U.S. v. Aarons

Decision Date05 October 1983
Docket NumberNo. 82-1396,82-1396
Citation718 F.2d 188
PartiesUNITED STATES of America, Plaintiff-Appellee, v. H. Bradford AARONS, Defendant-Appellant.
CourtU.S. Court of Appeals — Sixth Circuit

Abraham Singer, argued, Shapack, Singer & McCullough, Troy, Mich., for defendant-appellant.

Leonard R. Gilman, U.S. Atty., F. William Soisson, Asst. U.S. Atty., argued, Detroit, Mich., for plaintiff-appellee.

Before LIVELY, Chief Circuit Judge ENGEL, Circuit Judge, and NEESE, * Senior District Judge.

PER CURIAM.

H. Bradford Aarons appeals his conviction, following a lengthy jury trial in the Eastern District of Michigan, on a single count of making, or causing to be made, a false statement to an agency of the United States, 18 U.S.C. Secs. 1001 and 2. Finding the evidence insufficient to support the conviction, we reverse. 1

Production Forming, Inc. (PFI) borrowed $385,000 from the Madison National Bank of Detroit, Michigan (Bank). The lender and the lendee applied to the Small Business Administration (SBA) for the usual guaranty it may make of such loans. A part of that application was a document required by the SBA, known as a "settlement sheet," representing how the proceeds of the loan had been distributed. United States v. Grugette, 678 F.2d 600, 602 (5th Cir.1982); United States v. Luxenberg, 374 F.2d 241 (6th Cir.1967).

The settlement sheet here contained statements representing to the SBA that the proceeds of the loan had been disbursed by the Bank precisely in accordance with earlier representations set forth in earlier documents supporting the application for the loan guaranty. The statements in the settlement sheet regarding disbursement were false, in that the Bank had applied $113,000 of the proceeds to outstanding loans made by the Bank to Aarons, Bruce E. Neagley, of Keuther Metal Forming, Inc. (KMF), and to Aarons and Associates, Inc. (AAI). Aarons was the chairman of the board of directors of PFI, and Neagley was its president. PFI was the principal creditor of KMF, and Aarons and Neagley were the principal stockholders of AAI, which owed each of them money.

The false representations were made jointly by Neagley, by Roger Fosth, the vice-president of PFI, and by Dean Busard, a vice-president of the Bank, on information selected and inserted on the SBA form by Busard. Busard distributed all proceeds of the loan. Neither Busard nor Fosth were charged, but Aarons, Neagley, and the Bank were indicted along with Charles R. Betteley, its president, and Frank Parynik, chief of the finance division of the SBA office involved.

Midway in the trial, Mr. Neagley changed his plea to guilty on two counts of the indictment.

Appellant Aarons was acquitted on all charges against him except that contained in count three of the indictment. Count three charged Aarons with willfully and knowingly making or causing to be made a false statement to the SBA in violation of 18 U.S.C. Secs. 1001 and 2. Aarons claims on this appeal that his conviction was based on insufficient evidence and that the prosecution did not prove every element of the offense beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. 307, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979).

Initially, we note the concession by the prosecution that Aarons could not have been found guilty of personally making the false statement involved, or of aiding or abetting its making, see 18 U.S.C. Sec. 2(a). 2 Instead, the government urges us to sustain Aarons' conviction on the theory that Aarons "caused" the false statement to be made, thereby rendering him punishable as a principal under 18 U.S.C. Sec. 2(b). 3 We limit, therefore, our discussion to whether or not the evidence was sufficient to sustain the conviction under Sec. 2(b).

Aarons could be convicted here only if the prosecution proved that Busard, Neagley or Fosth committed the predicate felony proscribed by 18 U.S.C. Sec. 1001. United States v. Hoffa, 349 F.2d 20, 40 (6th Cir.1965), aff'd, 385 U.S. 293, 87 S.Ct. 408, 17 L.Ed.2d 374 (1966). Title 18 U.S.C. Sec. 1001 makes it unlawful to knowingly and willfully make any false statements or representations in any matter within the jurisdiction of any department or agency of the United States. United States v. Beacon Brass Co., 344 U.S. 43, 45, 73 S.Ct. 77, 78, 97 L.Ed. 61 (1952). It was the congressional intent to protect governmental departments and agencies from the perversion which might result from the deceptive practices described in this statute. United States v. Gilliland, 312 U.S. 86, 93, 61 S.Ct. 518, 522, 85 L.Ed. 598 (1941).

Aarons, Neagley, Fosth and Busard had agreed and knew before the settlement sheet was executed that the proceeds of the loan would be disbursed by Busard as they were; indeed, Neagley withheld his agreement to such disbursements in that manner until the Bank lent PFI an additional $65,000 for working-capital. Busard maintained throughout the transaction that, as such agreement was reached by all the parties thereto "at arm's length," the distribution of the proceeds of the loan was lawful.

The elements of the crime denounced as unlawful by the predicate statute are: (1) the making of a statement; (2) the falsity of such statement; (3) knowledge of the falsity of the statement; (4) relevance of such statement to the function of a federal department or agency; (5) that the false statement was material. United States v. Fitzgibbon, 619 F.2d 874, 879 (10th Cir.1980). A review of the evidence reveals that Busard, Neagley and Fosth violated the "making" clause of 18 U.S.C. Sec. 1001.

The government contends that Aarons' repeated failure to disclose to the SBA his knowledge that the Bank had distributed a substantial portion of the proceeds of the loan in a manner contrary to that specified in the loan application documents renders him culpable under 18 U.S.C. Secs. 1001 and 2. We cannot agree. In the absence of overt acts by Aarons relating to the making of the false representations by Busard, Neagley and Fosth to the SBA, his mere failure to "speak up" to the SBA is insufficient to punish him as a principal under 18 U.S.C. Sec. 1001. A different result would come dangerously close to trenching upon a person's right against self-incrimination under the Fifth Amendment. See United States v. London, 550 F.2d 206, 212 (5th Cir.1977).

At oral argument, the government urged us to affirm Aarons' conviction on the grounds that the jury might have reasonably inferred from the evidence that Aarons foresaw that someone would conceal from the SBA the maldistribution of the loan the SBA had guaranteed, and that this somehow constitutes a violation of 18 U.S.C. Sec. 2. Cf. U.S. v. Beck, 615 F.2d 441 (7th Cir.1980). That inference cannot support a conviction under the cited statute. See Logsdon v. United States, 253 F.2d 12, 16 (6th Cir.1958). ("It is not enough that the appellant may have willfully created the occasion or the opportunity for the cashier's [i.e., the principal's] misapplication of the funds, even though the appellant [causer] may have foreseen these consequences of his own misconduct.")

This is not a situation analogous to that in United States v. Murph, 707 F.2d 895 (6th Cir.1983), where the appellant willfully caused another person to submit the Internal Revenue Service a tax return which fraudulently claimed an entitlement to a refund. There, appellant had sold his right to receive the proceeds of his supposed refund to a "tax return discounter." Therein, we said:

The defendant knew when he sold the return to the discounter that the discounter was buying it for the purpose of presenting it to the government for a refund. This further [overt] act on behalf of the discounter was clearly understood and foreseen by the defendant and thus the defendant "caused" the return to be presented within the meaning of the Act. Compare Pereira v. United States, 347 U.S. 1, 8-9, 74 S.Ct. 358, 362-363, 98 L.Ed. 435 (1954).

Here, the evidence did not reflect that Aarons had understood or foreseen that the false statement would be made and submitted to the SBA.

In its reliance on Beck v. United States, 615 F.2d 441 (7th Cir.1980), the government has overlooked the basic statement of law therein: " '[T]here must be evidence to establish that the defendant engaged in some affirmative conduct; that is, there must be evidence that [the] defendant committed an overt act designed to aid in the success of the venture.' " Beck, 615 F.2d at 449, citing United States v. Longoria, 569 F.2d 422, 425 (5th Cir.1978). Furthermore, "there must be evidence to establish that the defendant shared in the criminal intent of the principal." 615 F.2d at 448-49.

In Beck, defendant's objective was to illegally secure the exportation of munitions from the United States to South Africa; this plan could succeed only if the required export documents falsely declared the packaged arms and ammunition to be legitimate export articles. In the instant case, the objective was to obtain SBA guaranty of a loan arranged between PFI and the Bank. Falsifying the representations on the settlement sheet was unnecessary to the success of the enterprise because the loan had been guaranteed prior to the submission of the settlement sheet. In Beck, defendant's many overt acts contributed significantly to the making and concealing of the false statements on the export documents, while here Aarons merely acquiesced in the making of false statements by Busard, Neagley and Fosth. "Proof of mere negative acquiescence will not suffice." United States v. Longoria, 569 F.2d 422, 425 (5th Cir.1978). A person is not guilty under 18 U.S.C. Sec. 2 "unless there is some sort of active proceeding on his part; he must incite, or procure, or encourage the criminal act, or assist or enable it to be done, or engage or counsel, or command the principal[s] to do it." Morei v. United States, 127 F.2d 827, 830-31 (6th Cir.1942).

The government also argues that Aarons' role...

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