Petition for Writ of Certiorari — Pollard v. United States

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1

MICHAEL RUUAK, JR., CLE

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IN THE.

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1974

no. @47619 4

H. CALLOWAY POLLARD, JR., Petitioner,

VS.

UNITED STATES OF AMERICA, Respondent

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

Jack W. FLoyp

Eric P. HANDLER

Smith, Moore, Smith, Schell & Hunter

Drawer G, Greensboro, N. C.

Attorneys for Petitioner,

H. Caltoway Poiiard, Jr.

INDEX

Authorities Cited

Citation to Opinions Below

Jurisdiction

Questions Presented

Constitutional Provisions and Statutes Involved

Statement of Case

Reasons for Granting the Writ

1. The writ should be granted to prevent the sub-

version of the function of the grand jury and

to prohibit the transformation of the grand

jury’s subpoena into a secret and illegal

administrative subpoena in the hands of the

FBI

2. There currently exists a clear conflict among

the circuits as to whether willful misapplication

under 18 U.S.C. $656 has ceased, since the deci-

sion in United Staies v. Britton, to be a generic

offense which cannot be sufficiently charged by

an indictment using the statutory language

alone

3. The writ should be granted because the decision

below creates a direct conflict among the cir-

cuits as to the elements which constitute the

offense of misapplication and expands that

offense far beyond the intent of Congress

4. The writ should be granted to resolve the con-

flict between the policy of grand jury secrecy

and an individual’s right to be tried only upon

the indictment of the grand jury

Conclusion

Page

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ohwhd Nv —

13

16

19

Appendix A—Opinions and Orders

Opinion of the United States Court of Appeals

for the Fourth Circuit

Order of the United States Court of Appeais

for the Fourth Circuit denying petition

for rehearing

Order of the United States Court of Apneals

staying mandate pending petition for writ

of cert‘orari

Order of the United States District Court for

the Middle District of North Carolina denying

Motion to dismiss the indictment

Appendix B—Text of Constitutional Provisions,

Statutes and Rules Involved

Constitutional Provisions

Statutes

Rules

AUTHORITIES CITED

Dennis v. United States, 384 U.S. 855 (1966)

Durbin v. United States, 221 F.2d 520 (D.C. Cir.

1954

Hargreaves v. United States, 75 F.2d 68 (9th Cir. )

cert. denied, 295 U.S. 759 (1935)

In re Dionisio, 442 F.2d 276 (7th Cir. 1971) rev'd

sub nom. United States v. Dionisio, 410 U.S. 1

(1973) .

In re September, 197] Grand Jury, 454 F.2d 580 (7th

Cir. 1971) rev'd sub nom, United States v. Mara,

410 U.S. 19 (1973)

Johnson v. United States, 95 F.2d 813 (4th Cir.

_ 1938)

Pe. Iman v. United States, 347 U.S. 7 (1918)

ii

Page

2a

3a

4a

Ib

Ib

lb

2b

19

12

14

id

10

14, 15

11

Page

Russell v. United States, 369 U.S. 749

(1962) 15, 19, 29, 21

Sparks v. Union Trust Company of Shelby, 256

N.C. 478, 124 S.E.2d 365 (1962) 9

Stirone v. United States, 361 U.S. 212 (1960) 19, 20, 21

United States v. American Stevedores, 16 F.R.D.

164 (S.D.N.Y. 1954) 12

United State. v. Archambault, 441 F.2d 281 (9th

Cir.) cert. denied, 404 U.S. 843 (1971) 14

United States v. Beard, 436 F.2d 1084 (Sth Cir.

1971) 20

United States v. Bearden, 423 F.2d 805 (Sth Cir.)

cert. denied, 400 U.S. 836 (1970) 14

United States v. Britton, 107 U.S. 655

(1883) 3, 13, 14, 15, 16, 18

United States v. Bryan, 483 F.2d 88 (3rd Cir.

1972) yon . 20

United States v. Docherty, 468 F. 2d 989 (2nd Cir.

1972) 16

United States v. Fortunato, 402 F.2d 79 (2nd Cir.)

cert. denied, 394 U.S. 933 (1969) 14

United States v. Gens, 493 F.2d 216 (Ist Cir.

1974) 14, 15, 16

United States v. Giordano, 489 F.2d 327 (2nd Cir.

1973) . 16

United States v. Johns-Manville Corporation, 213

F. Supp. 65 (E.D.Pa. 1962) 12

United States v. Kernodle, 357 F. Supp. 844

(M.D.N.C. 1973) ee.

United States v. Moraites, 456 F.2d 435 (3rd Ce. )

cert. denied, 409 U.S. 819 (1972) 14

United States v. Mulloney, 79 F.2d 566 (1st Cir.

1935) a 16

iil

Page

United States v. Nixon, —U.S.—, 41 L.Ed.2d 1039,

94 S.Ct.—(1974) il

United States v. Quinn, 365 F.2d 25€ (7th Cir.

1968) 14

United States v. Silverman, 430 F.2d 106 (2nd Cir.

i97C) Pais 20

CONSTITUTIONAL PROVISIONS

United States Constitution, Amend. V 19, 1b

United States Constitution, Amend. VI 15, 19, 22, 1b

STATUTES

18 U.S.C. $371 4

18 U.S.C. $656 3, 4, 5, 17, 18, 22, 1b

28 U.S.C. $1254 (1) ; 2

RULES

Federal Rules of Criminal Procedure:

Rule 6(e) 19, 20, 22, 2b

Rule 7(c) 206, 21, 22, 3b

Rule 17(a), (c) 9, 4b

OTHER AUTHORITIES

Note, Government Access to Bank Records,

83 YALE L.J. 1439 (June, 1974) 10, 11

iv

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1974

NO.

H. CALLOWAY POLLARD, JR., Petitioner,

VS.

UNITED STATES OF AMERICA, Respondent

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

To the Honorable Chief Justice and Associate Justices of

the Supreme Court of the United States:

The petitioner, H. Calloway Pollard, Jr., respectfully

prays that a writ of certiorari issue to review the judgment

of the United States Court of Appeals for the Fourth Cir-

cuit entered on September 23, 1974.

CITATION TO OPINIONS

The per curiam opinion of the United States Court of

Appeals for the Fourth Circuit, which was filed on Sep-

tember 23, 1974 but has not yet been officially reported

as of the date of filing of this petition, is reproduced in

Appendix A to this petition (Appendix A, p. la). The

opinion, by Ward, J., of the United States District Court

I

2

for the Middle District of North Carolina, which denied

petitioner’s motion to dismiss the indictment, was filed on

October 12, 1973, is reported sub nom. United States v.

Kernodle, 367 F. Supp. 844 (M.D.N.C. 1973) ‘and is re-

produced in part in Appendix A to this petition. (Appendix

A, pp. 4a-13a.)

JURISDICTION

The judgment of the United States Court of Appeals

for the Fourth Circuit affirming petitioner’s conviction,

under 18 U.S.C. $371 and 18 U.S.C. $656, was entered

on September 23, 1974. A petition for rehearing was

timely filed in the Court of Appeals, and rehearing was

denied by an order entered on October 23, 1974. An

order staying issuance of the mandate uniii November 22.

1974 was entered on October 25, 1974.

The jurisdiction of this Court is invoked under 28

U.S.C. §1254(1).

QUESTIONS PRESENTED

1. Does it constitute a subversion of the function of the

grand jury, an abuse of the grand jury’s process and

the creation of an illegal and secret administrative

subpoena for the Federal Bureau of Investigation,

without the knowledge or anproval of the District

Judge or the United States Attorney, to obtain from

the District Court a grand jury subpoena, signed in

blank by the Clerk, and io direct such subpoena to a

commercial bank requiring production of records in

its possession but having completed and altered tke .

subpoena to provide for its “satisfaction” by delivery

of such records to the Bureau’s agent in the field

rather than to the grand jury or to tae District Court?

3

2. In the seventy years since this Court last construed

the offense of “willful misapplication” in United

States v. Britton, 107 U.S. 655 (1883), there has

arisen a clear conflict among the decisions of the

United States Courts of Appeal as to whether the re-

quirement laid down Britton, that an indictment charg-

ing this offense under 18 U.S.C. $656 must do so with

specificity, continues to be binding; has he time now

come, therefore, for this Court to resolve the conflict

either by reaffirming its decision in Britton or by over-

ruling it?

3. Does the offense of willful misapplication under 18

U.S.C. $656 include every “unauthorized, unjustifiable

or wrongful use” of bank funds if done knowing that

such transaction “somehow constituted a breach of

bank laws or rules”, or is the offense limited to those

transactions which, at the time they occur, are ob-

viously improper and subject the bank to an increased

risk of probable and foreseeable loss; and, if the former,

is not tlie oivense unconstitutional and void for vague-

ness?

4. Does it violate the Fifth and Sixth Amendments for a

defendant first to be denied all access to records or

minutes of grand jury proceedings for the purpose of

determining upon what theory it indicted, then to be

denied a bill of particulars, and finally to be convicted

upon theories of fact and law not even suggested on the

face of the indictment?

CONSTITUTIONAL PROVISIONS. STATUTES

AND RULES INVOLVED

United States Constituicn, Amendment V

United States Constitution, Amendment VI

18 U.S.C. $656

(Reproduced in Appendix B; pp. 1b--4b)

4

STATEMENT OF THE CASE

This petition secks review by writ of certiorari of the

judgment of the Court of Appeals for the Fourth Circuit

affirming defendant Pollard’s conviction of one count of

conspiracy under 18 U.S.C. $371 and three counts of mis-

application of bank funds under 18 U.S.C. $656.

Prior to the return of the indictment in this case, de-

fendant Pollard had been a director of a state-chartered

bank iocated in the Middle District of North Carolina and

insured by the Federal Deposit insurance Corporation.

Upon learning that the United States Attorney for the

Middle District of North Carolina intended to present an

indictment against him to the grand jury, the defendant

moved the District Court first for an order requiring

transcription of the grand jury’s proceedings and _ there-

after for an order enjoining presentation to the grand jury

of any evidence obtained by the government under a grand

jury subpoena which had been signed in blank by the clerk

and afterwards completed to state that it could be “satis-

fied” by delivery of the materials sought to an agent of the

FBI in the field. Both motions were denied on July 10.

1973 and, while an appeal to the Fourth Circuit from such

denial was pending, the grand jury returned the indictment

upon which the defendant was later tried. The defendant

then moved to dismiss the indictment and for discovery of

uny minutes or records of the grand jury’s proceedings,

both of which were denied by the District Court’s Memo-

randum Order filed on October 12, 1973. (Appendix A,

p. 4a). The defendant’s petition to the Fourth Circuit

for a writ of mandamus to review the order denying dis-

missai of the indictinent was denied by an order of that

Court filed on December 6, 1973.

The indictment contained one count charging con-

spiracy under 18 U.S.C. $371 and eighteen counts charg-

5

ing misapplication of bank funds under 18 U.S.C. $656,

all naming as defendants the petitioner and three other

persons. The first count, for conspiracy, charged that the

four defendanis and persons unknown kad conspired to

misapply bank funds and to defraud the United States with

respect to its interest in the enforcement of “laws pertain-

ing to the regulations [sic] of banks insured by the Federal

Deposit insurance Corporation” (Indictment. p. 2). Count

One named eight overt acts committed in furtherance of

the conspiracy, each of which was also charged as a

substantive offense in later counts. Count One and all

eight of these substantive counts were dismissed as to the

three cod:fendauts pursuant to their plea bargains. De-

fendant Pollard was convicted upon Count One and was

acquitted upon Counts Two through Sixteen. Count Seven-

teen, of which the defendant was convicted, charged, in

addition to certain jurisdictional aliegations, that the de-

fendant,

“with intent to injure and defraud the said Bank.

did wilfully misapply and cause to be misapplied

monies, funds and credits of said Bank in that the

defendants did cause Loan Number 11615 to be

made by the Bank to John J. Schopp, in the

amount of $50,000, the proceeds of which were

deposited to the account of Ketteridge Indus-

tries, Inc., at said bank concealing the purpose

for the loan and concealing the interest of H.

CALLOWAY POLLARD, JR.. NORMAN

GRAHAM SMITH and MARSHALL STE-

WART, JR.; in violation of 18 U.S.C. $656; 2.”

(Indictment, p. 15). Counts Eleven through Sixteen, of

which the defendant was acquitted, and Counts Eightee~

and Nineteen, of which he was convicted, are identical

except for the name of the borrower and the daic. number

and amount of the loan.

6

At trial, the defendant sought, with respect to all the

loan counts, including the three of which he was con-

victed, to disprove any intent to injure or defraud by of-

fering evidence that each loan, regardless of whether it

was ultimately repaid, was actually a benefit to the bank,

rather than an injury, because it decreased the overall

risks of the bank by replacing the obligation of a borrower

whose credit worthiness the bank’s own officers mistrusted

with the obligations of solvent borrowers whose credit was

superior, in the opinion of the same officers, all without

actually advancing any additional funds. The Government

called as a witness the bank officer who had made each of

the loans in question, and defense counsel was permitted

to ask, over the Government’s objection, whether there

had been, at the time the loan charged in Count Eleven

was made, any foresceability of loss therefrom and whether

the loan benefited or injured the bank. The witness

answered that the bank was muci: better off because the

loan was made, and the defendant was acquitted as to that

Count. When defense counsel attempted to repeat these

questions as to a subsequent loan count, the trial judge

sustained the Government’s objection and plainly indicated

that objections to similar questions would also be sustained,

apparently because he believed both foreseeability of loss

at the time and the net effect of the transaction standing

alone were irrelevant as to intent. (Appendix to Briefs in

the Court of Appeals, pp. A-155, A-164-167). Despite

this ruling, however, the trial judge did admit, over de-

fendant’s objections, voluminous evidence to the effect

that the loans had not been fully repaid.

In instructing the jury, the trial judge again de-

clined to require that, in order to find any intent to injure

or defraud the bank, it must have appeared ar the time of

the transaction that it would subject the bank to an un-

reasonable or foreseeable Tisk of loss. Instead, he defined

7

misapplication as any “unauthorized, unjustified or wrong-

ful use” of the bank’s monies and stated that,

“it is only necessary that the defendant knew that

the transactions somehow constituted a breach of

bank laws or rules... .”

(Appendix to Briefs in Court of Appeals, p. A-287).

Because the trial judge had relied on the allegation of

concealment to distinguish the defendant’s authority that

the indictment should have been dismissed, the theory of

concealment became the focal point of the evidence and

jury arguments by both the Government and defense

counsel. The following instruction by the trial judge, how-

ever, presented the jury with four additional theories of

guilt not even suggested by the indictment:

“A misapplication may be accomplished by

various means, such as the making of a loan

which is insufficiently secured, or the making of

a loan whiere the true recipient of the proceeds

of the loan is concealed, or the making of a Joan

where the bank officer’s or director’s interest is

concealed, or the making of a loan where there

is no intention to repay or where the maker is

insolvent. A misapplication may also occur where

a loan is made on the strength of fraudulent ap-

plications or statements.”

(Appendix to Briefs in Court of Appeals, p. A-286).

At the close of the Government’s case and at the

Close of all the evidence, the defendant moved for judg-

ment of acquittal, which was denied on both occasions.

Upon the jury’s verdict, judgment of conviction was

entered and sentence imposed, and the defendant gave

notice of appeal. The United States Court of Appeals for

the Fourth Circuit affirmed on September 23, 1974 and

denied rehearing on October 23, 1974.

8

REASON FOR GRANTING THE WRIT

1. THE WRIT SHOULD BE GRANTED TO PREVENT THE

SUBVERSION OF THE FUNCTICN OF THE GRAND

JURY AND TO PROHIBIT THE TRANSFORMATION OF

THE GRAND JURY'S SUBPOENA INTO A SECRET

AND ILLEGAL ADMINISTRATIVE SUBPOENA IN THE

HANDS OF THE FBI.

The procedure employed in this case vy agents of the

Federal Bureau of Investigation, and approved by the

courts below, represents a frightening and effective mech-

anism for the destruction of individual privacy, one which

should be condemned by this Court in the stronges: ierms

available.

The procedure was as foilows: agents of the FBI, for

the purpose of commencing an investigation into the af-

fairs of the North State Bank of Burlington, North Caro-

lina, obtained from the office of the Clerk of District Court

a series of grand jury subpoena forms signed by the Clerk

in blank. The agents hen completed the forms directing

each to the bank, requiring the production of specified

documents, and providing that the subpoena could be

“satisfied” by delivering the specified documents to the

FBI. Because the bank sought to respect its duty of

secrecy by delivering only the specified information, the

FBI obtained a final subpoena, again providing for “satis-

faction” by delivery to the FBI and calling for the fol-

lowing:

“All records, ledgers, documents, and corres-

pondence to include all related commercial and

personal checking accounts concerning com-

mercial loan transactions conducted with the

North State Bank during the period from 1967

through 1972.”

9

(Appendix to Briefs in Court of Appeals, p. A-21(a).)

The bank then submitted to a wholesale examination of

all books, records and documents in its possession, aband-

oning its duty of secrecy under state law. See Sparks v.

Union Trust Company of Shelby, 256 N.C. 478, 124 S.E.

2d 365 (1962). During the entire period described, the

subpoenas so employed were never subjected to review

by either the District Court or the United States Attorney;

indeed, neither had even seen them at the time oral argu-

ment was heard in the Court of Appeals on the defend-

ant’s petition for mandamus. The defendant has no know-

ledge as to what information or which of the decuments so

obtained by the FBI were ever delivered to the grand jury

or as to what disclosures or other uses the FBI has made

or intends to make of such information or documents.

Rule 17 of the Federal Rules of Criminal Procedure

authorizes the issuance of a subpoena, signed in blank by

the clerk. The Rule also provides, however, that subpoenas

arc to be issued ty “a party requesting it. who shall fill in

the blanks before it is served.” (Appendix B, p. 4b).

The FBI, for whose use these subpoenas were issued, is in

no sense a “party” and the provision that the subpoena

may be satisfied goes beyond the authority conferred by

the words “fill in the blanks”. Clearly, the Rule contem-

plates that the grand jury subpoenas issued thereunder will

be for the sole purpese of producing testimony and docu-

ments bevore a sitting grand jury.

The argument might readily be made that, because

confidential information concerning his financial transac-

tions constitutes property, the overbreadth of this last

subpoena and the tact that it was used in support of an

ongoing criminal nyestigation amounted to an unreason-

able search and seizure in violation of the defendant's

Fourth Amendment rights and, therefore, that the trial

‘ 10

judge’s failure to exclude all evidence so obtained was

reversible error. See generally, in re September, 1971

Grand Jury, 454 F.2d 580(7th Cir. 1971) rev'd sub

nom. United States v. Mara, 410 U.S. 19 (1973); In re

Dionisio, 442 F.2d 276 (7th Cir. 1971) rev'd sub nom.

United States v. Dionisio, 410 U.S. 1 (1973); Note,

Government Access to Bank Records, 83 YALE L. J. 1439,

1455-65, 1473 n. 162 (June, 1974). The status of con-

fidential information in the hands of institutional third

parties, as property protected under the Fourth Amend-

ment, is a crucial question of constitutional law, and one

not yet finally resolved. While this argument is not the

reason advanced herein for the granting of the writ, it

should be observed that, if the practice described above is

permitted to continue, the FBI will be free, by avoiding

judicial review as shown below, to violate whatever Fourth

Amendment rights do attach to such informational pro-

perty.

The argument which the defendant has asserted, even

since before the grand jury was convened, is that the sub-

poenas so employed by the FBI constitute an abuse of the

grand jury process, and are for that reason invalid, that

the evidence obtained by their use should have been sup-

pressed, and that the defendant has standing to raise this

objection. The evil of these subpoenas is threefold. First.

they wholly avoid judicial supervision and whatever re-

straints may be applicable to them. Second, they usurp to

the FBI the grand jury’s role as an independent, investiga-

tive body endowed with subpoena power. Third, they de-

stroy the guarantee of secrecy which, except in judicially

supervised instances, surrounds all the evidence produced

pursuant to a grand jury subpoena.

With respect to the first objection, the defendant sub-

mits that he has standing to challenge these subpoenas

1]

precisely because, if he has not, there will never be effec-

tive judicial review of their use. This principle, in an

anajogous form, was recently recognized by this Court in

United States v. Nixon, —U.S.—, 41 L. Ed.2d 1039, 1054,

94 S.Ct. —, 42 U.S.L.W. 5237, 5240 (1974), citing

with approval Perlman v. United States, 247 U.S. 7

(1918). Although arising in Nixon and Perlman as a

question of timing, the applicable principle involved is

that, if a subpoena issued at the instance of the govern-

ment is improper, whether because it violates the de-

fendant’s privilege or for any other reason not adversely

affecting the third party to whom it is directed, then the

defendant must be granted standing to object or the abuse

will always go unchecked. The principle operates with

special force upon institutional third-party custodians of

information. See generally, Note, Government Acess to

Bank Records, supra. In the present case, tne bank, in-

timidated by apparent authority and having inadequate

incentive to resist, made no objection to these subpoenas,

despite their obviously burdensome scope. Grand juries

and the offices of United States Attorneys, if either has an

incentive, which is doubtful, may never object to such

subpoenas because there is no guarantee that information

gained by their use, or even the fact of their issuance, will

ever be revealed to them by the FBI, as they were not in

this case until the defendant raised an objection. Thus, if

these subjoenas constitute an abuse of the grand jury pro-

cess which ought te be challenged, the defendant is the

only party with incentive to do so.

The most compelling reason for which subpoenas

such as these should be condemned is that, because there

is no guarantee that the information and documents so

obtained will ever be presented to the grand jury, there is

also no guarantee that the same will be guarded by the

oath of secrecy to which the grand jurors are sworn. Acting

12

with the apparent approval of the grand jury and the

Court, although without supervision or direction by either,

the FBI obtairs by these subpoenas a license which few

will question to demand from one person information con-

cerning or the property of another and then to make what-

ever use of these it sees fit. These subpoenas contain no

compulsion that the information or documents obtained

be returned to the grand jury; indeed, under the procedure

employed in this case, there need be no grand jury even

sitting at the time. The FBI should not be permtited to

convert by this practice the subpoena power of the grand

jury into its own compulsory, administrative process. See

Durbin v. United States, 221 F.2d 520, 522, (D.C. Cir.

1954); United States v. Johns-Ménville Corporation, 213

F. Supp. 65 (E.D. Pa. 1962); United States v. American

Stevedores, Inc., 16 F.R.D. 164 (S.D.N.Y. 1954) (all of

which condemn such conversion of grand jury subpoenas

by the United States Attorney’s office, but by which the

Court of Appeals declined to be bound in this case).

The constitution and our comon law tradition recog-

nize that, as the institutional conscience of the community,

the grand jury ought to be empowered to pursue rumor

and suspicion, and to enforce that pursuit by subpoena.

The justification for this power is that when the grand

jurors indict, the information so gained is made public sub-

ject to judicial control; but when they do not, when their

collective conscience is not persuaded of probable cause,

then the information relevant to the accusations or sus-

picions they reject is forever sealed by their oath of secrecy,

and the accused is assured that, unless a subsequent grand

jury is persuaded to indict, the information presented to

the first will not be broadcast to his injury. No such public

trust has been reposed in the FBI, nor has subpoena power

been conferred upon it.

13

Defendant contends therefore, that the subpoenas

employed in this case represent an illezga‘ and dangerous

practice which should be prohibited by the order of this

Court. Because no case better suited to present the issue

is likely to arise, the prayed for writ of certiorari should be

granted to review this case.

2. THERE CURRENTLY EXISTS A CLEAR CONFLICT

AMONG THE CIRCUITS AS TO WHETHER WILLFUL

MISAPPLICATION UNDER 18 U.S.C. $656 HAS

CEASED, SINCE THE DECISION IN United States v.

Britton, TO BE A GENERIC OFFENSE WHICH CAN-

NOT BE SUFFICIENTLY CHARGED BY AN _ INDICT-

MENT USING THE STATUTORY LANGUAGE ALONE.

In United States v. Britton, 107 U.S. 655 (1883),

this Court held that, because the words “willfully mis-

apply” had no “settled technical meaning” and did not of

themselves fully and clearly set forth every element of the

offense, in an indictment charging misapplication,

“It would not be sufficient simply to aver that

the defendant ‘willfully misapplied’ the funds of

the association . . . There must be averments to

show how the misapplication was made, and

that it was an unlawful one.” (emphasis added)

107 U.S. 655, 669. The indictment in that case was held

defective because it failed to aver a conversion of funds,

which the Court considered an essential element of the

offense. 107 U.S. 655, 666. Since 1883, this Court has

never again construed the offense of willful misapplication

nor in any way narrowed its holding in Britton. Nonethe-

less, in response to the defendant’s motion to dismiss this

indictment, which likewise fails to allege conversion or to

show why the transactions involved were unlawful, the

District Court concluded that the term “willfully misappli-

14

ed” has now gained a technical meaning and so held this

indictment, and others simultaneously being reviewed,

“sufficient because they follow the language of

the statute in charging a crime. The prevailing

view today apears to be that it is sufficient to set

out an offense under 18 U.S.C. $656 (for mis-

application) by using the language of the statute,

and the omission of detailing the means by which

the offense was committed does not make the

indictment insufficient.” (emphasis added, foot-

note omitted)

(Appendix A, p. 9a).

Since the decision in 8ritron, the Courts of Appeal

for the Second and Ninth Circuits have held that the

words “willfully misapply” have evolved a sufficiently

technical meaning to permit the oflense to be charged in

the statutory language alone. See United States v. For-

tunato, 402 F.2d 79, 81 (2nd Cir.) cert. denied 394 U.S.

933 (1969); Hargreaves v. United States, 75 F.2d 68 (9th

Cir.) cert. denied 295 U.S, 759 (1935). The same con-

clusion has been suggested in dictum by the Second, Fifth

and Tenth Circuits. See United States v. Moraites, 456

F.2d 435, 441 (3rd Cir.) cert. denied 409 U.S, 819

(1972); United States v. Archambault, 441 F.2d 281,

283 (9th Cir.), cert. denied 404 U.S. 843 (1971); United

States v. Bearden, 423 F.2d 805, 810-811 (Sth Cir.) cert.

denied 400 U.S. 836 (1970).

Recently rejecting this view, however, the First and

Seventh Circuits have both required the additional aver-

ments mandated by Britton. See United States v. Gens,

493 F.2d 216 (1st Cir. 1974); United States v. Quinn,

365 F.2d 256 (7ih Cir. 1966). Prior to the decision

delow, it was clear that the Fourth Circuit too regarded

Britton as controlling. Johnson v. United States, 95 F.2d

15

813 (4th Cir. 1938). Although Johnson was squarely in

point, the Fourth Circuit, for reasons which cannot be

ascertained from its per curiam opinion, upheld the Dis-

trict Court’s refusal to dismiss the indictment. The con-

fusion is enhanced by the fact that Gens, decided after the

District Court’s denial of the motion to dismiss was re-

ported, nonetheless recognized Johnson as being the law

of the Fourth Circuit, even though the District Court's

denial is, both in language and effect, utterly inconsistent

with Johnson.

Since the decision in Britton, the adoption of Rule

7(c) of the Federal Rules of Criminal Procedure has

greatly reduced the specificity required of indictments gen-

erally. However, this Court recognized, in Russell v.

United States, 369 U.S. 749, 762, 765 (1962), that the

sufficiency of any indictment charging an offense in

statutory language must be measured against the Sixth

Amendment's requirement that the defendant be adequately

apprised of the nature of the accusation he must be pre-

pared to meet. (Appendix B, p. Ib). To meet this

requirement, the Court in Russell held that, where the

Statute creating an offense contains “generic terms”, an

indictment must descend to particulars rather than charg-

ing the offense in the same generic terms, 369 U.S, 749,

762, 765. For exactly the same reason, the Court in

Britton held that an indictment for misapplication is not

sufficient unless it contains adidtional averments to “show

how the misapplication was made, and that it was an un-

lawful one.” Clearly, to make such a showing, the indict-

ment must not only identify the transaction involved, but

must also demonstrate or allege that cach of the elements

of the offense in fact occurred. The defendant contends

that the indictment in the present case was defective for

failure to make such a showing, both because it omits an

allegation of conversion and because neither the statutory

i6

language nor the particulars alleged could apprise him of

the nature of the charge he must meet while there persists,

as will be shown below, a conflict among the circuits as

to the elements of the offense itself.

The defendant respectfully submits, therefore, that the

writ should be granted because the time has now come for

the Supreme Court either to reaffirm its holding in Britton

or to approve the view that Britton is no longer the law.

3. THE WRIT SHOULD BE GRANTED BECAUSE THE

DECISION BELOW CREATES A DIRECT CONFLICT

AMONG THE CIRCUITS AS TO THE ELEMENTS

WHICH CONSTITUTE THE OFFENSE OF MISAPPLICA-

TION AND EXPANDS THAT OFFENSE FAR BEYOND

THE INTENT OF CONGRESS.

The offense of misapplication was apparently intended

as a catchall. It is all the more important, therefore, unless

Britton is specifically reaffirmed, to resolve the present con-

flict among the circuits as to the elements of the offense.

At the trial of this case, the defendant requested in-

structions to the jury which incorporated the view of the

First and Second circuits that, for a transaction to be a

misapplication, it must be obviously improper and unjustifi-

able and must subject the bank to a risk of probable and

foreseeable loss. See United States v. Gens, 493 F.2d 216

(Ist Cir, 1974); United States v. Giordano, 489 F.2d 327

(2nd Cir. 1973); United States v. Docherty, 468 F.2d 989

(2nd Cir. 1972); United States v. Mulloney, 79 F.2d 566

(Ist Cir, 1935). The trial judge never gave the requested

instructions and that failure, assigned as error on appeal,

was approved by the Fourth Circuit’s per curiam affirm-

ance.

The instructions which the trial judge gave instead

made virtually every use of bank funds which violates any

17

state or federal bank rule or regulation a felonious mis-

application under 18 U.S.C. $656. (See pp. 6, 7 supra).

These instructions are in plain conflict with the First and

Second Circuit cases cited above, the thrust of which is

that, unless the natural and probable consequence of 4

given transaction is to cause a Joss, the transaction itself

affords no basis for inferring the intent to injure or defraud

required in order to render it a misapplication. Clearly,

there could be technical violations which, although pro-

hibited, entail no such natural or probable consequence,

do not reflect an intent to injure or defraud and were not,

therefore, intended to be punished as felonies under 18

U.S.C. $656. If this conclusion is false, the Supreme Court

should bring that fact to light and so give warning to the

thousands of honest bank officers and directors who reason-

ably believe that, while a good faith attempt to mect

exigent circumstances with exceptions to established policy

may prove an error of judgment, it will not give rise to

criminal liability unless a criminal statute expressly so

provides.

Moreover, in the three substantive counts of which

the defendant was convicted, the specific regulation violat-

ed by those loans, if any, was never identified by the

indictments or the United States Attorney. Even the trial

judge’s instructions to the jury failed to identify any particu-

lar law or regulation allegedly violated by those loans. This

sequence of events has an important implication for the

future, if the present indictment is upheld, because one

must then conclude: (a) that, where an indictment de-

scribes an apparently legitimate transaction but also alleges

intent to defraud and concealment, a defendant may be

required to stand trial for misapplication without first

identifying the violation which made the transaction illegal;

or (5) that, although a transaction ia fact violates no

banking law or regulation and has no natural or foresee-

18

able tendency to injure the bank, indeed, even if it benefits

the bank, it will yet constitute a felonious misapplication

if the jury infers an intent to injure or defraud from the

fact of “concealment” alone. The first conclusion involves

a patent Genial of constitutional rights under the Fifth and

Sixth Amendments. The second conclusion would render

the offense impossible to disprove, if the transaction oc-

curred at all. This is so because concealment requires no

Overt act; it is itself a matter of intent. Moreover, in the

present case, the Government’s evidence affirmatively

showed that there was no concealment. More importantly,

however, the second conclusion also extends the offense to

include acts which this Court has heretofore held, in

United States v. Britton, 107 U.S. 655, 668 (1883), give

rise to civil, rather than criminal, liability as mere acts of

maladministration.

After almost one hundred years, the Courts of Appeal

have still reached no consensus as to the precise meaning

of the term “misapply”. If this reflects the fact that one

cannot say what misapplication is, the time has come for

the Supreme Court to say what it is not. It is not, as the

trial judge should have instructed the jury upon request,

a transaction which was not expressly prohibited by any

banking law or regulation and was, as it appeared to the

parties at the time, beneficial rather than harmful to the

bank. It is no answer to say that a transaction which ap-

pears to be benecial or from which no loss actually results

may yet be a misapplication if effected with an intent to

injure or defraud because, if the offense of misapplication is

not to be limitless, there must at least be objective criteria

to be satisfied before a jury will be permitted to infer the

specific criminal intent. If no such criteria can be articulat-

ed, the offense of misapplication under 18 U.S.C. $656 is

void for vagueness.

»

~

“,

19

In recent years reports of decisions involving sub-

stantive questions with respect to the offense of misappli-

cation have appeared with increasing frequency. These

decisions, it may be surmised, reflect both the economic

climate of our times and the spiraling number and com-

plexity of state and federal regulations affecting banks.

Under these circumstances, and because the lower courts

have failed to develop one, the need has grown urgent for

a definitive statement of the elements of the offense. The

petitioner submits that the writ should be granted to pro-

vide such a statement.

4. THE WRIT SHOULD BE GRANTED 10 RESULVE THE

CONFLICT BETWEEN THE POLICY OF GRAND JURY

SECRECY AND AN INDIVIDUAL’S RIGHT TO BE TRIED

ONLY UPON THE INDICTMENT OF THE GRAND

JURY.

The doctrine is well settled that the deliberations of a

grand jury and testimony before it, will ordinarily be kept

secret although exceptions may be made, in the discretion

of the trial judge, under the power conferred by Rule 6(e)

of the Federal Rules of Criminal Procedure. See Dennis v.

United States, 384 U.S. 855, 869-70 (1966). In direct

conflict with this general policy is the fact that, unless a

defendant has access to records of the testimony before

and the deliberations of the grand jurors, his right under

the Fifth and Sixth Amendments to be tried only upon the

theory of guilt contained in their indictment may be render-

ed nugatory. See, Russell v. United States, 369 U.S. 749,

770 (1962); Stirone v. United States, 361 U.S. 212, 217

(1960). The fact of this conflict and its prejudicial impact

on a defendant, are clearly revealed in the case at bar,

which presents, therefore, an appropriate occasion for its

resolution by this Court.

20

Under Rule 7(c) of the Federal Rules of Criminal

Procedure, the indictment need only be a “plain, concise

and definite written statement of the essential facts con-

stituting the offense charged.” (Appendix B, p. 3b). In

the present case, the Court of Appeals has held, in effect,

that such a statement may be sufficient in law to withstand

a motion to dismiss, but still be so broadly worded as to

permit the trial judge to instruct the jury on four theories

of guilt not even suggested by the indictment on its face.

This holding is in direct conflict with the rule of other

circuits that, since the court and the prosecutor must not

be allowed to guess what was in the minds of the grand

jurors at the time they returned the indictment, only

thicories apparent on the face of the indictment may be pre-

sented to the petit jury. See, Russell v. United States, 369

U.S. 749, 770 (1962); United States v. Bryan, 483 F.2d

88, 96-97 (3rd Cir. 1972): United Siates v. Beard, 436

F.2d 1084, 1087 (Sth Cir. 1971), United States v. Silver-

man, 430 F.2d 106, 1ii (2nd Cir. 1970).

if the rule of the Second, Third and Fitth Circuits is

an accurate expression of the law, the decision of the

Court below should be reversed. Necessarily, however,

such a rule would significantly restrict the notice pleading

sought by Rule 7(c), especially as to catchall offenses

sucn as misapplication. If the rule of these Circuits is not

the law, then some restriction must be placed upon a trial

judge's discretion under Rule 6(e); otherwise. the right

proclaimed by Stirone and Russell may not survive at all,

as the defendant's trial well demonstrates. The defendant's

motion to record the grand jury proceedings was denicd,

despite his offer to bear the expense thereof, as was his

motion to discover any records or documents of those pro-

ceedings. Moreover, even if the grand jurors did volun-

tarily keep any such records, which is not known, the de-

21

fendant has no assurance that they would be sufficiently

complete to prove or disprove that the four additional

theories introduced by the judge’s instructions to the jury

had in fact been considered by the grand jurors, much

less included in the indictment itself.

Of course, the conflict between these policies can

normally be avoided if the trial judge will, in his discretion,

order some records to be kept of grand jury proceedings

and, when the need arives, grant a motion for a bill of

particulars or discovery of these records. A defendant's

constitutional rights, however, must not be made dependent

upon the unfettered discretion of the judge. In the present

case, the judge rejected out of hand every attempt by the

defendant to discover the nature of the charge against him

and, until the eve of trial, even denied him access by dis-

covery against the bank to the same records which the

FBI had obtained pursuant to its secret subpoena. Such a

clear abuse of discretion makes this an appropriate case

for this Court to review for the purpose of determining

whether and how that discretion should be restricted.

Three alternatives are available for the resolution of

the conflict herein raised: first, to require universal recor-

dation of grand jury proceedings or, at least. to make

recordation upon motion a matter of right, which motion

shall be prerequisite to any claim that the requirements of

Russell and Stirone have not been met; second, to require.

as to any indictment charging an offense the statute creat-

ing which does not fully and clearly set forth all its ele-

ments, a greater degree of specificity than presently re-

quired under Rule 7(c); and, third, to restrict the discre-

tion of a trial judge in denying bills of particulars and dis-

covery of grand jury records, perhaps making at least one

a matter of right, the choice as to which being left in each

case to the judge. Whichever alternative is chosen, the

22

effect upon criminal procedure in state and federal courts

would be profound and should, therefore, be uniform as

well. The need for such a choice, by this Court, is clear,

and no case will be better suited to raise and decide the

issue than is the case at bar. The petitioner would respect-

fully submit, therefore, that the writ of certiorari should

be granted.

CONCLUSION

The case at bar raises two types of issues which, the

petitioner believes, require review by this court. The

issues raised herein involving the substantive law of mis-

application of bank funds under 18 U.S.C. $656 are ripe

for review by this Court because the Courts of Appeal

have tailed to agree both as to the elements of the offense

and as to whether those elements are so well Known as to

permit the offense to be charged in statutory language. If

the requirements of due process are to be preserved tor

future defendants, it will be necessary for this Court either

to define the offense or to declare it void. The two other

issues raised hercin require the exercise by the Court of

its supervisory control over our judicial system. The dis-

cretion accorded trial judges under Rule 6(e) and the

generality permitted in indictments under Rule 7(c) have

been seen to thwart individual constitutional rights under

the Sixth Amendment. There is needed an accommodation,

either by restricting that discretion or by requiring more

specilically worded indictments. The use by the FBI of

grand jury subpoenas is a dangerous and important usurpa-

tion of the grand jury’s function. If the writ were granted,

the decision of this Court could prohibit and even prevent

the recurrence of this abuse.

It is, therefore, respectfully submitted that this peti-

23

tion for writ of certiorari to the United States Court of

Appeals for the Fourth Circuit should be granted.

Jack W. FLOYD

Eric P. HANDLER

Attorieys for Petitioner,

H. Calisway Pollard

OF COUNSEL:

SMITH, Moore, SMITH, SCHELL & HUNTER

700 Jefferson Building

Post Office Drawer G

Greensboro, North Carolina 27402

Teiephone: (919) 273-8263

APPENDIX A—OPINIONS AND ORDERS BELOW

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 74-1368

UNITED STATES OF AMERICA, -4ppellee,

versus

H. CALLOWAY POLLARD, JR., Appellant.

Appeal from the United States District Court for the

Middle District of North Carolina, at Greensboro.

Hiram H. Ward, District Judge.

Argued September 4, 1974 Decided September 23, 1974

Before HAYNSWORTH, Chief Judge, RUSSELL and

WIDENER, Circuit Judges. -

Jack W. Floyd (Eric P. Handler and Smith, Moore, Smith,

Schell and Hunter on brief) for Appellant; N. Carlton

Tilley, Jr., United States Attorney, (Hugh P. Mabe, Ii,

Attorney, Criminal Division, United States —— of

Justice, on brief) for Appellee.

PER CURIAM:

H. Calloway Pollard, Jr., was convicted by a jury of

three counts of willful misapplication of bank funds in

violation of 18 U.S.C. $656 and one count of conspiracy

willfully to misapply bank funds and to defraud the United

States in violation of 18 U.S.C. $371.

Upon consideration of the record, briefs and oral

argument, we find no reversible error.

AFFIRMED.

2a

Filed Oct. 23, 1974, William K. Slate, II, Clerk

United States Court of Appeals for the Fourth Circuit

No. 74-1368

United States of America, Appellee,

versus

H. Calloway Pollard, Jr., Appellant.

Appeal from the United States District Court for the

Middie District of North Carolina, at Greensboro.

Upon consideration of the petition for rehearing with

the request for rehearing en banc in the above entitled

case, and with the concurrence of Judges Russell and

Widener, no member of the court having requested a poll,

IT IS ORDERED that the petition for rehearing be,

and the same is hereby, denied.

FOR THE COURT:

a/CLEMENT F. HAYNSWORTH, JR.

Chief Judge, Fourth Circuit

A True Copy, Teste:

VILLIAM K. Strate, Il, Clerk

By Faye CHLONIE,

Deputy Clerk

3a

Filed Oct. 25, 1974, William K. Slate, II, Clerk

United States Court of Appeals for the Fourth Circuit

No. 74-1368 —

United States of America, Appellee,

versus

H. Calloway Pollard, Jr., Appellant.

Appeal from the United States District Court for the

Middle District of North Carolina, at Greensboro.

Hiram H. Ward, District Judge.

Upon motion of the appellant, by counsel and for

cause shown,

IT IS ORDERED that the mandate in the above-

entitled case be, and it is hereby, stayed pending applica-

tion of the appeilant in the Supreme Court of the United

States for a writ of certiorari to this Court to and includ-

ing Friday, November 22, 1974.

For the Court—by Direction.

/s/ WILLIAM K. SLATE, II, Clerk

A True Copy, Teste:

WILLIAM K. SiarteE, II, Clerk

By FRANCES S. SEWELL,

Deputy Clerk

4a

Filed Oct. 12, 1973, Carmon J. Stuart, Clerk

IN THE UNITED STATES DISTRICT COURT

FOR

THE MIDDLE DISTRCT OF NORTH CAROLINA

GREENSBORO DIVISION

UNITED STATES OF AMERICA

Vv. Cr-279-G-73

JOHN ROBERT KERNODLE

NoRMAN GRAHAM SMITH

UNITED STATES OF AMERICA

v. Cr-280-G-73

JOHN ROBERT KERNODLE

H. CALLOWAY POLLARD, JR.

MARSHALL STEWART, JR.

UNITED STATES OF AMERICA

Vv. Cr-28 1-G-73

Houston P. SHARPE

NorRMAN GRAHAM SMITH

CHARLES M. MCMILLAN

MEMORANDUM ORDER

WARD, District Judge

The three above-entitled cases charge various officers

and directors of the North State Bank of Burlington, North

Carolina, and defendant McMillan with willfully mis-

applying bank monies, funds, and credits. Each indict-

ment charges defendants in Count One of their respective

Sa

indictments with conspiracy. The remaining counts charge

a violation of 18 U.S.C. $656 and 18 U.S.C. 82. In ad-

dition, the indictment in Cr-281-G-73 charges those de-

fendants witn making a false financial statement in viola-

tion of 18 U.S.C. §1014. All defendants are charged in

each count of their respective indictments.

Prior to arraignment on October 5, 1973, these de-

fendants filed various motions attacking the indictments

and requesting severance. The Court initially denied those

motions for reasons as set out in this memorandum order.

Due to the similarity of some of the contentions raised

in these three cases, the Court has decided to deal with all

of the motions in this order. Generally, all defendants

attack the sufficiency of both the conspiracy and substan-

tive counts of the indictments. They also challenge the

grand jury proceedings which issued the indictments. Some

defendants have aiso moved for a severance.

I

SUFFICIENCY OF THE INDICTMENT RELATING TO THE

COUNTS CHARGING A VIOLATION OF 18 U.S.C. $656

Each of the indictments charges the defendants with

violation of 18 U.S.C. $656 in that they allegedly willfully

misapplied bank funds. In Cr-279-G-73 Counts Two

through Eleven contain those charges. !

1Count Two charges, in material part, the defendants “with

intent to injure and defraud the said Bank, did wilfully misapply

and cause to be misapplied monies, funds, and credits of said Bank

in that the defendants did cause Loan Number 9252 to be made

by the Bank to Barbara T. Smith, in the amount of $40,000.00,

the proceeds of which were deposited in the account of the de-

fendants, concealing the purpose for the loan and concealing the

interests of JOHN ROBERT KERNODLE and NORMAN GRA-

HAM SMITH in the loan, which loan was financially unsound; in

violation of 18 U.S.C. 656; 2.”

The remaining counts allege the same type of transaction with

only the date, loan number, amount and recipient being different.

6a

In Cr-280-G-73, Counts Two through Nineteen allege

violation of 18 U.S.C. $656. Counts Two through Ten of

that indictment charge defendants with causing checks to

be paid from an insufficient funds account.? Counts Eleven

through Nineteen allege a misapplication by the making of

loans.3 In Cr-281-G-73 the allegations as to 18 U.S.C. $656

appear in Counts Two through Twenty-Four. Counts Two

through Twenty-One charge a misapplication by writing

checks on an insufficient funds account, using the same

format as Counts Two through Ten in Cr-280-G-73 as set

out in footnote 2. Counts Twenty-Two through Twenty-

Four of Cr-281-G-73 charge misapplications by the making

of loans, using the format of Counts Eleven through Nine-

teen in Cr-280-G-73 as set out in footnote 3.

2Count Two charges. in material part, the defendants “with

intent to injure and defraud the said Bank, did wilfully misapply

and cause to be misapplied the sum of $21,525.65 of the monies of

the said Bank, in that the defendants did cause to be paid out of

the monies and funds of the said Bank a check in the amount of

$21,525.65, dated December 23, 1970, drawn on the account of

Ketteridge Industries, Inc., which, as the defendants well knew, did

not contain sufficient funds to cover the said check, whereby the

possession, control, and use of said monies and funds of the Bank

were converted and misapplied to the use and benefit of Ketteridge

Industries, Inc.. NORMAN GRAHAM SMITH, H. CALLOWAY

POLLARD, JR., and MARSHALL STEWART, JR.: in violation

of 18 U.S.C. 656; 2.”

The remaining counts are the same except for dates and

amounts.

3Count Eleven charges, in material part, the defendants “with

intent to injure and defraud the said Bank did wilfully misapply

and cause to be misapplied monies, furds, and credits of said Bank

in that the defendants did cause Loan Number 10012 to be made by

the Bank to Ketteridge Industries, Inc., in the amount of $260,-

000.00, the proceeds of which were deposited in said Bank to the

account of Ketteridge Industries, Inc., concealing the purpose for

the loan and concealing the interest of Hi CALLOWAY POLLARD,

JR.. NORMAN GRAHAM SMITH and MARSHALL STEYVAF.T,

JR.; in violation of 18 U.S.C. 656; 2.”

The remaining counts are the same except for different cates,

loan numbers, amounts. and recipients.

Ta

Defendants contend that the counts charging a mis-

application of bank monies, fu.cds, or credits do not con-

form to the requirements of Rule 7(c), Federal Rules of

Criminai Procedure. As to the counts alleging misapplica-

tion through the payment of checks drawn on insufficient

funds accounts, they claim that the indictment fails to show

that the company on whose account the ciiecks were drawn

was insolvent and thus unable to repay the bank. They state

that the company may have given security or had some

arrangement with the bank for repaying the checks. They

state that the indictment must show that the company did

not have other accounts in the bank which contained

funds. They also say that regulations contained in 12

C.F.R. $7.1161 permits banks to extend credit through

use of overdrafts. In regard to the misapplication charges

through use of loans, they claim that the indictment must

allege that the loans would and could not be repaid. They

say that the defendants’ interest and purpose in the loans

must be more specifically stated and. the indictment must

detail the defendants’ involvement in making the loans.

They state that the contention of the indictments that they

concealed their purpose and interest in the loans does not

cure the defect of insufficiency. To summarize, the defend-

ants claim that in an indictment charging misapplication

under 18 U.S.C. £656, the government must detail the

facis behind the charge, give particulars as to the involve-

ment of the defendants and explain why the transaction

was illegal. They claim that the three indictments merely

allege garden variety banking transactions and that the

charges that defendants acted with intent to defraud, to

conceal their interests, or to convert bank funds and

monies merely states a conclusion but does not inform

them of the nature of the charges against them.

In support of their contentions, defendants rely upon

United States v. Britton, 107 U.S. 655, 2 S.Ct. 512, 27

8a

L.Ed. 520 (1883), for the proposition that the term

‘willfully misapplied’ has no set meaning and, therefore,

the indictments must particularize the means whereby the

alleged misapplications were accomplished in order to

sufficiently inform them of the charges which tiey face. In

addition, they place heavy reliance upon Johnson v. United

States, 95 F.2d 813 (4th Cir. 1938), for their contention

that an indictment under 18 U.S.C. $656 must negate any

possibility that the banking transaction might be legitimate

or that the monies taken or paid out might be repaid at a

future date.

In Johnson v. United States, supra, the court held that

an indictment under what is now 18 U.S.C. $656 did not

charge an offense. The indictment charged in the language

of the statute and then went on to explain defendant's

actions in detail. The indictment charged that defendant

took a note from another individual, discounted it, and

credited the funds to his personal checking account which

had been overdrawn. The court noted that allegations failed

to show a fraud on the bank, or a conversion of bank

funds, since the funds were never withdrawn. In effect, the

court found that the allegations particularizing the crime

merely recounted routine banking transactions.

The Court finds significant differences between the

indictments here and those in Johnson v. United States,

supra. Here, the counts as to checks drawn on insufficient

4As summarized in United States v. Docherty, 468 F.2d 989,

994 (2nd Cir. 1972):

. . . On the other hand, Johnson v. United States, 95 F. 2d

813 (4 Cir. 1938) (Soper, J.), held that no crime was charged

when the indictment alleged only that a bank president, whose

conduct was characterized with a copious array of pejorative

adverbs, had discounted a note payable to himself and applied

the proceeds to his own account, in order to meet an overdraft.

The court found the indictment flawed since there was no

allegation that the maker was known to be insolvent or to have

an intention not to pay.

9a

funds accounts in adition claim that the funds were con-

verted. In Johnson there was no claim that the note was

bad or that the defendant converted the funds. In the

present indictments the counts relating to the loans also

claim that the defendants concealed the purpose of the

loans and their interests in them. In Johnson there was no

concealment, and in fact there the defendant was quite

candid about what he did. The Court also finds significant

that here the indictments charge many different misapplica-

tions involving large sums of money, whereas in Jo/inson,

the alleged misapplication occurred once, and only in-

volved $600.5 The Court finds that the present indictments

sufficiently inform defendants of how the alleged misap-

plication took place and indicate why it was unlawful. The

Court cannot read these indictments and come to the

conclusion that only an ordinary banking transaction is

charged. These indictments allege conversion and conceal-

ment as essential ingredients of the transactions.

While the Court holds that the present indictments

sufficiently explain the means whereby the misapplications

arose, it also holds that [sic] indictments sufficient because

they follow the language of the statute in charging a crime.®

SIn United Stares v. Moraites, infra, 456 F.2d 435, the court

said it need not consider whether an indictment charging an offense

under 18 U.S.C. §656 and framed in the language of the statute

would be sufficient standing alone, since in that case the first count

of the indictment charged an elaborate conspiracy to misapply

bank funds, and all defendants were charged in both the conspiracy

and the challenged substantive counts. The same could be said of

the three indictments in the present case. In fact, it appears that

the indictments in the present case are more informative than those

in United States v. Moraites, supra, at 440 n. 7, which the court held

sufficient.

6The essential elements of 18 U.S.C. $656 in this case are (1)

the accused was an officer, director, etc., of a bank; (2) the bank

had a particular type of federal connection; (3) the accused will-

fully misapplied money, etc., of said bank; and (4) the accused

acted with intent to injure or defraud the bank.

10a

The prevailing view today appears to be that it is sufficient

to set out an offense under 18 U.S.C. $656 (for misapplica-

tion) by using the language of the statute, and the omission

of detailing the means by which the offense was committed

does not make the indictment insufficient. United States v.

Archambault, 441 F.2d 281, 283 (10th Cir. 1971), cert.

denied, 404 U.S. 843 (1971); United States v. Bearden,

423 F.2d 805, 810-11 (Sth Cir. 1970), cert. denied, 400

U.S. 836 (1970); United States v. Fortunato, 402 F.2d

79, 81-2 (2nd Cir. 1968), cert. denied, 394 U.S. 933

(1969); and see aiso United States vy. Moraites, 456 F.2d

435, 440-41 (3rd Cir. 1972), cert. denied. Those cases

either implicitly or explicity hold that the term ‘willfully

misapplied’ as used in 18 U.S.C. $656 is not so vague and

indefinite a word so as to necessitate further explanation.

(See United States v. Moraites, supra, at 441 n. 9 for

citation of authorities that this term as used in 18 U.S.C.

§656 has gained a technical meaning since the decision in

United States v. Britton, supra, which was decided in

1883.)

Since the decisions in Britton (1883) and Johnson

(1938), Congress has adopted new rules of criminal pro-

cedure to replace the old common law rules of pleading.

Rule 7(c), Federal Rules of Criminal Procedure, became

effective in 1946. As stated in Wright, Federal Practice

and Procedure, Vol. 1, $123 at 219-21 (1969):

Rule 7(c) put an end to “the rules of technical

and formalized pleading which had characterized an

earlier era.” The complex requirements of common

law criminal pleading and of some state practices

are now obsolete. The precision and detail formerly

demanded are no longer required, imperfections of

form that are not prejudicial are disregarded, and

common sense and reason prevail over technicalities.

lla

The fundamental functions and requirements of an

inggetment have not been modified, and it is still

essential that every element of an offense be stated

and that the defendant be given fair notice of the

charge against him, but the rule now permits a plain,

concise, and definite statement of the essential facts

constituting the offense.

The sagacity of Rule 7(c) readily appears in the instant

case. An indictment charging a violation of 18 U.S.C.

$656 may indeed involve complex matters of banking law

and policy at the trial. To do as defendants suggest and

require that all the details of the alleged illegal transaction

be explained in detail would result in a reversion to the

common law technical form of pleading. To avoid this

result, the government necessarily must rely upon con-

clusory statements, the facts of which must be proved

during the trial. The Court holds that the term ‘willfully

misapplied’ through the years has acquired a specific mean-

ing so as to enable the defendants to be put on notice of

the crime for which they are charged and to enable them

to prepare their defense.” In addition, these three indict-

7A misapplication is an unauthorized, unjustifiable, or wrongful

use of the bank’s monies, funds, or credits. However, the term

‘willful misapplication’ as used in 18 U.S.C. $656 means a criminal

misapplication rather than a mere act of maladministration. In order

for there to be a willful misapplication, the defendant must convert

to his own use, benefit, or gain, or to some other person’s or com-

pany’s use, benefit, or gain, the monies, funds, or credits of the

bank. However, it is not every such unauthorized or unlawful ap-

propriation of monies, funds, or credits which is punishable, but

only those acts willfully done with the specific intent to defraud or

deceive the bank. See United States v. Moraites, supra, at 441 and

cases cited in footnote 9, and United States v. Docherty, supra, 468

F.2d 989 (2nd Cir. 1972). The fact that the bank may suffer no

loss or injury, or that there is a future possibility of repayment or

benefit to the bank is no defense. The offense is complete im-

mediately upon the act of willful misapplication with intent to de-

rm or deceive. United States v. Acree, 466 F. 2d 1114 (10th Cir.

1972).

12a

ments sufficiently explain the transactions to defendants

so as to comply with Rule 7(c).

In regard to defendants’ contentions that the trans-

actions alleged in the indictments can be shown to be legal,

it is enough to say that they will have ample opportunity

to present their evidence at the trial. To require the govern-

ment to negate every possible or unusual defense con-

travenes the purpose of Rule 7(c) and would lead to a

mini-trial prior to arraignment in order to determine

whether a particular transaction could or might be merely

irregular rather than illegal. Such a procedure is neither

good policy, nor is it the law. As stated in United States v.

Thomas, 444 F.2d 919, 926 n. 23 (D.C. Cir. 1971):

As a general rule, it is not required that matters of

defense be negated in an indictment or information.

Evans v. United States, 153 U.S. 584, 590, 14 S.Ct.

934, 38 L.Ed. 830 (1894); Fippin v. United States,

162 F. 2d 128, 131 (9th Cir. 1947); United States

v. Branigan, 299 F. Supp. 225, 228 (S.D.N.Y. 1969).

See generally 1 C. Wright, Federal Practice and Pro-

cedure $125 (1969).

See also United States v. Vannatta, 189 F. Supp. 939, 941

(D. Hawaii 1960), which applied the general rule to a case

involving 18 U.S.C. $656.

% * *

[The remaining sections of the Memorandum Order deal

with issues not pertinent to this petition and are, therefore,

omitted. ]

% * *%

IT IS THEREFORE, ORDERED that each defend-

ant’s motion as to each and every particular be, and the

same hereby is, denied. The motion for severance is denied

without prejudice to its being raised again after defendants

i3a

have completed their discovery, and in such time in ad-

vance of trial to permit the Court to give adequate con-

sideration to it.

s/ HirAM H. WARD

United States District Judge

A True Copy, Teste:

CARMON J. Stuart, Clerk

By WAYNE N. EvERHART,

Deputy Clerk

APPENDIX B

CONSTITUTIONAL PROVISIONS, STATUTES

AND RULES INVOLVED

United States Constitution, amend. V:

“No person shall be held to answer for a capital,

or otherwise infamous crime, unless on a presentment

or indictment of a Grand Jury, except in cases arising

in the land or naval forces, or in the Militia, when in

actual service in time of War or public danger; nor

shall any person be subject for the same offence to

be twice put in jeopardy of life or limb; nor shall be

compelled in any criminal case to be a witness against

himself, nor be deprived of life, liberty, or property,

without due process of law; nor shall private property

be taken for public use, without just compensat:on.”

United States Constitution, amend. VI:

“In all criminal prosecutions, the accused shall

enjoy the right to a speedy and public trial, by an

impartial jury of the State and district wherein the

crime shall have been committed, which district shall

have been previously ascertained by law, and to be

informed of the nature and cause of the accusation;

to be confronted with the witnesses against him; to

have compulsory process for obtaining witnesses in

his favor, and to have the Assistance of Counsel for

his defence.”

18 U.S.C., S656:

“Whoever, being an officer, director, agent or

employee of, or connected in any capacity with any

Federal Reserve bank, member bank, national bank or

insured bank, or a receiver of a national bank, or any

agent or employee of the receiver, or a Federal Re-

1b

2b

serve Agent, or an agent or employee of a Federal

Reserve Agent or of the Board of Governors of the

Federal Reserve System, embezzles, abstracts, purloins

or willfully misapplies any of the moneys, funds or

credits of such bank or any moneys, funds, assets or

securities intrusted to the custody or care of such

bank, or to the custody or care of any such agent, of-

ficer, 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, abstract-

ed, 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.

As used in this section, the term “national bank”

is synonymous with “national banking association”;

“member bank” means and includes any national bank,

state bank, or bank and trust company which has be-

come a member of one of the Federal Reserve banks;

and “insured bank” includes any bank, banking uas-

sociation, trust company, savings bank, or other bank-

ing institution, the deposits of which are insured by

the Federal Deposit Insurance Corporation. June 25,

1948, c.645, 62 Stat. 729.”

Rule 6(e), Federal Rules of Criminal Procedure:

“SECRECY OF PROCEEDINGS AND DIS-

CLOSURE. Disclosure of matters occurring before

the grand jury other than its deliberations and the vote

of any juror may be made to the attorneys for the

government for use in the performance of their duties.

Otherwise a juror, attorney, interpreter, steuographer,

operator of a recording device, or any typist who

transcribes recorded testimony taay disclose matters

occurring before the grand jury only when so directed

by the court preliminarily to or in connection with a

3b

judicial proceeding or when permitted by the court at

the request of the defendant upon a showing that

grounds may exist for a motion to dismiss the indict-

ment because of matters occurring before the grand

jury. No obligaiion of secrecy may be imposed upon

any person except in accordance with this rule. The

court may direct that an indictment shall be kept

secret until the defendant is in custody or has given

bail, and in that event the clerk shall seal the indict-

ment and no person shall disclose the finding of the

indictment except when necessary for the issuance and

execution of a warrant or summons.”

Rule 7(c), Federal Rules of Criminal Procedure:

“(c) Nature and contents

(1) In general. The indictment or the informa-

tion shall be a plain, concise and definite written state-

ment of the essential facts constituting the offense

charged. It shall be signed by the attorney for the

government. It need not contain a formal commence-

ment, a formal conclusion or any other matter not

necessary to such statement. Allegations made in one

count may be incorporated by reference in another

count. It may be alleged in a single count that the

means by which the defendant committed the offense

are unknown or that he committed ittby one or more

specified means. The indictment or information shall

state for each count the official or customary citation

of the statute, rule, regulation or other provision of

law which the defendant is alleged therein to have

violated.

(2) Criminal forfeiture. When an offense charg-

ed may result in a criminal forfeiture, the indictment

or the information shall allege the extent of the inter-

est or property subject to forfeiture.

4b

(3) Harmless error. Error in the citation or its

omission shall not be ground for dismissal of the in-

dictment or information or for reversal of a conviction

if the error or omission did not mislead the de’ endant

to his prejudice.”

_ Rule 17(a), (c), Federal Rules of Criminal Procedure:

Rule 17. Subpoena.

(a) FOR ATTENDANCE OF WITNESSES;

FORM; ISSUANCE. A subpoena shall be issued by

the clerk under the seal of the court. It shall state the

name of the court and the title, if any, of the proceed-

ing, and shall command each person to whom it is

directed to attend and give testimony at the time and

place specified therein. The clerk shall issue a sub-

poena, signed and sealed but otherwise in blank to a

party requesting it, who shall fill in the blanks before

it is served. A subpoena shall be issued by a United

States magistrate in a proceeding before him, but it

need not be under the seal of the court.

(c) FOR PRODUCTION OF DOCUMENT-

ARY EVIDENCE AND OF OBJECTS. A subpoena

may also command the person to whom it is directed

to produce the books, papers, documents or other

objects designated therein. The court on motion made

promptly may quash or modify the subpoena if com-

pliance would be unreasonable or oppressive. The

court may direct that books, papers, documents or ob-

jects designated in the subpoena be produced before

the court at a time prior to the trial or prior to the

time when they are to be offered in evidence and may

upon their production permit the books, papers, docu-

ments or objects or portions thereof to be inspected

by the parties and their attorneys.