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United States v. Johnson

United States Court of Appeals, Seventh Circuit

November 3, 2017

United States of America, Plaintiff-Appellee,
v.
David Johnson and Reginald T. Walton, Defendants-Appellants.

          Argued February 6, 2017

         Appeals from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 13-CR-00104 - William T. Lawrence, Judge.

          Before Rovner and Williams, Circuit Judges, and Conley, District Judge. [*]

          WILLIAMS, CIRCUIT JUDGE.

         The Indianapolis Land Bank was created to improve the quality of life in Indianapolis neighborhoods by returning tax-delinquent and other troubled properties into productive use. But, in 2011, Reginald Walton, the manager of the Land Bank, began scheming with others, including David Johnson, to use the Land Bank as a personal piggy bank by orchestrating the sale and resale of the City's properties through a nonprofit loophole and pocketing the profits. The total loss to the city was $282, 782.38. For their role in this scheme, Johnson and Walton were indicted and found guilty of honest services wire fraud, wire fraud, and conspiracy to engage in money laundering. Walton was also convicted of receiving bribes.

         On appeal, Walton and Johnson challenge the sufficiency of the evidence, arguing that the government failed to prove that either Walton or Johnson had the requisite intent for a fraud conviction. We find the government provided substantial evidence that Walton and Johnson had specific intent, including evidence of kickbacks and making false statements. Walton and Johnson also challenge their money laundering convictions, but there was sufficient evidence to support those convictions as well.

         Walton also challenges the district court's jury instructions, arguing that the court's instruction on 10 U.S.C. § 666 permitted the jury to convict him of accepting a gratuity and not a bribe, and that § 666 should only permit conviction for bribes. We find no clear error in the § 666 instruction. The court's instruction and record evidence made clear that Walton was convicted for accepting bribes, not gratuities, and we decline Walton's invitation to overturn precedent to reconsider the construction of § 666. Johnson and Walton's assertion that the district court erred by failing to provide a good faith instruction is also incorrect. Their convictions required proof of their bad intent (specific intent to commit fraud), so a good faith jury instruction was unnecessary.

         Finally, Walton and Johnson challenge their sentences. Both were subject to a sentencing enhancement because their offenses involved a public official in a high-level decision-making position (Walton). We find this enhancement was proper, because as the manager of the Land Bank, Walton was in a sensitive position. We also find no error in the district court's decision to enhance Walton and Johnson's sentences because they victimized vulnerable families.

         I. BACKGROUND

         A. The Land Bank

         In 2011, Reginald Walton was the manager of the Indianapolis Land Bank, a public agency authorized by Indiana law to acquire abandoned, tax delinquent, and other problem properties. Walton's official title was Assistant Administrator for the Department of Metropolitan Development ("DMD"), but his specific position gave him primary authority over acquiring and selling properties in the Land Bank. Once a property was in the Land Bank, Walton was responsible for getting it sold. He drafted resolutions that instructed when and to whom the properties would be sold. The resolutions he drafted were reviewed by his direct supervisor, Jennifer Fults, and submitted to the Metropolitan Development Commission ("MDC"), where they were usually approved without question. Once the MDC approved a transaction, Walton had his team draft the deed and sales disclosure on behalf of the DMD, and ultimately the Land Bank conveyed the property as Walton proposed and he signed on behalf of the City.

         Under the state laws regulating the Land Bank, there were two ways for Land Bank property to be sold. If property was sold to a for-profit entity or private buyer, two appraisals had to be prepared, and the property could then be offered in a public sale at a minimum price of the average of the two appraisals. A secondary process was available only for nonprofit organizations that met specified criteria. A nonprofit was eligible to purchase through the second process if it had been in existence for at least one year, had the mission of housing, and aimed to benefit people with low to moderate incomes. Eligible nonprofits could purchase Land Bank properties for set rates of $2, 500 if the property had a clean title or $1, 000 if the property did not have a clean title. No appraisal was required, nor was a public sale. But, because of the criteria, few nonprofits were qualified to take advantage of the lower pricing scheme. There was no prohibition on eligible nonprofits reselling their acquired properties.

         B. Walton's Land Bank Transactions

         For some time, Walton operated the Land Bank as it was intended. However, in May 2011, Walton met Aaron Reed, a laid off graphic designer who was seeking financial opportunities in real estate. At the meeting, Walton explained that he ran the City department that oversaw abandoned homes. Reed and Walton discussed the Land Bank as an opportunity to make money. Soon thereafter, Reed established Naptown Housing Group ("Naptown"), a property development company and went into business with Walton. The two spoke with an accountant who suggested that Walton start a consulting firm to handle his private real estate deals. However, Walton rejected this idea because of conflicts with his work and his marital problems. Walton wanted to remain a silent partner.

         That's how the scheme began. Walton then started to identify valuable properties in the Land Bank and invited select nonprofit organizations to purchase these properties for either $1, 000 or $2, 500. He worked with nonprofits that he knew would immediately transfer the properties back to Reed, Nap-town, or a chosen private buyer and turn over the profits of the sales. Once the property was purchased for $1, 000 or $2, 500, Naptown either sold the property to a private buyer, renovated it for sale, or prepared it as a rental. Reed's profit margin was high and, as agreed upon, he paid half of the profits to Walton in cash.

         The first properties Reed and Walton partnered to sell involved 2806 and 2810 Delaware. Walton told Reed that the properties had generated interest from potential buyers, and they agreed to sell it together and split the profit. The property was purchased through TM&J Youth Foundation, a nonprofit operated by Shela Amos, which paid $2, 501 for 2806 Delaware and $601 for 2810 Delaware.[1] Naptown then resold the property in a $65, 000 cash deal. For his part in the deal, Reed gave Walton $27, 500 cash. Walton said he had to be paid in cash due to his position with the City. Reed gave money to Walton as a "kickback" for "push[ing] the property through his department" at the DMD. Reed knew they were breaking the law.

         Reed and Walton's partnership continued with the sale of at least ten additional Land Bank properties, including the sales of 3905 North Carrollton Avenue, 3253 and 3249 North Ruckle Street, and the "Indianapolis duplexes, " four sets of duplexes on Indianapolis Avenue. Reed testified that Walton gave him "right-to-enter forms" for properties they intended to purchase, so that Reed could inspect them before buying. While they made profit from each of their sales, some of the properties Reed and Walton bought were still owned by Nap-town with plans to rent or sell when Reed and Walton's arrests ended the scheme.

         In addition to working with Reed, Walton also began working with John Hawkins, a former Special Assistant to the Mayor of Indianapolis and a project manager at the DMD. Hawkins noticed Walton was getting money back for helping people. When he asked about it, Walton told him that they were "love offerings." Hawkins asked to get involved, and he did. Hawkins brought at least two potential buyers to Walton. In one of the sales, the buyer paid Walton and Hawkins $7, 200 cash before the property was transferred from MDC to the cooperating nonprofit. In text messages referencing this deal, Walton indicated that if there were any "heat" from the MDC, he would be able to handle it. Walton gave Hawkins $1, 600 cash for bringing in the deal.

         Walton also had dealings with Randall Sargent and under- cover FBI agent "Jay Foreman." [2]Walton helped Sargent buy six properties from the Land Bank in exchange for a "top shelf fee" for ushering the properties through the Land Bank. Once the DMD transferred the properties to a nonprofit Sargent operated, Sargent gave Walton a blank $500 money order. Foreman also sought to acquire Land Bank property through Walton and agreed to "take care of" him for pushing property through the DMD. Walton showed Foreman some Land Bank properties and told him about his dealings with Aaron Reed. Walton also told Foreman that he did government consulting and received kickbacks for his help. Walton accepted $500 from Foreman, and told Foreman he would go to his office and start working on a deal.

         C. Johnson and IMAC's role

         Some of the nonprofits Walton and Reed used for their earlier real estate transactions became unavailable, so they incorporated a new partner, David Johnson. Johnson ran the Indianapolis Minority Aids Coalition ("IMAC"), an eligible nonprofit purchaser under the Land Bank rules, and he quickly became a necessary part of the scheme. Walton knew Johnson through Johnson's earlier work with the City and recruited him to help acquire properties.

         Reed and Walton went to Johnson's office to propose the partnership. They told Johnson how the process worked, and explained that they would split proceeds. Reed and Walton told Johnson there was an additional party, a broker. But, this was a lie allowing Walton and Reed to receive a larger portion of the profits. Walton and Reed emphasized Walton's position with the City, and warned Johnson it was important not to disclose their dealings. Johnson agreed to become involved, and he began using IMAC to acquire Land Bank properties to sell for profit for Walton and others involved in the scheme.

         On their first deal, Walton and Reed intended to sell a property to a private buyer for $17, 500. The property was sold to IMAC, then to the private buyer. Johnson took $2, 500 to cover IMAC's purchase cost, retained an additional $1, 000 for himself, and then wrote a $14, 000 check to Naptown, falsely indicating on the IMAC check that the money was for a grant. On the second deal, Walton and Reed purchased a property that had garnered interest from investor groups. Walton orchestrated the sale to IMAC, but used his position to defer the City's collection of the property purchase price. IMAC never paid the City for the property. However, Reed paid Johnson for serving as a middleman. On the third deal, Walton obtained approval of another property, and again got the City to defer IMAC's payment for the property. The property was sold for $12, 500 and Johnson retained $1, 500 to pay DMD for IMAC's purchase, retained $1, 000 for himself, wrote Naptown a $5, 500 check, and paid Walton a $4, 500 cash kickback.

         Johnson was also integral in the Land Bank property sales involving John Hawkins. In each of those transactions, IMAC served as the middleman nonprofit buyer. In fact, on the day the City transferred a property at 3516 Salem Street to IMAC at the arrangement of Walton and Hawkins, Johnson wrote an IMAC check to Hawkins for $1, 000 which falsely indicated that the payment was for "Payroll: Consulting: 2013 Gala." Hawkins never performed ...


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