United States v. Nicholas Lindsey , 850 F.3d 1009 ( 2017 )


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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 February 27, 2017
    Before: Susan P. Graber,* Ronald M. Gould,
    and Michelle T. Friedland, Circuit Judges.
    Opinion by Judge Gould
    *
    After oral argument in this case, and our former opinion and
    memorandum disposition filed June 28, 2016, and after the petition for
    rehearing or rehearing en banc was filed on August 19, 2016, Judge
    Graber on January 26, 2017, replaced Judge Noonan on this panel.
    2                  UNITED STATES V. LINDSEY
    SUMMARY**
    Criminal Law
    The panel affirmed convictions in a mortgage fraud case.
    The panel held (1) negligence is not a defense to wire
    fraud, and evidence of lender negligence is not admissible as
    a defense to mortgage fraud; (2) intentional disregard of
    relevant information is not a defense to wire fraud, and
    evidence of intentional disregard by lenders is not admissible
    as a defense to mortgage fraud; (3) evidence of individual
    lender behavior is not admissible to disprove materiality, but
    evidence of general lending standards in the mortgage
    industry is admissible to disprove materiality; and (4) the
    district court did not deny the defendant the opportunity to
    present a complete defense.
    The panel addressed other contentions in a concurrently-
    filed memorandum disposition.
    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,
    **
    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
    United States Attorney; United States Attorney’s Office, Las
    Vegas, Nevada; for Plaintiff-Appellee.
    Heather E. Williams, Federal Defender for the Eastern
    District of California; Hilary Potashner, Federal Defender for
    the Central District of California; Ann C. McClintock,
    Assistant Federal Defender; Office of the Federal Public
    Defender, Sacramento, California; Michael Tanaka, Deputy
    Federal Public Defender, Office of the Federal Public
    Defender, Los Angeles, California; Karen Lee Landau, Law
    Office of Karen Landau, Oakland, California; Barry L.
    Morris, Walnut Creek; for Amicus Curiae Federal Defenders
    for the Central and Eastern Districts of California.
    OPINION
    GOULD, Circuit Judge:
    We address the admissibility of certain evidence in this
    criminal mortgage fraud case. 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
    4                   UNITED STATES V. LINDSEY
    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
    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 certain evidence regarding the practices of
    particular lenders. 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 by
    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—are
    the second financial institutions that suffered losses at the time of
    foreclosure, not the original lenders.
    UNITED STATES V. LINDSEY                       5
    particular lenders is inadmissible as a defense against charges
    of mortgage fraud. We also hold that evidence of the general
    lending standards applied in the mortgage industry is
    admissible to disprove materiality, but evidence of individual
    lender behavior is not admissible for that purpose.
    I
    Lindsey worked for Clear Mortgage, Inc., in Nevada as a
    mortgage loan officer and team leader for a mortgage group.
    From about May 2006 to June 2007, while employed 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 Madelon Bridges, a woman living in
    Louisiana with only $50 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
    6                   UNITED STATES V. LINDSEY
    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
    ruling “would be more appropriately made in the context of
    the development of the evidence at trial.”
    During opening statements at trial, the district court
    warned Lindsey’s attorney to “stay away” from the issue of
    lender negligence. Nevertheless, Lindsey’s counsel described
    2006 to 2007 as “a wild time” of mortgage lending, one that
    he had once referred to as the “Wild West.” It was a period,
    counsel said, when “there were mortgages being offered that
    had never been offered before and perhaps may never be
    offered again.” These mortgages included “stated income”
    and “no income, no assets”2 loans. The Government objected
    to defense counsel’s description of the loan products, arguing
    that it was evidence of lender negligence. The district court
    2
    Lindsey’s counsel urged in the opening statement 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 that “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
    allowed the description of the loans, but warned counsel
    again to “stay away” from suggesting negligence. The
    district court subsequently told the parties that it was
    “inclined” to exclude evidence of lender negligence from the
    rest of trial.
    Lindsey’s counsel later cross-examined a Government
    witness about the state of the mortgage industry at the time of
    Lindsey’s alleged fraud. The witness testified that both
    “stated income” and “no document” loans were common at
    the time. Lindsey’s attorney then got more specific, asking
    the witness about previous bad loans that her employer, a
    lender, had provided. The Government objected. During a
    sidebar the prosecutor argued that the district court had
    already ruled on the issue of lender negligence, and so
    defense counsel’s question was irrelevant. The district court
    sustained the objection.
    In cross-examining another Government witness,
    Lindsey’s counsel asked about two loan applications that the
    witness, a former employee of a lender, had previously
    approved. The applications were for the same property, but
    the bank account information in the applications differed.
    Lindsey’s counsel asked whether this meant that one of the
    applications was false, and how the witness would have
    responded to such an inaccuracy. The Government objected,
    arguing that Lindsey’s attorney was again eliciting evidence
    of lender negligence, and the district court again sustained the
    objection.
    During closing arguments, the district court allowed
    defense counsel, over the Government’s objections, to say
    that “[i]n 2006 and 2007 America was on a mortgage loan
    high.” He was allowed to say that loans went bad because of
    8                UNITED STATES V. LINDSEY
    “[e]asy lending practices” and because “100 percent
    financing of a mortgage on stated income and stated assets”
    allowed “people [to buy] houses they could not afford.”
    Defense counsel also said that, at the time, buyers and sellers
    of real estate were “extremely busy,” making money very
    quickly, and would sometimes make mistakes or “do things
    on purpose just to close a deal.”
    In charging the jury, the district court included an
    instruction stating that “[l]oose lending practices do not
    constitute a defense to wire fraud, but the lending standards
    applied by the financial institutions that lent the money in this
    case are relevant to the question of materiality.”
    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
    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 original) (quoting Gaudin,
    
    515 U.S. at 509
    ).
    UNITED STATES V. LINDSEY                    9
    The element of materiality is evaluated under an objective
    test, in which we 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) (internal quotation marks
    omitted). “To be material a statement need only have the
    propensity or capacity to influence or affect [a lender’s]
    decision.” United States v. Rodriguez-Rodriguez, 
    840 F.2d 697
    , 700 (9th Cir. 1988). Stated differently, “the government
    does not have to prove actual reliance upon the defendant’s
    misrepresentations” to satisfy materiality. Neder, 
    527 U.S. at 25
     (quoting United States v. Stewart, 
    872 F.2d 957
    , 960 (10th
    Cir. 1989)).
    Lindsey contends that the district court erred by 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 quotation marks omitted)). We
    review de novo a district court’s decision to preclude a
    defendant’s proffered defense. See 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 a lender
    has 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)
    10                  UNITED STATES V. LINDSEY
    (unpublished) (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 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 lenders’ 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
    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 those financial institutions that
    purchased the loans and/or collateral from the original lenders.
    UNITED STATES V. LINDSEY                     11
    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 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 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 . . . . [T]he lack of guile
    on the part of those solicited may itself point with persuasion
    to the fraudulent character of the artifice.” 
    Id.
     (quoting
    United States v. Hanley, 
    190 F.3d 1017
    , 1023 (9th Cir. 1999),
    superseded on other grounds by statute). Although Ciccone
    discussed the elements of wire fraud, not permissible
    defenses, its reasoning is 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.
    12               UNITED STATES V. LINDSEY
    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 his alleged victims were willing to
    approve the loans regardless of the information included in
    the application forms. This theory implies something more
    than lender negligence, and approaches intentionality.
    But the intentional conduct of the lender cannot provide
    an effective defense based on alleged lack of materiality. A
    false statement is material if it objectively had a tendency to
    influence, or was capable of influencing, a lender to approve
    a loan. See Peterson, 
    538 F.3d at 1072
    ; Neder, 
    527 U.S. at 16
    . This standard is not concerned with a statement’s
    subjective effect on the victim, but only “the intrinsic
    capabilities of the false statement itself.” Peterson, 
    538 F.3d at 1072
    . For this reason we have previously held that
    “misrepresentation may be material without inducing any
    actual reliance.” 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)); see also Neder,
    
    527 U.S. at
    24–25 (“The common-law requirement[] of
    ‘justifiable reliance’ . . . plainly ha[s] no place in the federal
    fraud statutes.”).
    That the lenders here might have intentionally disregarded
    Lindsey’s false statements has little relevance to whether
    those statements are intrinsically able to influence a decision.
    Again, materiality is an objective element, and an absence of
    reliance does not affect its presence. See United States v.
    Reynolds, 
    189 F.3d 521
    , 525 (7th Cir. 1999) (“Evidence that
    the bank would not have relied on [the defendant’s]
    UNITED STATES V. LINDSEY                    13
    representations, and instead would have made an exception
    for him, does not establish that the representations were
    immaterial . . . . [T]he proper inquiry addresses not the
    defendant’s ability to influence, but rather the nature of the
    statements made.”). We hold that a victim’s intentional
    disregard of relevant information is not a defense to wire
    fraud and thus evidence of such disregard is not admissible as
    a defense to mortgage fraud. To the extent that Lindsey tried
    to introduce evidence of lenders’ intentional disregard and the
    district court prevented him, the district court did not err.
    Our holdings do not leave defendants powerless to
    challenge the materiality of false statements made in
    connection with securing mortgages. Among other things,
    defendants can disprove materiality through evidence of the
    lending standards generally applied in the mortgage industry.
    For example, defendants can offer testimony about the types
    of information, such as household income or assets, that
    lenders typically consider, as well as evidence of how much
    weight the industry generally gives to statements about such
    information. As long as defendants do not stray into evidence
    of the behavior of individual lenders—for instance, evidence
    of specific prior bad loans or particular mistakes by
    underwriters—defendants may attack materiality though
    industry practice.
    To illustrate, suppose a defendant is charged with wire
    fraud for falsely stating on a loan application that he was
    married. In such a case, it would be admissible for a defense
    expert to testify that, while mortgage applications usually ask
    about marital status, the general practice in the industry is to
    ignore marital status when making lending decisions. The
    defendant could then argue in closing that his false statement
    about marriage was immaterial, and so the elements of wire
    14                 UNITED STATES V. LINDSEY
    fraud have not been proven. By contrast, a district court
    could properly exclude evidence that (a) the particular lender
    to whom the defendant lied did not generally give weight to
    marital status when deciding whether to lend, or (b) there
    were prior instances in which that lender did not consider
    marital status in making loans.
    This line between evidence of industry practice and the
    practice of particular lenders is subtle, but it is in our view the
    best combined reading of two competing lines of precedent.
    On the one hand are the cases, already discussed, holding that
    materiality focuses on the intrinsic nature of the statement,
    see, e.g., Peterson, 
    538 F.3d at 1072
    , that negligence is not a
    defense to fraud, see, e.g., Colton, 
    231 F.3d at 903
    , and that
    reliance is not an element of wire fraud, see, e.g., Neder,
    
    527 U.S. at
    24–25. These cases all counsel toward banning
    evidence of lender behavior in any form, whether general or
    particular.
    On the other hand is the Supreme Court’s recent
    reasoning in Universal Health Services, Inc. v. United States
    ex rel. Escobar, 
    136 S. Ct. 1989
     (2016). Escobar involved
    materiality under the False Claims Act (“FCA”).4 
    Id. at 2001
    .
    The plaintiffs there asserted a theory of FCA liability known
    as “implied false certification.” 
    Id. at 1995
    . According to the
    theory, the defendant was liable under the FCA because,
    when it submitted its claims for payment to the Government,
    it did not disclose that it was in violation of material
    statutory, regulatory, or contractual requirements. 
    Id.
     The
    4
    The Supreme Court has used cases on materiality in one context as
    precedent for materiality in another. See, e.g., Gaudin, 
    515 U.S. at 509
    (materiality for crime of making false statements) (citing Kungys,
    
    485 U.S. at 770
     (materiality for revocation of citizenship)).
    UNITED STATES V. LINDSEY                   15
    Court addressed one type of proof admissible to show that
    one of these allegedly violated requirements was material:
    [P]roof of materiality can include, but is not
    necessarily limited to, evidence that the
    defendant knows that the Government
    consistently refuses to pay claims in the mine
    run of cases based on noncompliance with the
    particular statutory, regulatory, or contractual
    requirement. Conversely, if the Government
    pays a particular claim in full despite its
    actual knowledge that certain requirements
    were violated, that is very strong evidence that
    those requirements are not material. Or, if the
    Government regularly pays a particular type
    of claim in full despite actual knowledge that
    certain requirements were violated, and has
    signaled no change in position, that is strong
    evidence that the requirements are not
    material.
    
    Id.
     at 2003–04. The Supreme Court’s language suggests that
    evidence of the Government’s past treatment of a particular
    requirement is admissible to show that a defendant’s violation
    of that requirement is not material. Translating to the
    mortgage fraud context, Escobar suggests that defendants be
    allowed to probe lender behavior to some extent. The
    question is how much.
    According to Lindsey, Escobar directs that factfinders in
    a mortgage fraud prosecution be free to consider any
    evidence of lender behavior, including how an individual
    lender treats a particular false statement on its loan
    applications. But this interpretation misses that the Federal
    16              UNITED STATES V. LINDSEY
    Government in an FCA case is in a far different position than
    is an individual lender in a mortgage fraud prosecution. A
    single lender represents only some small part of the market
    for issuing mortgages. The Federal Government, by contrast,
    represents the entire market for issuing federal government
    contracts. The weight the Government gives to a particular
    statutory, regulatory, or contractual requirement is analogous
    not to the weight an individual lender gives to a statement on
    its loan application, but rather the weight the entire mortgage
    industry gives to that type of statement.
    This difference matters because materiality measures
    natural capacity to influence, not whether the statement
    actually influenced any decision. See Peterson, 
    538 F.3d at 1072
    . The way the entire market has historically treated a
    statement or requirement says a lot about that statement or
    requirement’s natural capacity to influence a decision by
    market participants. But the way one market participant of
    many has previously treated a statement says little or nothing
    about that statement’s inherent ability to affect decision
    making. Add the fact that evidence of individual lender
    behavior can easily touch on lender negligence, intentional
    disregard, or lack of reliance—none of which is a defense to
    mortgage fraud—and a bright-line rule against evidence of
    individual lender behavior to disprove materiality is both a
    reasonable and necessary protection and faithful to Escobar.
    We recognize that an alternative possible rule would be
    to allow evidence of past behavior by individual lenders, but
    require a jury instruction that the evidence be considered only
    for the purpose of evaluating materiality, and not negligence,
    intentional disregard, or lack of reliance. See Fed. R. Evid.
    105 (“If the court admits evidence that is admissible against
    a party or for a purpose – but not against another party or for
    UNITED STATES V. LINDSEY                    17
    another purpose – the court, on timely request, must restrict
    the evidence to its proper scope and instruct the jury
    accordingly.”). We decline to follow this course. As already
    discussed, the lending standards applied by an individual
    lender are poor evidence of a false statement’s intrinsic
    ability to affect decision making. There is also a risk that
    despite a limiting instruction, evidence of prior non-reliance
    by lenders would still lead factfinders to consider whether the
    victims themselves relied on the defendant’s false statements.
    A prophylactic rule against all evidence of individual lender
    behavior best avoids these concerns. See Fed. R. Evid. 403
    (“The court may exclude relevant evidence if its probative
    value is substantially outweighed by a danger of one or more
    of the following: unfair prejudice, confusing the issues,
    misleading the jury . . . .”).
    III.
    Applying our rule here, the district court did not prevent
    Lindsey from presenting a complete defense. See United
    States v. Alvirez, 
    831 F.3d 1115
    , 1125 (9th Cir. 2016). On the
    one hand, the district court properly excluded evidence of
    individual lender behavior. When Lindsey’s counsel asked
    a Government witness about specific loans that her employer
    had approved, the district court sustained the Government’s
    objection. Later, defense counsel asked another Government
    witness whether a particular loan application was false, and
    how the witness would have responded to such a false
    application. The Government objected and the district court
    again sustained the objection.
    On the other hand, the district court properly allowed
    evidence of the lending standards generally present in the
    industry. During opening statements, Lindsey’s counsel
    18               UNITED STATES V. LINDSEY
    described 2006 to 2007 as a “wild time” of mortgage lending,
    and recounted that he had once referred to the period as the
    “Wild West.” He explained that “there were mortgages being
    offered that had never been offered before and perhaps may
    never be offered again,” and that the mortgages included
    “stated income” and “no income, no assets” loans. The
    Government objected, but the district court allowed defense
    counsel to continue.
    The district court later permitted defense counsel to elicit
    testimony from a Government witness that “stated income”
    and “no document” loans were common in the market at the
    time of Lindsey’s alleged offenses. It was only when defense
    counsel began to ask about specific prior bad loans that the
    district court intervened, sustaining an objection from the
    Government.
    During closing arguments, Lindsey’s counsel again hit on
    the lending standards previously commonplace in the
    mortgage market. He explained that “[i]n 2006 and 2007
    America was on a mortgage loan high.” As a result of
    “[e]asy lending practices” and “100 percent financing of a
    mortgage on stated income and stated assets,” lenders made
    bad loans to “people [who] bought houses they could not
    afford.” The Government objected to these statements, but
    the district court overruled the objection. Defense counsel
    also told the jury that buyers and sellers of real estate were
    “extremely busy,” making money very quickly, and would
    sometimes make mistakes or “do things on purpose just to
    close a deal.”
    After closing arguments, the district court instructed the
    jury that “[l]oose lending practices do not constitute a defense
    to wire fraud, but the lending standards applied by the
    UNITED STATES V. LINDSEY                    19
    financial institutions that lent the money in this case are
    relevant to the question of materiality.” Not only did this
    instruction allow the jury to consider the evidence of industry
    lending standards that the district court properly admitted, but
    it went a step further in Lindsey’s favor (contrary to our
    above holdings) by allowing the jury to consider any
    evidence of particular lenders’ standards that might have
    squeaked its way into the record. From opening statement,
    through the case-in-chief, and on to closing argument and
    jury instructions, the district court allowed Lindsey to argue
    and present evidence that his false statements were not
    material in light of general industry lending standards.
    Lindsey was not denied his right to present a complete
    defense. See Alvirez, 831 F.3d at 1125.
    IV.
    In conclusion, we hold the following: (1) negligence is
    not a defense to wire fraud, and evidence of lender negligence
    is not admissible as a defense to mortgage fraud;
    (2) intentional disregard of relevant information is not a
    defense to wire fraud, and evidence of intentional disregard
    by lenders is not admissible as a defense to mortgage fraud;
    (3) evidence of individual lender behavior is not admissible
    to disprove materiality, but evidence of general lending
    standards in the mortgage industry is admissible to disprove
    materiality; and (4) the district court did not deny Lindsey the
    opportunity to present a complete defense. We affirm
    Lindsey’s convictions.
    AFFIRMED.
    

Document Info

Docket Number: 14-10004

Citation Numbers: 850 F.3d 1009, 2017 WL 744048, 2017 U.S. App. LEXIS 3482

Judges: Graber, Gould, Friedland

Filed Date: 2/27/2017

Precedential Status: Precedential

Modified Date: 11/5/2024

Authorities (18)

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United States v. Michael C. Coyle , 63 F.3d 1239 ( 1995 )

Nevada v. Bank of America Corp. , 672 F.3d 661 ( 2012 )

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