United States v. Matthews

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-20961
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
GARY R. MATTHEWS; JOHN T. LUNDY,
Defendants-Appellants.
_________________________________________________________________
Appeal from the United States District Court
for the Eastern District of Texas
(H-98-CR-491-2)
_________________________________________________________________
January 28, 2002
Before DUHÉ, WIENER, and BARKSDALE, Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:1
The primary issue in this bank fraud case is the sufficiency
of the evidence against Gary R. Matthews and John T. Lundy. They
also base error on jury instructions and the admission of bank
policies and of testimony claimed subject to the marital privilege.
AFFIRMED.
I.
Calumet Farm, in Lexington, Kentucky, was a very prominent
thoroughbred farm. Its prize stallion was Alydar, one of the top
two or three stud stallions in the world during the late 1980s.
From 1980 until 1991, Calumet was operated by Lundy, as president,
1
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
and Matthews, as financial officer and counsel. Lundy had “full
discretionary management powers”.
By 1987, Calumet was having substantial cash flow problems and
difficulty keeping current its payments to its long-time lender,
Citizens Fidelity of Lexington, Kentucky. Citizens Fidelity loan
officers determined Calumet was losing monthly almost $1 million,
as the thoroughbred industry was experiencing a downturn. When
Calumet requested a loan increase to $30 million (from $25
million), Citizens Fidelity declined because of the size of the
loan and Calumet’s inability to generate sufficient cash flow to
service it.
Consequently, Matthews and Lundy turned to Frank Cihak, vice
chairman of First City National Bank in Houston, Texas. (In this
case, Cihak was an unindicted coconspirator of Matthews and
Lundy.2) In May 1988, Cihak brought Matthews to Houston to meet
with First City’s Energy Division to arrange financing for Calumet.
Prior to the meeting, Cihak informed the loan officers: the
transaction was highly confidential; Cihak could vouch for the
borrower’s character; and normal due diligence was unnecessary.
During the meeting, Matthews: listed Calumet’s needs; requested
the loan be made quickly; described that repayment would be made
2
Because of other criminal activities while First City’s vice
chairman, Cihak was twice convicted of conspiracy, bank fraud, wire
fraud, misapplication of bank funds, making false statements to a
financial institution, making false entries in bank records, and
money laundering. See United States v. Cihak, 137 F.3d 252 (5th
Cir.), cert. denied, 525 U.S. 847, and cert. denied, 525 U.S. 888
(1998); United States v. Allen, 76 F.3d 1348 (5th Cir.), cert.
denied, 519 U.S. 838, and cert. denied, 519 U.S. 841 (1996).
2
from Calumet’s cash flow – essentially, the seasonal sales of
horses and breeding rights; and provided financial statements and
appraisals of Calumet’s thoroughbreds, which were essentially the
loan collateral.
Williams, the primary officer for the Calumet loan, testified
Matthews never disclosed Calumet’s cash flow problems or its
difficulty in making payments to Citizens Fidelity. On the other
hand, Williams’ supervisor, Falk, admitted on cross-examination he
was told of such difficulty.
Matthews told First City the appraisals he provided at the
meeting were prepared by Robert Fox of Associated Thoroughbred
Projects, S.I. (ATPSI); he advised that Fox was an independent
appraiser with no connection to Calumet. Matthews did not inform
First City that Fox acted as an agent for, and earned most of his
income from commissions paid by, Calumet. Citizens Fidelity loan
officers testified Fox’s appraisals were “excessive” and
“inflated”.
The First City loan officers were directed by Cihak to make no
“real independent analysis” and basically to use the information
provided by Matthews and Lundy. The officers were not to contact
Citizens Fidelity, or Calumet’s owners or creditors, and not to
obtain third party appraisals of the thoroughbreds. Refraining
from contacting the current lender was not unusual, but the
totality of these restrictions was contrary to First City’s normal
practice. Had it not been for Cihak, First City would not have
made the loan.
3
Approximately one week after the meeting with Matthews, First
City offered Calumet a three-year term loan of $15 million, with a
$20 million revolving line of credit (revolver). Quarterly,
Calumet was to pay $750,000 in principal, plus interest. The loan
was funded in August 1988.
Almost immediately, Calumet had problems servicing it.
Calumet had to draw on the revolver to make the interest payments,
was late providing financial statements and compliance
certificates, was unable to pay down the revolver in October and
November as required under the agreement, and made the quarterly
principal payment by drawing on the revolver. The inability to pay
down the revolver was significant, because it meant Matthews knew
prior to the loan’s funding that Calumet was not following its
business plan submitted to First City and would be unable to
generate cash flow sufficient to cover the payments as agreed.
In November 1988, Calumet requested an increase in the
revolver to $50 million in order to pay insurance premiums on its
horses. First City agreed to an increase to $31 million to protect
its collateral. Matthews made assurances to First City that this
was a one-time problem and Calumet would pay down the revolver by
selling horses.
The primary loan officer at First City testified that,
regarding the loan, he became aware Cihak was “making credit
decisions ... without contacting any of the ... [loan] officers”.
Frequently, over the course of the loan, Cihak would negotiate
directly with Matthews and Lundy regarding credit decisions without
4
any involvement by the loan officers and would overrule those
officers’ decisions or make decisions with which they disagreed.
In January 1989, the Energy Division loan officers began to
learn of Calumet’s efforts to sell stallions to Japanese investors
and Cihak’s efforts, through a different First City division,
Capital Markets, to facilitate the sale. That February, as
discussed below concerning business transactions involving
Matthews, Lundy, and Cihak, Cihak approved a $2.5 million increase
in Calumet’s revolver. That July, at a meeting at Calumet between
Matthews and Lundy and the loan officers, to discuss the troubled
status of the Calumet loan, the loan officers learned: Cihak had
been to Calumet the previous weekend; Cihak had agreed to permit
Calumet to defer a payment due on 15 August; Matthews and Lundy
felt that, because of their relationship with Cihak, the loan
officers’ decisions were irrelevant; Cihak was actively involved in
Calumet’s deal to sell stallions to the Japanese investors; and
Cihak intended to keep the First City officers involved in that
Japanese transaction separate from those involved in the Calumet
loan.
In September 1989, Matthews provided a “Report of Mares Bred
(1989)” to First City at its request; it listed mares bred with
Alydar at Calumet. But, the report (in columnar format listing the
name of the mare, location, dates, etc.) omitted the column listing
the name of the mare’s owner. The same report from Calumet’s
business files contained this column and listed Cihak as the owner
of Lucinda Light.
5
Later that month, the loan officers attempted to amend the
Calumet loan by: obtaining additional collateral; requiring
specific future payments be made on the revolver; having the
borrowing base reduced; and requiring further compliance reporting.
In response, Matthews wrote Cihak discussing the proposals and
requesting changes to the proposed amendments. The loan officers
were unaware of Matthews’ letter. Cihak agreed to Matthews’ terms,
informing the officers of the terms of the amendments — deferring
certain payments and delaying payments on the revolver until 1
January 1990.
Shortly thereafter, Calumet failed to timely make the November
1989 principal payment. Later in November, Lundy informed the
bank’s officers that, in order to make the required payment,
Calumet would borrow money from another lender. At this point,
more than a year after the Calumet loan’s funding, Calumet had not
made a single payment from its cash flow, as initially promised.
Not surprisingly, communication between the loan officers and
Matthews and Lundy “severely deteriorated” - Lundy never returned
telephone calls, and contact with Matthews was limited. Calumet
finally made the November payment on 2 January 1990, but failed to
make the deferred revolver payments as agreed (following the
September 1989 negotiations).
In January 1990, the Energy Division recommended to the loan
review committee downgrading the Calumet loan to “substandard”.3
3
At First City, loans were classified as “performing”, “other
assets expressly mentioned”, “substandard”, and “doubtful”. A less
favorable classification resulted in more scrutiny by the loan
6
But, at a February loan review committee meeting with the Energy
Division, Cihak made false statements concerning Calumet’s credit.4
The downgrade recommendation was not approved. That March, Cihak
moved the Calumet loan to another First City division, which
reported directly to Cihak and was headed by “one of Cihak’s men”
from his prior Chicago bank.
During these loan events, and as discussed below, Matthews,
Lundy, and Cihak had several business dealings beneficial (at
various times) to each of them. Three of those transactions were:
Matthews arranged a transaction over New Year’s Eve weekend 1988
(just prior to Cihak’s approving the above-described $2.5 million
increase in February 1989 to Calumet’s revolver), which resulted in
an approximate $1 million business deduction for Cihak against his
1988 taxes; Lundy gifted certain breeding rights to Cihak, worth
$125,000 (also around the time of the $2.5 million revolver-
increase); and as a favor to Cihak, Lundy borrowed $5.2 million to
prevent a First City debtor from defaulting on a $140 million
letter of credit.
In setting up the New Year’s Eve weekend 1988 (NYE ‘88)
transaction, Matthews in late 1988 told ECC, a company specializing
in financing thoroughbred transactions: Cihak wanted to borrow
from ECC; Cihak did not need to provide financial statements to
review committee, and classifying a loan as substandard required
First City to increase its reserves to offset a potentially
uncollectible debt (because of FDIC regulations).
4
It was considered very unusual for Cihak, as Vice Chairman, to
attend a loan review meeting.
7
ECC, because Calumet would provide ECC the money to lend Cihak; and
ECC would not be required to repay those Calumet-provided funds if
Cihak defaulted on the ECC loan. In orchestrating the NYE ‘88
transaction, Matthews gave written instructions to Cihak regarding
checks to write, deposits to make, and the use of overnight
couriers.
On 30 December 1988, Cihak signed a note to ECC for
$1,105,000, due 15 February 1989 at 12.5 percent interest. The
next day, 31 December, ECC’s $1,105,000 check to Cihak was
deposited in his account. When ECC’s check was deposited in
Cihak’s account, ECC’s bank balance was only $96,000.
Nevertheless, ECC’s $1,105,000 check was paid by ECC’s bank on 4
January 1989. That same day, two deposits totaling $1,105,000 were
made to ECC’s account, allowing ECC’s check to Cihak to clear.
Those deposits were a $460,000 check from Calumet and a $645,000
check from ATPSI (the company operated by the above referenced Fox,
the horse appraiser, and Alan Krutchkoff). Both checks had the
notation “loan”.
Krutchkoff testified: ATPSI relied upon Calumet for
approximately 75 percent of its income; he did not recall the loan
but acknowledged signing the check; the check likely related to a
year-end tax deduction; and ATPSI’s bank balance was only $130,800
when the $645,000 check to ECC was written on 31 December 1988.
Two checks (one for $210,000 and another for $435,000), both
written by Cihak, were deposited into ATPSI’s account on 4 January
1989, permitting ATPSI’s check to ECC to clear. The checks
8
contained notations referring to an Alydar breeding season and the
lease of a mare, the earlier referenced Lucinda Light.
On 2 March 1989, ATPSI was paid $300,000, leaving a “balance
due” (after subtracting interest on the “loan”) of more than
$353,000 against the $645,000 check from ATPSI to ECC.5 The same
day, ATPSI sent $225,000 to Maricopa Ranch (Matthews was a director
and the registered agent; Lundy was the representative listed on
several financing statements).
An FBI financial analyst, who examined the bank records
involving the NYE ‘88 transaction, testified as follows. The
proceeds of the $1,105,000 check to Cihak funded itself, because it
“was the first in a series of [check] transactions ... based on
artificially inflated bank account balances ... supported by
worthless checks”. Cihak had $65,000 in his account on 30 December
1988, but that day wrote four checks totaling $1,305,000 - two
payable to Calumet ($210,000 and $450,000) and two to ATPSI
($210,000 and $435,000). ATPSI wrote the $645,000 check to ECC on
31 December, based on Cihak’s checks artificially inflating its
account; along with ATPSI’s check, Calumet’s check to ECC permitted
ECC’s $1,105,000 check to Cihak to clear. The FBI analyst
testified: “Were it not for either one of those deposits, [the
5
The source of the $300,000 paid to ATPSI is unclear. ATPSI
received a wire transfer of $300,000 in March 1989. Krutchkoff
wrote Lundy that August inquiring about Cihak and the Lucinda Light
lease; both the letter and the transaction statement accompanying
the letter attribute the $300,000 wire transfer as payments on the
$645,000 “loan” from ATPSI to ECC. Krutchkoff’s letter to Lundy
was found during a search of the home of an associate of Cihak.
9
$1,105,000] check would have bounced, and then the other checks
would have bounced as well”.
As a result of the NYE ‘88 transaction, Cihak took a
$1,305,000 business deduction on his 1988 tax return. Cihak also
used some of the “funds” from the ECC $1,105,000 check to lease a
mare, Stick to Beauty, to be bred with Alydar. The resulting foal
was sold for $750,000 in October 1990, with Lundy acting as Cihak’s
agent for the sale. The funds were distributed: $671,688 to ECC;
$34,365 to an insurance agency; and $43,746 to Cihak. Of the funds
it received, ECC wired $531,862 to Calumet in December 1990, and
Calumet wired $512,833 of those funds to repay a $650,000 loan made
to Cihak by Lee Casty, a Chicago associate of Cihak. Earlier, on
1 September 1990, Cihak had received $650,000 from Casty and had
wired $150,000 to Lundy and $500,000 to Calumet; Calumet used the
money to make a First City loan payment while Lundy used the money
to make an interest payment on the $5.2 million First City loan
(Lundy’s favor to Cihak, described below).
The second of three of the above referenced transactions
involving Cihak, Matthews, and Lundy began in early 1989, when
Calumet, in an agreement signed by Lundy and Cihak, provided Cihak
with Secreto’s 1989 breeding season. The purchase price was “$1.00
(one dollar and other good and valuable consideration)”. John
Ward, who in 1991 replaced Lundy as Calumet’s president, testified
that, in the equine business, such language equates with a gift.6
6
According to Ward, Secreto was “one of the highest priced
horses ever purchased”. A breeding season lasts four to five
months and gives exclusive breeding rights during that time.
10
In January 1989, the Secreto season was valued at approximately
$125,000.
The third referenced transaction began in early 1990, when
Lundy borrowed $5.2 million from First City’s Dallas bank
purportedly for stock in a Spanish resort and artwork. In fact,
the funds went directly to another bank to pay debts of another
First City customer, the Coca family.7 The loan closed and was
funded prior to First City’s receiving all the paperwork. The loan
was issued in the name of John T. Lundy and Lucille Lundy, his
wife, but Mrs. Lundy never signed the loan agreement. Lundy signed
her name, claiming she gave him written authority to do so. At
trial, as discussed in part II.E., Lundy’s former wife (they
divorced in 1993) testified she did not recall giving Lundy that
authority; however, she testified earlier to the grand jury she did
not authorize anyone to sign her name to the loan agreement. At
trial, she testified she had not lied to the grand jury.
When First City attempted in 1991 to collect on the $5.2
million loan, Lundy responded: the loan was “an accommodation to
the bank”; “the bank used [him] to funnel money to the Coca
family”; and First City had represented to him that the Coca family
would pay the loan, the value of the collateral exceeded the loan,
7
Cihak caused First City to execute a $120 million letter of
credit to that bank on behalf of the Cocas. In early 1990, the
Cocas needed $5.2 million to avoid default on debt owed to the
other bank; if the Cocas defaulted, First City would lose $140
million. Cihak arranged for Lundy to borrow the $5.2 million and
pressured Lundy to go through with the loan.
11
the collateral could be easily liquidated in the event of default,
and First City would refinance Lundy’s farm and equine loans.
Prior to this collection effort, Lundy attempted to use the
accommodation to cause First City to extend more credit to Calumet.
In the summer of 1990, Cihak arranged for Robert Richley, First
City’s president, to meet with Matthews and Lundy to discuss
Calumet’s request for more credit. Richley opposed extending more.
While Matthews was explaining Calumet’s situation to Richley, Lundy
interrupted Matthews and said: “Look, we need help here. And we
helped you in Dallas and we expect to get helped here”. Richley
responded he had no idea what Lundy was talking about and ended the
meeting.
Other evidence of side dealings between Cihak, Matthews, and
Lundy included Cihak’s indebtedness to Calumet. A September 1989
memo from Matthews to Lundy discussing Calumet’s cash flow problems
suggested that Calumet not pressure Cihak on his debt to Calumet
and either allow him to defer payment as long as he could help
Calumet or offer partial debt forgiveness as “compensation or [a]
commission” for extending further credit on First City’s loan.
Further, in early 1991, Lundy attempted to collect on a debt
relating to the July 1984 purchase of a lifetime breeding right in
Alydar (Cihak owned 25 percent of this right). As an
accommodation, Lundy had not required payment during 1989 and 1990.
In May 1990, during a review of Calumet’s compliance with
First City’s loan agreement, Calumet’s accountants discovered a
Calumet “loan” of $460,000 to ECC (the 4 January 1989 check
12
supporting, in part, the NYE ‘88 transaction) and reported it to
First City. Matthews immediately wrote First City: “The loan to
[ECC] was a tax financing transaction to enable an individual to
lease a mare at the end of 1988. Thus, Calumet did not actually
lend the money to [ECC] but used [ECC] as a vehicle to add
substance to the transaction”. (Emphasis added.)
Neither Richley (First City’s president), Falk (the earlier-
referenced Energy Division group manager who supervised the Calumet
loan), nor any loan officer in that division knew Cihak was the
unidentified “individual” involved in the transaction. Had First
City known that Cihak received either a substantial amount of
money, or the Secreto season, or any other thing of value from
Matthews or Lundy, Cihak might have been, among other things,
terminated by First City. There was no prohibition on bank
customers doing business with their bankers, but bank policy
precluded Cihak from doing any business with Calumet because he was
involved in the approval of Calumet credit decisions.
Because of an internal investigation begun during late summer
1990 into Cihak-related transactions at First City, Cihak obtained
an affidavit from Lundy in January 1991 explaining: he had no
business dealings with Cihak prior to 1988; the NYE ‘88 transaction
involved “standard horse lease arrangements”; Cihak was given “no
special consideration” in the deal; the leases “were not special
arrangements”; and he sold a half interest in Hail Secreto to Cihak
in the spring of 1990.
13
By mid-1990, Calumet’s debt at First City was approximately
$40 million, and Calumet asked for another $15 million. Instead,
in October 1990, First City restructured the account into a term
loan of $42 million, with the first payment of $15 million due
February 1991. Calumet was unable to make the November 1990
interest payment but made the $15 million payment because of
insurance proceeds from a horse’s death. Meanwhile, the internal
investigation at First City resulted in Cihak’s forced resignation
in October 1990.
In the spring of 1991, Matthews and Lundy were dismissed by
Calumet. Lundy’s replacement, Ward, testified: as of Matthews’
and Lundy’s dismissals, Calumet was almost $60 million in debt,
with First City being the largest creditor (more than $28 million);
and Lundy received millions that should have gone to Calumet.
Calumet declared bankruptcy in July 1991.
When Lundy was arrested in 1999, a handwritten letter found in
his briefcase recited, inter alia, his recollection of a 1997
interview with FBI Agents. The letter: revealed Lundy lied to the
Agents about his wife’s signature on their 1990 and 1991 tax
returns; requested the letter’s recipient to obtain “a paper” (an
affidavit) from Lundy’s ex-wife stating either her signature was on
the $5.2 million loan agreement or Lundy had power of attorney to
sign her name; expressed Lundy’s hope her statement would end the
investigation or “prove [the $5.2 million loan] was an arm’s length
deal”; directed the recipient to call Lundy’s ex-wife to assure her
she would not get in trouble for signing an affidavit, an affidavit
14
would save him, and it would keep her out of trouble. The letter
further detailed Lundy’s 1991 affidavit to First City, prepared for
Cihak, (describing it as “close to right”) and discussed other
business deals with Cihak, including a mining deal in Illinois.
Following a jury trial in early 2000, Matthews and Lundy were
convicted of bank fraud, in violation of 18 U.S.C. §§ 1344 & 1366;
bank bribery, in violation of 18 U.S.C. § 215; making false
statements to a financial institution, in violation of 18 U.S.C. §
1014; and conspiracy to commit bank fraud and bribery and to make
false statements to a financial institution, in violation of 18
U.S.C. § 371. Matthews and Lundy’s October 2000 sentences imposed,
inter alia, 21 and 54 months imprisonment, respectively, and
approximately $20 million restitution by each of them.
II.
Matthews and Lundy claim insufficient evidence for each
conviction and contest the jury instruction on false statements.
In addition, Matthews asserts the court erred by not instructing on
the defense of good faith and by admitting evidence of Cihak’s
banking policies violations; Lundy, that it erred by admitting his
ex-wife’s testimony concerning marital communications.
A.
“[A] defendant seeking reversal on the basis of insufficient
evidence swims upstream”. United States v. Mulderig, 120 F.3d 534,
546 (5th Cir. 1997), cert. denied, 523 U.S. 1071 (1998). Neither
Matthews nor Lundy testified. Nor, other than through cross
15
examination, did they present evidence in their defense. Of
course, the burden of proof rests with the Government.
Evidence is sufficient to convict if, when viewed in the light
most favorable to the verdict, “a rational jury could have found
the essential elements of the crime beyond a reasonable doubt”.
United States v. Dupre, 117 F.3d 810, 818 (5th Cir. 1997), cert.
denied, 522 U.S. 1078 (1998). It is unnecessary to disprove
alternative theories because the jury’s verdict can be supported by
“reasonable constructions of the evidence”. United States v.
Peterson, 244 F.3d 385, 389 (5th Cir.), cert. denied, 122 S. Ct.
142 (2001). Restated, all reasonable inferences are drawn in favor
of the verdict. E.g., United States v. Soape, 169 F.3d 257, 264
(5th Cir.), cert. denied, 527 U.S. 1011 (1999).
1.
To prove a conspiracy violative of 18 U.S.C. § 371, the
Government must show: an agreement between at least two persons to
commit a crime; the defendant knowingly joined the conspiracy; and
at least one overt act by a conspirator in furtherance of the
conspiracy. Cihak, 137 F.3d at 259-60. The jury may infer from
circumstantial evidence the existence of a conspiracy. See United
States v. Burton, 126 F.3d 666, 670 (5th Cir. 1997). And, once the
Government produces evidence of a conspiracy, only slight evidence
is needed to connect a defendant to it. United States v. Jensen,
41 F.3d 946, 954-55 (5th Cir. 1994), cert. denied, 514 U.S. 1101
(1995). If found to be a member of a conspiracy, a defendant is
liable for all substantive offenses committed in furtherance of it,
16
even if he is unaware of those specific offenses. United States v.
Phillips, 219 F.3d 404, 417 (5th Cir. 2000); Jensen, 41 F.3d at
955.
The Government notes the following evidence in support of the
conspiracy convictions. Cihak interfered with the loan officers’
attempts to secure payment on the Calumet loan by circumventing
them and dealing directly with Matthews and Lundy. Following the
downgrade recommendation for the loan, Cihak’s false statements to
the loan review committee and Cihak’s eventual transfer of the loan
to another division, controlled by Cihak’s associate, are acts in
furtherance of the conspiracy. In exchange, Cihak was provided
benefits: when Matthews structured the NYE ‘88 transaction to
provide Cihak with a $1,105,000 tax deduction while concealing
Matthews, Lundy, and Calumet as the source of the funds; when Cihak
was gifted the Secreto breeding season; and when Lundy obtained the
$5.2 million loan as a favor to Cihak.
Because Cihak approved a $2.5 million increase in the Calumet
loan shortly after the Secreto gift and the NYE ‘88 transaction,
the Government contends the jury could infer the existence of the
conspiracy. Also, the Government contends evidence of the
conspiracy is found in Matthews’ September 1989 memo to Lundy
suggesting Lundy bribe Cihak by deferring his debt to Calumet in
exchange for favorable treatment on the Calumet loan.
Defendants state the conspiracy charge is based on the acts
charged in the bank fraud, bank bribery, and false statements
counts, in addition to two other acts: the $5.2 million loan to
17
Lundy and the Secreto season gift. Their contentions concerning
the substantive charges are discussed below. As to the other two
acts, Defendants assert: the evidence did not establish First
City’s knowledge or understanding as to the $5.2 million loan or
the validity of Mrs. Lundy’s signature and there is no evidence
that Lundy or Matthews attempted to hide the loan from First City;
and evidence concerning the Secreto season did not establish it
was, in fact, a gift, as opposed to part of other transactions
between Calumet and Cihak.
There was sufficient evidence for the conspiracy convictions,
as further shown below. Viewing the earlier described evidence,
and drawing all reasonable inferences in the light most favorable
to the verdict, a rational jury could have found, beyond a
reasonable doubt, the elements for a conspiracy involving Matthews,
Lundy, and Cihak to commit bank bribery and fraud, and to make
false statements to a financial institution.
2.
To establish bank fraud violative of 18 U.S.C. § 1344, the
Government must prove Matthews and Lundy knowingly executed, or
attempted to execute, a scheme to defraud a federally-chartered or
federally-insured financial institution. United States v. Doke,
171 F.3d 240, 243 (5th Cir.), cert. denied, 528 U.S. 907 (1999).
The requisite intent is established by proving the defendant acted
with the specific intent to deceive to bring about financial gain
to himself. United States v. Saks, 964 F.2d 1514, 1519 (5th Cir.
1992). The scheme to defraud may include false representations
18
intended to deceive the institution in order to obtain money from
it. See United States v. Hanson, 161 F.3d 896, 900 (5th Cir. 1998)
(quoting Saks, 964 F.2d at 1518). Any false representation must be
“material” — capable of influencing the institution’s decision-
making process. See Neder v. United States, 527 U.S. 1, 25 (1999);
United States v. Moser, 123 F.3d 813, 826 n.11 (5th Cir.), cert.
denied, 522 U.S. 1020, and cert. denied, 522 U.S. 1035 (1997), and
cert. denied, 522 U.S. 1092 (1998).
Modeled after the mail and wire fraud statutes, 18 U.S.C. §§
1341 and 1343, the bank fraud statute is interpreted in the light
of the precedent interpreting those statutes. Saks, 964 F.2d at
1520-21. A “representation may be false when it constitutes a half
truth or effectively conceals a material fact, provided it is made
with the intent to defraud”. Moser, 123 F.3d at 826; see also
Blachly v. United States, 380 F.2d 665, 673-74 (5th Cir. 1967)
(“[A] scheme may be fraudulent even though no affirmative
misrepresentation of fact be made. The deceitful concealment of
material facts may also constitute actual fraud”. (citations
omitted; emphasis added)).8
8
Most circuits agree false representations or statements
include concealment of material facts. See, e.g., United States v.
Colton, 231 F.3d 890, 901 (4th Cir. 2000) (“deceptive acts or
contrivances intended to hide information, mislead, avoid
suspicion, or avert further inquiry into a material matter”
sufficient proof for scheme to defraud); United States v. Molinaro,
11 F.3d 853, 861 (9th Cir. 1993), cert. denied, 513 U.S. 1059
(1994) (concealment of nature of a financial transaction part of
scheme to defraud); United States v. Goodman, 984 F.2d 235, 240
(8th Cir. 1993) (scheme to defraud shown by “nondisclosure
manifesting an intent to defraud”); United States v. Olatunji, 872
F.2d 1161, 1167 (3d Cir. 1989) (false representations include
“deceitful statements of half truths or the concealment of material
19
Of course, fraud claims must be based on misrepresentations of
material fact, not opinion. See Presidio Enters., Inc. v. Warner
Bros. Distrib. Corp., 784 F.2d 674, 678-79 (5th Cir. 1986) (civil
suit alleging common law fraud). Matthews contends that, even if
the Calumet business plan was false, it does not constitute fraud
because it was merely an expression of opinion. Defendants contend
First City was informed of Calumet’s cash flow problems, and
Matthews asserts the loan officers’ testimony reflects they felt
Matthews believed what he told First City during the pre-loan
period and they could not conclude he intentionally misled them.
Defendants maintain that, absent a duty to disclose, a fraud
conviction cannot be based on the failure to disclose information.
See Chiarella v. United States, 445 U.S. 222, 235 (1980).
Defendants contend there is no duty to disclose a customer’s
dealings with his banker; rather, the burden of disclosure is on
the banker. Further, they assert the omission of the owners’ names
on the Report of Mares Bred was consistent with Calumet’s
confidentiality policy for its customers.
The Government counters that: the bank, mail, and wire fraud
statutes do not require that there be a duty to disclose; the
scheme to defraud is a “departure from fundamental honesty, moral
uprightness, or fair play and candid dealings in the general life
facts”) (quoting United States v. Allen, 554 F.2d 398, 410 (10th
Cir.), cert. denied, 434 U.S. 836 (1977)); United States v. Walker,
871 F.2d 1298, 1308 (6th Cir. 1989) (statement containing half
truths or concealing material fact is false); United States v.
Sawyer, 799 F.2d 1494, 1502 (11th Cir. 1986), cert. denied, 479
U.S. 1069 (1987) (scheme to defraud includes false representations
or concealing material facts).
20
of the community”. United States v. Goldblatt, 813 F.2d 619, 624
(3d Cir. 1987); see also United States v. Curry, 681 F.2d 406, 410
(5th Cir. 1982). The Government also cites two cases from other
circuits which reaffirm the principle that the bank, mail, and wire
fraud statutes do not require a duty to disclose imposed by statute
or regulation. See Colton, 231 F.3d at 904; United States v.
Morris, 80 F.3d 1151, 1161 (7th Cir.), cert. denied, 519 U.S. 868
(1996).
As with the conspiracy charge, the evidence is more than
sufficient for bank fraud. For example, the request for
“confidentiality”, the representations during the pre-loan period
that Fox was an independent horse appraiser, Matthews’ promises to
sell horses during negotiations over the extension of more credit
to Calumet, and Matthews’ concealment of Calumet’s dealings with
Cihak are sufficient evidence for a rational juror to find, beyond
a reasonable doubt, concealment of material facts constituting
misrepresentations intending to deceive First City for the purpose
of obtaining money for Calumet. See Dupre, 117 F.3d at 819-20.
3.
A defendant makes a false statement to a financial
institution, violative of 18 U.S.C. § 1014, if he made a false
statement to influence in any way the actions of a financial
institution with regard to its lending activities. See United
States v. Blocker, 104 F.3d 720, 733 (5th Cir. 1997). Section 1014
applies to any false statement made to a financial institution
involving credit, not just statements made prior to and at the time
21
of funding. United States v. Kindig, 854 F.2d 703, 706 (5th Cir.
1988). Unlike the bank fraud statute, the false statement need not
be material; § 1014 proscribes a falsehood that influences, in any
way, the bank’s actions. See United States v. Wells, 519 U.S. 482
(1997).
The Government contends: the intentional concealment of
Matthews’ arrangement of the $1,105,000 tax deduction for Cihak
(NYE ‘88 transaction), including advising that an “individual”,
rather than Cihak, received $460,000 from Calumet in connection
with the NYE ‘88 transaction, was a false statement intending to
influence the bank’s lending activity; Cihak was instrumental in
approving the Calumet loan and overruling the decisions of the loan
officers; and concealing the benefits Matthews and Lundy provided
Cihak was essential to the continuation of their favorable
treatment because the bank might have fired Cihak had it known of
the benefits he received from Calumet, Matthews, and Lundy.
Matthews and Lundy contend: the omission was either not
intentional or not intended to deceive First City; the bank policy
required reporting by the banker, not the customer, of preferential
treatment; and not only was there no evidence that Matthews or
Lundy knew of this policy, but also there was no evidence that the
NYE ‘88 transaction constituted preferential treatment. Further,
Matthews’ response (using the term “individual”, instead of naming
Cihak) to First City’s inquiry about the Calument $460,000 loan
concerning the NYE ‘88 transaction was in a form commonly used by
CPAs, and as a lawyer, Matthews had a duty of confidentiality and
22
loyalty to Cihak as his client. Finally, because the transaction
was recorded (by equine industry standards), there was no evidence
Matthews or Lundy attempted to hide the transaction.
The evidence relating to the § 1014 charge is described
earlier. As with the evidence for bank fraud, there is sufficient
evidence for a rational juror to find, beyond a reasonable doubt,
that, in violation of 18 U.S.C. § 1014, Matthews and Lundy made
false statements to First City with the intent to influence it.
4.
Bank bribery, violative of 18 U.S.C. § 215, consists of
corruptly giving or promising something of value to, among others,
an officer or employee of a federally-insured financial institution
“with intent to influence or reward” him regarding bank business.
18 U.S.C. § 215(a). The Government contends: the $1,105,000 tax
benefit provided to Cihak (NYE ‘88 transaction) was a reward for
his involvement in increasing the Calumet loan, especially because
Cihak approved a $2.5 million increase shortly thereafter; and an
explicit promise was not required, because the jury could infer
Cihak accepted the benefit “knowing ... it was payment related to
his using his influence ... as specific opportunities arose”.
United States v. Coyne, 4 F.3d 100, 111 (2d Cir. 1993), cert.
denied, 510 U.S. 1095 (1994). Defendants respond that the evidence
did not reflect a corrupt intent, but rather the NYE ‘88
transaction was a legitimate business transaction financed in a tax
advantageous way and handled by a third-party attorney that was not
concealed.
23
The evidence was far more than sufficient for a rational juror
to find bank bribery beyond a reasonable doubt. Based on the
strong causal connection between the NYE ‘88 transaction and
Cihak’s increase in Calumet’s loan and the gift of the Secreto
season, a rational juror could find that Matthews and Lundy
provided Cihak with benefits with the intent of rewarding him for
favorable treatment on the Calumet loan.
B.
Defendants contest the jury instruction defining the 18 U.S.C.
§ 1014 crime of making a false statement to a financial
institution. Jury instructions are reviewed only for an abuse of
discretion. E.g., United States v. Pankhurst, 118 F.3d 345, 350
(5th Cir.), cert. denied, 522 U.S. 1030 (1997). At issue is
“whether the court's charge, as a whole, is a correct statement of
the law and whether it clearly instructs jurors as to the
principles of law applicable to the factual issues confronting
them”. United States v. McKinney, 53 F.3d 664, 676 (5th Cir.),
cert. denied, 516 U.S. 901, and cert. denied, 516 U.S. 903, and
cert. denied, 516 U.S. 970 (1995) (quoting United States v. Stacey,
896 F.2d 75, 77 (5th Cir. 1990)). The instruction read in part:
A person makes a false statement under this
statute if he fails to disclose material
information to a federally insured bank in
connection with a loan transaction.
Matthews and Lundy contend: the court erred by failing to
include language they claim is required by Dupre, 117 F.3d at 819,
and United States v. Trice, 823 F.2d 80, 86 (5th Cir. 1987)
(“section 1014 [may be violated by] the failure to disclose
24
material information needed to avoid deception in connection with
a loan transaction” (emphasis added)); and such omitted language
requires the jury to find an affirmative statement rendered
deceptive by concurrent omissions or an omission when there is a
duty to speak. Along this line, Defendants also base error on the
instructions failing to state that, as discussed supra, concerning
bank fraud, intentional omissions without a duty to disclose did
not constitute a false statement.
The Government first correctly observes that neither Defendant
objected to the omission of the phrase “needed to avoid deception”
nor suggested its inclusion. Second, the Government responds that
intentional omissions of material facts can constitute a violation
of § 1014.
Matthews and Lundy each made general objections to the
instruction, claiming intentional omissions without a duty to
disclose did not constitute a false statement. Indeed, Lundy’s
counsel even stated that the exact phrase now urged as correct did
not make a “good jury instruction[]”. Consequently, any issue
relating to the omission of the “needed to avoid deception” phrase
is reviewed only for plain error. E.g., United States v. Heath,
970 F.2d 1397, 1407 (5th Cir. 1992), cert. denied, 507 U.S. 1004
(1993); cf. United States v. Polasek, 162 F.3d 878, 883 (5th Cir.
1998).
Plain error occurs where a “clear” or “obvious” error affects
substantial rights. See United States v. Olano, 507 U.S. 725, 732-
35 (1993); United States v. Calverley, 37 F.3d 160, 162-64 (5th
25
Cir. 1994), cert. denied, 513 U.S. 1196 (1995). Even then, we have
discretion whether to correct the error and, generally, will not do
so unless it “seriously affect[s] the fairness, integrity or public
reputation of judicial proceedings”. Olano, 507 U.S. at 736
(internal quotation marks omitted).
Although both Dupre and Trice use the “need to avoid
deception” language, it is not “clear” or “obvious” that the
language was required in the instruction. In any event, the § 1014
instruction required finding Defendants intentionally failed to
disclose material information to a federally insured bank regarding
a loan transaction for the purpose of influencing its lending
activities, which is more than the statute requires. See 18 U.S.C.
§ 1014. There was no error, plain or otherwise.
With respect to Defendants’ remaining contentions concerning
the § 1014 instruction, and as discussed above, an intentional
omission of material fact can constitute a false statement if made
for the purpose of influencing a federally-insured bank’s lending
activities. Doke, 171 F.3d at 246 (intentional failure to disclose
defendant’s status as nominee in loan transaction); Dupre, 117 F.3d
at 819; United States v. Waldron, 53 F.3d 680, 682 n.4 (5th Cir.
1995) (rejecting literal truth defense because concealed fact
effected the loan transaction), vacated on other grounds, 516 U.S.
928 (1995).
The instruction, as a whole, is a correct statement of the
law. Consequently, the court did not abuse its discretion in its
§ 1014 false statements instruction.
26
C.
Matthews also contends the district court erred in failing to
instruct on the defensive theory of good faith. Again, we review
for abuse of discretion. Not giving a requested instruction is an
abuse of discretion if: the requested instruction was
substantially correct; it was not substantially covered in the
charge given; and the refusal impaired the defendant’s right to a
fair trial. E.g., United States v. Webster, 162 F.3d 308 (5th Cir.
1998), cert. denied, 528 U.S. 829 (1999).
Matthews asserts: good faith is a complete defense to charged
intent to defraud; the court’s instruction on “knowingly” did not
substantially cover what was requested in his good faith
instruction; and a defendant is entitled to an instruction on as
many defensive theories as are raised by the evidence. The
Government responds: a good faith instruction is not required if
the jury is instructed properly on the elements of an offense,
including the requisite mental state; the given instructions
“fairly and adequately” covered the good faith issue, United States
v. Daniels, 247 F.3d 598, 601 (5th Cir.), cert. denied, 122 S. Ct.
288 (2001); and throughout the trial, Matthews presented the good
faith defense to the jury.
There was no abuse of discretion. The instructions
substantially covered the requested instruction by defining and/or
explaining the following terms: “knowingly” (conspiracy, bank
fraud, false statements), “willfully” (conspiracy), “corruptly”
(bank bribery), and “material” and “purpose of influencing” (false
27
statements). Further, Matthews was fully able to present his
defense to the jury during his cross-examination of First City’s
loan officers and his closing argument. See United States v.
Chaney, 964 F.2d 437, 445-46 (5th Cir. 1992) (citing United States
v. Rochester, 898 F.2d 971, 978 (5th Cir. 1990)) (no abuse of
discretion when jury instructed as to the terms “knowingly” and
“intent to defraud” and defendant able to argue good faith before
jury).
D.
Matthews bases error on the admission of Cihak’s banking
policy violations. We review for abuse of discretion. United
States v. Harvard, 103 F.3d 412, 422 (5th Cir.), cert. denied, 522
U.S. 824 (1997); see FED. R. EVID. 103.
Matthews states correctly that violation of a civil regulation
cannot be used to establish criminal conduct. See United States v.
Christo, 614 F.2d 486 (5th Cir. 1980). On the other hand, he fails
to address the fact that evidence of such violations is admissible
to show motive or intent. Harvard, 103 F.3d at 422; United States
v. Parks, 68 F.3d 860, 866-67 (5th Cir. 1995), cert. denied, 516
U.S. 1098, and cert. denied, 516 U.S. 1133, and cert. denied, 516
U.S. 1151 (1996).
The court did not abuse its discretion by admitting evidence
of Cihak’s banking policy violations. The evidence concerning
First City’s policies prohibiting its officers from entering into
certain business relationships with borrowers was offered to show
Matthews’ and Lundy’s motive for concealing from First City their
28
various deals with, and benefits to, Cihak. Furthermore, the court
gave a cautionary instruction regarding bank policies to prevent
“bootstrapping” policy violations into a conviction. United States
v. Cordell, 912 F.2d 769, 777 (5th Cir. 1990).
E.
Lundy challenges the district court’s allowing testimony by
his former wife, Lucille Drinkwater, about her confidential
communications with him. Again, the admission of evidence is
reviewed for abuse of discretion.
There are two distinct aspects of the marital privilege: one
spouse cannot be compelled to testify against the other; and a
spouse cannot testify about confidential communications made during
the marriage. United States v. Ramiriz, 145 F.3d 345, 355 (5th
Cir. 1998). The first aspect ends on termination of the marriage.
United States v. Crockett, 534 F.2d 589, 604 n.17 (5th Cir. 1976).
Lundy and Drinkwater divorced in 1993, long before trial.
Therefore, he can only contest testimony about confidential
communications.
The privilege “extends only to utterances, and not to acts”.
Pereira v. United States, 347 U.S. 1, 6 (1954). Drinkwater’s
testimony regarding whether she signed the $5.2 million loan did
not involve any confidential communication, so any objection by
Lundy as to that testimony is meritless.
In addition, Drinkwater was questioned about her prior
inconsistent grand jury testimony concerning statements by Lundy.
The court properly noted such testimony was introduced to impeach
29
Drinkwater rather than as substantive evidence. There was no abuse
of discretion in admitting prior grand jury testimony for that
purpose. See FED R. EVID. 801(d)(1); see also, e.g., Howard v.
Gonzales, 658 F.2d 352, 356 (5th Cir. Unit A 1981).
III.
The evidence was more than sufficient for a rational juror to
find, beyond a reasonable doubt, that Defendants were guilty of
conspiracy, bank fraud and bribery, and making false statements to
a bank. Regarding the challenged jury instructions, the court did
not err in giving the one on false statements and in refusing the
one on good faith. Finally, it did not abuse its discretion in
admitting evidence concerning banking policy violations and claimed
marital communications. Therefore, the judgment is
AFFIRMED.
30