U.S. v. Norris

• Decision Date: 05 December 1984
• Docket Number: Nos. 83-5277,s. 83-5277
• Citation: 749 F.2d 1116
• Parties: UNITED STATES of America, Appellee, v. George C. NORRIS, Sr., Appellant. UNITED STATES of America, Appellee, v. Barry SILVER, Appellant. (L), 83-5278.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1116

749 F.2d 1116

UNITED STATES of America, Appellee, v. George C. NORRIS, Sr., Appellant.

UNITED STATES of America, Appellee, v. Barry SILVER, Appellant.

Nos. 83-5277(L), 83-5278.

United States Court of Appeals Fourth Circuit.

Argued Oct. 5, 1984.

Decided Dec. 5, 1984.

Stanley E. Sacks, Norfolk, Va. (Sacks, Sacks & Larkin, Norfolk, Va., on brief) and William L. Perkins, III, Norfolk, Va. (Price & Perkins, Norfolk, Va., on brief), for appellants.

Raymond A. Jackson, Asst. U.S. Atty., Norfolk, Va. (Elsie L. Munsell, U.S. Atty., Alexandria, Va., on brief), for appellee.

Before WIDENER and CHAPMAN, Circuit Judges and HARGROVE, United States District Judge for the District of Maryland, sitting by designation.

CHAPMAN, Circuit Judge:

Appellants George C. Norris, Sr. and Barry Silver appeal their convictions under 12 U.S.C. Sec. 1715z-4(b)(2) for a number of substantive counts and under 18 U.S.C. Sec. 371 for conspiracy to use, willfully and knowingly, in violation of 12 U.S.C. Sec. 1715z-4(b)(2), the proceeds from rents and other funds derived from a federally insured housing project, while its mortgage was in default, for purposes other than to meet the actual and necessary expenses arising in connection with the project. Norris is also appealing from his conviction under 18 U.S.C. Sec. 1001 for making false material statements. This appeal challenges the constitutionality of 12 U.S.C. Sec. 1715z-4(b)(2) and raises numerous other claims of error. Finding the challenged statute to be constitutional and the other exceptions to be without merit, we affirm.

I

Defendant Norris has been in the real estate business in the Tidewater section of Virginia for more than twenty years and has various business interests. In 1974 Norris, another general partner, and nineteen limited partners started Shamrock Gardens, a 74 unit apartment complex in Chesapeake, Virginia. Norris' other business interests included part ownership in several other federally financed housing projects. His sole proprietorship, the Norris Realty Company, managed these projects. Defendant Silver was comptroller of nineteen business entities in which defendant Norris had some ownership or proprietary interest, including Shamrock Gardens.

Prior to the construction of Shamrock Gardens, Norris signed, as managing general partner, a regulatory agreement with the Department of Housing and Urban Development (HUD). This agreement provided for the operation of the project and contained clauses controlling the distribution of proceeds from rents and funds during a period of default. Shamrock Gardens was covered by a $1,353,200 federally insured mortgage to the Federal National Mortgage Association. On May 28, 1976 the mortgage holder declared the mortgage in default and requested relief from the Secretary of HUD. Thereafter the mortgage was assigned to the Secretary of HUD and the original mortgage holder was paid the balance due under the mortgage. After default HUD commenced negotiations with the defendants in an effort to arrange some type of payment on the indebtedness. Meetings between officials of HUD and the defendants continued for a number of months and early in these discussions HUD advised the defendants that during the period of default they could make no disbursements from the Shamrock Gardens funds for purposes other than for the necessary operating expenses of Shamrock Gardens. The bookkeeper for Shamrock Gardens was employed by Norris Realty Company, and Norris and Silver advised him never to make a disbursement from the Shamrock Gardens checking account, while the loan was in default, without the consent of either Norris or Silver. Throughout the remainder of 1976 and through all of 1977, 1978 and a portion of 1979 HUD officials attempted to negotiate with Norris a plan of repayment. The mortgage remained in default, and during this period, various amounts were disbursed from the Shamrock Gardens funds for purposes other than the necessary and operating expenses of Shamrock Gardens. Many of these disbursements were either for the personal benefit of Norris or for the benefit of other real estate entities in which he had a substantial interest. During this time Shamrock Gardens failed to submit to HUD as scheduled the required audited financial reports on Shamrock Gardens. An audited financial statement of Shamrock Gardens' financial condition was required to be filed within sixty days of the close of each fiscal year. On the form Shamrock Gardens submitted for the fiscal year 1978, two items were shown as maintenance expenses and decorating supplies which were for carpeting in Norris' personal residence and in a townhouse not a part of Shamrock Gardens. The defendants were managing other federally insured projects, they were familiar with the regulations, and they never expressed any lack of understanding of what they were required to do in the filing of various monthly and annual reports. When HUD finally took over the Shamrock Gardens project, it was over $400,000 in arrears.

II

Appellants challenge the constitutionality of 12 U.S.C. Sec. 1715z-4(b)(2) by claiming that it constitutes an impermissible delegation and abdication of legislative authority because it delegates to the Secretary of HUD the power to make laws by passing regulations the violation of which may be the subject of criminal prosecution.

Section 1715z-4(b) provides:

Whoever, as an owner of a property which is security for a mortgage described in subsection (a) of this section, or as a stockholder of a corporation owning such property, or as a beneficial owner under any business organization or trust owning such property, or as an officer, director, or agent of any such owner, (1) willfully uses or authorizes the use of any part of the rents or other funds derived from the property covered by such mortgage in violation of a regulation prescribed by the Secretary under subsection (a) of this section, or (2) if such mortgage is determined, as provided in subsection (a) of this section, to be exempt from the requirement of any such regulation or is not otherwise covered by such regulation, willfully and knowingly uses or authorizes the use, while such mortgage is in default, of any part of the rents or other funds derived from the property covered by such mortgage for any purpose other than to meet the actual and necessary expenses arising in connection with such property (including amortization charges under the mortgage), shall be fined not more than $5,000 or imprisoned not more than three years, or both.

The language and intent of the statute are clear and need no interpretation from HUD. The congressional intent is to prevent money of federally insured housing projects from being diverted to purposes other than actual and necessary expenses when the mortgage is in default. Congress enacted 12 U.S.C. Sec. 1715z-4 in an effort to stop the diversion of funds from other than "actual and necessary expenses arising in connection with such property." Section 1715z-4(a) addresses insured mortgages and Sec. 1715z-4(b) covers conversion of rents during default in cases "exempt from the requirement of any such regulation or is not otherwise covered by such regulation." The proscribed activity is clear because it applies to owners of property under mortgage who willfully and knowingly use any part of the rents or funds derived from the property for any purpose other than to meet the actual and necessary expenses, while the mortgage is in default. There is no need for HUD regulations to describe what is unlawful. The statute clearly states that if the loan is in default one may not use rent for any purpose other than meeting the actual and necessary expenses. This is the activity charged against the two defendants in fifteen of the counts in the indictment. The language is not ambiguous, and the intent is obvious to persons such as defendants who were involved with many federally insured projects.

Criminal statutes should be given their fair meaning in accord with the evident intent of Congress. United States v. Rothberg, 480 F.2d 534 (2d Cir.1973), cert. denied, 414 U.S. 856, 94 S.Ct. 159, 38 L.Ed.2d 106 (1973). Congressional intent is quite obvious under any reading of 12 U.S.C. Sec. 1715z-4(b)(2). The statute is intended to prevent the skimming of funds while the mortgage is in default.

Appellants argue that counts 3 through 17 of the indictment do not allege an offense because the Shamrock Gardens mortgage was not insured at the time of the alleged offenses in that it had been reassigned to HUD by the original mortgagee. The language of Title 12 U.S.C. Sec. 1715z-4(b)(2) clearly indicates that it is applicable to mortgages that are not insured or no longer insured. That section states that it covers mortgages "exempt from the requirement of any such regulation or ... not otherwise covered by such regulation."

The requirements of the statute are clear and unambiguous. The proscribed acts are obvious to anyone of normal intelligence. The appellants were experienced in dealing with federally insured housing projects and the meaning and intent of the statute would be immediately apparent to them.

III

Appellants contend that the evidence was insufficient to convict them of conspiracy. The verdict of the jury must be sustained if there is substantial evidence, taking the view most favorable to the government, to support the finding of guilt. United States v. Sherman, 421 F.2d 198 (4th Cir.1970), cert. denied, 398 U.S. 914, 90 S.Ct. 1717, 26 L.Ed.2d 78 (1970). Although there was no direct evidence of an agreement between the defendants to violate the law, the circumstantial evidence is overwhelming. The existence of a conspiracy need not be proved by direct evidence, but may be inferred from the facts and circumstances of the case. Iannelli v. United States, 420 U.S. 770, 95 S.Ct. 1284, 43 L.Ed.2d 616 (1975). HUD advised defendants, orally and in writing, not to...