U.S. v. Gjerde

• Decision Date: 12 May 1997
• Docket Number: No. 96-2033,96-2033
• Parties: 46 Fed. R. Evid. Serv. 1102 UNITED STATES of America, Plaintiff-Appellee, v. Martin Ole GJERDE, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 595

110 F.3d 595

46 Fed. R. Evid. Serv. 1102

UNITED STATES of America, Plaintiff-Appellee, v. Martin Ole GJERDE, Defendant-Appellant.

No. 96-2033.

United States Court of Appeals,Eighth Circuit.

Submitted Nov. 20, 1996.

Decided April 7, 1997.

Rehearing and Suggestion for Rehearing En Banc Denied May 12, 1997.

Ronald L. Meshbesher, argued, Minneapolis, MN, for Defendant-Appellant.

Lizabeth A. McKibben, Asst. U.S.Atty., argued, Minneapolis, MN, for Plaintiff-Appellee.

Before FAGG, WOLLMAN, and HANSEN, Circuit Judges.

HANSEN, Circuit Judge.

Martin O. Gjerde appeals his conviction for conspiring to defraud an agency of the United States in violation of 18 U.S.C. § 371 (1994). He argues that the evidence was insufficient to support his conviction, that the district court ¹ erred in admitting hearsay evidence at his trial, and that the district court erred in determining his sentence. We affirm.

I.

The charges in this case arose from a conspiracy to defraud the United States Department of Housing and Urban Development (HUD) in order to obtain HUD funds. The United States Congress annually appropriates tax dollars to HUD for the Community Development Block Grant Program, which includes the Small Cities Grant Program. HUD releases the Small Cities Grant Program funds to the states, which in turn make the funds available to communities to establish new economic development. The Minnesota Department of Trade and Economic Development (MDTED) is the Minnesota agency in charge of disbursing these HUD funds, in accordance with HUD rules and regulations.

Clarkfield Drying, Inc. (CDI) was a Minnesota corporation established by two brothers, Clark Field and Richard Field, to operate a whey drying plant located in Clarkfield, Minnesota. The Field brothers sought financing for the purchase of equipment and for other operational costs for the new plant. On behalf of CDI, the brothers approached the City of Clarkfield to apply for a $282,000 loan through the HUD Small Cities Grant Program. In their application for the HUD funds, the Field brothers stated that to be successful, CDI would require, among other things, an additional $292,000 of private financing. When the city applied to MDTED for the purpose of loaning the funds to CDI, MDTED responded that before it would release the HUD funds, it would need proof through a loan commitment letter that CDI had obtained the private financing. In addition, under the funding agreement between the city and CDI, CDI would have to prove that the money from the private financing had been spent on CDI equipment and that the City of Clarkfield would be in the first security position on the CDI equipment.

The Field brothers proceeded to seek private financing for CDI. After unsuccessfully pursuing other avenues of obtaining the money, ² the Field brothers sought a $292,000 loan from the Bonanza Valley State Bank (the bank) in Brooten, Minnesota. Richard Field approached Martin Gjerde, the president of the bank who had a long-standing relationship with Field, for a loan. Gjerde refused to loan the funds to CDI, however, because the City of Clarkfield was out of the bank's service area (90 miles away), CDI was a new company, and Gjerde had no experience with Clark Field, who was to run the operation.

Clark and Richard Field then proceeded to create a corporation named Minnewaska Capital Investment, Inc. (Minnewaska), in Glenwood, Minnesota, a city within the bank's service area. Minnewaska was a holding and leasing company for CDI, with Richard Field named as president and Clark Field named as treasurer. The Fields then approached Gjerde for a $292,000 bank loan to Minnewaska, to provide private financing for CDI. Gjerde approved the loan, without requiring the Fields to fill out a loan application or to submit any evidence of Minnewaska's financial status.

The transactions between Gjerde (on behalf of the bank) and the Fields (on behalf of CDI and Minnewaska) took place on August 21, 1989, and proceeded as follows. First, the bank loaned $292,000 to Minnewaska. The loan papers were signed by Gjerde, Clark Field, and Richard Field. Next, Minnewaska immediately transferred the $292,000 to CDI. Within a minute of this transfer of funds, CDI paid $173,000 (59% of the loan) back to Minnewaska, which then repaid that amount to the bank. The remaining $119,000 of the bank loan was left in CDI's checking account, but the money was never available for use by CDI. Gjerde put a hold on the Minnewaska and CDI checking accounts, preventing the Fields from accessing the proceeds of the bank loan. He noted this in a comment in the loan file, stating This loan is being granted and security looked at only on the basis that the proceeds of this loan never leave[ ] accounts that have been set up at Bonanza Valley State Bank and security that is offered for them. Holds have been put on each of [the] checking accounts....

(Appellee's App. at 10.) In accordance with Gjerde's comment on the loan, the bank returned and refused to honor several checks written on the CDI bank account, despite its healthy account balance. ³

On September 28, 1989, Kevin Stroup, an attorney representing the City of Clarkfield, telephoned Gjerde to inquire about the bank loan. Stroup told Gjerde that, to obtain the HUD Small Cities Grant Program funds, the Fields were required to secure $292,000 of private financing and to show that the proceeds of the financing had been used to purchase CDI equipment. Gjerde informed Stroup that the bank had lent $292,000 to Minnewaska, and Stroup requested documentation of the loan.

Gjerde sent the loan documents to Stroup, showing that the bank had lent $292,000 to Minnewaska, which in turn was transferring the funds to CDI. Gjerde also represented to Stroup on several occasions that approximately $170,000 of the bank loan had been spent on equipment as agreed upon under the funding agreement between the city and CDI. Gjerde never informed Stroup at any time that the $173,000 had in fact been repaid to the bank or that holds had been placed on the CDI and Minnewaska checking accounts to ensure that the remaining $119,000 did not leave the bank.

On November 8, 1989, Gjerde negotiated with Stroup to maintain the bank's first security position on the cash in the Minnewaska and CDI bank accounts until the funds had been fully spent on equipment. Under Gjerde's proposal, the city would have a first security interest once CDI had used the money to purchase equipment for the whey drying plant. The city agreed to this plan because the contract between the city and CDI required that the HUD funds be spent on equipment. On November 29, 1989, Gjerde confirmed to Stroup that CDI had spent all the proceeds of the bank loan on equipment and the CDI account had a zero balance.

Stroup sent the bank loan documents to a senior loan officer at MDTED, Nancy Johnson, and told her of Gjerde's assurance that the proceeds of the bank loan had been spent on equipment. The Fields also sent documents to Johnson, representing that the money had been spent on equipment. Based on this information, Johnson authorized the release of funds from the HUD Small Cities Grant Program to the city. On December 13, 1989, the city loaned $282,000 to CDI, $232,000 of which was transferred to the CDI checking account at the Bonanza Valley State Bank.

The Fields repaid the balance of the bank loan within three months of the execution of the loan. A $115,000 check was made payable from the CDI account to the bank on November 9, 1989, one day following the consent agreement between the bank and the city concerning the priority of their security interest. The final payment, including $3,571.40 in purported interest, was made on December 13, 1989, after the HUD funds had been deposited in the CDI account.

CDI eventually defaulted on the HUD loan. Stroup's law firm then hired an investigator to identify the whereabouts of the HUD funds. When the investigator spoke with Gjerde about the bank loan, Gjerde described it as a "paper transaction."

The City of Clarkfield also hired a CPA to trace the HUD funds loaned to CDI. The CPA concluded that the $292,000 purported loan from the bank "did not provide any capital on a long term basis to the business, as the money was advanced and returned well in advance of the time it should have been returned either to investors or to the bank." (Trial Tr. III at 39.) The CPA testified that the sequence of the transactions was not necessarily uncommon, but the loan was not valid to fulfill CDI's obligation to obtain the private financing in order to qualify for the HUD funds. She described the purported loan as "a bogus transaction with no actual capitalization to the corporation." (Id.)

On September 21, 1994, Gjerde was charged in a Second Superseding Indictment on one count of conspiracy to defraud the United States in violation of 18 U.S.C. § 371 and four counts of mail fraud in violation of 18 U.S.C. §§ 2 and 1341. ⁴ The case proceeded to trial. Stroup, the attorney who had represented the City of Clarkfield, testified that he would not have approved the loan to CDI if he had seen the loan comment sheet prepared by Gjerde stating that the bank loan was being made on the condition that the money never leave the bank. Likewise, Johnson, the senior loan officer at MDTED assigned to the CDI loan, testified that she would not have approved the release of the HUD money to the city if she had seen the loan comment sheet.

A jury found Gjerde guilty of conspiring to defraud the United States in violation of 18 U.S.C. § 371, but not guilty on the mail fraud charges under 18 U.S.C. §§ 2 and 1341. The district court entered a judgment, sentencing Gjerde to thirty-three months of imprisonment, two years of supervised release, and restitution in the amount of $5,000. Gjerde appeals, arguing that the evidence was insufficient to support his conviction, the district court erred in admitting hearsay...