United States v. Nicholas Lindsey ( 2016 )


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  •                 FOR PUBLICATION
    UNITED STATES COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    UNITED STATES OF AMERICA,                No. 14-10004
    Plaintiff-Appellee,
    D.C. No.
    v.                      2:11-cr-00217-
    LDG-CWH-1
    NICHOLAS LINDSEY,
    Defendant-Appellant.         OPINION
    Appeal from the United States District Court
    for the District of Nevada
    Lloyd D. George, Senior District Judge, Presiding
    Argued and Submitted March 18, 2016
    San Francisco, California
    Filed June 28, 2016
    Before: John T. Noonan, Ronald M. Gould,
    and Michelle T. Friedland, Circuit Judges.
    Opinion by Judge Gould
    2                  UNITED STATES V. LINDSEY
    SUMMARY*
    Criminal Law
    Affirming the defendant’s convictions in a mortgage
    fraud case, the panel held that lender negligence in verifying
    loan application information, or even intentional disregard of
    the information, is not a defense to fraud, and so evidence of
    such negligence or intentional disregard is inadmissible as a
    defense against charges of mortgage fraud.
    The panel further held that, when a lender requests
    specific information in its loan applications, that information
    is objectively material as a matter of law, regardless of the
    lenders’ policies or practices with respect to use of that
    information.
    COUNSEL
    William H. Gamage, Gamage & Gamage, Las Vegas,
    Nevada, for Defendant-Appellant.
    Peter S. Levitt (argued), Assistant United States Attorney;
    Elizabeth O. White, Appellate Chief; Daniel G. Bogden,
    United States Attorney; United States Attorney’s Office, Las
    Vegas, Nevada; for Plaintiff-Appellee.
    *
    This summary constitutes no part of the opinion of the court. It has
    been prepared by court staff for the convenience of the reader.
    UNITED STATES V. LINDSEY                             3
    OPINION
    GOULD, Circuit Judge:
    We address the admissibility of certain evidence in
    mortgage fraud cases. We affirm the convictions, rejecting
    appellant’s contentions that evidence was improperly
    excluded and that he was denied the ability to present a
    defense. In a separate memorandum disposition filed
    concurrently, we reject other challenges to the convictions
    and some challenges to the sentence.
    Nicholas Lindsey, a former mortgage loan officer and real
    estate broker, appeals his convictions and sentence for nine
    counts of wire fraud and one count of aggravated theft. For
    several years, Lindsey was involved in a complex mortgage
    fraud scheme that involved convincing individuals to “buy”
    residential properties in exchange for financial assistance. In
    some cases, Lindsey built up these individuals’ credit ratings
    and deposited money into their bank accounts in order to
    fraudulently secure mortgages. He also submitted falsified
    loan documents to lenders in order to make the individuals
    appear more creditworthy, including falsely stating the
    applicants’ earned income. The properties secured through
    this scheme were destined for foreclosure, creating large
    losses for financial institutions1 while Lindsey benefitted
    1
    As reflected in the Presentence Report and as testimony at sentencing
    indicated, the loans and/or properties at issue in this case appear to have
    been purchased from the original lender by a second financial institution.
    Thus the victims in this case—at least for the purposes of restitution—is
    the second financial institution that suffered losses at the time of
    foreclosure, not the original lenders.
    4                UNITED STATES V. LINDSEY
    financially from commissions, rent payments, and diverted
    escrow monies.
    Lindsey was charged with wire fraud under 18 U.S.C.
    § 1343, which requires the government to prove that the
    defendant made “material” fraudulent representations, i.e.,
    representations that had “a natural tendency to influence, or
    [were] capable of influencing” the decisions of the lenders
    who made the loans. United States v. Gaudin, 
    515 U.S. 506
    ,
    509 (1995) (quoting Kungys v. United States, 
    485 U.S. 759
    ,
    770 (1988)); Neder v. United States, 
    527 U.S. 1
    , 16 (1999).
    At his trial, the district court precluded Lindsey from
    presenting evidence of lenders’ practices and policies. He
    appeals his convictions on the ground that he was denied his
    constitutional right to present a defense. We have jurisdiction
    under 18 U.S.C. § 3742(a) and 28 U.S.C. § 1291, and we hold
    that lender negligence in verifying loan application
    information, or even intentional disregard of the information,
    is not a defense to fraud, and so evidence of such negligence
    or intentional disregard is inadmissible as a defense against
    charges of mortgage fraud. We further hold that, when a
    lender requests specific information in its loan applications,
    that information is objectively material as a matter of law,
    regardless of the lenders’ policies or practices with respect to
    use of that information.
    I
    Lindsey worked for Clear Mortgage, Inc. in Nevada as a
    mortgage loan officer and team leader for a mortgage group.
    During his employment with Clear Mortgage, Lindsey
    recruited straw buyers for Las Vegas real estate, and, in the
    process, made false statements in loan applications. In one
    illustrative example presented at trial, Lindsey recruited
    UNITED STATES V. LINDSEY                    5
    Madelon Bridges, a woman living in Louisiana with only fifty
    dollars to her name, to “purchase” Villa Del Mar, a house in
    Las Vegas worth $720,000. Lindsey flew Bridges to Las
    Vegas and promised to pay off her debt and give her $10,000
    in exchange for acting as a straw buyer. Bridges gave
    Lindsey her personal identification information, including her
    social security number and fingerprints, and Lindsey paid off
    her debt and transferred money into her bank account.
    Lindsey also had Bridges sign a loan application that falsely
    represented, inter alia, that she intended to live at the
    property she was applying for a loan to purchase, paid $3,300
    a month in rent, was gainfully employed, and had a sizeable
    bank account. After she was approved for the loan, Lindsey
    used Bridges’s personal information to apply for another loan
    and purchase another home in her name without her
    knowledge. When Lindsey did not make mortgage payments
    as promised, Villa Del Mar went into foreclosure, negatively
    affecting Bridges’s credit rating and causing losses to the
    lender. Lindsey perpetrated similar frauds with five straw
    buyers—including his sister—on nine home loans, and eight
    different properties. From this scheme, Lindsey profited by
    receiving significant commissions, rent payments, and
    diverted escrow monies.
    Lindsey was arrested and indicted on nine counts of wire
    fraud under 18 U.S.C. § 1343 and one count of aggravated
    identity theft under 18 U.S.C. § 1028A. Before trial, the
    government suspected that Lindsey was planning to defend
    himself by claiming that the lenders were at fault for failing
    to verify the information in the fraudulent loan applications.
    The government filed a motion in limine to prevent Lindsey
    from introducing evidence of lender negligence. The district
    court declined to rule on the issue, concluding that a final
    6                   UNITED STATES V. LINDSEY
    ruling “would be more appropriately made in the context of
    the development of the evidence at trial.”
    At trial, the district court warned Lindsey’s attorney to
    “stay away” from the issue of lender negligence in his
    opening statement. When defense counsel described 2006 to
    2007 as “a wild time” of mortgage lending and attempted to
    describe the types of loans at issue as “stated income” and
    “no income, no assets,”2 the district court sustained the
    government’s objections and warned counsel again to “stay
    away” from the issue of lender negligence. The district court
    subsequently told the parties that it was “inclined” to exclude
    evidence of lender negligence from the rest of trial.
    During trial, Lindsey’s counsel questioned a witness
    about previous bad loans that her employer, a lender, had
    provided. The government objected. The question was
    stricken during a sidebar in which the prosecutor informed
    the district court that it had already ruled on the issue of
    lender negligence, and he argued that defense counsel’s
    question was irrelevant. The district court sustained the
    objection, striking the question from the record.
    The jury convicted Lindsey of all counts. The district
    court sentenced Lindsey to consecutive sentences of 108
    months for wire fraud and 24 months for identity theft, for a
    2
    During opening statements, Lindsey’s counsel urged that a “stated
    income” loan “means that the lender will rely on the borrower to state
    their income and state their assets,” and that a “no income, no assets” loan
    means “the lender did not appear to know about the income or assets on
    that particular loan.” On appeal, Lindsey describes “the stated/no doc loan
    type as a loan that banks offered [] which allowed applicants to provide no
    back up documentation for their income and assets.”
    UNITED STATES V. LINDSEY                      7
    total of 132 months. The court also imposed $2,286,911 in
    restitution. Lindsey timely appealed.
    II
    To convict a defendant of wire fraud, the jury must find
    beyond a reasonable doubt: “(1) the existence of a scheme to
    defraud; (2) the use of wire, radio, or television to further the
    scheme; and (3) a specific intent to defraud.” United States
    v. Jinian, 
    725 F.3d 954
    , 960 (9th Cir. 2013). In order to
    prove a “scheme to defraud,” the jury must find that the
    defendant employed “material falsehoods.” 
    Neder, 527 U.S. at 20
    . “In general, a false statement is material if it has ‘a
    natural tendency to influence, or [is] capable of influencing,
    the decision of the decisionmaking body to which it was
    addressed.’” 
    Id. at 16
    (alteration in the original) (quoting
    
    Gaudin, 515 U.S. at 509
    ).
    The element of materiality is evaluated under an objective
    test, in which the Court must examine “the intrinsic
    capabilities of the false statement itself, rather than the
    possibility of the actual attainment of its end.” United States
    v. Peterson, 
    538 F.3d 1064
    , 1072 (9th Cir. 2008) (quoting
    United States v. Facchini, 
    832 F.2d 1159
    , 1162 (9th Cir.
    1987)). To be material, “the statement need have only the
    propensity or capacity to influence or affect [the lender’s]
    decision. Materiality, therefore, is not measured by effect or
    magnitude.” 
    Facchini, 832 F.2d at 1162
    (citations omitted).
    In sum, “the government does not have to prove actual
    reliance upon the defendant’s misrepresentations” to satisfy
    the element of materiality. 
    Neder, 527 U.S. at 25
    (quoting
    United States v. Stewart, 
    872 F.2d 957
    , 960 (10th Cir. 1989)).
    8               UNITED STATES V. LINDSEY
    Lindsey contends that the district court erred by
    preventing him from presenting evidence about the “stated
    income/no doc” loans, thus barring him “from challenging the
    materiality of false statements on a loan type that invites the
    applicant to state their income without justification or
    support.” According to Lindsey, this prevented him from
    presenting a complete defense, a right that is constitutionally
    protected. See Crane v. Kentucky, 
    476 U.S. 683
    , 690 (1986)
    (“[T]he Constitution guarantees criminal defendants a
    meaningful opportunity to present a complete defense.”)
    (internal citations and quotation marks omitted). We review
    a district court’s decision to preclude a defendant’s proffered
    defense de novo. See United States v. Ibarra-Pino, 
    657 F.3d 1000
    , 1003 (9th Cir. 2011); United States v. Forrester,
    
    616 F.3d 929
    , 934 (9th Cir. 2010).
    Whether trial courts may admit evidence of a lender’s
    decision-making process—including evidence that lenders
    have been careless in approving undeserving loans, or even
    intentional in disregarding relevant information—is an issue
    that has been debated in this Circuit’s lower courts. See
    United States v. Kuzmenko, No. 2:11-CR-0210 JAM, 
    2014 WL 7140640
    , at *6 n.5 (E.D. Cal. Dec. 12, 2014) (collecting
    cases and noting that “[w]hether, and to what extent, a jury
    must know about the lenders’ decision-making process in a
    mortgage fraud prosecution would appear to be an issue over
    which reasonable minds might disagree”). We understand the
    desire to see lenders shoulder responsibility for their role in
    the mortgage crisis of the last decade. See Nevada v. Bank of
    Am. Corp., 
    672 F.3d 661
    , 670–71 (9th Cir. 2012) (“The
    Center for Responsible Lending estimates that from 2009 to
    2012, foreclosures on neighboring homes will result in lost
    home equity in nearly one million homes across Nevada,
    amounting to total lost home equity of $54.5 billion. The city
    UNITED STATES V. LINDSEY                            9
    of Las Vegas has the second highest foreclosure rate in the
    nation. Considering the devastating effect of the foreclosure
    crisis on Nevada, it is unsurprising that the Attorney General
    would exercise her statutory right to” prosecute deceptive
    trade practices by mortgage lenders) (footnotes omitted).
    However, that does not mean that lenders can be victimized3
    by intentional fraudulent conduct with impunity merely
    because the lenders were negligent, or even because the
    lenders intentionally disregarded the information in a loan
    application. Two wrongs do not make a right, and a lender’s
    negligence, or even intentional disregard, cannot excuse
    another’s criminal fraud.
    Several of our sister circuits have held that a fraud
    victim’s negligence is not a defense to criminal charges under
    the federal fraud statutes. See United States v. Colton,
    
    231 F.3d 890
    , 903 (4th Cir. 2000) (“The susceptibility of the
    victim of the fraud, in this case a financial institution, is
    irrelevant to the analysis: If a scheme to defraud has been or
    is intended to be devised, it makes no difference whether the
    persons the schemers intended to defraud are gullible or
    skeptical, dull or bright.”) (internal citations and quotation
    marks omitted); see also United States v. Svete, 
    556 F.3d 1157
    , 1165 (11th Cir. 2009) (en banc) (“A perpetrator of
    fraud is no less guilty of fraud because his victim is also
    guilty of negligence.”); United States v. Allen, 
    201 F.3d 163
    ,
    167 (2d Cir. 2000) (per curiam) (“The victim’s negligence in
    3
    We use the words “victimized” and “victim” in this context to describe
    the original lenders, while acknowledging that the entities that actually
    lost money in this scheme at the time of foreclosure—the victims in this
    case for the purposes of restitution—were actually those financial
    institutions that purchased the loan and/or collateral from the original
    lenders.
    10               UNITED STATES V. LINDSEY
    permitting a crime to take place does not excuse the
    defendant from culpability for [the] substantive offense.”);
    United States v. Coyle, 
    63 F.3d 1239
    , 1244 (3d Cir. 1995)
    (“The negligence of the victim in failing to discover a
    fraudulent scheme is not a defense to criminal conduct.”);
    United States v. Kreimer, 
    609 F.2d 126
    , 132 (5th Cir. 1980)
    (“The victim’s negligence is not a defense to criminal
    conduct.”).
    In United States v. Ciccone, we rejected the defendant’s
    argument that the government was required to prove that the
    defendant’s fraud was calculated to defraud persons of
    ordinary prudence and comprehension. 
    219 F.3d 1078
    , 1083
    (9th Cir. 2000). We held that “the wire-fraud statute protects
    the naive as well as the worldly-wise . . . . the lack of guile on
    the part of those solicited may itself point with persuasion to
    the fraudulent character of the artifice.” 
    Id. (internal quotation
    marks omitted) (quoting United States v. Hanley,
    
    190 F.3d 1017
    , 1023 (9th Cir. 1999), superceded on other
    grounds by statute). Although Ciccone discussed the
    elements of wire fraud, not permissible defenses, its
    reasoning is also persuasive here. We join several of our
    sister circuits in holding that a victim’s negligence is not a
    defense to wire fraud. Evidence of lender negligence is thus
    not admissible as a defense to mortgage fraud.
    Lindsey maintains on appeal that he did not seek to
    introduce evidence of lender negligence at trial, but rather
    “evidence of the materiality of falsehoods that may have
    appeared on loan applications.” Without saying so explicitly,
    Lindsey may be arguing in substance that he wanted to
    introduce evidence that the banks were willing to approve the
    loans regardless of the information included in the application
    UNITED STATES V. LINDSEY                    11
    forms. This implies something more than lender negligence,
    and approaches intentionality.
    But the conduct of the lender cannot provide an effective
    defense based on alleged lack of materiality. Materiality is an
    objective test “not measured by effect or magnitude,”
    
    Facchini, 832 F.2d at 1162
    , but rather by “the intrinsic
    capabilities of the false statement itself,” 
    Peterson, 538 F.3d at 1072
    (quoting 
    Facchini, 832 F.2d at 1162
    ). We have
    previously held that “misrepresentation may be material
    without inducing any actual reliance. What is important is
    the intent of the person making the statement that it be in
    furtherance of some fraudulent purpose.” United States v.
    Blixt, 
    548 F.3d 882
    , 889 (9th Cir. 2008) (quoting United
    States v. Halbert, 
    640 F.2d 1000
    , 1009 (9th Cir. 1981) (per
    curiam)).
    In determining whether a false statement is material,
    courts must ask the question whether the statement
    objectively had a natural tendency to influence, or was
    capable of influencing, a lender to approve a loan. See
    
    Facchini, 832 F.2d at 1162
    ; see also United States v.
    Reynolds, 
    189 F.3d 521
    , 525 (7th Cir. 1999) (“Evidence that
    the bank would not have relied on [the defendant’s]
    representations, and instead would have made an exception
    for him, does not establish that the representations were
    immaterial . . . . the proper inquiry addresses not the
    defendant’s ability to influence, but rather the nature of the
    statements made.”). The First Circuit recently created a
    bright-line approach on this issue that we conclude is
    persuasive, and we follow it here. In United States v.
    Appolon, a mortgage fraud case, the defendant argued that the
    government failed to present evidence regarding the lender’s
    loan evaluation process, and thus could not satisfy the
    12              UNITED STATES V. LINDSEY
    materiality element of wire fraud. 
    715 F.3d 362
    , 368 (1st Cir.
    2013). The First Circuit explained that the loan application
    had specifically requested information regarding the
    applicant’s income, assets, and intent to reside in the
    property, and held that “[t]he fact that [the lender’s] loan
    application explicitly sought this information from the
    applicant indicates that [the straw buyer’s] responses were
    capable of influencing its decision.” Id.; see also United
    States v. Prieto, 
    812 F.3d 6
    , 14 (1st Cir. 2016) (“Even in the
    face of anecdotal evidence that, at the time, residential
    mortgage lenders were devoting scant resources to the
    verification of applicants’ income levels, it is nevertheless
    fair to presume that a loan applicant’s stated income level and
    plans for using the property in question would have a ‘natural
    tendency’ to influence a lender’s decision. Why else, after
    all, did the lender demand the information and Prieto take the
    risk of providing false information?” (internal citations
    omitted)).
    We adopt the First Circuit’s bright-line test, and hold, as
    a matter of law, that when a lender requests specific
    information in its loan applications, false responses to those
    specific requests are objectively material for purposes of
    proving fraud. Applying this test to Lindsey’s case, the
    district court properly excluded evidence that the lenders
    were allegedly negligent or intentional in disregarding
    Lindsey’s fraudulent representations when approving loan
    applications. This subjective evidence had no bearing on the
    objective materiality inquiry. The government introduced
    evidence that the lenders specifically requested information
    about, inter alia, employment, income, and assets, and that
    UNITED STATES V. LINDSEY                 13
    Lindsey provided false information with the intent to
    fraudulently secure loans. We affirm Lindsey’s convictions.
    AFFIRMED.