JIM W. MATHEWS, PETITIONER V. UNITED STATES OF AMERICA No. 90-5309 In The Supreme Court Of The United States October Term, 1990 On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Eleventh Circuit Brief For The United States In Opposition OPINION BELOW The judgment order of the court of appeals (Pet. App. 1a) is unpublished, but the judgment is noted at 900 F.2d 265 (Table). JURISDICTION The judgment of the court of appeals was entered on March 13, 1990. The petition for a writ of certiorari was filed on June 11, 1990. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTIONS PRESENTED 1. Whether the district court abused its discretion in denying a motion by one of petitioner's co-defendants for a mistrial on one of the two counts charging misapplication of bank funds, after the court had entered judgments of acquittal as to all defendants on nineteen counts charging other offenses. 2. Whether the evidence that petitioner had willfully misapplied bank funds was sufficient. STATEMENT After a jury trial in the United States District Court for the Middle District of Florida, petitioner was convicted on two counts of willfully misapplying bank funds, in violation of 18 U.S.C. 656. He was sentenced to concurrent four-year terms of probation, with a special condition that he perform 200 hours of community service as directed by the probation office. The court of appeals affirmed without opinion. 1. Petitioner was the Senior Executive Vice President of Park Bank in St. Petersburg, Florida. Having previously served as the president of another local bank, petitioner was relied upon by everyone at Park Bank, including its president, who had not had extensive banking experience. Petitioner oversaw the day-to-day operations of the Bank, and attended the meetings of its board of directors. Gov't C.A. Br. 4, 27, 30. Petitioner persuaded the Bank's loan committee to convert a property that the Bank had obtained after a real estate loan had gone bad into a time-share condominium project named Sea Haven. Gov't C.A. Br. 4, 27. At petitioner's urging, the committee extended a $1.4 million line of credit to S.H.R. Development Corporation, an entity created to develop the project and sell the individual units. Gov't C.A. Br. 4-5. At the time the committee approved the line of credit to S.H.R., petitioner withheld from the committee numerous items of material information in his possession concerning the creditworthiness of the project. The withheld information included the facts that S.H.R.'s principals believed the project would fail because it was not suited for time-share use (Gov't C.A. Br. 10-12); that S.H.R.'s principals agreed to undertake the project only because co-defendant Johnson, a senior vice president of the Bank, had threatened to call their own loans with the Bank if they refused (Gov't C.A. Br. 12); that S.H.R.'s principals were to have no personal liability in connection with the project (Gov't C.A. Br. 11, 13); and that there was an informal buy-back agreement between the Bank and another institution, First Federal of Largo, under which the Bank guaranteed the loans that First Federal had agreed to provide to Sea Haven purchasers (Gov't C.A. Br. 12-13, 28). The Bank was also not advised by petitioner (see Gov't C.A. Br. 21, 27-28), as the project developed, that the units were to be sold at prices which, though inflated, were far from sufficient to extinguish the underlying debt (Gov't C.A. Br. 7, 46); that purchase incentives were offered to people who already had loans from the Bank that had been adversely classified by the FDIC (Gov't C.A. Br. 5, 14-15, 17-18, 25); that potential purchasers were told that they need not hold on to the units for very long and that the Bank would resell the units for them (Gov't C.A. Br. 14, 17-18); and that purchasers were offered 100 per cent, no-money-down financing, with 15 per cent "rebates" on the purchase price -- in effect, 115 per cent financing -- although the closing statements for the units falsely reflected the "rebate" amount as part of the purchase price that S.H.R. would receive. Gov't C.A. Br. 5-6, 20, 29. Petitioner and Tom May, another Park Bank official, each bought one of the units and received 15 per cent rebates that were not disclosed on the closing statements. Gov't C.A. Br. 30. May bought his unit because petitioner had told him that his job would be in jeopardy if he did not. Gov't C.A. Br. 7, 46. When May told petitioner that he could not afford to buy a unit, the Bank gave him a $26,500 loan. Gov't C.A. Br. 7-8. In October 1983, the FDIC reviewed the Bank's portfolio, which now contained the S.H.R. loan. A memo in the S.H.R. file indicated that the Sea Haven project was progressing as planned. Relying on the information contained in the S.H.R. portfolio, the FDIC did not adversely classify the S.H.R. loan. Gov't C.A. Br. 19-20, 37. The Bank ultimately lost about $530,000 on the Sea Haven project. Of that amount, $400,000 pertained to loans on which purchasers had defaulted, and $130,000 was the unpaid balance on the line of credit extended to S.H.R. The Bank failed and, in 1986, was closed by the FDIC. Gov't C.A. Br. 24, 29. 2. Petitioner and four co-defendants -- all of whom were officers or agents of Park Bank, a federally insured institution -- were charged in a 21-count indictment with offenses involving the conversion and sale of time-share units in the condominium project. Count 1 charged all five defendants with conspiracy to defraud the United States and to commit offenses against the United States, in violation of 18 U.S.C. 371. The substantive offenses were charged in the remaining counts. Count 2 charged all five co-defendants with knowingly and willfully concealing material facts in a matter within the jurisdiction of the Federal Deposit Insurance Corporation, in violation of 18 U.S.C. 1001. Counts 3 through 19 charged four of the defendants with knowingly and willfully making false statements in a matter within the jurisdiction of the FDIC, in violation of 18 U.S.C. 1001. Count 20 also charged four defendants with willfully misapplying approximately $1.4 million that belonged to the Bank, in violation of 18 U.S.C. 656. Count 21 charged only petitioner with willfully misapplying $26,500 that belonged to the Bank. 3. At the close of the government's case, petitioner moved for a judgment of acquittal on all counts. 12 R. 167: 151-155. /1/ The district court granted the motion with respect to all but the two misapplication counts. 12 R. 167: 189-197. As to those counts, the court ruled that there was sufficient evidence for a jury to find that petitioner had "willfully made a loan under circumstances when there was no reasonable expectation that it would or could ever be repaid." 12 R. 167: 197. Co-defendant Ward moved for a mistrial on count 20, the only count in which he was charged with misapplying bank funds, on the ground that "a lot of coconspirator statements (have) come in in this case that are inappropriate as to count 20 and that that information should not be before the jury." 12 R. 167: 198. Petitioner, who was charged with misapplying bank funds in counts 20 and 21, neither joined in Ward's motion nor moved for a mistrial as to either of those counts. The district court denied Ward's motion, ruling that: all of the evidence which has been admitted concerning the totality of the circumstances under which the loan was made to SHR Development Corporation, as well as subsequent transactions as a part of the overall plan regarding the satisfaction of that loan, namely the sale of the time-share units, is all equally admissible and germane with respect to the single offense charged in count 20 and requires no limiting instructions to the jury or the exclusion of any evidence which has been received. 12 R. 167: 198-199. ARGUMENT Petitioner challenges the sufficiency of the evidence on the misapplication counts and the district court's denial of his co-defendant's motion for a mistrial on one of those counts. Neither of these fact-bound claims warrants further review. 1. Petitioner claims, as he did in the court of appeals, that at the close of the government's case he moved for a mistrial as to the misapplication counts, and that the district court abused its discretion in denying his motion. Pet. i, 3-6. Specifically, he argues that the evidence elicited in connection with the counts on which the district court had entered judgments of acquittal was irrelevant to the misapplication counts and denied him a fair trial on those counts. Pet. 5-6. a. Initially, petitioner did not preserve this argument in the district court, since he did not move for a mistrial. It was only petitioner's co-defendant Ward who moved for a mistrial and who advanced a "spillover" argument in support of his motion. 12 R. 167: 198. And even Ward's motion pertained only to count 20 -- the only count with which Ward was charged -- as the district court noted in denying the motion. See 12 R. 167: 199 (referring to "the single offense charged in count 20" in denying the motion). b. In any event, as petitioner concedes (Pet. 6), the decision to grant or deny a mistrial is committed to the trial court's sound discretion. Here, the court was well within its discretion in denying the motion with respect to count 20, and its reasoning would have been equally applicable to a motion for a mistrial on count 21, had one been made. Count 20 alleged willful misapplication of the $1.4-million that petitioner, who was responsible for the day-to-day operations of Park Bank, had arranged to lend S.H.R. "in connection with the purchase, conversion and sale of a condominium project known as Sea Haven Resort." The evidence on the dismissed counts showed the circumstances surrounding petitioner's conception and implementation of that project -- including petitioner's concealment of information about the project's shaky financial underpinnings from both the FDIC and the Bank's board of directors, and his use of financing methods that would put the Bank at obviously undue risk. That evidence was therefore entirely relevant to the question whether petitioner had willfully misapplied the $1.4 million. Count 21 charged willful misapplication of $26,500 in the form of a loan to Tom May "for the purpose of purchasing an interval ownership in Sea Haven Resort." May did not want to buy a unit and could not afford one, as petitioner well knew. Yet petitioner ordered May to buy one and warned that he would fire May if he failed to comply. The evidence on the other counts demonstrated petitioner's knowledge that Sea Haven units could not be sold successfully in arm's-length transactions on the open market. That evidence was thus clearly relevant and admissible with respect to petitioner's misapplication of the $26,500. /2/ 2. Petitioner next contends (Pet. 6-9) that there was insufficient evidence of intent to defraud or injure the Bank to support his conviction on the two counts alleging misapplication of bank funds. Petitioner is incorrect. The standard for assessing the sufficiency of the evidence is "whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Jackson v. Virginia, 443 U.S. 307, 319 (1979) (emphasis in original). The evidence on the misapplication counts satisfied this standard. a. With respect to count 20, petitioner concedes that he "devised the loan to be given to S.H.R. Development" (Pet. 9) and that "approval of the board of directors does not invalidate an intent to defraud" (Pet. 8). /3/ He suggests, however, that there was no evidence of such intent because, in his view, there was no evidence that he received any benefit from the S.H.R. loan. Pet. 8. Petitioner overlooks the fact that the benefit he sought and obtained by arranging this loan was the disposal of property whose ownership weakened the Bank's financial position. As the individual who in fact ran the Bank and upon whom everyone in the Bank -- including the president and the board of directors -- relied, petitioner had an obvious interest in maintaining his appearance as an effective manager and the Bank's appearance as an institution on a firm financial footing. The gravamen of his crime was that he maintained these appearances by compromising the Bank's already weakened financial condition. See United States v. McElroy, 910 F.2d 1016, 1024-1025 (2d Cir. 1990); United States v. Woods, 877 F.2d 477, 479-480 (6th Cir. 1989) (proof of gain to defendant or loss to bank not required for Section 656 violation; sufficient to show that defendant temporarily deprived bank of possession, control, or use of its funds). Petitioner's failure to inform the Bank of Sea Haven's poor prospects as a time-share property, of the developers' lack of personal liability in connection with the project, of the overfinancing of unreliable purchasers, and of the agreement to guarantee loans by another bank to Sea Haven purchasers were all indicative of intent to defraud and injure the Bank. See United States v. Bailey, 859 F.2d 1265, 1282 (7th Cir. 1988) (evidence of 100 per cent financing of condominium purchase showed intent to defraud lender where property overvalued and loan not based on creditworthiness of borrower), cert. denied, 488 U.S. 1010 (1989). /4/ b. As for count 21, petitioner acknowledges that a threat to fire Tom May if he did not purchase a unit might "border upon extortion and intimidation" but contends that such a threat nevertheless "shows no evidence of intent to defraud." Pet. 8. Petitioner, however, ignores the context in which he made that threat. The $26,500 loan to May arose from the same set of circumstances as the $1.4 million loan to S.H.R. Petitioner required May to purchase a unit precisely because petitioner knew that the units could not be successfully sold on the open market. Petitioner also knew that May neither wanted nor could afford to buy a unit. The loan to May -- which petitioner, a member of the executive loan committee, had moved for approval -- helped petitioner maintain the false appearance that the Sea Haven project was a viable Bank asset. That appearance protected the S.H.R. loan from being adversely classified by the FDIC. The May loan was thus part and parcel of the loan to S.H.R. See United States v. Kington, 875 F.2d 1091, 1100 (5th Cir. 1989) (where government shows evidence of pattern, jury may infer that conduct otherwise susceptible of innocent interpretation can be explained only as part of pattern). c. Petitioner also suggests (Pet. 7-8) that the jury may have convicted him for "nothing more than violations of (the) Bank's normal operating procedures and bad business, at best." The district court, however, cautioned the jury that it was not to confuse intent to defraud with "bad judgment," "maladministration," "an error in management," carelessness, or the merely irregular or improper use of funds. 15 R. 9, 10-11. /5/ Instead, the court instructed, the government must prove beyond a reasonable doubt that petitioner had willfully engaged in making a bad or uncollectible loan or loans for the purpose of manipulating the records of the bank to conceal other bad loans and with intent to advance his own interests, rather than those of the Bank, by deceiving superior Bank officials or Bank examiners. 15 R. 9-10. The court also told the jury that "(g)ood faith is a complete defense to the charges." Pet. 10. The jury is, of course, presumed to have followed these instructions. See Richardson v. Marsh, 481 U.S. 200, 211 (1987). CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted. KENNETH W. STARR Solicitor General ROBERT S. MUELLER, III Assistant Attorney General VICKI S. MARANI Attorney NOVEMBER 1990 /1/ References in this form indicate the volume of the record on appeal, the document number, and the page number. /2/ Equally meritless is petitioner's suggestion -- which he confines to a topic heading (Pet. 3) -- that his conviction stemmed from "BAD FAITH CONDUCT OF THE PROSECUTOR." The body of petitioner's argument (Pet. 3-6) is devoid of any reference to or support for this allegation. /3/ Elsewhere, petitioner cites United States v. Cauble, 706 F.2d 1322 (5th Cir. 1983), cert. denied, 465 U.S. 1005 (1984), for the proposition that "the intent to defraud and injure a bank is negated wherein a loan is approved by the board of directors." Pet. 7. Cauble, however, makes clear that board consent is only a factor to be considered in determining whether there was intent to defraud; such consent does not exculpate a defendant who was the moving force behind the board's actions. 706 F.2d at 1354 and n. 125. See also United States v. Bailey, 859 F.2d 1265, 1279-1280 (7th Cir. 1988), cert. denied, 488 U.S. 1010 (1989); United States v. Unruh, 855 F.2d 1363, 1368-1369 (9th Cir. 1987), cert. denied, 488 U.S. 974 (1988); United States v. Gregory, 730 F.2d 692, 701-702 (11th Cir. 1984), cert. denied, 469 U.S. 1208 (1985); United States v. Beran, 546 F.2d 1316, 1321 (8th Cir. 1976), cert. denied, 430 U.S. 916 (1977). /4/ These factors distinguish the instant case from United States v. Rapp, 871 F.2d 957 (11th Cir.), cert. denied, 110 S. Ct. 233 (1989), which petitioner cites (Pet. 8) as an example of a case in which a defendant's instigation of events leading to the arguably foreseeable downfall of investors was held insufficient to establish violations of the false entry and false statement statutes, 18 U.S.C. 1005 and 1014. In reversing Rapp's convictions for those offenses, the Eleventh Circuit explained that there was no evidence that Rapp knew that the documents in issue had even been executed. 871 F.2d at 964. By contrast, petitioner not only knew about but orchestrated the loan to S.H.R. /5/ References in this form indicate the volume and page number of the trial transcript.