U.S. v. Levy
| Decision Date | 13 November 1984 |
| Docket Number | No. 83-2010,83-2010 |
| Citation | 741 F.2d 915 |
| Parties | 16 Fed. R. Evid. Serv. 319 UNITED STATES of America, Plaintiff-Appellee, v. William LEVY, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Carol A. Brook, Federal Defender Program, Chicago, Ill., for defendant-appellant.
Alexander S. Vesselinovitch, Asst. U.S. Atty., Chicago, Ill., for plaintiff-appellee.
Before BAUER, Circuit Judge, PELL, Senior Circuit Judge, and JAMESON, Senior District Judge. *
William Levy, defendant-appellant, was convicted of fifteen counts of violating 18 U.S.C. Sec. 657, which proscribes the willful misapplication of bank funds. Appellant was sentenced to one year's service in a work release program, five years' probation, and he was ordered to make restitution in the amount of $144,000. Appellant raises eight issues on appeal, each of which he contends requires reversal of his conviction. First, appellant claims that the indictment was fatally defective. Appellant then raises two arguments concerning the sufficiency of the evidence. Next, appellant contends that remarks in the prosecutor's closing argument caused the jury to allocate incorrectly the burden of proving the elements of the crime charged. Finally, appellant contends the trial judge improperly admitted four types of evidence. Although the focus at oral argument was only on two of the issues, we address each issue in turn.
The first challenge, being to the sufficiency of the evidence, requires a more detailed recital of facts than is ordinarily necessary. The charges in this case arose out of a series of mortgage transactions involving the firm Financial Resources, Inc. (Financial), a corporation of which appellant was president and sole shareholder from September 1978 through August 1981. In September 1979, Financial and the First Financial Savings & Loan Association of Downers Grove, Illinois (the Association) 1 executed a document entitled "Agency Agreement" under which Financial would do preliminary investigative work requisite to the Association's securing from the Veterans Administration (VA) or Federal Housing Administration (FHA) insurance on mortgage loans made to eligible individuals. Financial entered this arrangement because its own net worth was insufficient under VA and FHA guidelines to qualify as a principal lender.
As the Association's agent, Financial received applications for VA- or FHA-insured mortgage loans from prospective borrowers. Financial took an application fee from each prospective borrower, part of which covered the cost of a credit check and employment verification, both of which VA and FHA required prior to issuing a loan approval. The application fee also included an "appraisal fee," which Financial forwarded to an appraiser after he satisfactorily performed the task of valuing the property that was to secure the mortgage loan. Financial apparently held the appraisal fee in trust, and it was obliged to remit the funds held upon completion of the appraisal.
In a typical transaction, Financial assembled all the documentation required by VA or FHA and then sent a completed loan file to the appropriate one of those two organizations. VA or FHA then evaluated the loan file and issued a loan approval or disapproval. In the case of a loan approval, Financial notified the Association, which then transferred the funds required for the mortgage loan to an account set aside for Financial. Financial next drew a check on that account for the amount of the mortgage loan, payable to the title company involved in the closing. The title company in turn disbursed the mortgage funds in accordance with written instructions Financial provided.
When an appraiser determined that property which might secure a loan required repairs, VA or FHA generally insisted that those repairs be undertaken before issuing a loan approval. In a few cases, however, the VA or FHA dispensed with its requirement of prompt repair. In these special cases, the borrower usually desired to close the transaction before repairs could practically be made. Even in these cases, however, the VA or FHA protected itself by requiring the lender to set up an escrow account with part of the loaned funds. The repair escrow arrangement ensured the VA or FHA that needed repairs would satisfactorily be undertaken. The escrow agreement provided that the escrow agent could not pay out the funds to the seller or repair contractor until a VA or FHA representative ascertained that the repairs had been performed properly.
The moneys which the jury found Levy had willfully misapplied were fifteen repair escrow funds. Barbara Arms, Assistant Secretary of the Association testified at appellant's trial about the closing procedures used to establish repair escrow accounts. According to Arms, closings involving repair escrow accounts resembled regular closings in all respects, except that the title company would withhold a designated portion of the loan from the seller and issue a check to Financial for that portion. Arms further testified that in December 1979, shortly after the Association established the agency relationship with Financial, she instructed officers at Financial to endorse each repair escrow check they received over to the Association and then forward it, along with the file for the closed transaction, to the responsible department at the Association. Arms stated this was the very same procedure the Association followed with all its agents, and she also stated that this practice conformed to standard procedures used in the mortgage banking industry. Once the Association received the repair escrow check, it deposited the check in a "Restricted Escrow Loan Account," from which funds could be drawn only upon receiving authorization from the VA or FHA. For several months, Financial followed the standard procedure that Arms described. Sybille Harlan, the Closing Manager for Financial, testified, however, that after this initial period of compliance, Levy instructed his employees at Financial to deposit the repair escrow checks they received from title companies at closings directly into either Financial's general business account at the Villa Park Trust and Savings Bank or into an account generally used for appraisal fees at the Woodfield Bank. Agent Charles Peters of the FBI testified about Financial's change in procedures for handling repair escrow checks. Peters related the contents of an interview with appellant in which Levy stated the change came about at the request of the Association. The Association no longer wanted to keep the funds, but it failed to give Financial new instructions for the handling of repair escrow checks. Appellant, left without instructions, simply deposited the checks into Financial's general business account and used the funds to meet business expenses. Arms' testimony casts doubt on the veracity of appellant's statement concerning the Association's order to stop forwarding the repair escrow checks. She expressed surprise upon learning that Financial had departed from the instructions she issued in December of 1979. Harlan's testimony likewise tends to discredit appellant's explanation for the change in forwarding procedures. She stated that she never received instructions from the Association to stop forwarding the repair escrow checks.
By May 1981, Harlan testified, Financial received an average of one or two complaints each week from buyers, sellers, and evidently impatient contractors concerning unpaid and owing repair escrow funds. Whenever Harlan received such a complaint she conveyed it to appellant who instructed Harlan never to send out repair escrow payments without his approval. Phyllis Rogers, Chief of Mortgage Credit for the FHA in Chicago, testified that she met with appellant in late June or early July of 1981 and discussed the matter of the overdue repair escrow funds. Appellant On July 22, 1981, Arms paid a deliberately unannounced visit to the offices of Financial at the request of the Association's president. Arms testified that she randomly selected about thirty loan files and discovered that in the case of five or six loans a title company had issued a check to Financial for a repair escrow fund. Arms demanded payment for the unremitted repair escrow funds, and appellant complied. Arms then asked appellant whether Financial had failed to forward the Association any repair escrow checks besides the five or six she discovered. Appellant replied he had no additional repair escrow checks. Arms then instructed appellant that he was in the future to notify the Association about all loans involving repair escrow funds. Appellant agreed to comply with this procedure.
told Rogers that there had been some clerical errors at Financial and that those errors would be corrected in due course.
One day earlier, on July 21, 1981, Financial had closed a VA-insured loan for Mr. Gerald Davis, a loan for which the title company had set aside repair escrow funds. On or after July 25, 1981, Financial forwarded the Davis file to the Association, but it did not send with it the repair escrow check it had received from the title company. The file did contain a copy of an HUD-1 form, which is an official settlement statement. The Association's copy of the HUD-1 form, however, failed to indicate that repair escrow funds were involved in the loan transaction. In August 1981, the Association obtained from the VA a certified copy of the original HUD-1 form, and that copy showed that $5,000 of the loan proceeds had been set aside for a repair escrow fund. The Gerald Davis loan was the subject of Count Six in the indictment against appellant.
In late August or early September of 1981, appellant voluntarily took twenty-nine loan files to Arms at the Association's offices. Appellant told her that each of the twenty-nine loans...
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