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United States v. Shively

decided: August 8, 1983.


Appeals from the United States District Court for the Southern District of Illinois, Benton Division. No. 82 CR 40005 -- James L. Foreman, Judge.

Cudahy and Posner, Circuit Judges, and Max Rosenn, Senior Circuit Judge.*fn*

Author: Posner

POSNER, Circuit Judge.

Messrs. Shively and Pardee were convicted of bank fraud and appeal on a variety of substantive and procedural grounds.

Shively was the president of the First National Bank of Marshall, Illinois, a small country bank. His troubles began when he bought (from the chairman of the board of the bank) a lot on which to build a house for himself. He entered into an oral agreement with a contractor to build the house for $80,000 and got a commitment from another bank for a $64,000 mortgage. The commitment enabled him to get interim financing. But in the course of construction it became clear that the house would cost much more than expected, and though Shively was able to get the mortgage commitment raised to $80,000 he came up $20,000 short on being able to finance the construction. Unable to obtain additional loans from any bank or other financial institution, Shively turned to Pardee, a partner in a firm called Design Plus which was doing some work for Shively's bank. Shively asked Pardee to make him either a personal loan for $20,000 or a loan from Design Plus for this amount. When Pardee refused, Shively asked him whether he would borrow $20,000 from the bank and relend it to him. Pardee agreed and Shively prepared a promissory note stating that the loan was for "business expense and marketing operation." Shively then called Pardee and told him the bank had approved the loan. Pardee testified that he asked Shively whether the bank's board of directors understood "that I am going to get the money and it's going to be given back to you," and Shively responded, "Everything is okey dokey." Pardee signed the note, received the money, deposited it in another bank, and signed an agreement with Shively to lend him $20,000.

Shively had not told anyone at the bank the true purpose of the loan to Pardee, and in fact had approved it on his own authority without submitting it to the loan committee or board of directors. The promissory note came due two years later but in the interim Design Plus had gone broke, to be followed shortly by Pardee. Pardee told the bank he would repay the note when Shively repaid him. This was when the bank first learned of the true purpose of the loan to Pardee. That loan has never been repaid, though Shively has partially repaid Pardee's loan to him.

Shively and Pardee were tried together. The jury convicted Pardee of having falsely stated the purpose of the loan, in violation of 18 U.S.C. § 1014, and of having conspired with Shively to violate both 18 U.S.C. § 656 (willful misapplication) and 1014, but it acquitted him of having aided and abetted Shively in violating section 656. The jury convicted Shively of having aided and abetted Pardee in violating section 1014, of having conspired with Pardee to violate sections 656 and 1014, and of having violated section 656 by concealing from the bank that the proceeds of the loan to Pardee would be used by Shively himself.

The false-statement statute, 18 U.S.C. § 1014, provides: "Whoever knowingly makes any false statement . . . for the purpose of influencing in any way the action of . . . any bank the deposits of which are insured by the Federal Deposit Insurance Corporation" shall be guilty of a crime. There is no question that by signing a promissory note which contained a statement that he knew was false (that the purpose of the loan was "business expense and marketing operation") Pardee was making a false statement within the meaning of the statute. Whether his purpose was to influence the bank's action is at least doubtful, as we shall see. What is not doubtful is that the government failed to prove beyond a reasonable doubt that the First National Bank of Marshall was insured by the FDIC in 1978 when the false statement was made.

The only evidence of insured status that was introduced was a certificate of insurance that the FDIC had issued to the bank in 1969. The certificate states only that the bank was insured on that date. No evidence was presented, as in United States v. Skiba, 271 F.2d 644, 645 (7th Cir. 1959), that the bank was still operating under the certificate at the time of the offense. Even if United States v. Crisp, 435 F.2d 354, 360-61 (7th Cir. 1970), deliberately omitted mention of that qualification (that there must be evidence bringing the certificate up to date) in citing Skiba, it is readily distinguishable. The issue in Crisp was venue, which the government need only prove by a preponderance of the evidence, see, e.g., United States v. Bowdach, 414 F. Supp. 1346, 1356 (S.D. Fla. 1976), aff'd, 561 F.2d 1160 (5th Cir. 1977) -- not whether an element of the offense had been proved, as in this case and Skiba.

United States v. Platenburg, 657 F.2d 797, 799 (5th Cir. 1981), reversed a conviction under section 1014 because the only evidence of insured status was a seven-year-old certificate of insurance; here it was nine years old. Although the bank in Platenburg was not a national bank as in this case, and national banks are required by law to be insured by the FDIC, 12 U.S.C. §§ 1814(b), 1818, you cannot infer from the fact that someone is required by law to do something that he has done it. True, cancellation of federal deposit insurance for failure to pay the annual assessments (premiums) required by 12 U.S.C. § 1817(b), or for any other reason, is not automatic; it requires following the procedures laid down in 12 C.F.R. §§ 308.23-.31 (1983). Still, a national bank like any other bank can lose its insured status.

In United States v. Knop, 701 F.2d 670, 672-74 (7th Cir. 1983), this circuit's most recent statement on proof of insured status, bank officers testified at the trial that the bank "is" insured. "Taken woodenly and literally the testimony might seem to refer only to the time of the trial. In context it could plausibly have been taken by the jury as referring to the time of the commission of the offenses. . . ." Id. at 673 (footnote omitted). See also United States v. Safley, 408 F.2d 603, 605 (4th Cir. 1969). But there is no way in which a certificate of insurance issued in 1969 could be taken to refer to a bank's insured status in 1978 without any other evidence. Although a stipulation between the parties recites that the Marshall bank was insured in 1978, the government did not introduce the stipulation into evidence. As a result, the record contains no evidence -- beyond the stale 1969 certificate which just as unaccountably was placed in evidence -- of an essential element of a section 1014 offense. We are given no reason other than inadvertence why the stipulation was not introduced; Platenburg had been decided the year before the trial in this case. Pardee must be acquitted of the charge of violating section 1014 and Shively of aiding and abetting that violation.

The problem of insured status does not arise with respect to section 656, which provides: "Whoever, being an officer . . . or employee of . . . any. . . national bank . . . willfully misapplies any of the moneys . . . of such bank" shall be guilty of a crime. Shively argues that he could not be guilty of misapplication when the bank could have looked to Pardee, the nominal borrower and a man of substantial means at the time, for repayment of the loan the proceeds of which ended up in Shively's pockets. This would be a tenable argument if Shively, the ultimate borrower, had not been an employee of the bank. United States v. Gens, 493 F.2d 216, 222 (1st Cir. 1974); United States v. Gallagher, 576 F.2d 1028, 1045-46 (3d Cir. 1978). But it has been held to be misapplication per se for a bank officer or employee to funnel funds to himself by making a bank loan to a third party. United States v. Krepps, 605 F.2d 101, 106-08 (3d Cir. 1979); United States v. Steffen, 641 F.2d 591, 597 (8th Cir. 1981).

The meaning of "willful misapplication" in section 656 has long been a subject of debate and uncertainty. See United States v. Docherty, 468 F.2d 989, 992-95 (2d Cir. 1972). At the very least, however, the term must require that the bank's money have been used for a purpose that the bank would not have agreed to had it known what the purpose was. In Gens, for example, it was entirely possible that if the defendant's superiors in the bank had known that the nominal borrower intended to hand over the money to a third party to whom the bank would not have loaned the money directly, the bank would still have approved the loan, trusting to the credit of the nominal borrower; banks often lend money to small-loan companies whose customers they would never lend money to directly. But the Marshall bank would never have loaned Pardee money to hand over to the bank's president, no matter how sterling Pardee's credit was at the time. With Pardee's company not only a contractor of the bank but a borrower from it on other loans, his acting as a conduit for funds to the bank's president created a conflict of interest and placed the bank in serious jeopardy of violating the legal limitations on lending to its own officers. See 12 U.S.C. § 375a; 12 C.F.R. §§ 215.3(a)(8), 215.4(b) (1983); Adato v. Kagan, 599 F.2d 1111, 1117 (2d Cir. 1979). There is no law against a bank customer's lending to a bank officer, but Pardee refused to lend Shively his own money; and the bank would not wittingly have helped Pardee get a hold over Shively by providing Pardee with money to lend to Shively.

This is not to say that every unauthorized loan by a bank officer is a willful misapplication of bank funds. Concerned with the reach of this criminal statute if read so broadly, and mindful that the statute originally required proof of intent to "injure or defraud" the bank or "deceive" a bank officer and that these words were dropped by a reviser without intent to alter the meaning of the law, courts including our own have read these words back into section 656. United States v. Docherty, supra, 468 F.2d at 994-95; United States v. Larson, 581 F.2d 664, 667 (7th Cir. 1978); see United States v. McAnally, 666 F.2d 1116, 1119 (7th Cir. 1981). But it is clear that Shively in loaning ...

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