prior trips and whose statements were
not explanatory of anything in which he was then engaged. 119
U.S. at 105.
26
punishment only for execution of the scheme, not each act in its
furtherance. The government has conceded that defendants'
convictions were multiplicitous under Lemons, and we agree.
Defendants were impermissibly convicted on several counts for
committing several acts in furtherance of a single scheme to
defraud.
Defendants argue further that Lemons requires us to reverse
and dismiss all of their bank fraud convictions because the
indictment does not allege an offense under § 1344. Because each
individual act does not constitute a scheme for the purposes of
this statute, the argument goes, each count that referred to a
specific act failed to charge an offense. This argument is without
merit. Defendants did not object to the indictment below. We
therefore read the indictment liberally to be sufficient "'unless
it is so defective that by any reasonable construction, it fails to
charge an offense.'" United States v. Salinas, 956 F.2d 80, 82
(5th Cir. 1992) (citation omitted). Each count of the indictment
alleged that Saks and Spruill knowingly executed a scheme to
defraud the banks by performing an individual act in execution of
the scheme. The individual acts were described in each count.
This was multiplicitous, but it was sufficient to charge an offense
under § 1344.
We have explained that "multiplicity addresses double
jeopardy; and where the jury is allowed to return convictions on
multiplicitous counts, the remedy is to remand for resentencing,
with the government dismissing the counts that create the
27
multiplicity." United States v. Moody, 923 F.2d 341, 347-48 (5th
Cir. 1991). We accordingly remand the case and direct the
government to elect the § 1344 count that it wishes to leave in
effect. The court must then vacate the convictions on the
remaining § 1344 counts and resentence the defendants.
AFFIRMED in part, VACATED and REMANDED in part.
E.Grady Jolly, dissenting:
I respectfully dissent. Although I agree that the evidence
will support a conviction under section 1344,9 it does not support
this conviction under section 1344(1), which makes it unlawful to
defraud a financial institution. Instead, the evidence supports a
violation of section 1344(2), which makes it unlawful to obtain
monies from a financial institution by means of false pretenses or
representations.
The bank was defrauded of no monies, see McNally v. United
States, 483 U.S. 350, 358-359 (1987), notwithstanding the strained
efforts of the majority to say that is was. Of course, the
officers and owners of the bank were fully aware of the actual
9
18 U.S.C. § 1344 provides:
Whoever knowingly executes, or attempts to execute, a
scheme or artifice --
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits,
assets, securities, or other property owned by, or
under the custody or control of, a financial
institution, by means of false or fraudulent pretenses,
representations or promises;
shall be fined not more than $1,000,000 or imprisoned
not more than 30 years, or both.
1
terms and conditions of the loan. Second, the loan the defendants
actually received, as far as the purposes of this opinion are
concerned, was backed by adequate collateral. Third, the bank as
an institution was relieved of regulatory problems by the infusion
of $5,000,000. Finally, the transaction effectively resulted in
the bank obtaining additional guarantors on a delinquent loan. In
short, it is only in hindsight, with the knowledge that the Saks
and Spruill loan "went bad" later, that we can say that the bank
suffered a loss in the transaction. The evidence presented is
simply insufficient to support a conviction under section 1344(1);10
or stated another way, section 1344(1) does not reach the conduct
described by the majority.11
10
The majority cites United States v. Castiglia, 894 F.2d
533, 536-38 (2d Cir. 1990); United States v. Walker, 871 F.2d
1298, 1306-07 (6th Cir. 1989); and United States v. Shively, 715
F.2d 260 (7th Cir. 1983), to support the proposition that a
borrower may defraud a bank under section 1344(1) by omitting
from a loan application the fact that a beneficiary of the loan
is a bank officer. Slip op., p. 9. These cases, however, are
inapposite. In none of these cases was a borrower charged with
bank fraud under section 1344(1), as opposed to misapplication of
funds or making false statements. See Castiglia, 894 F.2d at 535
(borrowers charged with conspiracy, 18 U.S.C. § 371; with aiding
and abetting a misapplication of funds, 18 U.S.C. §§ 2 and 656;
with making false entries, 18 U.S.C. § 1005; and with perjury, 18
§ 1623); Walker, 894 F.2d at 536 (sole defendant is bank officer;
pinpoint cite is to discussion of officer's liability under 18
U.S.C. § 656 in United States v. Krepps, 605 F.2d 101 (3rd Cir.
1979)(in which a bank officer was the sole defendant)); Shively
715 F.2d at 264 (borrower indicted under 18 U.S.C. §§ 656 and
1014 but convicted only under § 656).
11
Whatever happened to the rule that penal statutes are to
be strictly construed?
-2-
2
Saks and Spruill, however, clearly obtained money by falsely
representing in their application the recipients of the loan and
the use of the funds. Their application represented that Saks and
Spruill would receive a loan of $19.3 million, and that the funds
would be used for the development of the shopping mall on the
Corpus Christi tract, when the defendants actually received only
$14.3 million, with $5 million going through Stockman to pay off
the Chaucer Village loan at Security.
Indeed, receipt of money from the banks under false pretenses
is exactly the crime for which they were indicted.12 Unfortunately,
however, the jury was only instructed under section 1344(1). Thus,
12
The indictment charges, for example:
COUNT TWO - BANK FRAUD
[18 U.S.C. §§ 1344, 2 ]
..... Defendants ... SAKS and SPRUILL knowingly
executed and attempted to execute, a scheme and
artifice to defraud Meridian, Security, and Peoples and
to obtain moneys, funds, and other property owned by or
under the custody or control of Meridian, Security, and
Peoples by means of false and fraudulent pretenses,
representations, and promises by performing the
following act in execution of the scheme:
3. Defendants ... SAKS and SPRUILL signed and
caused to be signed a Loan Agreement which falsely
represented that the purpose of the $19.3 million loan
was for business related to Omni and omitted any
reference to Ray Stockman, when in truth and in fact,
as the defendants well knew, $5 million of the $19.3
million in loan proceeds would be channelled through
Ray Stockman back to Security for payment on the
Chaucer Village loan, a loan totally unrelated to the
loan for which the $19.3 million was intended.
All in violation of Title 18, United States Code,
Sections 1344 and 2.
Each count repeated this language in its description of the
crime.
-3-
3
although the text of the indictment charged the defendants with
violating section 1344(2), and although the evidence sufficiently
establishes this crime, the jury was given no instruction to
convict them of this crime. Because I do not think the evidence is
sufficient for them to be convicted of 1344(1), and because the
court failed to instruct the jury on 1344(2), I would apply the
plain error standard and remand for a new trial.
-4-
4