U.S. v. Williams, 92-7778

• Decision Date: 13 January 1994
• Docket Number: No. 92-7778,92-7778
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Lynn WILLIAMS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 452

12 F.3d 452

UNITED STATES of America, Plaintiff-Appellee, v. Lynn WILLIAMS, Defendant-Appellant.

No. 92-7778.

United States Court of Appeals, Fifth Circuit.

Jan. 13, 1994.

Rehearing Denied Feb. 22, 1994.

Appeal from the United States District Court for the Southern District of Mississippi.

John DiGiulio (court appointed), Baton Rouge, LA, Britt Singletary, Singletary & Thrash, Biloxi, MS, for defendant-appellant.

George Phillips, U.S. Atty., Jackson, MS, Mervyn Hamburg, U.S. Dept. of Justice, Washington, DC, Steve Irwin, New Orleans, LA, Herbert Mondros, Asst. U.S. Attys., for plaintiff-appellee.

Before WISDOM, HIGGINBOTHAM, and JONES, Circuit Judges.

WISDOM, Circuit Judge:

The appellant/defendant, Lynn Williams, originally was indicted on August 7, 1991, on charges of conspiracy to embezzle funds belonging to a labor union pension plan under 18 U.S.C. Sec. 371 and embezzlement of those pension funds under 18 U.S.C. Sec. 664. A series of superseding indictments additionally charged him with making false statements to a federally insured bank under 18 U.S.C. Sec. 1014. On September 10, 1992, the trial court denied the defendant's motion to dismiss. In that motion, Williams alleged prosecutorial misconduct, a lack of materiality of the alleged false statements, and violations of his rights under the Speedy Trial Act ¹.

Williams was charged along with several co-defendants, all of whom pleaded guilty. ² He refused to do so, presumably because his participation in the criminal enterprise consisted only of lending his friends money and, on two fateful occasions, signing documents that they presented to him. A jury nonetheless found Williams guilty of one count of conspiracy and three counts under Sec. 1014; the jury found him not guilty on the two pension fund theft counts. After denying Williams's motion for judgment of acquittal or for a new trial, the district judge sentenced Williams to 21 months in prison. Williams appeals from that conviction. We AFFIRM his conviction for conspiracy but VACATE his convictions under Sec. 1014.

I. Background

Although the charges against Williams are not particularly complex, some background on the other defendants's relationships and business ventures is helpful to understand their context. Eugene Sykes, of Baton Rouge, Louisiana, owned and operated Morning Treat Coffee Co. for two years until it filed for bankruptcy in 1985. In July of that year, Charles Sykes (Eugene's brother) formed Southern Coffee Co. as a distinct successor to Morning Treat; Southern bought the remaining assets of Morning Treat. Although Charles owned 100% of Southern Coffee, he made Eugene president. Eugene spent his time handling the day-to-day affairs of Southern Coffee while Charles continued his main vocation, practicing law and representing labor unions along the Gulf Coast in Mississippi.

In April 1986, Eugene sought additional funding for Southern Coffee. He applied for a loan of two million dollars to the Louisiana Imports and Exports Trust Authority (LIETA), an organization designed to aid small businesses in Louisiana in gaining access to the import and export markets. During this time, Williams, an attorney in Baton Rouge, maintained an ongoing personal and business relationship with Eugene. For example, Williams accompanied Eugene when he went to New Orleans to address the LIETA Board and, further, applied to a bank for a letter of credit for Eugene to pledge as collateral. When that application was rejected, Williams personally borrowed $50,000 and lent the money to Eugene.

Always the entrepreneur, Eugene decided to get into the marble cutting business. In particular, he started China Marble of America, Inc., and sought to buy the Columbus Marble Works of Columbus, Mississippi (with a quarry in Alabama) for $460,000. Eugene told his brother Charles, the attorney, about his interest in the marble venture and enlisted his help in securing funding. Eugene knew that Charles was extremely influential with the unions he represented and might have access to money in their pension funds.

Eventually Eugene gave Charles documents outlining a proposal for the marble venture and proposing plans to build a Morning Treat Coffee plant in Mississippi. The proposal sought interim funding until a loan of one million dollars from LIETA could be consummated. Charles passed the proposal to co-defendants Wilson Evans and Robert Matthews, two trustees of the Gulfport Steamship Company-International Longshoremen's Association Pension Fund ("Fund"). ³

Evans and Matthews may have been blinded by wishful naivete: the proposal came when jobs were scarce. They doubtless saw the marble cutting venture as the source of some much-needed local employment opportunities. The reality, unfortunately, was quite different. The proposal was but a means of misappropriating pension money to secure loans for Eugene's various ventures. In addition, LIETA would never have given money to a venture in Mississippi (the organization was founded to aid small businesses in Louisiana, as the "L" in LIETA indicated). ⁴ Evans and Matthews wrote Eugene a letter telling him that the Fund would pledge one million dollars in certificates of deposit to secure the LIETA loan. When no LIETA money was forthcoming, Eugene and Charles applied to two banks in Mississippi, using the pension's certificates of deposit as collateral. ⁵ On the strength of the pledged collateral, the banks approved the loans. Eugene used the bank loans for the purchase of the marble equipment and for operating expenses for his other ventures.

When his businesses failed, Eugene's loans went into default. The banks exercised their rights over the certificates of deposit against the Fund. The pension fund lost the money represented by the certificates of deposit.

II. Facts Pertinent to the Section 1014 Charges Against Williams

In the course of arranging the bank loans, Charles prepared three form resolutions, a standard component of a loan application. Eugene then presented these forms to Williams who signed them. By signing both of the loan applications and, accordingly, attesting to the veracity of the information contained there, Williams allegedly made two statements that formed the basis for his convictions. First, the forms listed him as the treasurer, secretary, and certifying officer of Southern Coffee. Second, the resolutions stated that approval for the loans had been given at a meeting of the board of directors of Southern Coffee.

The government contended that Williams had never been elected to those positions or served in those capacities and, similarly, that the board of directors had not formally approved the resolution. The jury agreed and convicted Williams of making false statements to a federally insured bank.

III. Materiality Under Section 1014

It is illegal under 18 U.S.C. Sec. 1014 to make a false, material statement to a federally insured banking institution. To sustain a conviction under this statute, the government must prove that: (1) the defendant made a false statement to a financial institution; (2) the defendant knew the statement was false when he made it; (3) he made it for the purpose of influencing the financial institution's action; and (4) the statement was false as to a material fact. ⁶

The defendant challenges that the statements were false, that he knew they were false, and that they were material. He concedes that the statements were made to influence the bank's decision on Eugene and Charles's loan application. ⁷ We need not address whether the statements were false or whether Williams knew of their falsity for we hold that the statements were not material. As a result, the government failed to meet its burden and we must vacate Williams's convictions under Sec. 1014.

Statutes imposing criminal penalties for making false statements long have required materiality as an essential element. ⁸ Section 1014 is no exception: the government must prove that the false statement matters.

Statutes like section 1014 and section 1001 (the statute that makes it illegal to make a false statement to a government department or agency) are "highly penal" and, thus, require that the materiality element be taken seriously. In United States v. Beer ⁹, we emphasized that the severe penalties flowing from a conviction for making a false statement require the government to "make a reasonable showing of the potential effects of the statement". ¹⁰ In the present case, the government failed to do so.

Materiality is a legal determination made by the district court and, accordingly, is subject to complete review by this Court. ¹¹ A challenge to the district court's finding of materiality is not a challenge to the sufficiency of the evidence even though it is a product of a factual evidentiary showing. ¹² In other words, our review seeks to determine whether the district court's finding of materiality was erroneous as a matter of law. ¹³

A false statement is material if it is shown to be capable of influencing a decision of the institution to which it was made. ¹⁴ Moreover, the statements must be analyzed in the particular context in which they were made. ¹⁵ In the context of the present matter, our inquiry is limited to whether the statements at issue--the loan application forms listing Williams as secretary and treasurer and attesting that the board of directors formally approved the loan--were capable of influencing the bank's decision to loan the Sykes brothers money. We hold that these statements were not capable of influencing the bank's decision one way or the other and, as such, fail to meet the materiality requirement.

The United States urges that we adopt the broadest possible definition of materiality, relying on the Lueben case for the proposition: "[I]f these statements were immaterial why were they required by the lending institution in each of the transactions?" ¹⁶ This dictum was intended as a rhetorical guidepost,...