USA. v. Colton

• Decision Date: 03 April 2000
• Docket Number: No. 99-4142,No. 99-4185,99-4142,99-4185
• Citation: 231 F.3d 890
• Parties: (4th Cir. 2000) UNITED STATES OF AMERICA, Plaintiff-Appellee, v. DANIEL I. COLTON, Defendant-Appellant. UNITED STATES OF AMERICA, Plaintiff-Appellant, v. DANIEL I. COLTON, Defendant-Appellee. . Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 890

231 F.3d 890 (4th Cir. 2000)

UNITED STATES OF AMERICA, Plaintiff-Appellee, v. DANIEL I. COLTON, Defendant-Appellant.

UNITED STATES OF AMERICA, Plaintiff-Appellant, v. DANIEL I. COLTON, Defendant-Appellee.

No. 99-4142 No. 99-4185.

UNITED STATES COURT OF APPEALS, FOR THE FOURTH CIRCUIT.

Argued: April 3, 2000.

Decided: November 3, 2000.

Appeals from the United States District Court for the District of Maryland, at Baltimore.

Benson E. Legg, District Judge. (CR-97-377-L)

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] COUNSEL ARGUED: Walter Estes Dellinger, III, O'MELVENY & MYERS, L.L.P., Washington, D.C., for Appellant. Dale Preston Kelberman, Assistant United States Attorney, Baltimore, Maryland, for Appellee. ON BRIEF: Brian D. Boyle, Jonathan D. Hacker, O'MELVENY & MYERS, L.L.P., Washington, D.C., for Appellant. Lynne A. Battaglia, United States Attorney, Baltimore, Maryland, for Appellee.

Before LUTTIG and MOTZ, Circuit Judges, and John C. GODBOLD, Senior Circuit Judge of the United States Court of Appeals for the Eleventh Circuit, sitting by designation.

No. 99-4142 affirmed in part and remanded in part and No. 99-4185 affirmed by published opinion. Judge Motz wrote the opinion, in which Judge Luttig and Senior Judge Godbold joined.

OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

This appeal requires us to determine whether the federal bank fraud statute criminalizes failures to disclose material information to a financial institution only if those failures breach some independent legal disclosure duty. Because the bank fraud statute proscribes any "scheme or artifice to defraud," we hold that, even absent an independent duty to disclose, misleading or deceitful conduct designed to conceal material information from a financial institution violates the statute.

The case at hand arises from loans obtained by appellant, Daniel Colton, and his partner Dennis Laskin to finance certain commercial real estate projects. Colton and Laskin formed a corporation, Colton & Laskin, Inc. (owned by them in equal shares) which in turn created partnerships and corporations that secured a series of substantial loans from various financial institutions. At the time of the events critical to this case, Colton and Laskin had been partners for over six years and had together invested in numerous properties and had pursued thirty to forty development projects. They had defaulted on the real estate loans involved here by the time the challenged transactions took place.

After the government launched an investigation of these transactions, Laskin pled guilty to bank fraud and concealment of assets from the Resolution Trust Corporation (RTC) and admitted his participation in the schemes outlined within. Colton maintained his innocence and went to trial. Following a three week trial, at which Laskin testified against Colton, a jury convicted Colton of one count of conspiracy to commit bank fraud in violation of 18 U.S.C.§§ 371 and 1334 (1994), based on his conduct with respect to the workout of a loan with the RTC, and three counts of bank fraud in violation of 18 U.S.C. § 1344, based on his conduct with respect to a loan with Second National Bank.

Colton's primary argument on appeal is that because the government offered no evidence that he made any affirmative misrepresentations or breached any fiduciary, statutory, or other independent legal duty to disclose information, he cannot be held to have violated the federal bank fraud statute. We do not agree with this cramped construction of the bank fraud statute, which prohibits any knowing "scheme or artifice . . . to defraud" a financial institution. 18 U.S.C. § 1344. We affirm Colton's conspiracy conviction and one of his substantive bank fraud convictions because the government produced ample evidence from which a reasonable jury could conclude that Colton conspired to execute a scheme or artifice to defraud the RTC and did execute a scheme or artifice to defraud Second National. We must remand the case, however, so that the district court can vacate two of the bank fraud convictions because they were multiplicious.

With respect to the Second National transaction, the government cross appeals. The government maintains that it proved that in the Second National transaction Colton individually derived more than $1,000,000 and so his sentence should have been enhanced. Finding no error in the district court's refusal to enhance Colton's sentence on this ground, we affirm.

We set forth below the factual background of each transaction at issue here, prior to discussing its legality.

I.

We first address Colton's conviction for conspiracy to commit bank fraud. See 18 U.S.C. §§ 371, 1344.

A.

This conviction rests on certain actions Colton took to defraud the RTC in connection with the workout of a $3.1 million defaulted loan that he and Laskin had originally obtained from Trustbank. Although the government did not charge Colton with any crime in connection with a prior workout of a defaulted loan from Riggs Bank in the amount of $7.725 million, it did offer evidence of the Riggs transaction to demonstrate Colton's "knowledge, intent and motive" with respect to the $3.1 million RTC loan. Accordingly, we first briefly outline the Riggs transaction.

1.

Colton and Laskin, along with other developers, obtained the Riggs loan in 1988 to finance a joint venture near Annapolis, Maryland. All of the partners involved in the venture personally guaranteed the loan. In March 1991, the partners contracted to sell the property to WalMart for $10 million subject to certain conditions. However, a few months later, some of the partners experienced financial difficulties and the loan went into default.

Before the joint venture began experiencing difficulties, Laskin formed an irrevocable trust for the benefit of his family in January 1991, naming his long-time accountant, Alex Brager, his long-time lawyer, Ellis Koch, and Victor Rosenberg as trustees. Laskin used $10 million of his personal assets to establish the trust, which was originally titled the Dennis A. Laskin Irrevocable Trust. On August 26, 1991, after Colton and Laskin had defaulted on the Riggs loan (and the RTC loan), Laskin arranged for papers to be filed with the state to permit the trust to trade as the Alexander Family Trust (the "Trust"), and he removed Ellis Koch as a trustee because Koch was known to be closely associated with him.

Once the loan for the joint venture went into default, Riggs looked to the personal guarantors, including Colton and Laskin, for payment because Riggs believed that the property value was insufficient to cover the loan in light of certain environmental and financial problems jeopardizing the Wal-Mart contract. At Colton's recommendation, Laskin contacted Marvin Mandel, a former Governor of Maryland, who was now practicing law in Annapolis, to represent the Trust in negotiations with Riggs to purchase the note. Colton and Laskin intentionally failed to provide Mandel with any "of the particulars" of the Trust, including a copy of the trust agreement or even the identities of the grantor or the beneficiaries of the Trust. Laskin testified that "[t]he purpose in using Marvin Mandel was, first of all, based upon his credibility as the former governor, and secondly, so that Riggs would not be aware that the funds were coming from my trust."

During the negotiations, Riggs sought, but did not receive, additional information about the Trust, including the identities of the grantor and the beneficiaries. Laskin explained that he and Colton did not want to reveal this information because if Riggs knew of Laskin's relationship to the Trust, the bank "would not sell the loan at a discount" but rather would seek full payment. Riggs ultimately accepted Colton and Laskin's certifications that they did not have a direct or indirect interest in the Trust, as well as Mrs. Laskin's limited certification that she had no "legal or beneficial interest in the Trust with respect to" its acquisition of the note. Riggs then sold the $7.725 million note to the Trust for approximately $5 million in November 1991. According to the government, Colton and Laskin used this transaction as a blueprint for devising their plan to defraud the RTC by the conduct outlined below, which forms the basis for the conspiracy count against Colton.

2.

The RTC loan had originally been made in January 1990 by Trustbank, a federally insured bank, to Colton and Laskin for the acquisition and development of property near Bowie, Maryland. The loan totaled $3.1 million and was personally guaranteed by Colton, Laskin, and their wives. In March 1991, Wal-Mart contracted with Colton and Laskin to purchase part of this property as well, conditioned upon certain development requirements, including county-mandated road improvements. Negotiations with commercial neighbors over such improvements reached an impasse, however, and Colton and Laskin defaulted on the loan with Trustbank in June 1991.

The RTC had placed Trustbank into conservatorship in January 1991. The RTC hired Gemini Asset Managers to work out and liquidate the bank's assets, including Colton and Laskin's $3.1 million loan. Gemini sent a letter to Colton and Laskin on November 12, 1991, informing them that Gemini had taken over management and disposition of their loan. In assessing its options for recovering the loan, Gemini evaluated the personal financial condition of Colton, Laskin, and their wives, and concluded that recovery through the personal guarantees was not a viable option because substantial liabilities outweighed the value of the guarantors' assets.

Laskin testified that "[b]ased upon the success of acquiring the note with Riggs Bank at a discount, it was Mr. Colton's suggestion that the trust acquire the note from Trustbank at a discount as well." However, "there would be one change"-"[b]ecause of the difficulties that were encountered...