United States v. Grady Davis

Case: 12-20443 Document: 00512346239 Page: 1 Date Filed: 08/19/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 19, 2013
No. 12-20443 Lyle W. Cayce
Clerk
UNITED STATES OF AMERICA,
Plaintiff–Appellee
v.
GRADY DAVIS,
Defendant–Appellant
Appeal from the United States District Court
for the Southern District of Texas
Before ELROD and HIGGINSON, Circuit Judges, and MARTINEZ, District
Judge.*
HIGGINSON, Circuit Judge:
Defendant–Appellant Grady Davis was charged with one count of
conspiracy to commit bank fraud and with six counts of the substantive offense
of, and aiding and abetting in, bank fraud. The charges arose from Davis’s
alleged participation in a scheme to fraudulently obtain funds by straw credit
card purchases. After a four-day trial, a jury acquitted Davis of the conspiracy
*
District Judge of the Western District of Texas, sitting by designation.
Case: 12-20443 Document: 00512346239 Page: 2 Date Filed: 08/19/2013
No. 12-20443
count but found him guilty of each of the six bank-fraud counts. On appeal,
Davis challenges, among other things, the sufficiency of the evidence
undergirding the “financial institution” element of each of the bank-fraud crimes
of conviction. Because we hold that the government did not support with
sufficient proof the essential financial-institution element of the bank-fraud
counts charged in the indictment, we REVERSE Davis’s convictions and
REMAND for further proceedings in accordance with this opinion.
FACTS AND PROCEEDINGS
Counts Two through Seven of the indictment all charge that between
approximately June 2008 and March 2010, Davis and his co-defendants, Gentry
Wilson and Igor Dukhin,
aiding and abetting each other, did knowingly execute and attempt
to execute a scheme and artifice to defraud American Express
Company, which is a depository institution holding company as
defined in section 3(w)(1) of the Federal Deposit Insurance Act . . . .
(Emphasis added). Wilson and Dukhin struck plea deals, under which each
agreed to plead guilty to the conspiracy charge in Count One of the indictment
and to cooperate with the government. Davis entered a not-guilty plea, and
went to trial.
At trial, the government introduced evidence that Davis played the central
role of the “collusive merchant” in a “credit card bust-out scheme” in which Davis
charged Wilson and Dukhin’s fraudulently-obtained credit card for fictitious
retail transactions. The three parties shared the reimbursement Davis
subsequently received from the credit card company. Specifically, Dukhin
testified that he and Wilson, looking to generate cash for a potential business
venture, decided to obtain a high-limit corporate American Express credit card.
2
Case: 12-20443 Document: 00512346239 Page: 3 Date Filed: 08/19/2013
No. 12-20443
They purchased a shell corporation, which they renamed Applied Interests &
Energy Development (“AIED”). They drafted and submitted an application on
behalf of AIED for an American Express credit card, which American Express
approved.
To extract cash from the card, Dukhin and Wilson enlisted Davis, who
operated a luxury car dealership, to charge the card for fictitious purchases and,
in exchange for a percentage of the proceeds, to wire the funds American
Express provided. According to Dukhin, Davis negotiated to retain ten percent
of the sums he transmitted and convinced his counterparts to charge a total of
at least $1.2 million, a sum Davis believed would give him a sufficient return to
make his effort worthwhile. The three men also agreed to mask their purchases
as sales of tractor-trailer trucks for use in AIED’s fictionalized petroleum
operations. Before American Express put a stop to their enterprise, Wilson,
Dukhin, and Davis had incurred over $621,000 in charges.
Most relevant for our purposes, the government called the lead
investigating agent in the case, U.S. Secret Service Special Agent Christina
Foley, to the stand. The district court permitted the government to elicit
testimony from Foley concerning the structure of the victim financial institution,
overruling Davis’s objection “for lack of foundation and hearsay.” The relevant
sequence follows:
Q [prosecutor]. Now, we typically think of American Express as just
a credit card company. How is it that American Express is also a
bank?
....
[A Foley.] American Express is an FDIC-insured bank. So,
American Express is their own banking institution; and they also
have the credit card side of the house, as well. So, they are kind of
two entities under one American Express.
3
Case: 12-20443 Document: 00512346239 Page: 4 Date Filed: 08/19/2013
No. 12-20443
Q. And in this particular scheme, was American Express the victim
bank?
A. Yes.
Q. You mentioned earlier that American Express was an FDIC
institution. I would like to bring to your attention Government’s
Exhibit 1.
Do you recognize this document?
A. Yes, ma’am.
Q. What is it?
A. It is the certificate that shows that American Express is FDIC
insured.
Q. And did you obtain this document in conjunction with your
investigation?
A. Yes, I did.
Q. Now, the whole idea of whether a bank is an FDIC institution,
would it be fair to say either a bank is an FDIC intuition [sic] or it
is not; is that correct?
A. Yes, that is correct.
Q. There’s really no middle ground. So, it either is or isn’t?
A. That is correct.
Q. And in this case American Express is an FDIC institution,
correct?
A. Yes. That’s why they were able to be able to produce the
certification showing this.
Government’s Exhibit One, referenced in the exchange, is a Federal Deposit
Insurance Corporation (“FDIC”) certificate for an entity named American
Express Centurion Bank (“AECB”) that is dated July 1, 1996.1
After the government rested its case, Davis moved under Federal Rule of
Criminal Procedure 29 for a judgment of acquittal, arguing that the government
did not sustain its burden of proving “each element of each count.” The district
1
Notably, the government called American Express Company fraud investigator
Nicholas Bravos to the stand, but the parties did not elicit any testimony directly relevant to
the indictment’s charge that American Express Company is a depository institution holding
company.
4
Case: 12-20443 Document: 00512346239 Page: 5 Date Filed: 08/19/2013
No. 12-20443
court denied the motion without comment. The defense then rested and did not
call any witnesses. In closing argument, the government did not infer from the
proof supplied any depository institution holding company relationship in
addressing the financial-institution element of the bank-fraud counts. Instead,
the government argued that AECB’s FDIC-insurance certificate and the witness
testimony described provided sufficient evidence to prove the financial-
institution element.
In its jury charge on the substantive bank-fraud counts, the district court
first repeated the language in Counts Two through Seven of the indictment,
including that the defendants “did knowingly execute and attempt to execute a
scheme and artifice to defraud American Express Company, which is a
depository institution holding company as defined in section 3(w)(1) of the
Federal Deposit Insurance Act . . . .” Apparently adapting the pattern jury
instruction to delineate the obligatory elements of the bank-fraud offenses,
however, see Fifth Circuit Pattern Jury Instructions (Criminal Cases) 2.61
(2012), the district court did not reiterate the indictment’s depository holding
company theory but instead specified an unindicted, alternative version of the
financial-institution element. It informed the jury that to convict Davis it “must
be convinced that the Government has proved for each count under consideration
. . . beyond a reasonable doubt . . . [t]hat AMEX [defined earlier by the district
court to stand for ‘American Express Company’] was insured by the Federal
Deposit Insurance Corporation.”
As described, the jury found Davis not guilty of the conspiracy count.
However, it returned a verdict of guilty for each of the bank-fraud offenses in
Counts Two through Seven of the indictment. Following trial, Davis filed a
renewed motion for a judgment of acquittal, arguing that the government did not
5
Case: 12-20443 Document: 00512346239 Page: 6 Date Filed: 08/19/2013
No. 12-20443
offer proof that “American Express Company” was a depository institution
holding company as the indictment charged. The district court denied the
motion. At sentencing, the district court imposed sentences of fifty-seven
months of imprisonment and three years of supervised release for each of Counts
Two through Seven, to be served concurrently. The district court also found
Davis jointly and severally liable with Dukhin for $421,997 in restitution to
American Express. Davis timely appealed. See FED. R. APP. P. 4(b).
Davis’s principal argument on appeal is that the government’s proof of the
financial-institution element of the bank-fraud counts, largely in the form of
Agent Foley’s testimony, was insufficient to support his convictions. He urges
this court to reverse his convictions and to remand to the district court to enter
a judgment of acquittal on Counts Two through Seven.
STANDARD OF REVIEW
When a defendant has timely moved for a judgment of acquittal, we review
challenges to the sufficiency of the evidence de novo. United States v. Winkler,
639 F.3d 692, 696 (5th Cir. 2011) (citation omitted); see United States v.
Resio–Trejo, 45 F.3d 907, 910 n.6 (5th Cir. 1995). Even when examined de novo,
“review of the sufficiency of the evidence is highly deferential to the verdict.”
United States v. Moreno–Gonzalez, 662 F.3d 369, 372 (5th Cir. 2011) (internal
quotation marks and citation omitted). “Viewing the evidence in the light most
favorable to the government, we must determine whether any rational jury could
conclude from the evidence presented at trial that the government had proven
all of the elements of the offense beyond a reasonable doubt.” United States v.
Carbajal, 290 F.3d 277, 289 (5th Cir. 2002) (citation omitted). Our de novo
review, imbued as it is with deference, nonetheless necessarily requires us to
consider trial evidence that countervails the jury’s verdict, and allows us to
6
Case: 12-20443 Document: 00512346239 Page: 7 Date Filed: 08/19/2013
No. 12-20443
“draw upon only reasonable inferences from the evidence to support the verdict.”
United States v. Moreland, 665 F.3d 137, 149 (5th Cir. 2011) (internal quotation
marks and citation omitted).
DISCUSSION
“[T]he Due Process Clause protects the accused against conviction except
upon proof beyond a reasonable doubt of every fact necessary to constitute the
crime with which he is charged.” In re Winship, 397 U.S. 358, 364 (1970). The
bank-fraud statute, 18 U.S.C. § 1344, punishes
[w]hoever knowingly executes, or attempts to execute, a scheme or
artifice—(1) to defraud a financial institution; or (2) to obtain any of
the moneys . . . owned by, or under the custody or control of, a
financial institution, by means of false or fraudulent pretenses,
representations, or promises . . . .
18 U.S.C. § 1344 (emphases added); see United States v. McCauley, 253 F.3d 815,
819 (5th Cir. 2001). That the victim must be a statutorily defined financial
institution, we have held, is “not only an essential element of the bank fraud
crime, but . . . also necessary for the establishment of federal jurisdiction.” See
United States v. Sanders, 343 F.3d 511, 516 (5th Cir. 2003) (citations omitted);
Fifth Circuit Pattern Jury Instructions (Criminal Cases) 2.61 (2012).
Davis urges that the government offered no proof on which a rational jury
could find beyond a reasonable doubt that the government proved the financial-
institution element the indictment charged in this case, namely that “American
Express Company . . . is a depository institution holding company . . . . ” The
government maintains that it adequately proved fraud on American Express
Company under a depository institution holding company rationale.2
2
The government does not contest that Davis timely and adequately objected so that
a de novo standard of review applies. See Resio–Trejo, 45 F.3d at 910 n.6.
7
Case: 12-20443 Document: 00512346239 Page: 8 Date Filed: 08/19/2013
No. 12-20443
In addressing Davis’s challenge to the sufficiency of the evidence on the
financial-institution element, we set foot on well-trodden terrain. This court has
admonished the government to exercise care in satisfying its burden of proving
the financial-institution element in prosecuting bank fraud and other bank-
related offenses, lest it suffer a reversed conviction on a seeming technicality.
See United States v. Guerrero, 169 F.3d 933, 944 (5th Cir. 1999); United States
v. Schultz, 17 F.3d 723, 727–28 & n.11 (5th Cir. 1994); United States v. Trevino,
720 F.2d 395, 400 (5th Cir. 1983); United States v. Platenburg, 657 F.2d 797, 799
(5th Cir. Unit A Oct. 1981) (“[P]rosecutors have been extremely lax in the
treatment accorded this element.”); United States v. Maner, 611 F.2d 107, 112
(5th Cir. 1980) (“Hopefully the Attorney General will sense and remedy this
national deficiency by directions pointing out the simple ways to prove this
simple but indispensable fact.”). We summon these exhortations once more as
we compare the proof the law requires with the evidence the government
presented the jury in this case.
As the indictment incorporates, a “financial institution” may be, among
other things, “a depository institution holding company (as defined in section
3(w)(1) of the Federal Deposit Insurance Act [(‘FDIA’)].” 18 U.S.C. § 20(6). The
FDIA in turn provides that a “‘depository institution holding company’ means a
bank holding company or a savings and loan holding company.” 12 U.S.C. §
1813(w)(1). The FDIA incorporates by reference the definition of “bank holding
company” as “any company which has control over any bank or over any
company that is or becomes a bank holding company by virtue of this chapter.”
Id. § 1841(a)(1); see id. § 1813(w)(2). Thus, as the government agrees on appeal,
in the context of this case, a depository institution holding company is a
company that itself “has control over any bank,” id. § 1841(a)(1).
8
Case: 12-20443 Document: 00512346239 Page: 9 Date Filed: 08/19/2013
No. 12-20443
As the government also references, federal law delineates three ways a
bank holding company may “control” a bank:
(A) the company directly or indirectly or acting through one or more
other persons owns, controls, or has power to vote 25 per centum or
more of any class of voting securities of the bank or company;
(B) the company controls in any manner the election of a majority
of the directors or trustees of the bank or company; or
(C) the Board determines, after notice and opportunity for hearing,
that the company directly or indirectly exercises a controlling
influence over the management or policies of the bank or company.
Id. § 1841(a)(2).
The government acknowledged at oral argument that no witness at trial
described or spoke of a “depository institution holding company,” and none
described the coordinate statutory requirements outlined above. Still, the
government argues that it introduced sufficient evidence to permit the jury to
find “that American Express Company was a bank holding company and that the
bank it held was [AECB].” It states that it offered proof that American Express
Company is a company that holds a bank, in the form of Agent Foley’s testimony
that
American Express is an FDIC-insured bank. So American Express
is their own banking institution; and they also have the credit card
side of the house, as well. So, they are kind of two entities under
one American Express.
The government specifies that it also offered proof that AECB is a bank by
providing the 1996 certificate of FDIC insurance for AECB. Agent Foley
answered affirmatively the government’s question, “And in this particular
9
Case: 12-20443 Document: 00512346239 Page: 10 Date Filed: 08/19/2013
No. 12-20443
scheme, was American Express the victim bank?” The government highlights
that Davis did not cross examine Foley on this portion of her testimony.3
That evidence arguably may tend to show that “American Express” (read:
American Express Company) was the victim of the offense and conducted
business related to banking, and that AECB was a bank. It perhaps could be
read by a reasonable jury to find that American Express Company had a
relationship to AECB. It does not demonstrate, however, that American Express
Company controlled AECB. Foley’s testimony, viewed to favor the verdict, does
not mention AECB or American Express Company by name, let alone evidence
the entities’ relative positions within the greater American Express corporate
structure. There was no mention at trial of a third entity, American Express
Travel Related Services, which the government admits is the intermediary
through which American Express Company actually owns AECB. Rather than
depicting American Express Company’s vertical relationship of control over
3
We do not address Davis’s additional challenge to the foundation of personal
knowledge offered for Agent Foley’s testimony at trial about American Express’s corporate
structure. We assume arguendo that her testimony was properly admitted and determine that
the government nonetheless offered insufficient proof on the financial-institution element of
the bank-fraud crimes. Nor need we decide Davis’s alternative argument that the district
court impermissibly constructively amended the indictment by allowing proof of an alternate
theory of the financial-institution element. See United States v. Jara–Favela, 686 F.3d 289,
299 (5th Cir. 2012) (“A constructive amendment may occur when the trial court through its
instructions and facts it permits in evidence, allows proof of an essential element of the crime
on an alternative basis provided by the statute but not charged in the indictment.”) (internal
quotation marks and citation omitted). Significantly, the government does not defend that it
presented sufficient evidence of any alternative, constructively amended theory, see United
States v. Mize (Mize I), 756 F.2d 353, 355–57 & n.7 (5th Cir. 1985) (allowing retrial on remand
where the government’s proof of the amended theory was sufficient), abrogated on other
grounds as recognized by United States v. Dixon, 273 F.3d 636, 639 n.1 (5th Cir. 2001); United
States v. Mize (Mize II), 820 F.2d 118, 120 (5th Cir. 1987) (describing the holding in Mize I),
urging instead that it proved the crime as charged in the indictment.
10
Case: 12-20443 Document: 00512346239 Page: 11 Date Filed: 08/19/2013
No. 12-20443
AECB, Foley’s testimony appears to posit “two entities” in a horizontal
relationship, as different “side[s] of the house.”
In Schultz, 17 F.3d at 724, we reviewed bank-fraud and related bank-
offense convictions in which the indictment charged that the victim, Texas
Commerce Bank–Sugar Land (“TCB–Sugar Land”), was an FDIC-insured
institution. The proof the government offered at trial, however, was the FDIC
insurance certificate of another bank, TCB–National Association, and the
testimony of TCB–Sugar Land officers vaguely referencing the fact that their
bank was under the control of other Texas Commerce Banks. Id. at 725–26.
This court rejected the government’s argument that the evidence well proved
that TCB–Sugar Land was FDIC insured by virtue of TCB–National
Association’s policy, noting that both the FDIC certificate’s restrictions and
Texas law limits on branch banking made that theory of umbrella insurance
coverage unlikely. Id. at 726–27. The court observed that “[a]lthough we agree
that the Government proved that TCB–Sugar Land was, in some way, related
to TCB–Stafford, TCB–Houston, and to a larger, but nebulous, Texas Commerce
Bank organization, we find that the Government failed to prove that TCB–Sugar
Land was insured by the FDIC—whether under TCB–National Association’s
policy or otherwise.” Id. at 726; see also United States v. Alexander, 679 F.3d
721, 727–28 (8th Cir. 2012) (citing Schultz, reaching a similar result with regard
to Bank of America entities, and vacating the defendant’s convictions for making
false statements for the purpose of influencing an FDIC-insured financial
institution). An analogous lack of clarity characterizes the evidence presented
here. The trial testimony and exhibits do not address each relevant American
Express entity’s distinct corporate identity, nor does the evidence depict the
entities’ inter-relationship in anything other than oblique and inscrutable terms.
11
Case: 12-20443 Document: 00512346239 Page: 12 Date Filed: 08/19/2013
No. 12-20443
Such evidence, lacking in descriptive detail, was insufficient in Schultz, and we
find it similarly inadequate here.
The government additionally points to its Exhibit Five, AIED’s credit card
account statements, which bear the American Express logo and name. Those
statements do not, however, provide insight into the controlling relationship or
corporate structure of the relevant entities. Cf. Schultz, 17 F.3d at 726 n.7 (“An
FDIC logo on a check no more proves beyond a reasonable doubt that the bank
in question has FDIC insurance than a National Basketball Association logo on
a jacket proves that its wearer is a professional basketball player.”).
The government finally cites other courts’ descriptions, in civil suits
raising unrelated claims, of American Express’s corporate structure. See, e.g.,
Homa v. Am. Express Co., 558 F.3d 225, 226 (3d Cir. 2009) (describing AECB as
a bank incorporated in Utah that issues American Express credit cards and
explaining that American Express Company, a New York corporation, is AECB’s
ultimate parent), abrogated on other grounds as recognized by Litman v. Cellco
P’ship, 655 F.3d 225, 230 (3d Cir. 2011); Aneke v. Am. Express Travel Related
Servs., Inc., 841 F. Supp. 2d 368, 370 n.2 (D.D.C. 2012). The government cannot
carry its burden in this case by assuring us that other litigants, in other trial
courts, in other legal contexts, have introduced the requisite evidence. See
Trevino, 720 F.2d at 398; United States v. Reasor, 418 F.3d 466, 474 (5th Cir.
2005).
Reversal may be required even though the government might have
discharged its burden of proof with relative ease. See Schultz, 17 F.3d at 727(vacating bank-fraud convictions even though the government might have
elicited the lacking evidence from bank officials who provided other testimony
at trial); Platenburg, 657 F.2d at 799 (reversing a conviction and noting that this
12
Case: 12-20443 Document: 00512346239 Page: 13 Date Filed: 08/19/2013
No. 12-20443
court in Maner, 611 F.2d at 112, had previously “suggest[ed] a very simple and
easy method of proving this element”). That fact cannot lessen the constitutional
infirmity we are called to address. See In re Winship, 397 U.S. at 364.
We conclude that the government’s evidence was not sufficient to prove a
depository institution holding company theory of the financial-institution
element. At bottom, to convict Davis on such a theory, a factfinder would be
forced to strain the trial evidence beyond the limits even our justly deferential
review of jury verdicts permits. We do not reach this conclusion lightly,
particularly given the government’s strong proof as to Davis’s conduct relating
to other of the elements of the bank-fraud offenses. We can only note, as we
have previously, that greater attention to this issue at trial would advance the
efficient and fair administration of criminal justice.4
CONCLUSION
We hold that the government did not offer evidence sufficient for any
reasonable jury to find beyond a reasonable doubt that American Express
Company was a depository institution holding company, hence we REVERSE
and REMAND for further proceedings in accordance with this opinion.5
4
Indeed, in this case, inattention arguably led to further infirmity when the
government in closing argument and the district court in the jury instructions referred to an
uncharged theory of the financial-institution element.
5
Our decision, resting as it does on insufficiency of the evidence, “compels dismissal
of” the bank-fraud counts on remand, “not just remand for a new trial with better evidence.”
Trevino, 720 F.3d at 401; see Burks v. United States, 437 U.S. 1, 10–11, 16–18 (1978).
13