Duffy, Schnackenberg, and Major, Circuit Judges.
Defendant was charged in a four-count indictment with violations of Title 18 U.S.C.A. Secs. 657 and 1006. Counts I and III alleged violations of Sec. 657, and Counts II and IV, violations of Sec. 1006. The allegations of Counts I and II relate to defendant's act in obtaining, on April 3, 1963, a rent prepayment from Beverly Savings and Loan Association (sometimes hereinafter referred to as Beverly) in the amount of $553,166.66. The matters referred to in Counts III and IV relate to a separate but distinct act of defendant in the presentation, on July 8, 1963, of a check drawn on Industry Capital Corporation in the amount of $95,000, in exchange for an accommodation check drawn by Beverly in the same amount. After a trial by a jury which found defendant guilty on all four counts, the Court, on January 18, 1965, committed defendant to the custody of the Attorney General for imprisonment for a period of three years on each count, the sentences on Counts II, III and IV to run concurrently with each other and with that imposed on Count I. From this judgment the appeal comes to this Court.
The numerous grounds relied upon for reversal may be generally stated as follows: (1) that the counts of the indictment and each of them did not allege facts sufficient to state an offense under the statutes involved; (2) that Sec. 1006 was not intended by Congress to pyramid crimes by making "participation" in the proceeds of a "misapplication" (direct conversion) by the same defendant to his own use an offense; (3) that Count IV of the indictment is insufficient to allege an offense under Sec. 1006, when no "transaction of" the association is alleged; (4) that the Court abused its discretion under Rule 14 by its refusal to grant a motion to sever Counts I and II from Counts III and IV for separate trials; (5) that the Court committed prejudicial error by failing to grant defendant's motion to compel the government to elect to proceed on either Count I or II and on either Count III or IV; (6) that the Court erred in failing to grant defendant's motion for a judgment of acquittal as to each count, and (7) that defendant was denied a fair trial because of prejudicial trial errors and improper instructions to the jury.
It is evident that the errors thus assigned in the main involve questions of law. Such being the situation, we discern no reason at this point to make a detailed statement of the evidence relied upon by the government in support of the judgment. Even so, it may be pertinent -- at least informative -- to identify the companies and persons associated with Beverly who were witnesses.
Beverly was a state chartered savings and loan association which began doing business about 1955, at 2138 W. 95th Street, Chicago. Defendant first became associated with Beverly in August 1958, when he became its president. His association with Beverly continued until October 1, 1963. He was engaged in numerous business concerns, including Quinn Management Company, Quinn Home Builders, Quinn Insurance, Beverly Terrace Subdivision, Farrell Manufacturing Company, Industry Capital Corporation and Lakewood Farms Development. Quinn Management Company was a sole proprietorship owned by defendant. Quinn Home Builders was a corporation which dealt in residential and industrial construction. Defendant and his wife were the shareholders of that corporation. Industry Capital Corporation was a small business investment corporation in which defendant owned all the shares in 1963.
Joseph Geisen, an accountant, became associated with Beverly in 1960. He was president and chief executive officer from April 1961 to August 15, 1963, when he resigned. He was also a director. Allan M. Douglass was a Beverly director for four years, up to and including 1963. Gerald S. Ahern, an accountant, was treasurer for Beverly from March until June 17, 1963, when he voluntarily resigned. Marian Lana was employed as secretary for Beverly, and attended and prepared typewritten minutes of meetings of its board of directors. Philip Roberson was employed by defendant to act as office manager and accountant for Beverly and other Quinn interests.
Each count of the indictment contains the identical preliminary allegations (hereinafter referred to as such) that the defendant "being a Director of the Beverly Savings and Loan Association, Chicago, Illinois, a savings and loan association, the accounts of which were then insured by the Federal Savings and Loan Insurance Corporation, [is charged] with intent to defraud the said Beverly Savings and Loan Association * * *," followed by a description of the alleged offense. Both Counts I and II are predicated upon the same act, that is, the alleged prepayment of rent on April 3, 1963. Count I charges a violation of Sec. 657, and Count II, a violation of Sec. 1006. Counts III and IV are also based on the same act, that is, that on July 8, 1963, defendant caused to be unlawfully disbursed monies of Beverly in the amount of $95,000. Count III charges a violation of Sec. 657, and Count IV, a violation of Sec. 1006.*fn1
In addition to the preliminary allegations, Count I insofar as pertinent alleges:
"* * * defendant * * * did unlawfully and wilfully misapply and cause to be misapplied monies * * * belonging to * * * said Beverly * * * in the amount of $553,166.66 by fraudulently causing to be disbursed by Beverly * * * and converting to his own personal use * * * a Beverly * * * check No. 2174, dated April 3, 1963, in the amount of $553,166.66 made payable to * * * Quinn Management Company, which sum of $553,166.66 purportedly represented a four year prepayment of rent by Beverly * * * to Quinn Management Company, and which disbursement defendant * * * well knew was made without knowledge, consent and approval of the Board of Directors of said Beverly * * * in violation of Section 657 * * *."
Defendant's principal attack on this count is that the allegation of misapplication in itself is not sufficient. This contention overlooks the further allegation that the funds misapplied were converted to the defendant's own personal use which, in our view, removes the case from the ambit of those relied upon by defendant. The principal case relied upon, which defendant characterizes as a "landmark decision," is United States v. Britton, 107 U.S. 655, 2 S. Ct. 512, 27 L. Ed. 520, decided under a former statute having to do with the misapplication by officers of national banks. The Court in that case was considering an indictment which contained 119 counts. Some were held sufficient, others insufficient, to charge an offense. The statement emphasized here by defendant was made with reference to Count 37 and those similar to it, concerning which the Court stated (page 669, 2 S. Ct. page 524):
"The words 'willfully misapplied' are, so far as we know, new in statutes creating offenses, and they are not used in describing any offense at common law. They have no settled technical meaning like the word 'embezzle,' as used in the statutes, or the words 'steal, take, and carry away,' as used at common law. They do not, therefore, of themselves fully and clearly set forth every element of the offense charged. It would not be sufficient simply to aver that the defendant 'willfully misapplied' the funds of the association. This is well settled by the authorities we have already cited. There must be averments to show how the application was made and that it was an unlawful one."
We think the Court held no more than that the mere averment, "willfully misapplied," was not sufficient but that there must be further averments that "the application was made and that it was an unlawful one." In the instant case, not only was misapplication of funds alleged but, further, that they were "converted" to defendant's own personal use. That this allegation remedied the deficiency of which the Court in Britton spoke is shown by its statement with reference to Count 77 and a group of similar counts (page 666, 2 S. Ct. page 522):
"We think the willful misapplication made an offense by this statute means a misapplication for the use, benefit, or gain of the party charged, or of some company or person other than the association. Therefore, to constitute the offense of willful misapplication, there must be a conversion to his own use or the use of some one else of the moneys and funds of the association by the party charged. This essential element of the offense is not averred in the counts under consideration * * *."
In a situation somewhat analogous, United States v. Meyer, 5 Cir., 266 F.2d 747, 754, the Court made a pertinent comment on the holding in Britton. In Mulloney et al. v. United States, 1 Cir., 79 F.2d 566, the Court sustained the sufficiency of a charge that a bank official willfully misapplied funds of the bank. In so doing it cited a number of cases, including Britton, and concluded (page 581) that it was a sufficient description of the offense "to allege that the respondent was an officer of a national banking association, and that he willfully misapplied funds of the association by converting them to his own or the use of some other person, coupled with a statement as to how the conversion was done and with the further allegation that it was done with intent to injure or defraud the association."
As to the means and method of the misapplication, defendant was informed that he fraudulently caused to be disbursed by Beverly a check issued on a certain day and in a certain amount, payable to a third party, and that he converted the proceeds thereof to his own use with intent to defraud. In this connection we think it should be noted that the allegation, "without knowledge, consent and approval of the Board of Directors of said Beverly," is not an element of the offense set forth in Sec. 657. Mulloney v. United States, 79 F.2d 566, 581; Flickinger v. United States, 6 Cir., 150 F. 1, 4; United States v. Eno, C.C., 56 F. 218, 220. The allegation is surplusage and may be rejected. Ford v. United States, 273 U.S. 593, 602, 47 S. Ct. 531, 71 L. Ed. 793. Testimony on the issue, however, was relevant inasmuch as it bore upon the issue of defendant's alleged intent to defraud.
We hold that the facts alleged in Count I are sufficient to state an offense under Sec. 657.
We now consider Count III inasmuch as it, like Count I, is based upon Sec. 657. In addition to the preliminary allegations, it alleges:
"* * * defendant * * * did unlawfully and willfully misapply and cause to be misapplied monies, funds and credits belonging to and entrusted to the care and custody of said Beverly Savings and Loan Association in the amount of $95,000.00 by fraudulently causing to be disbursed by Beverly Savings and Loan Association and converting same to his own personal use, benefit and advantage a Beverly Savings and Loan Association Check No. A-9272, dated July 8, 1963, in the amount of $95,000.00, payable to the order of Lakewood Farms in exchange for a certain check, in the amount of $95,000.00, dated July 8, 1963, made payable to Beverly Savings and Loan Association, and drawn on the account of Industry Capital Corporation at the Lake Shore National Bank, Chicago, Illinois, well knowing that said account of Industry Capital Corporation did not then and there contain sufficient funds to cover payment of said check; in violation of Section 657, Title 18, United States Code."
In short, defendant utilized a check of Industry Capital which he knew to be worthless, and in exchange therefor caused Beverly to issue its check to Lakewood Farms, the proceeds of which he converted to his own use. Defendant argues that this count charges nothing more than the passing of a bad check, which does not constitute a misapplication within the meaning of Sec. 657. Cited in support of this argument is United States v. Wiggenhorn, 9 Cir., 312 F.2d 289, 292. True, in that case the Court affirmed an order by the District Court dismissing the indictment as being insufficient. This case, however, like those discussed in relation to Count I, is distinguishable by the fact that the indictment contained no allegation "that any of the moneys, funds or credits of the bank were converted to the ...