Petition — Beran v. United States

; Supreme Court, U. 3,

ve FILE DS

76-1103 | coe wn |

ea,

MICHAEL RODAK, JR., CLERK

OCTOBER TERM, 1976

RAY J. BERAN and ANDREW KAMINSKI,

Petitioners

vs.

UNITED STATES OF AMERICA

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

JAMES W. HEYER

6825 East Iliff Av. #304

Denver, Colorado 80224 :

Attorney for Petitioner

INDEX

Page

Opinion of the Court Below........ l

Eg nce neeenenceae O

Questions Presented for Review

A.

Under its own test of the

evidence, was not the trial

court obligated to grant judg-

ment of acquittal?......... 2

Where decision on a motion

for judgment of acquittal

has been reserved under Fed.

R. Crim. P. 29(b) and re-

mains under consideration

past the 7-day period al-

lowed for filing a motion

for new trual under Fed.R.

Crim. P.33, has not the

trial judge retained juris-

diction to grant a new trial

if requested before his de-

termination of the Rule 29

MBERT é cccccccecséocoesecos @

Should not the appellate

court have ordered a new

trial for substantial error

where, in a misapplication

of bank funds case, jury

instructions were refused

on such key matters in

evidence as:

1. Valid consent of the

board of directors;

2. Mere maladministration

INDEX-page 2 Page

3. Good faith;

4. No probability of

loss to the bank?....2

Is there not manifest

necessity for a new

trial in this case be-

cause of the prejudi-

cial effect of Count l

CVIGENCE?.cccceccccvereeeces 2

Seatube Tayeieed.<ccccccsccsoeecees

Rules Involved. '" © Sw EeREeEREEBSES SRS SS SS * <¢ * 3

Statement of the case...... sowenes 23

A. Facts material to ae

consideration of

whether judgment of

acquittal should have

been granted on counts

6 through 12....-.---eeeeees 7

Facts material to a

consideration of

jurisdiction to grant

@ mew Sidhe. ccccecevcaceeeste

Facts material toa

consideration of

whether the failure

to give crucial in

structions was sub-

stantial error re-

quiring a new trial.....-- 27

1. Consent by the board..27

2. Maladministration..... 28

3. Good Faith......-.-..-- ~29

INDEX- page 3

4. Probability of loss....

Facts material to a con-

Sideration of whether the

prejudicial effect of Count

1 evidence compels a new

ee a ene ae

Reasons For Allowance of the Writ

A.

B.

Cc,

D.

Denial of Judgment Acquit-

prea Brena ea ere rm

Jurisdiction to Grant New

Sets 64s wéen cea s :

Error in Instructions......

The taint of Count l..... —

PING 6 ie dan be 6d ade deelnte ee

Appendix

Cases

AUTHORITIES CITED

Evans v. United States,153U.S.

584

eeeseee ee geeaegesceaoeeeeegeenaeeee ee ©

Mulloney v. United States,79

F.2d EE A ae ee

United States v. Britton, 107

U.S

‘| eee Ee TET eT eT eee

United States v. Sorenson, 330

Te 6 6s bee WWa wkd 6 eee ccs

Statute

ee a eee

Page

30

30

37

42

44

45

46

INDEX -page 4

Rules

Rule 29(b), Fed. R. Crim P....

Rule 33,Fed. R. Crim. P...-.-.-

Page

4

4

ee ee

NO.

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1976

RAY J. BERAN and ANDREW KAMINSKI,

Petitioners,

Vv.

UNITED STATES OF AMERICA

PETITION FOR A WRIT OF CERTIORARI

TO THE

UNITED STATES COURT OF APPEALS FOR

THE EIGHTH CIRCUIT

Petitioners, Ray J. Beran and

Andrew Kaminski, pray that a Writ of Cer-

tiorari be issued to review the judgment

of the United States Court of Appeals for

the Eighth Circuit, entered in this cause

on December 16, 1976, wherein the United

States of America was plaintiff-appellee

and the petitioners were defendant-appel-

lants.

OPINION OF THE COURT BELOW

The opinion of the United States

Court of Appeals, Eighth Circuit, against

which this petition is pursued, has not

yet been published. It is reproduced in

the Appendix hereto.

oo

JURISDICTION

The judgment of the United States

Court of Appeals, Eighth Circuit, was en-

tered on December 16, 1976. Petition for

rehearing was denied on January 10, 1977.

Jurisdiction of this Court is in-

voked pursuant to Title 28, United

States Code, Sec. 1254(1).

QUESTIONS PRESENTED FOR REVIEW

A. Under its own test of the evi-

dence, was not the trial court obligated

to grant judgment of acquittal?

B. Where decision on a motion for |

judgment of acquittal has been reserved

under Fed. R. Crim. P. 29(b) and remains

under consideration past the 7-day period

allowed for filing a motion for new trial

under Fed. R. Crim. P. 33, has not the

trial judge retained jurisdiction to

grant a new trial if requested before his

determination of the Rule 29 motion?

C. Should not the appellate court

have ordered a new trial for substantial

error where, in a misapplication of bank

funds case, jury instructions were re-

fused on such key matters in evidence as:

1. Valid consent of the board

of directors;

2. Mere maladministration or

poor judgment;

3. Good faith; and

4. No probability of loss to

the bank?

D. Is there not manifest necessity

=3e

for a new trial in this case because of

the prejudicial effect of evidence pre-

sented on Count 1?

STATUTE INVOLVED

Title 18 United States Code Sec.656,

in pertinent part, provides:

Theft, embezzlement, or

misapplication by bank officer

or employee

"Whoever, being an officer,di-

rector, agent of employee of, or

connected in any capacity with any

* * * bank * * * embezzles, ab-

stracts, purloins or willfully mis-

applies any of the moneys, funds or

credits of such bank or any moneys,

funds, assets or securities in-

trusted to the custody or care of

such bank, or to the custody or care

of any such agent, officer, director

employee or receiver, shall be fined

not more than $5,000 or imprisoned

not more than five years, or both;

but if the amount embezzled, ab-

stracted, purloined, or misapplied

does not exceed $100, he shall be

fined not more than $1,000 or im-

prisoned not more than one year, or

both."

RULES INVOLVED

Rule 29(b) of the Federal Rules of

Criminal Procedure provides:

~~

Reservation of Decision on Motion

"If a motion for judgment of

acquittal is made at the close of

all the evidence the court may re-

serve decision on the motion, submit

the case to the jury and decide the

motion either before the jury re-

turns a verdict or after it returns

a verdict of guilty or is discharged

without having returned a verdict."

Rule 33 of the Federal Rules of

Criminal Procedure provides:

New Trial

"The court on motion of a de-

fendant may grant a new trial to him

if required in the interest of just-

ice. If trial was by the court witlr

out a jury the court on motion of a

defendant for a new trial may vacate

the judgment if entered, take addi-

tional testimony and direct the en-

try of a new judgment. A motion for

a new trial based on the ground of

newly discovered evidence may be

made only before or within two years

after final judgment, but if an ap-

peal is pending the court may grant

the motion only on remand of the

case. A motion for a new trial

based on any other grounds shall be

made within 7 days after verdict or

finding of guilty or within such fur

ther time as the court may fix during

the 7-day period."

==

STATEMENT OF THE CASE

This is a criminal case. Jurisdiction

below was involved pursuant to 18 U.S.C.

B656.

The indictment was in twelve counts. No

conspiracy was alleged. Each of the

counts charged separate acts of misappli-

cation of funds by one, or the other, or

both of the petitioners while they were

either officers, directors or stockholders

of the First National Bank of Belfield,

Belfield, North Dakota during the period

from August, 1973 through May, 1974.4

Count 1 was the heart and soul of the

government's case. It charged that during

September and October, 1973 both peti-

tioners knowingly and wilfully misapplied

and converted to their own use $482,000 in

funds of the Bank by selling an unauthor-

ized, over-issue of bank stock.

This was a "shotgun" type of indictment.

In the course of his investigation which

led to the indictment on Count 1, national

bank examiner Nelson "listed" other bank

loans and expenditures involving the pe-

titioners which, although not prohibited

by banking regulations, in his sole dis-

cretion he deemed to be “unsound" banking

practices" or “self-dealing." Each of

these transactions became the subject of

one of the remaining counts in the indict-

ment.

The government's case-in-chief took

twelve days to try and 53 witnesses were

presented by the prosecution. The first

eight trial days were consumed by. the

-6=

testimony of 46 Count 1 witnesses. Ten

of those witnesses dealt with the pur-

chase by petitioners of controlling inte-

rest in the outstanding capital stock of

the Bank and the manner in which their

acquisition was financed. The Other 36

Count 1 witnesses were all residents of

the Belfield, North Dakota community to

whom petitioners had sold stock the pro-

ceeds of which, the government claimed,

should have gone to the Bank.

The undisputed evidence was that, at

the time alleged, the petitioners owned

controlling interest in the Bank, and all

500 shares of its authorized capital

stock were then issued and outstanding.

It was also established that during the

period in question the petitioners

actually sold 274 bank shares (at $1,800

each) for which they received, but did

not pay to the bank, the proceeds of

$493,000.00.

The government's theory was that

fresh capital stock in the Bank, had been

sold, "“over-issued" without authority

from the Comptroller of the Currency, the

proceeds of sale from which belonged to

the Bank. The certificates issued to

buyers in these transactions did repre-

sent shares of capital stock in the Bel-

field Bank; but petitioners contended,

and the evidence conclusively established

that the shares sold belonged to the pe-

titioners--not the Bank. Certificates

for all stock sold were transferred from

shares previously authorized, paid-up and

properly issued. This was not a new

issue of capital stock in the Bank, and

oFa

no funds or assets of the Bank were in-

volved.

Less than three days were required

to present the remaining seven witness-

es in an effort to prove the other eleven

counts. Counts 2 through 6 involved law-

ful loans to the petitioners or for their

benefit made with prior approval of the

Bank's board of directors. Counts 7

through 12 dealt with money paid by the

Bank to the petitioners or others for ex-

penses which, allegedly, were not proper-

ly chargeable to the Bank. All of those

disbursements were also made with prior

board approval.

At the close of the government's

case, the court granted the defense Rule

29 motion for judgment of acquittal on

Count 1 because of a failure to prove

that monies of, or entrusted to, the bank

were involved. After the defense motion

for a judgment of acquittal as to the

remaining counts was denied, the case was

submitted to the jury which found Beran

guilty on Counts 7, 9, 10 and 12, and

+ Seana guilty on Counts 6, 8, 9, 10 and

A. Facts material to a considera-

tion of whether judgment of acquittal

should have been granted on counts 6

through 12.

Count 6. On March 29, 1974 the Bank

made a $47,500 loan to Continental Color-

ado Corporation ("ccc", a firm of which

Kaminski was president), owner of a 50%

=§-

general partnership interest in a venture

involving five sections of coal lands at

Amidon, North Dakota, approximately 30

miles from the Bank at Belfield. The

loan was for one year, due March 29, 1975

and was evidenced by a promissory note

signed by Mr. Kaminski in his capacity

as president. In support of the loan,

the Bank then had on file current finan-

cial statements (unaudited) of Mr. Kam-

inski showing a net worth of about $l,

190,000, and of CCC showing net worth of

about $355,000. This loan had specifi-

cally been approved and authorized by the

Bank's board of directors the previous

day, as reflected in the minutes of that

meeting.

On the dates of approval and dis-

bursement of this loan, Mr. Kaminski was

neither an officer nor a director of the

Bank. He was a shareholder, then owning

17% of the issued and outstanding capital

stock of the Bank. The indictment, in

count 6, charges that Kaminski, as a

stockholder of the bank, on March 29,

1974, with intent to injure and defraud

the Bank, did wilfully misapply the $47,

500 by fraudulently causing the loan to

be made to CCC,

The evidence showed thdt the Bank's

officers and directors were permitted to

make loans, in their discretion, to any-

one they deemed to be financially re-

sponsible, within the lending limits of

the Bank. At the time of this loan, the

limit on loans to any single borrower, as

determined by the capital accounts of the

Bank, was $50,000. According to the Bank

-9-

president, the financial statement of CCC

was substantial enough to justify this

loan and it was within the lending limit

of the Bank. No law or banking rule or

regulation, nor any interpretation of

the Comptroller of the Currency prohib-

ited or made illegal this loan, and it

was made upon express prior approval of

the Bank's officers and directors.

On May 4, 1974 bank examiner Nelson

arrived at the Bank to conduct a "regular"

examination, in the course of which he

reviewed this loan file along with several

hundred others. Nelson concluded that

this was a “substandard” loan, "unsound"

because he did not feel the unaudited fi-

nancial statement of CCC supported an un-

secured loan of that size. In all of the

other loan files he examined, Nelson did

not recall seeing any "audited" financial

statements and those of Kaminski and CCC

were never shown by the evidence to be

false or inaccurate in any way. Govern-

ment counsel simply argued that they were

inflated.

Nelson also criticized this loan as

being. "self-dealing,"” which he character-

ized as being where an officer or share-

holder borrows from his own bank. "He is

dealing with himself." Nelson conceded

that there was nothing unlawful about a

loan made to a corporation in which a

bank officer, director, or shareholder

has an interest. Such loans are not auto

matically bad, nor are they necessarily

even subject to criticism. "We just look

at them closely."

-10-

Having drawn his conclusions, Nelson then

in the exercise of his discretion, elect-

ed to request the Bank president to “re-

move" the loan, meaning that the borrower

is asked to pay-off the loan or refinance

it at another lending institution.

Nelson said that he had no authority to

"call" a loan due. "We (examiners) rely

on requests and suggestions to resolve

any ‘unsound banking practices'...whic’

do not necessarily involve any violation

of a criminal statute."

Nelson elected to seek removal of tle

$47,000 loan only five weeks after it was

made. By its terms, it was not due until

the month preceding the indictment.

Nelson gave the Bank president no valid

reason for requesting that this loan be

removed, nor did he contend it was ill-

egal or improper. "When a bank examiner

makes a recommendation or direction to an

officer, he has to obey--whether or not

he has a valid reason". If a loan is not

removed as requested the examiner can di-

rect the Bank to charge it off, and that

is what happened in this case. Mr. Ka-

minski was unable to refinance it or pay

off the loan prematurely, and the Bank was

then directed to charge it off as of De-

cember 31, 1974.

In June, 1975, Kaminski caused CCC to

assign to the Bank all of CCC's partner-

ship interest in the Amidon lands to in-

Sure repayment of the $47,500 loan. The

evidence was that some portion of the

lands had been sold and that, when the

proceeds are disbursed, CCC will realize

$72,000. That had not happened by the

elle

time of trial and, in the meantime, the

Bank sued on the note. In August, 1975

Kaminski allowed an uncontested, default

judgment to be taken by the Bank against

ccc and himself, in the full amount of

the note plus accrued interest.

Mr. Kaminski testified that he never

intended to injure or defraud the bank.

There was no evidence to the contrary.

He testified that the loan was made with

intention to repay it, and no reason was

shown why that expectation was unreason-

able.

Count 7. In addition to loan files,

Nelson's examination included a review of

other Bank expenditures made to or for

the benefit of the defendants to see if

any met his “self-dealing"™ critera. The

Bank records disclosed that during the

period from December, 1973 to July, 1974

the Bank had received monthly statements

from Stanley Gibler, billing the Bank for

its portion (one-third) of the expense of

a feed lot study he was conducting. In

payment of those statements the Bank had

issued a series of checks totaling $3,866.

99. It was Nelson;s belief that this was

not a proper Bank expenditure since no

benefit inured to the Bank; accordingly,

these payments became the subject of

Count 7 of the indictment which charged

that during such period Mr. Beran, with

intent to injure and defraud the Bank,

did wilfully misapply and convert to his

own use $3,866.99 in Bank funds by caus-

ing that sum to be paid to Gibler.

Testimony established that the idea for

ale

a feed lot study originated with Beran.

He had been involved in analysis of cat-

tle-feeding operations in association

with a professor of the Agricultural Col-

lege at the University of Nebraska. In

their opinion, Midwestern farmers and

ranchers were losing a large amount of

potential income because they were not .

"finishing-out" the products they raised.

His study of North Dakota revealed that

only seven percent of the cattle and feed

grown and raised there were retained,

while meat for consumption was being im-

ported from other places. He felt that

improved efficiency in finishing cattle

would be of great help to ranchers and

feeders in the areas of the banks(three)

he was part owner of, and that partici-

pation by those banks in conducting a

feed survey would benefit the communities

they served. Beran felt that anything of

economic benefit to its customers would

be of benefit to the Bank, particularly

if it was the sponsor; and the banks, as

lenders, would further benefit by gaining

additional knowledge of this business.

Beran therefore proposed to the boards of

directors of all three banks he was in-

volved in that they sponsor such a survey

and share equally in the cost.

Beran explained his proposal to the

board(he was then a director) of the Bank

at Belfield, in great detail, on November

15, 1973. He also went through the pro-

gram very thoroughly with the Bank's at-

torney for about two hours prior to the

board meeting. After lengthy discussion,

the Bank's directors all approved of the

-13-

plan and of the Bank's participation in

it, and they authorized disbursement of

such funds as were required to pay one-

third of the cost.

Mr. Gibler, who formerly had been man-

ager of a car-wash business in which

Beran had an interest in Grand Island,

Nebraska, was asked by Beran to conduct

this feasibility study. Gibler had no

previous experience in conducting cattle-

feeding surveys, but he had a farming

background. He understood he would be

paid a consultant fee to be shared by

each of the three banks involved.

Gibler did conduct the feed lot feasi-

bility study and monthly billed each bank

for one-third of his consultant fee, trav

el, office, and other expenses incurred.

At his own suggestion, which was agreed

to by Beran, he rented, for $300 per month

an office in the building at Grand Island

which house the car-wash. Rer.tals were

paid to the owner of the car-wash business.

Mr. Beran was one-third owner of a corpo-

ration that owned 15,000 shares in the car

wash corporation, of a total of 52,000

shares, so he indirectly owned about 9

percent of that business.

Gibler traveled extensively attending

seminars and visiting cattle-feeding oper

ations in Texas, Iowa, Colorado, and Neb-

raska. He made two trips to North Dakota.

He found that although North Dakota and

Nebraska had plenty of grain and feeder

calves, cold weather forced the feeder

business into the southern states. Gibler

concluded based on his visits, studies

and comparisons, that confinement feeding,

-14-

in a particular type of unit(the “Morton

Building") designed and then being effi-

ciently operated by Iowa Beef Packers at

Denison, Iowa, appeared to offer the hest

solution. He so reported and recommend-

ed, both in person and by memorandum, to

the board members of all three banks. In

addition, at the end of the study, he

spoke at a town-hall meeting in Belfield

attended by about 30 local farmers and

ranchers, at which he reported his find-

ings and conclusions. No obvious benefit

to the Bank, such as loans made to ranch-

ers to finance the building of confine-

ment units, thereafter occurred because

local interest waned due to soaring con-

struction costs and plummeting cattle

prices.

Nelson's criticism was that the money

was wasted because Gibler was unqualified

and the amount paid for office rental was

excessive. The government's contention

was that Beran was guilty of conversion

Since he was part owner of the car wash,

and the consultant fees paid helped main-

tain Gibler, one of his former employees.

In an effort to prove the banks were over-

charged on rental, the government offered

the testimony of a young salesman of a

real estate company in Grand Island, Neb-

raska. Over objection, he was allowed to

state that space of the same dimensions

was available for $50.00 to $75.00 a

month at a savings and loan office build-

ing in Grand Island. He had only been a

salesman for about one year, had never

seen the office rented by Gibler, was not

familiar with what was included with rent-

-15-

al in the office building he used as a

comparison, had not considered such fact-

ors as location, parking, traffic, acces>

ibility to freeways, convenience or length

of the lease, and he had never testified

before. Moreover, his testimony was en-

tirely hearsay. It was established that

Gibler's rental included furniture, tele-

phone, business machines, filing cabinets

and all utilities.

Beran never personally received a dime

of the funds paid to Gibler by the Bank.

In fact, Gibler's absence as manager of

the car wash cost Beran his investment in

that company. Beran hired Gibler rather

than a university expert because several

university-sponsored feed lot studies had

resulted in operations which went bankrupt,

and he wanted a fresh, practical approach.

Beran said his intent in this transaction

was to improve the economy of the comm-

unity and to benefit the Bank, not to in-

jure or defraud it.

Beran's 17% share of undivided profits

in the Bank during the period of these

disbursements was approximately $13,000.

There was no evidence that this expense

was prohibited by or in violation of any

law, banking rule, regulation, or inter-

pretation of the Comptroller. The trans-

action was carried out without any conceak

ment or falsity and with the express,

prior, and knowledgeable approval of the

Bank's board of directors.

Count 8. Nelson found that the Bank had

purchased on September 20, 1973 a 1974

Cadillac coupe automobile for $8,410 which

-16-

was in use by Mr. Kaminski, The car was

owned by and titled to the Bank, and was

carried as an asset on the hooks of the

Bank. However, since it was not primar-

ily kept on Bank premises but most of the

time was in Kaminski's possession at his

Denver, Colorado residence, Nelson criti-

cized this purchase as a non-Bank expend?

ture and instructed the Bank's president

to remove it from the books. That was

done, and Mr. Kaminski paid the Bank its

purchase price and took title to the car.

The board of directors had expressly

approved the purchase of this automobile

on September 20, 1973. In spite of board

approval and the fact that it was carried

as a fixed asset of the Bank, Nelson “felt

that the expense should be paid back since

the car was not benefiting the Bank direct

ly." Nelson said it was not unusual for

a bank to own a car, but it was customary

to keep it at the bank. No one claimed,

nor was it shown, that this purchase was

unlawful or in violation of any banking

rule, regulation or interpretation of the

Comptroller of the Currency. In the exer

cise of his discretion, Nelson simply

"recommended that the board request this

expenditure be restored to the Bank's

books."

Kaminski denied any intent to defraud

or injure the Bank in connection with the

purchase or use of this car. He used it

to visit ranchers in the Belfield area,

encouraging them to make deposits and do

business with the Bank. He called on

numérous people for four months after the

«17«

purchase of the automobile, and during

that period deposits of the Bank increased

by $600,000. Deposits in the preceding

eight months had only increased by $200,

000, and deposits for the entire two-

year period following the divestiture re-

quired by Nelson increased by only $600,

000. 1973 was the best year ever for the

bank. This transaction was the subject of

Count 8 of the indictment, accusing Kam-

inski of misapplication of $8,954.00.

Count 9. To help resolve disputes which

arose in their acquisition and financing

the Belfield Bank stock, petitioners em-

ployed an attorney who billed them $1,000

for his assistance in those matters.

Since his services helped resolve the

ownership question and put an end to un-

rest among Bank employees (who were un-

certain of their tenure because of an on-

going control dispute) petitioners felt

his bill was properly a bank expense. The

Bank paid this portion of the lawyers fee

and did so with express prior approval of

the board of directors. Count 9 of the

indictment charged both petitioners with

misapplication of $1,000 in Bank funds as

a result of that payment.

Although this disbursement was, conced-

edly, not prohibited by or in violation

of any law, banking rule, regulation or

interpretive ruling of the Comptroller,

examiner Nelson criticized it since work

was not done directly for the Bank. "It

was more of a personal nature rather than

bank business," and he requested that it

be restored to the Bank. Petitioners

~18-

complied with the request and reimbursed

$1,000 to the Bank.

On the date of this alleged misapplica-

tion, both defendants were directors, and

Beran was president of the Bank. Their

combined ownership in the Bank was 34%,

and the amount of current earnings and

undivided profits of the Bank to which

that interest was then entitled equaled

$19,000.

Count 10. Count 10 of the indictment

charged both petitioners with wilfully

misapplying $12,000 of Bank funds by

fraudulently, with intent to injure the

Bank, causing those funds of the First

Insurance Agency of Belfield to be paid to

themselves on August 24, 1973.

The evidence showed that this insurance

agency was owned by the Bank. The agency's

income was generated by earned premiums

and commissions. Every 6 months its pro-

fits would be put into earnings of the

Bank. Petitioners purchased this agency

on the date its funds were allegedly mis-

applied. The previous day, they had ac-

quired controlling interest in the Bank

and both had become directors.

Sale of the agency to them on August

24th was discussed with and approved that

day by the Bank's board of directors,

however no price was then set nor were any

sale documents executed. At a subsequent

board meeting on October 18, 1973, a pur-

chase price of $9,000, the highest of two

appraisals. was agreed upon. On December

-19-

21, 1973 a Bill of Sale was delivered by

the Bank to Belfield, Inc., a corporation

petitioners had formed on September 9,

1973 for the purpose of separate ownership

of the agency, and on December 26, 1973,

they paid the purchase price of $9,000 to

the Bank.

At petitioners request, the following

transfer of funds was made: On August

23rd, $10,655.75 was withdrawn from the

Bank's earnings account and was deposited

into the checking account of the First

Insurance Agency which had an existing .

balance of approximately $2,000. Of that

$10,655.75, $7,655.75 represented premiums

due to the Bank from earnings of the

agency. A check was drawn August’ 24th on

the First Insurance Agency account, pay-

able to Beran-Kaminski and Associates, in

the amount of $12,000.

Nelson was critical of this transaction

because at the time of this transfer no

sales price had yet been established nor

had the sale formally been consummated.

On March 5, 1974 he requested that $7,655.

75 (the amount due the Bank from earnings

of the agency) be restored to the Bank.

In compliance with that request, the peti-

tioners three days later on March 8th,

reimbursed $7,655.75 to the Bank.

Petitioners claimed the withdrawal of

$12,000 was not to defraud or injure the

Bank, but was to partly defray the $30,

000 expense of organizing Belfield, Inc.

and qualifying it as a holding company.

Formation of a haqlding company, which

defendants helieved would be of benefit

to the Bank and its shareholders is bath

time-consuming and expensive, requiring

Federal Reserve Board approval. Success

meant that Belfield, Inc. would own con-

trolling stock interest in the Bank as

well as the agency.

The sale of the agency meant the $9,000,

concededly a fair price, was profit to

the Bank. There was no false entry or

concealment of any kind in connection

with the agency sale or transfer of Bank

earnings attributable to is profits. On

the date of this alleged misapplication,

the petitioners owned 66% of the Bank,

and that percentage of the Bank's then

current earnings and undivided profits

entitled them to $18,000. Nelson admitted

that that this disbursement was not made

in violation of any law, banking rule or

regulation or directive of the Comptroller

known to him.

Counts 11 and 12 charged that Kaminski

and Beran caused the Bank to reimburse-

ment them for expenses which they claimed

were incurred on behalf of the Bank but

which, the government alleged, were purely

personal.

These expenses were reviewed and ap-

proved by the Bank's board of directors |

as they were incurred, and the board fur-

ther gave express approval on December 20,

1973 when they were paid. On that date

Kaminski received an expense reimbursement

check from the Bank for $2,674 and Beran

-21-

received one for $1,224. The funds for

which petitioners sought reimbursement

had been paid out by them during the pre-

ceding five months and, they contended,

were incurred in connection with Bank

business. Beran lived in Grand Island,

Nebraska, and Kaminski lived in Denver,

Colorado. Included in their expense lists

were such items as mileage, food, and

lodging to attend board meetings and other

trips to Belfield on Bank business.

Nelson questioned these expenses, es-

pecially one or two items incurred prior

to time petitioners became directors.

Nelson agreed that payment of these ex-

penses was not i* violation of or prohib-

ited by any law, bank regulation or rulim

of the Comptroller, but he said it was an

"unusual practice" for a Bank to pay ex-

penses in connection with negotiations

for control of the bank. Directors are

usually paid expenses, he said, but the

customary practice is to pay all direct-

ors equally regardless of personal circum-

stances, such as the distance one must

travel.

Feeling that these should more properly

be treated as personal rather than Bank

expenses, Nelson recommended that the

funds be restored to the Bank, and the

defendants promptly did so in full. On

the date the Bank disbursed these two

expense checks to petitioners, their com-

bined share of then current earnings and

individual profits of the Bank amounted to

$19,000.

x & &

-22-

It was never alleged nor shown that the

Bank failed or that the petitioners did

anything to impair its capital structure,

No depositor suffered a loss and none of

the acts alleged to be improper placed

the deposits or assets of the Bank in

jeopardy. The evidence established that

every year since the petitioners acquired

control, the deposits and earnings of the

Bank had increased. It was, and still is

in “excellent shape."

After the government rested, the defense

moved for judgment of acquittal on all

counts. The reasons urged for acquittal

on counts 7 through 12 were:

a) the government had failed to prove,

in every instance, a misapplication of

funds, i.e., an “unlawful taking or con-

version." All loans and disbursements in

question were made lawfully to financially

responsible people, without concealment

or false entries, and were not made in

violation of any banking regulation.

There was no unlawful taking originally

and could be no misapplication since upon

authority and with valid consent of the

board of directors, no conversion took

place. Accordingly, the crucial element

of a "misapplication" was absent;

b) there was no proof whatsoever of a

specific, wilfull intent to defraud the

Bank. To the contrary, evidence that all

of the criticized expenditures were repaid

(recognizing that re-payment itself is not

a defense once misapplication has taken

place) negates evil intent; and

-23-

c) there was no loss to the Bank (rec-

ognizing that none need occur if a misapr-

plication is likely to cause one) because

the Bank's capital was never in jeopardy

and, as owners of controlling interest in

the Bank, the petitioners were at all

times entitled to, as their share of un-

divided profits and current earnings of

the Bank, more money than was allegedly

misapplied.

In denying acquittal on all but Count l

of the indictment, the trial Court said:

"The granting of such a motion at

the close of the government's case

is generally not desirable, because

an appellate Court is denied refer-

ence to a verdict which in many cases

allows a final disposition of the

case on appeal..........

"The standard to test a Rule 29

motion is:...'the trial judge must

determine whether upon the evidence

-++ a reasonable mind might fairly

conclude guilt beyond a reasonable

doubt.' (emphasis supplied).”"

The judge found there was "some evidence’

to support each of the essential elements

of those counts. Then he said (apparently

being concerned only about the prejudicial

effect of Count 1 evidence on the remain-

ing counts, rather than whether the proof

as to them met the test):

".,.Without passing on whether there

is enough evidence to meet the stand-

ard set out above, I find that the

-24-

extreme risk of prejudice does not

exist among these counts, since each

transaction is separate and distinct.

Therefore, I find that as to counts

two through twelve, to grant a motion

for judgment of acquittal at this

time would be premature." (Emphasis

supplied).

At the close of all evidence, petition-

ers again moved for judgment of acquittal

on all counts for the reasons previously

urged in light of the case presented by

petitioners who testified.

Both are honorably discharged veterans

of the United States Air Force. Neither

has ever before been arrested, convicted

or even accused of any crime in any de-

gree. Mr. Beran, age 53, is married, has

six children, lives in Grand Island,

Nebraska, and his background is in busi-

ness and banking. Mr. Kaminski, age 42,

is married with six children, lives in

Denver, Colorado, and his business back-

ground is in sales, real estate and in-

surance.

Each defendant produced five character

witnesses from throughout the country, all

of whom were unimpeached and testified

that both defendants enjoyed excellent

reputations, not only where they live but

in the Belfield, North Dakota community

and in business and banking circles else-

where, for honesty and fair dealing,

truth and veracity, and for being law-

abiding citizens.

Among Mr. Beran's character witnesses

-25-

were a CPA, a Priest, a policeman, a

shareholder and customer of a Nebraska

bank which Mr. Beran was president of,

and the former Governor of South Dakota

who owned 15 Midwest banks and was well

acquainted with Mr. Beran'’s reputation

in banking transactions.

Among Mr. Kaminski's character witnesses

were a teacher, two Belfield ranchers, a

real estate broker and an attorney and

CPA.

Defense counsel argued that not only was

there an absence of proof, direct, circum-

stantial or inferentially, of any intent

to defraud the bank, there was now pos-

itive evidence in the record of petition-

ers' good faith and their excellent rep-

utations for all character traits material

under the indictment. The trial judge

felt he was "in a situation of Rule 29(b),

"F.R.C.P., and said "I reserve my decis-

ion on the Motion until I see the action

of the jury." The motion was ultimately

denied.

B. Facts material to a consideration

of jurisdiction to grant a new trial.

Upon receiving the verdicts at 10:30 p.

m. on January 9th, the court, without

ruling on the pending motion for judgment

of acquittal, recessed the case subject

to call. No motions were made at that

time or within seven days thereafter.

No further action occurred in the case

until on February 11, 1976, the government

=26-

filed a memorandum urging denial of the

still-pending motion for acquittal upon

which judgment had heen reserved under

Rule 29(b). Petitioners responded to that

by filing a “Memorandum In Support of

Motion for Judgment of Acquittal."

Defendants’ memorandum observed

new trial had been requested se igee ”

acquittal motion, which they believed

meritorious, had not yet been ruled upon

and, should the verdicts be set aside by

the granting of that motion, it would not

be necessary to move for another trial.

The memorandum, however, did urge that the

guilty verdicts were against the greater

weight of the evidence and that prejudic-

ial error had occurred in the giving of

instructions, all of which would require

a new trial. Defendants therefore asked

that, should the motion for judgment of

acquittal be denied, the court then order

a new trial in the best interests of just-

pa SP cs defendants waived any claim or

rivilege against double j; j

same be ordered. TTS eT

In an Order entered March 15th(over two

months after verdict) the court first made

this comment:

“The trial Judge did not agree with the

gua tty verdicts handed down. (emphasis

ours. :

The court, however, then denied the

motion for judgment of acquittal on all

counts on which guilty verdicts were re-

turned, finding that there was evidence

in the record on each element of the of-

a27@ ,

fenses sufficient to justify submitting

the matter to a jury. The court also

denied the alternative motion for a new

trial upon the jurisdictional grounds

that it had not been filed within seven

days after the verdicts.

Petitioners then moved for a mistrial

or (again) for a new trial contending

that the court had not lost jurisdiction

to order a new trial so long as it had

under consideration a motion for acquittal

undetermined under Rule 29(b). The new

trial aspect of this motion was denied,

again on jurisdictional grounds.

C. Facts material to a consideration of

whether the failure to give crucial in-

structions was substantial error requiring

a new trial.

1. Consent by the board. Defendants'

Tendered Instruction No. 13, refused by

the trial court and nowhere else covered

by the instructions as given, read as

follows:

"A defendants use of the proceeds

of a loan not shown to have been

unlawfully or improperly made under

banking laws or regulations, does

not constitute misapplication of

bank funds unless some conversion

takes place."

"Consent to a lawful loan by the

bank's board of directors is a de-

fense to the crime of wilfull mis-

application of funds based on such

loan, since there can be ng conver-

sion of funds if there was valid

consent by the hank or its hoard of

directors."

The judge rejected the first paragraph

of this instruction as being "too bland",

and the second paragraph as "not good law’

Defendants' Tendered Instruction No,

17, also refused in its entirety and no-

where else covered in the instructions as

given, read as follows:

"The board of directors of a nation-

al bank has authority and discretion

to extend credit or make loans to

bank officers, directors, its em-

ployees and stockholders,

"A lawful loan or other bank expend

iture alleged by the government to

be a conversion of bank funds is not

a wrongful misapplication if the

board of directors, knowing the

facts, approved such loan or ex-

penditure, even though it may be in

bad judgment to do sc."

The judge felt this was also bad law.

2. Maladministration compared with

misapplication.

The portion of Defendants' Tendered

Instruction No. 3, which was rejected and

nowhere else covered in the instructions

as given, read as follows:

"The misapplication condemned by

statute is something more than ir-

-29-

regular or improper use of the

bank's funds; fraud must be found

and some unlawful taking or unauth-

Orized conversion of the bank's

funds must take place.

"Acts amounting to maladministra-

tion, neglect of official duties or

indifference to the interests of

the bank do not constitute crim-

inal misapplication of funds.”

3. Good Faith Defendants' Tendered

Instruction No. 7, which was refused,

read as follows:

"Fraudulent intent is the essence o&

the offenses with which the de-

fendents are charged. In order

to establish fraudulent intent

on the part of a person, it must

be established that such person

knowingly and intentionally at-

tempted to deceive.

"Good faith constitutes a complete

defense to one charged with an

offense of which fraudulent intent

is an essential element. Each

defendant maintains that he acted

in good faith and, although he

doesn't have to prove this, if you

believe this, or if you entertain

a reasonable doubt as to whether

he acted with the requisite intent,

it is your obligation to find him

not guilty.”

Instead, the court gave a pattern in-

struction on the burden of proving good

-30-

faith and a stock stock instruction (ob-

jected to) on "motive" which, in part,

said: "Good motive alone is never a de-

fense where the act done or omitted is a

crime. So, the motive of the accused is

immaterial..."

4. Probability of Loss to the Bank.

Since the evidence established that in all

instances, except the Count 6 $47,000

loan, petitioners were entitled to take

earnings and undivided profits of the

Bank greater than the sums allegedly mis-

applied, they requested (and they court

rejected) an instruction to the jury

that:

"...Should you find from the evi-

dence that as a stockholder, a de-

fendants share of the Bank's un-

divided profits and accumulated

earnings exceed the amount dis-

bursed by the Bank for payment of

expenses deemed personal and im-

proper by the Government, then there

is not a sufficient probability of

loss to depositors of the Bank from

which the necessary intent to de-

fraud or injure the bank might be

inferred..."

D. Facts material to a consideration of

whether the prejudicial effect of

Count 1 evidence compels a new trial

The evidence offered to prove Count

1 not only showed, incidentally, that

the petitioners defaulted on substantial

-3l-

bank stock loans at Marquette and North-

western National Banks, it hinted of

other improper conduct on their part in

connection with the sale by petitioners

of part of their bank stock to approx-

imately 40 residents of the Belfield

area, all of whom were prosecution wit-

nesses.

Each Belfield purchaser and the peti-

tioners as sellers, signed a letter

agreement wherein the purchaser author-

ized petitioners to pledge or hypothe-

cate and deliver to the Marquette bank

all of the shares being purchased, as

collateral to secure defendants’ bank

stock loan. Most of the Belfield area

investors were farmers or ranchers, and

even though they had signed such letter

agreements, many of them testified that

they did not know the shares they were

purchasing were then pledged and would

continue to be held as collateral for

petitioners' loan at Marquette. Most did

not know why they had only a copy instead

of an original stock certificate.

The investor witnesses testified to

various oral representations made, pri-

marily by Kaminski, in connection with

their stock purchases. Some said they

were promised a 60% return on their in-

vestment within a three-year period be-

cause the petitioners planned to form a ~-

holding company, purchase other banks,

and dividends from those banks would pro-

vide them return of capital.

Many either did not read the agree-

=32-

ments they signed or, if read, did not

understand them. Some said Mr. Kaminski

talked very briskly and made a smooth

sales pitch. Qthers said no high pres-

sure was used. Some thought they could

negotiate their stock at any time.

Each investor was asked on direct

examination whether he or she had ever

received any dividends, and each replied

no .

Several of the witnesses testified

that they understood their Stock was to

be pledged for a loan the purpose of

which was to start a holding company.

One or two of them were under the im-

pression that the money they used to pur-

chase this stock would be guaranteed by

the Federal Deposit Insurance Company.

Many of them thought they were buying

stock in the bank from the bank itself.

Several said they would never have

bought the stock if they had known it

was pledged.

The express purpose and effect of the

testimony and innuendo elicited through

these witnesses was to prejudice the de-

fendants by suggesting that they:

- made misrepresentations to local

investors:

- improperly sold bank stock;

- falsified stockbook records;

- sold stock at inflated prices;

733+

-failed to deliver certificates to

stock purchasers;

-improperly pledged shares helonging

to others;

-cheated the local residents and

caused them to lose their invest-

ments;

-failed to pay and defaulted on

large loans at the Marquette and

Northwest National Banks; and

-failed to pay and defaulted on

notes given to local investors.

After judgment of Acquittal was

granted on Count 1, the defense, in

light of all testimony concerning de-

faults, misrepresentations and broken

promises outlined above, requested the

court, before defendants presented their

case and again in final instructions,

to charge the jury (in accordance with

Defendants Tendered Instruction No. 1

(Refused) that evidence presented on

Count 1 must be ignored by them in their

deliberation upon the counts ultimatel

submitted. However, the court nly

vised the jury “to disregard all evi-

dence received previously insofar as

that evidence deals only with Count 1."

Since no Bank funds were involved such

evidence was not evidence of similar acts

or wrongs and was not admissable, nor

did the Court allow it or intend it to

be considered by the jury for such pur-

pose, The trial judge properly excluded

it on that theory and gave no instruct-

ion on evidence of “other crimes." The

judge meant to instruct entirely to the

contrary. He did not do so adequately.

Defendants, of course, never had the

opportunity to rebut this evidence since,

by the time they testified, Count 1 had

been dismissed and such matters were not

revelant, but Government counsel were

permitted to cross-examine defendants’

character witnesses from Belfield on

those matters, over objection, on the

theory that these several defaults were

material on the good faith and specific

intent issues on the remaining mis-

application counts.

There is no dispute that this evi-

dence was intended to be prejudicial and

influence the jury's consideration of

guilt or innocence on Counts 6 through

12. In response to defense objections

which complained of testimony solicited

in this area, and which anticipated the

Government's jury argument, the pros-

ecutor told the Court: “There's abso-

lutely no question I'm attempting to

prejudice these defendants... I intend to

show that these defendants by a dishonest

act entered all of that stock in their

own name rather than in the investors...

(who had purchased stock)... it speaks

to their truthfulness in dealing with the

Bank..." The Government got it in de-

spite the judge's ruling that "it cer-

tainly is not admissable on that theory",

because the prosecutor, over objection,

was permitted to argue to the jury that

defendants' dealings with the Minnesota

"349

banks and the Belfield stock purchasers

evidenced and impeached their protesta-

tions of impeccable reputation, truth,

a mel ory faith in the trans-

actions involved in the counts submi

to them for determination. wigs

__The prejudicial effect of Count 1

evidence was the subject of defendants’

Motion for Mistrial filed subsequent to

the trial court's denial of their motion

for judgment of acquittal after verdict,

The basis for mistrial urged was that

the evidence received on Count 1, which

was in no way relevant or material to

the misapplications alleged in counts 2

through 12 and would not have been admis

sable had those counts been tried separ-

ately, was so prejudicial that it could

not be ignored by the jurors and had a

substantial effect upon their verdicts

So as to deprive the defendants of a

fair trial. Defendants had not moved

for a severance of counts, having no

pre-trial basis to gauge the prejudice

but asked the Court to declare a mis-

trial under Rule 52(b) F.R.C.P. as a

defect affecting substantial rights.

This motion further reminded the trial

judge that he himself had acknowledged

the prejudice when, in granting the

motion for acquittal on Count 1 at the

close of the Government's case, he said:

"But more than half of the three

weeks of trial, and more than half

of the evidentiary material is ad-

dressed to the charge in count one

--ethe government Clearly realized

-36-

the cumulative effect, or blending

effect, of the dollar amounts in-

volved in count one.

"So I conclude not only that the

evidence adduced as to count one

cannot sustain a jury verdict of

guilty, but also that if such

evidence were allowed to go to the

jury, it would have a substantially

prejudicial impact on the jury's

consideration of the other counts."

This evidence was also the subject of

the second Motion for New Trial filed by

petitioners after the court had ruled

that the verdicts would stand. Things

developed rapidly after trial, and had

this case been tried 90 days later, the

evidence would have shown that all loans

and notes were paid and ali Belfield in-

vestors were fully satisfied; that no

Belfield investor lost any money; that

all investors received what was promised,

including their stock certificates; that

all Beran and Kaminski notes were paid;

that the Northwest National Bank was

paid; that no foreclosure was threatened;

that nothing was pledged and that noth-

ing was in default. That evidence, we

contend, would substantially affect the

verdict of a jury and would result in a

different outcome than was reached here.

Even if the Government could not offer

this new evidence, the defendants could;

but even if it was totally inadmissable

upon retrial, at least a new jury would

«37@

not hear the damaging evidence which

was presented before.

REASONS POR ALLOWANCE OP WRIT

A. Denial of Judgment of Acquittal

Petitioners assert that the Court of

Appeals has sanctioned a departure by

the trial court so far from the accepted

and usual couse of judicial proceedings,

in refusing to apply the recognized

standard to test evidence, so as to call

for an exercise of this Court's power of

supervision.

The misapplication condemned by

statute means more than mere maladmini-

stration. It must be a wilfull misap-

plication with intent to injure or de-

fraud the bank. Evans v. United States,

153 U.S. 584 (1894). And the taking must

be unlawful or some conversion must take

place. Accordingly, if the application

was not itself an illegal act, i.e. in

violation of some provision of law, bank-

ing rule or regulation, there can be no

criminal misapplication unless the proof

shows a conversion, i.e. an unauthorized

assumption and exercise of control under

circumstances where consent should have

been sought and given. Accordingly, if

a disbursement not unlawful is made with

the knowledge and valid consent of duly

authorized officers or directors cof a

bank, there can be no conversion and,

therefore, no crime under the statute.

United States v. Britton, 107 U.S. 512

(1883); Mulloney v. United States, 79

-~38-

F.2d 566 (1 Cir.1935); United States v,

Sorensen, 330 F. Supp.642 (D.C, Mont.

1971).

The evidence established that in

every instance on the counts in question,

the disbursements were lawfully made and

not prohibited by or in violation of any

rule or regulation governing national

banks. The fact that examiner Nelson

questioned these transactions and felt

they involved "self-dealing"” or "unsound

banking practices" or expenses paid

which were "personal" in nature, does

not make them unlawful nor constitute

them criminal misapplications. An offi-

cer appointed by the Comptroller to ex-

amine the affairs of a national bank does

have certain discretion to direct that

doubtful assets be collected or charged

off, but his characterization does not

alter the legality of the original ap-

plication.

Every disbursement involved in this

case was expressly approved by the know-

ledgeable, valid consent of the Bank's

beard of directors. In every instance

approval was by a majarity of members not

disqualified hy reason of interest or

otherwise, and there was no evidence

whatsoever that the defendants attempted

to over-reach or unduly influence the

vote of any board member in these matters,

There was no unauthorized conversion of

funds involved in any count of this

indictment.

The Government must prove beyond a

reasonable doubt, as an essential element

of the offense, that the defendants

acted knowlingly, wilfully and with the

specific intent to injure or defraud the

Bank. Proof of such intent may sometimes

be inferred from conduct such as reckless

disregard for the Bank's best interests

as, for example, where a loan officer

tells a horrower that he will not have

to be responsible for the note he signed.

Proof of such intent is sometimes sup-

plied by evidence of concealment, or of

a fictitious borrower, or that false en-

tries were made in documenting the trans-

action; but the requisite intent cannot

be presumed, for instance, by the mere

fact that a loan remains repaid, and

there was no falsity or concealment in

this case.

The evidence may, in fact, as it did

in this case, negate an intent to defraud

For example, a loan made to one financiak

ly responsible upon the belief and with

the reasonable expectation that it will

be paid evidences good faith rather than

a reckless disregard, And, although the

making of restitution may not be a de-

fense to misapplication once committed,

repayment does demonstrate a lack of in-

tent to injure the Bank,

Not one speck of evidence in this case

established that the defendants acted

with intent ta injure or defraud the Bank,

nor were there circumstances from which

one reasonably could infer such intent.

The positive evidence and all justifiable

inferences were to the contrary.

“40+

Although no actual loss to the Bank

need be shown, it must be established

that a sufficient probability of loss

existed and that the Bank was, at least

momentarily deprived of its funds.

Sorensen,supra.

At no time, in respect to the quest-

ioned transactions, was there sufficient

probability that a loss to the deposit-

ors would occur. The capital account

was never depleted nor were deposits

ever in jeopardy. Not only that, but

the Bank had, over and above its

capital account, funds which represented

current earnings and undivided profits--

owned by its shareholders. None of the

criticized expense payments exceeded the

amount of such earnings and profits to

which defendants were entitled by reason

of their stock ownership. There was,

therefore, no loss to the Bank, nor was

there a sufficient probability of loss to

the depositors of the Bank. The Bank

always was, and still is, sound.

The Mandate of Rule 29 is that:

"The Court on motion of a defend-

ant... shall order the entry of judgment

of acquittal,...,after the evidence...is

closed if the evidence is insufficient

to sustain a conviction of such offense. ."

The standard to test a Rule 29 motion

announced by the lower court was:

"In passing on a motion for a

directed verdict of acquittal, (the trial

judge) must determine whether upon the

~41-

evidence, giving full pay to the right

of the jury to determine credibility,

weigh the evidence, and draw justifiable

inferences of fact, a reasonable mind

might fairly conclude guilt beyond a

reasonable doubt,”

It is for the trial judge to first

determine whether the evidence meets that

test. In considering the evidence and

inferences under the standard announced,

the trial judge, as a reasonable person,

was bound to acquit if he could not him-

self fairly conclude guilt beyond a

reasonable doubt. He could not, and did

not.

When the motion for judgment of ac-

quittal was fjrst made after the Govern-

ment rested, the trial judge recognized

that the was obligated to follow the

mandate of Rule 29, but then he refused

to apply the very standard he said must

be used to test the evidence--"Without

passing on whether there is enough evi-

dence to meet the standard set out above

-+-" We respectfully submit that had

the judge tested the evidence by that

standard, as he was obligated to do, no

count would have survived.

The motion for Judgment of Acquittal

was again made at the close of all evi-

dence in the case, and, at that point,

the sufficiency of the evidence to sus-

tain a conviction should have been deter-

mined by an examination of the entire

record. Defendants‘ motion was then even

stronger than when first made. There was

-42-

positive and uncontradicted evidence of

lack of intent to defraud, good faith

and and good character, Even if the

jurors were entitled to disregard the

testimony that the defendants never in-

tended to injure or defraud the Bank,

they could hardly ignore the testimony

of excellent reputation for truthfulness,

honesty, fair dealing, and being law-

abiding which alone was sufficient to

generate a reasonable doubt. Defendants

supplied no deficiencies in the Govern-

ment's case and were, at this juncture,

again entitled to full acquittal.

The court's order of March 16, 1976

stated, as grounds for denying the motion,

that he found in the record some evidence

as to each of the separate elements.

That is not enough. He must have been

convinced that a reasonable mind could

find guilt beyond a reasonable doubt.

He was not so convinced. To the contrary,

as appears from his order, he felt the

defendants should have been found not

guilty. With that as his analysis of the

evidence under the applicable standard,

che mandate of Rule 29 required the

trial judge to order entry of judgment

of acquittal, not-withstanding the ver-

dicts.

B. Jurisdictional to Grant a New

Trial.

Petitioners assert that it is

important for this Court to interpret

Rule 33 so as not to deprive a trial

judge of jurisdiction to order a new

-43-

trial while he still retains power to set

aside a jury verdict. We do not believe

that the rules were otherwise intended,

and to so construe them does violence to

reasoning.

The reason given for 7-day time limi-

tation of Rule 33 is so that matters re-

lating to the trial might be called to

the courts' attention while the evidence

is still fresh in mind. When a case re-

mains under consideration after verdict

under Rule 29(b), the issues, presumably,

are never out of mind,

While a Motion for judgment of Acquit-

tal, upon which decision has been re-

served pursuant to Rule 29(b), remains

pending and unresolved, the time for fil-

ing a Rule 33 motion is stayed. Although

verdicts may have been returned by the

jury and entered by the clerk, the court

has power to accept or reject them. And,

petitioners contend, until a Rule 29(b)

motion is resolved, the court has not ac-

cepted the verdicts and the time limita-

tion is tolled. We say, in effect, that

the court itself has, without application

by counsel, extended the time under Rule

33, and, unquestionably, it has power to

do so.

A judge vested with power to set aside

verdicts for insufficiency of the evidence

should have no less power to do so if the

verdicts are contrary to the greater

weight of the evidence; and if a defend-

ant has invoked that power by moving for

an acquittal, he should not be required to

~44-

compromise his position by requesting the

less desirable alternative of another

trial whereas an acquittal might other-

wise have resulted,

In this case, although he did not say

so, the implication is that the judge

might have granted a Rule 33 motion had

one been filed within seven days, not

because the Court admitted to error but

because the verdicts were contrary to the

greater weight of the evidence as the

judge viewed it. He thought the petition-

ers were not guilty but believed he had

lost jurisdiction to set aside the ver-

dicts. But even though defendants had

not then moved for a new trial here, the

court itself could have granted one be-

cause, although traditionally prevented

from doing so because it places an unwil-

ling defendant in double jeopardy, in this

case the defendants had waived such privi-

lege. Moreover, the court could have

treated petitioners' Rule 29 motion as a

Rule 33 motion since it contained all

necessary ingredients.

C. Substantial Error in Instructions.

Petitioners assert that the Court

of Appeals has sanctioned a departure by

the trial court so far from the accepted

and usual course of judicial proceedings,

by ignoring decisions of this Court, so

as to call for an exercise of this Court's

power of supervision.

The propositions announced by this

Court almost 100 years ago in Britton,

supra and Evans, supra, principally as

ee OE

-45-

they relate to the significance of con-

sent by a board and of maladministration,

have been wholly rejected in this case,

The trial court refused instructions

couched in the language of Britton and

Evans as being "not good law", and the

Court of Appeals has sanctioned that.

The appellate court did pay lip ser-

vice to Evans but then totally ‘ignored it.

The opinion of the Court of Appeals does

not even discuss failure to give the in-

structions requested by petitioners. The

court simply disimsses the problem by say-

-ing, in the last paragraph, that the trial

court gave, in substance, all the instruct

ions to which the appellants were entitled.

It most assuredly did not.

The instructions requested by petition-

ers were entirely justified by the evi-

dence and were crucial to the defense.

They were not given or covered directly or

indirectly, in substance or in part, by

the other instructions, There was a lot

of evidence about board consent but there

might as well have been none. The judge

never made any finding, of fact or law,

that valid board consent was lacking, and

the jurors no doubt’ignored all evidence

that consent was given because they simply

did not know what, if anything, it meant.

D. The Taint of Count 1

Petitioners assert that the Court

of Appeals has sanctioned a departure by

the trial court so far from the accepted

and usual course of judicial proceedings,

by refusing to recognize the “manifest

-46-

necessity" of a new trial in this case,

so as to call for an exercise of this

Court's power of supervision.

Although Count 1 was dismissed and the

jurors did not deliberate upon it, even

with a proper admonition concerning that

evidence, we submit that no jury could

forget or ignore the accusations and in-

nuendos of wrong-doing which consumed so

much of the government's case.

The evidence on Count 1, which was in

no way relevant or material to the alleged

misapplications charged in the other

counts, poisoned the remainder of the case

‘ and deprived petitioners of a fair trial.

The theory of Count 1 was fatally defect-

ive, which substantially affected the

rights of petitioners and required a mis-

trial to be declared,

CONCLUSION

To the best of our knowledge, this

Court has not during this century reviewed

a misapplication of bank funds case, It

is time to reaffirm the principles of

Britton and Evans because their applica-

tion has been ignored.

This case presents an ideal opportunity

to do so. There were errors of substant-

ive law as well as in procedure which re-

sulted in unjust convictions. Had the

case been tried to the court, petitioners

would have been found not guilty.

In the interest of justice, this Court

should exercise its supervisory power to

-47-

order an acquittal or new trial.

Respectfully submitted,

/ j ;

AMES W. HEYER

Attorney for Petitioners

6825 E. Iliff Avenue #304

Denver, Colorado 80224

/;

APPENDIX

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 76-1314

United States of *

America, *

Appellee, *Appeal from the

*United States

Vv. *District Court

*for the District

Ray J. Beran and *of North Dakota.

Andrew Kaminski, a/k/a*

Andrew M. “Yaminski, *

ke

Appellants. *

Submitted: October 5, 1976

Filed: December 16, 1976

Before HEANEY, BRIGHT AND ROSS,

Circuit Judges.

HEANEY, Circuit Judge.

The appellants, Ray J. Beran and

Andrew M. Kaminski, were indicted on

twelve counts of misapplication of bank

funds in violation of 18 U.S.C. 8656.

Each of the counts charge one, ox the

other, or both of the appellants with

A-2

the misapplication of bank funds while

they were either officers, directors or

stockholders of the First National Bank

of Belfield, North Dakota. Count l

charged the appellants with misappli-

cation and conversion to their own use

of $482,000 of bank funds by selling

an unauthorized overissue of bank

stock. The alleged "“overissue" arose

out of a series of stock transfers by

the appellants of previously issued

capital stock in which the stock cer-

tificates were not properly returned

and cancelled. At the close of the

government's case, the court granted

the defense motion, under Fed. R. Crim.

P. 29, for a judgment of acquittal on

Count 1 because of a failure to prove

that monies of, or entrusted to, the

bank were involved. After the defense

motion for a judgment of acquittal as

to the remaining counts was denied, the

case was submitted to the jury which

found Beran guilty on Counts 7, 9, 10

and 12, and Kaminski guilty on Counts

6, 8, 10 and 11. Both appellants were

fined $3,000 and placed on probation

for two years with the imposition of

any additional sentences suspended.

We affirm.

I

The most serious point raised by

the appellants is whether the convic-

tions must be set aside because of the

prejudicial influence of the Count l

evidence. Ordinarily, the rule is that

error in the admission of evidence

A-3

may he cured by withdrawing

the evidence from the jury's

consideration and instructing

the jury to disregard it. ***

However, as an exception to

the general rule, where the

character of the testimony is

such that it will create so

strong an impression on the

minds of the jurors that they

will be unable to disregard

it in their consideration of

the case, although admonished

to do so, a mistrial should be

ordered.

Maestas v. United States, 341 F.2d 493

496 (10th Cir. 1965) (citations

omitted); Nash v. United States, 405

F.2d 1047, 1053 (8th Cir. 1969)

(quoting Maestas with approval). An

even more stringent rule must be

applied here because the appellants

failed to make a timely motion for a

mistrial or a new trial. We cannot

reverse unless the prejudicial effect of

the Count 1 evidence was so great that

the trial court should have ogdered a

mistrial upon its own motion.

lunder Fed. R. Crim. P 33, a

motion for a new trial must be made

within seven days after the verdict

or finding of guilty unless it is

based upon newly discovered evidence.

When the briefs were filed on the re-

consideration of the motion for a

1 continued

judgment of acquittal under Fed. R.

Crim. P. 29 on Counts 2 through 12,

the appellants did move in the alter-

native for'a new trial and offered to

waive the constitutional protection

agains double jeopardy. However, the

motion was made more than seven days

after the verdict and was not initially

based upon a claim of newly discovered

evidence. Since the time limitations

are jurisdictional, the trial court

correctly found it was without juris-

diction to consider an untimely motion

for a new trial. United States v. Pitts

508 F.2d 1237 (8th Cir. 1974); United

States v. Johnson, 487 F.2d 1318 (5th

Cir. 1974): United States v. Newman,

456 F. 2d 668 (3rd Cir. 1972); Rowlette

v. United States, 392 F.2d 437 (10th

Cir. 1968).

The appellants subsequently moved

for the reconsideration of their earlier

motion for a new trial on the basis of

"newly discovered" evidence which would

show that none of the local investors

lost any money and that most of the

notes in default at the time of trial

have since been paid. The trial court

correctly held that this does not con-

stitute newly discovered evidence. See

Wright, 2 Federal Practice and Procedure

8557 (1969).

The appellants argue that the time

within which a motion for a new trial

i ee Per

+) nee eeu «

ook he aie Pres ht, eters BB Me Nb OR ee

1 continued

must be made is tolled when the court

has before it a Rule 29 motion for

judgment of acquittal. We do not agree.

While Rule 29 motion may be combined

with a Rule 33 motion, they are ee ya

by very different standards. Id. 467

and 553. A Rule 29 motion for a

judgment of acquittal will only be

treated as a Rule 33 motion if con-

tains allegations sufficient to con-

stitute a motion for a new trial.

United States v. Baker, 432 F. 2d 994,

995 (10th Cir. 1970). The appellants'

oral motion for a judgment of acquittal

cannot be so construed. While the sub-

sequently filed "Memorandum in Support

of Motion for Judgment of Acquittal” and

"Motion for a Mistrial or for a New

Trial" do contain sufficient allegations

to constitute a Rule 33 motion, they were

not filed within the seven-day time period

2while the trial court may order a

mistrial on its own motion, its power to

do so is limited by the double jeopardy

clause of the Fifth Amendent. Only if

there is an “imperious" or "manifest

necessity" for doing so will the ordering

of a mistrial come within the recognized

exception to the double jeopardy prov-

ision. See Downum v. United States,372

U.S. 734 (1963); Wade v. Hunter, 336 U.S.

684 (1949); United States v. Perez, 22

U. S. (9 Wheat.) 579 (1824).

A-6

The appellants argue that a mis-

trial should have been ordered because

of the prejudicial nature of the Count

1 evidence itself and because of the

importance given to it by the govern-

ment. The evidence as to Count 1 showed |

that the appellants defaulted on sub-

stantial bank stock loans and on notes

of Belfield area investors, and indic-

ated that they might have engaged in

misrepresentation and other improper

practices as well in connection with

the stock transfers. It took twelve

days for the government to try its case

in chief. During the first eight days

of trial, forty-six witnesses testified

with respect to Count 1. During the

final four days of the government's case

in chief, some of the testimony given by

the remaining seven government witnesses

also pertained to Count l.

= Ot ey ae Mitel) it elt AAI thio in Od oD

On the other hand, cautionary in-

structions were given. At two points

in the trial, the court instructed the

jury "that Count 1 of the indictment has

been disposed. You are*** instructed to

disregard all evidence received previously

insofar as that evidence deals only with

Count 1." Additionally, all of the

exhibits which pertained only to count 1

were withdrawn from the jury's consider-

ation. Furthermore, the jury acquitted |

the appellants on Counts 2 through 5

which indicated that it was not so over-

whelmed by the Count 1 evidence as to be

unable to give serious consideration to

the remaining counts. It is conceded by

the appellants that

ee eee

A-7

there is no evidence of a bad faith at-

tempt by the government to prove Count 1

for the purpose of prejudicing the jury

as to the other counts. Finally, as we

will establish, there was substantial

evidence to support each of the jury

verdicts. While the matter is not free

from doubt, we are unable to conclude

that it was reversible error for the

trial court not to order a mistrial on

its own motion.

II

The appellants argue that a judg-

ment of acquittal should have been

granted as to all of the remaining

counts because the government failed to

prove criminal misapplication, a spec-

ific intent to injure or defraud the

bank, on the probability of loss to the

bank, which are essential elements of the

offense of misa plicqtion of bank funds

under 18 U.S.C $656. We disagree, a

careful review of the voluminous record

convinces us that the evidence as to

each of the counts when viewed, as we

must, in the light most favorable to the

3counts 2 through 5 alleged that

the appellants made self-dealing person-

al loans with the intent to defraud the

bank.

A-8

government and giving the government

the benefit of all favorable inferences

reasonably to be drawn from the evi-

dence,° was sufficient to sustain the

jury verdicts.

46656. Theft, embezzlement,

Or misapplication by

bank officer or em-

ployee

Whoever, being an officer,

director, agent or employee of,

or connected in any capacity

with any***bank***embezzles, ab-

stracts, purloins or willfully

misapplies any of the moneys,

funds, assets or securities in-

trusted to the custody or care

of such bank, or to the custody or

care of any such agent, officer,

director, employee or receiver,

shall be fined not more than

$5,000 or imprisoned not more

than five years, or both; but if

the amount embezzled, abstracted,

purloined or misapplied does not

exceed $100, he shall be fined not

more than $1,000 or imprisoned not

more than one year, or both.

SAfter the verdicts were returned,

the trial judge indicated he felt the

Jury reached the wrong result. Such

disagreement does not, as intimated hv

the appellants, constitute grounds fcr

anew trial or a mistrial. It is not

ee ien een

ee Ate tee.

ee ee ee ee ee

A-9

It is well established that willful

misapplication under 18, U.S.C, 8656

means more than maladministration.

Evans v. United States, 153 U.S, 584

(1894) decided under 12 U.S.C $592,

the predecessor of 18 U.S.C. $656);

United States v. Bevans, 496 F. 2d 494,

799 at n.4 (8th Cir. 1974). Conversion

of bank funds for personal use, or for

the use of another individual or corp-

oration, is encompassed within the de-

finition of criminal misapplication.

United States v. Wilson, 500 F.2d 715,

720 (5th Cir. 1974); United States v.

Bevans, supra at 497; United States v.

Kernodle, F.Supp. 844, 849 (M.D.N.C.

1973). There is evidence as to each of

the counts upon which the appellants

were convicted that there was a conver-

sion of bank funds for their personal

use or for the use of corporations in

which they possessed a substantial in-

terest.

Count 66 upon which Kaminski was

convicted, involved an unsecured $47,500

loan to a corporation he owned and con-

5 continued

for the trial judge to assess the cred-

ibility of witnesses, to resolve con-

flicts in testimony or to weigh the evi-

dence as these are jury functions.

United States v. John Hamphill, No. 76-

1484, slip op. 4 (8th Cir., filed Nov-

ember 8, 1976); United States v. Powell,

513 F.2d 1249, 1250 (8th Cir. 1975),

cert. denied, 423 U.S. 853 (1976);

United States v. Gaskill, 491 F.2d 981,

982 (8th Cir. 1974).

A-10

trolled. While the stated purpose of

the loan was to purchase real estate,

the proceeds were instead invested in

a highly speculative coal development

venture, In support of the loan, un-

audited financial statements of the

corporation, and of Kaminski were

tendered, both of which were grossly

inflated. Both Beran and Kaminski were

charged ir Count 10, which involved the

appropreation by the appellants of funds

of an insurance company wholly owned by

the bank for their own use in establish-

ing a bank holding company. The appel-

lants later acquired the insurance agency

from the bank; but at the time of the

appropriation, the sale was not yet been

completed and no sale price for the

agency had been established.

®count 6 is the only count upon

which the appellants were convicted in-

volving a transaction when the appel- —

lants were no longer on the board of

directors of the bank, though both were

stockholders, each owning a seventeen

ercent interest in the bank. 18 U.S.C.

3656 applies to individuals “connected

in any capacity" with a bank. This has

been construed to include stockholders.

Garrett v. United States, 396 F.2d 489

(Sth Cir.), cert. denied, 393 U.S. 952

pete rehearing denied, 393 U.S. 1046

© agate Gan

ee Pe ee ee ee —\ eae ene

| Ie ae 4

SE cr MA te oe the cr ae

Pe. renee eb ian

PER tn nt hee

A-11l

Conversion of bank funds for per-

sonal use was also charged in Counts 7,

8, 9, 11 and 12 which all involved the

fraudulent payment by the bank of var-

ious expenses at the instigation of the

appellants. In Count 7, Beran was

charged with converting bank funds to

his own use through the financing of a

feedlot feasibility study by the bank.

The manager of a car wash owned by Beran

who was without any experience or qual-

ifications in the area, was hired to

conduct the study. A room in the car

wash was rented at a highly inflated

rate. Subsidies to the car wash made

by Beran ceased once payments were

begun for the feasibility study. Only

a very sketchy report was ever sub-

mitted. The charge in count 8 was that

Kaminski caused the bank to purchase a

Cadillac which he used in Denver and

only rarely in Belfield. Both Beran and

Kaminski were charged in Count 9, which

involved the payment of $1,000 in legal

fees incurred by them in connection with

the purchase of controlling stock in the

bank. Counts 11 and 12 involved the pay

ment by the bank of various expenses of

the appellants, some of which are clear-

ly personal and some of which were in-

curred prior to the date they became

bank directors. Clearly, considering

the record in the light most favorable

to the government, there is evidence as

to each of the counts upon which the ap-

pellants were convicted that there was a

conversion by the appellants of bank

funds.

In this case, there is evidence that

A-12

prior approval of the board of dir-

ectors was obtained as to some of the

transactions which formed the basis for

the criminal charges. The valid consent

of the board of directors is a defense

to the crime of misapplication of bank

funds. Mulloney v. United States, 79

F.2d 566, 583 (lst Cir. 1935), cert.

denied, 296 U.S. 658 (1936). The board,

however, has no authority to approve of

a crime or fraud on the bank. United

States v. Morse, 161 F. 429, 435 (C.D.

S.D. 1908); United States v. Sorensen,

330 F. Supp. 642, 645-646 (D.Mont.1971).

Thus, if an intent to defraud through

the conversion of bank funds, existed,

then approval of the board of, directors

is no longer material to whether there

was a misapplication of bank funds.

It is contended by the appellants

that the government failed to prove an

intent to defraud or injure the bank.

Such intent is still considered to be an

essential element of the crime even

though it is no longer explicitly re-

quired by statute. United States v.

Schmidt, 471 F.2d 385, 386 (3rd Cir.

1972); Seals v. United States, 221 F.2d

243, 245 (8th Cir. 1955). Criminal in-

tent may be inferred from all the facts

and circumstances of the case. United

States v. Tokoph, 514 F. 2d 597, 603

(10th Cir. 1975); United States v.

Williams, 478 F.2d 369, 373 (4th Cir.

1973). It "exists if a person acts

knowlingly and if the natural result of

his conduct would be to injure or de-

fraud the bank even though this may not

ee ee a eT

acnnatataee opens ~ -

A-13

have been his motive." United States

v. Schmidt, supra at 386. Viewing the

record, as we must, in the light most

favorable to the government, it is clear

that sufficient evidence was presented

from which the jury could find that the

appellants engaged in the continuing

course of conduct to defraud the bank

that we have outlined above.

The possibility of future benefit

to the bank’ is not a defense to the

charge of misapplication if the other

necessary elements of the crime are

present. United States v. Acree, 466 F.

2d 1114, 1118 (10th Cir. 1972), cert.

denied, 410 U.S. 913 (1973); United

States v. Boedker, 389 F. Supp. 360, 366

(M.D. Pa. 1974). Nor is the restitu-

tion of bank funds a defense as the

crime of misapplication is complete when

the misapplication occurs.8 United

’The appellants attempted to just-

ify many of the questioned applications

of bank funds on the ground that the

appellants hoped that the bank would ul-

timately benefit: the feedlot study was

to benefit the community and thus ul-

timately the bank; the Cadillac was to

be used in the solicitation of business

for the bank; the legal expenses in-

curred in gaining control of the bank

benefited the bank because it resolved

uncertainty about the bank ownership;

the funds from the bank insurance agency

A-14

States v. Acree, supra at 1118; United

States v. Morse, Supra at 435. Qnly a

prohability of loss to the hank is

needed to establish an intent to defraud.

United States v. Bevans, supra at 500,

n.4 (instructions approved). In this

case, an actual loss has been shown as

the amounts involved in Counts 6 and 7

have never been repaid; and the bank was

deprived of the amounts involved in the

other counts for several months prior to

restitution. Thus, it is clear that suf-

ficient evidence was presented from

which the jury could infer that all of

the necessary elements of criminal mis-

application of bank funds existed.

7 continued

were to partly defray the expense of

establishing a bank holding company

which was hoped to benefit the bank. At

trial, serious doubt was raised as to

most of the attempted justifications,

and the jury was entitled to disregard

them.

8at the request of the bank examiner

restitution has been made of all the

amounts involved in Counts 8, 9, 11 and

12 and part of the amount covered by

Count 10. The loan involved in Count 6

was written off at the request of the

bank examiner and has not been repaid.

The feedlot study expenses involved in

Count 7 have never been restored to the

bank, though it should be noted the

bank examiner did not direct restoration

of the funds on this count.

—_ er

ae oe jae be

in si ee

one

A-15

IIt

The appellants finally contend that

a mistrial or a new trial should have

been ordered because of error in the

instructions. A careful review of the in-

structions given by the trial court and

the instructions proposed by the defense

reveals that the court gave, in substance,

all the instructions to which the appel-

lants were entitled.

We affirm.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS,

EIGHTH CIRCUIT.