United States v. Douglas Cordell

GEE, Circuit Judge,

dissenting:

The majority today affirms a bank president's felony conviction for making a false entry in the bank records on the theory that his failure to record an overdraft amounts to an omission punishable under 18 U.S.C. § 1005 . The prosecution, however, did not indict Cordell for this offense. Rather, it indicted him for actually making a false entry — a thing he did not do. The majority also allows a conviction for the willful misapplication of bank funds to stand even though Cordell’s actions — actions which the government contends constitute willful misapplication primarily because they conflict with a civil banking regulation — are countenanced by Federal Reserve operating procedures. Cordell’s conduct, ill-advised as it may have been, is not criminal and does not merit that stigma; therefore, I respectfully dissent.

The majority devotes much of its opinion to a discussion whether an omission of material information qualifies as a “false entry” under 18 U.S.C. 1005. I have no quarrel with their conclusion that such omissions do so qualify, but I maintain that this discussion is premature. Cordell was not indicted for making a material omission from the bank records, but rather for making a “material false entry ... by reversing previously paid checks.” At trial, however, the government failed to prove that any false entry occurred. The testimony from both government and defense witnesses shows that the late returns authorized by Cordell on the five checks drawn on Mr. McMurrey’s account were properly posted by Cordell and were not recorded early, late, or in any other manner so as to avoid detection by bank examiners. The government contends and the majority concludes, however, that the overall language of the indictment notified Cordell that the government was charging him with a material omission — that of failing to record an overdraft in Mr. McMurrey’s account. This latter theory, ultimately relied on by the prosecution at trial, is entirely different from the theory alleged in the indictment. The government’s omission theory allowed the prosecutor to argue to the jury that the late returns — recorded in the proper accounts, at the proper time and in a proper manner — amounted to criminal conduct because the returns prevented the entry of an overdraft in the account.

The lack of specificity in the indictment was particularly harmful to Cordell given that it is difficult to find anything false or misleading about his conduct. It is true that Cordell made late returns on the checks to avoid a § 84 violation, but the record reveals that he made no effort to conceal these entries from the bank examiner, even though he knew that the account was on the examiner’s “watch list.” By hindsight, it appears that the entries were improper from the bank examiner’s viewpoint; they were not, however, false, and the fact that Cordell recorded late returns in Mr. McMurrey’s account instead of an immediate overdraft does not result in a material omission of the kind intended to be prevented by 18 U.S.C. § 1005 .

Cordell’s conviction for willfully misapplying government funds is also without basis. The government, seeking to prove Cordell’s intent to defraud the bank and bank examiners, introduced a litany of American National’s civil “legal lending limit” violations and lists of customer’s overdrafts charged back to their accounts — of the normal “bounced check” variety — without connecting any of these occurrences to Cordell personally or to the time period of Cordell’s responsibility for such violations. Although irrelevant, the introduction of this misleading evidence might not constitute reversible error were it not for the prosecution’s reliance on Cor-dell’s alleged civil violation of Regulation J to prove that he willfully misapplied the funds — proof that was necessary to a § 656 conviction.

*779 Cordell made a late return on five checks in Mr. McMurrey’s account to avoid a civil violation of § 84. Testimony at trial demonstrated that Federal Reserve procedures allow a bank to make a late return on checks which it has previously electronically honored if they are still held by the bank — as were these. As a result of the late returns, the Federal Reserve credited the amount of the five checks to Mr. McMurrey’s account, placing the burden of paying them back on Mr. McMurrey. Subsequently, all of the checks were paid in full with no loss whatever, either to the bank, to the payees on the checks, or to the Federal Reserve. The prosecution, thus, was hard pressed to prove that any funds were ever misapplied by Cordell. To prove the element of misapplication, the government introduced evidence that Cordell “violated” civil banking Regulation J, which requires that a bank, under “normal circumstances”, return or honor a check by the end of the business day in which it was presented. The government’s reliance on a violation of a civil regulation to prove the willful misapplication element constitute precisely the sort of bootstrapping condemned by us in United States v. Christo, 614 F.2d 486, 492 (5th Cir.1980). In Chris-to, we held that “[a] conviction, resulting from the government’s attempt to bootstrap a series of checking account overdrafts [and] a civil regulatory violation into an equal amount of misapplication felonies, cannot be allowed to stand.” 614 F.2d at 492 . Neither should this one.

The majority maintains that Christo does not apply here because the Regulation J violation was not mentioned in the jury instructions as the civil violation was in Christo . I find this unpersuasive. We noted in Christo that the instructions intending to limit the jury’s application of the evidence of the civil violations served only to focus the jury’s attention on evidence that had already “impermissibly infected the very purpose for which the trial was being conducted.” Id. Moreover, the Ninth Circuit adopted this interpretation of Christo in United States v. Wolf, 820 F.2d 1499, 1505 (9th Cir.1987). There, they held that jury instructions describing a violation of civil banking Regulation 0 as “background evidence” did not repair the damage done by the government’s introduction of evidence and jury argument about the regulation violation when the government’s purpose for introducing the violation was to prove the willful misapplication element. Id.

Here, the majority contends that the district court’s admonitions regarding the § 84 violations “likely prevented” any bootstrapping of the Regulation J violations to gain the § 656 conviction. I disagree. I am confident that the jury relied on the government’s evidence of the Regulation J violation to find the “intent to defraud” element required by § 656. The jury showed their confusion as to this point in a note sent during deliberations that asked: “Is there a law stating items must be posted daily in a banking institution regarding the check being returned the second time? Should it have been posted the day it was returned by law?”

As Christo reminds us, we must heed the Supreme Court’s distinction between the misapplication of funds under § 656 and a banker’s mere “maladministration” of the affairs of the bank. See Christo, 614 F.2d at 490 (citing United States v. Britton, 107 U.S. 655 , 2 S.Ct. 512 , 27 L.Ed. 520 (1882)). In Britton , the Supreme Court reversed a conviction under the predecessor to § 656, holding that maladministration of the affairs of a bank does not constitute criminal misapplication. The Court concluded that to hold otherwise would mean that “every official act of an officer, clerk or agent of a banking association, by which its funds are applied in a way not authorized by law, would be punishable” for criminal misapplication.

Cordell may have violated several civil banking regulations in his efforts to avoid civil liability under § 84. I disagree with the majority’s conclusion, however, that these efforts supplied the intent and conduct necessary to convict him of felony fraud under either § 1005 or § 656. His hand was in no till; he took no money for himself and no one lost any; and he de *780 serves no criminal conviction. I therefore respectfully dissent.