USA v. Bennett

• Decision Date: 10 September 2010
• Docket Number: No. 06-50580.,06-50580.
• Citation: 621 F.3d 1131
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. James Davis BENNETT, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

621 F.3d 1131

UNITED STATES of America, Plaintiff-Appellee,

v.James Davis BENNETT, Defendant-Appellant.

No. 06-50580.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted Feb. 1, 2010.

Filed Sept. 10, 2010.

Phillip A. Trevino of the Law Offices of Phillip Trevino (Los Angeles, CA) for the appellant.

George S. Cardona, Robb C. Adkins, and Brett A. Sagel of the Office of the United States Attorney's Office (Santa Ana, CA) and Curtis Kin of the United States Attorney's Office (Los Angeles, CA) for the appellee.

Appeal from the United States District Court for the Central District of California, Alicemarie H. Stotler, Senior District Judge, Presiding. D.C. No. CR-03-00025-AHS.

Before ANDREW J. KLEINFELD, KIM McLANE WARDLAW and CONSUELO M. CALLAHAN, Circuit Judges.

OPINION

WARDLAW, Circuit Judge:

It is a federal crime knowingly to execute, or attempt to execute, a scheme or artifice “(1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.” 18 U.S.C. § 1344. “Financial institution” is defined, as relevant to this appeal, as any bank or savings association the deposits of which are insured by the Federal Deposit Insurance Corporation (“FDIC”). See 18 U.S.C. § 20(1); 12 U.S.C. § 1813(c)(2). James Bennett challenges the sufficiency of the evidence supporting his convictions on three counts of a twelve-count superseding indictment charging him with bank fraud under § 1344. These three counts arise from mortgages that Bennett fraudulently procured from Equicredit Corporation, a wholly-owned subsidiary of Bank of America (“BOA”). Although Equicredit is not a “financial institution,” BOA is. We must decide whether, viewing the evidence in the light most favorable to the prosecution, any rational juror could have found beyond a reasonable doubt that Bennett procured funds “owned by” a “financial institution.”

I. BACKGROUND

James Bennett-a mortgage broker, real estate appraiser, and escrow agent-operated a sophisticated property flipping scheme in Southern California. “A fraudulent property flip is a scheme in which individuals, businesses, and/or straw borrowers buy and sell properties among themselves to artificially inflate the value of the property.” Fed. Fin. Inst. Examination Council, The Detection and Deterrence of Mortgage Fraud Against Financial Institutions 36 (Apr.2010) (“FFIEC Report”). A Federal Bureau of Investigation report explains:

Property flipping is best described as purchasing properties and artificially inflating their value through false appraisals. The artificially valued properties are then repurchased several times for a higher price by associates of the “flipper.” After three or four sham sales, the properties are foreclosed on by victim lenders. Often flipped properties are ultimately repurchased for 50 to 100 percent of their original value.

Financial Crimes Section, F.B.I., Financial Crimes Report to the Public (FY 2007). “This scheme is designed to extract as much cash as possible from the property, and the loan proceeds are often used for purposes not stated on the application.” FFIEC Report at 36.

Bennett identified multi-unit buildings that were listed for sale in low-income neighborhoods in Los Angeles and Long Beach. He provided his family members with cash to purchase the properties at their listed market price. He then identified “straw purchasers” to repurchase the same properties from his family members at drastically inflated prices. Sometimes, the straw purchasers were Bennett's associates or family members, and at other times, they were unwitting participants who were lured into the transactions by lucrative incentives, such as cash rebates and zero-money-down mortgages.

Bennett facilitated the sale of the properties from the initial buyers to the straw purchasers. He began by appraising the properties at 30% to 50% above their fair market value. Then, acting as the mortgage broker, he helped the straw purchasers obtain mortgages in the amounts of the inflated property values. The documents that he submitted to various lending institutions to acquire the mortgages were replete with misrepresentations about the properties and the borrowers. Not only did he inflate the appraised value of the properties, but he also misrepresented their potential rental income and fabricated grant deeds and title reports to conceal his family members' involvement with the properties. He also submitted false information about the borrowers' employment statuses and incomes so that they would qualify for mortgages that otherwise would be denied. Finally, acting as the escrow agent, Bennett used falsified copies of cashier's checks and deposit forms to represent that deposits had been made to escrow accounts, when, in fact, they had not.

Bennett ensnared several lending institutions in his web of lies. Provided with false information about the properties and borrowers, these institutions were duped into issuing mortgages to the straw purchasers. Bennett profited in an amount equal to the difference between the mortgage proceeds fraudulently obtained from the lender and the amount paid in cash to acquire the property at its market price. Meanwhile, many of the straw purchasers defaulted on their mortgages, typically within months of the transaction, leaving the lenders to foreclose on the properties at a loss.

Equicredit was one of Bennett's victims. Three undisputed facts about Equicredit are central to Bennett's appeal. First, Equicredit is not a “financial institution” within the meaning of the bank fraud statute. The government did not introduce evidence that Equicredit was FDIC-insured or otherwise met the statutory definition of “financial institution,” nor does the government argue that Equicredit is a “financial institution” on appeal. Second, Equicredit was, at all relevant times, a wholly-owned subsidiary of BOA. Christine Costamagna, a BOA vice president and assistant corporate secretary, and Milton Chadwick, a BOA attorney, testified that BOA owned all Equicredit stock at all times relevant to the charges against Bennett. The government also introduced corporate documents establishing that Equicredit was BOA's wholly-owned subsidiary. Third, BOA is a “financial institution” because it is FDIC-insured. The government introduced a certificate of BOA's FDIC insurance coverage, and Bennett does not dispute that BOA is a “financial institution.” In January 2003, a federal grand jury returned an indictment against Bennett and several of his associates for “execut[ing] a scheme to defraud mortgage lenders and to obtain money and property by means of materially false and fraudulent pretenses, representations, and promises.” In September 2005, the grand jury returned a superseding twelve-count indictment against Bennett only. The indictment charged Bennett with four counts of wire fraud under 18 U.S.C. §§ 2(b) and 1343 and seven counts of bank fraud under 18 U.S.C. § 1344. Each of the wire fraud and bank fraud counts involved a different mortgage for a different property in Southern California. The twelfth count of the superseding indictment charged Bennett with operating a continuing financial crimes enterprise in violation of 18 U.S.C. § 225.

In January 2006, a jury convicted Bennett on all twelve counts. Bennett moved for judgment of acquittal, which was granted as to the twelfth count because the government failed to introduce evidence that Bennett received $5 million or more from the enterprise, as required by statute. See 18 U.S.C. § 225(a)(2). The district court denied Bennett's motion for judgment of acquittal as to all other counts.

Bennett appeals only his convictions as to counts eight through ten, which charged him with bank fraud arising out of mortgages obtained from Equicredit on three different properties in Long Beach; Bennett does not contest his convictions or sentence on counts one through seven or count eleven. The sole issue raised on appeal is whether the government presented sufficient evidence from which any rational juror could find beyond a reasonable doubt that the “financial institution” element of the bank fraud statute was satisfied in circumstances where the fraudulently obtained mortgages were loaned by Equicredit, a wholly-owned subsidiary of a “financial institution.”

II. JURISDICTION AND STANDARD OF REVIEW

The district court exercised jurisdiction pursuant to 18 U.S.C. § 3231, and we have jurisdiction over a final judgment pursuant to 28 U.S.C. § 1291. We review de novo a claim challenging the sufficiency of the evidence supporting an element of an offense. See United States v. Sullivan, 522 F.3d 967, 974 (9th Cir.2008). A claim of insufficient evidence fails if “after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979). Under Jackson, “[w]e begin by viewing the evidence produced at trial in the light most favorable to the prosecution.” United States v. Nevils, 598 F.3d 1158, 1169 (9th Cir.2010) (en banc). Then, “[m]oving to the second step of Jackson, we must consider whether the evidence, as construed above, is sufficient to allow any rational juror to conclude that the government has carried its burden of proof.” Id.

III. DISCUSSION

Enacted as part of the Comprehensive Crime Control Act of 1984, Pub.L. No. 98-473, Title II, § 1108(a), the federal bank fraud statute makes it a federal crime knowingly to execute, or attempt to execute, a scheme or artifice “(1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or...