United States v. Kerley

Decision Date23 April 2015
Docket Number13–5931.,Nos. 13–5821,s. 13–5821
PartiesUNITED STATES Of America, Plaintiff–Appellee, v. Jerry D. KERLEY (13–5821); Jeffrey Whaley (13–5931), Defendants–Appellants.
CourtU.S. Court of Appeals — Sixth Circuit

ARGUED:James R. Stovall, Ritchie, Dillard, Davies & Johnson, P.C., Knoxville, TN, for Appellant in 13–5821. Andrew B. Greenlee, Brownstone, P.A., Winter Park, FL, for Appellant in 13–5931. Francis M. Hamilton III, United States Attorney's Office, Knoxville, TN, for Appellee. ON BRIEF:James R. Stovall, Wade V. Davies, Ritchie, Dillard, Davies & Johnson, P.C., Knoxville, TN, for Appellant in 135821. Andrew B. Greenlee, Patrick Michael Megaro, Brownstone, P.A., Winter Park, FL, for Appellant in 13–5931. Francis M. Hamilton III, United States Attorney's Office, Knoxville, TN, for Appellee.

Before: BOGGS and COOK, Circuit Judges; and QUIST, District Judge.*

OPINION

QUIST, District Judge.

DefendantsAppellants Jerry D. Kerley and Jeffrey Whaley were convicted following a jury trial in the Eastern District of Tennessee of conspiracy to commit wire fraud affecting a financial institution and bank fraud, wire fraud affecting a financial institution, bank fraud, making a false statement to a financial institution, and money laundering, all arising out of a mortgage fraud scheme. Kerley and Whaley appeal their convictions, arguing that the district court committed evidentiary errors. Kerley separately argues that there was insufficient evidence to support his money laundering conviction and that his sentence was procedurally and substantively unreasonable. Whaley separately argues that the district court's refusal to sever his trial resulted in a denial of his constitutional right to present a defense and that there was insufficient evidence of his intent to defraud. For the following reasons, we affirm the convictions and Kerley's sentence.

I. Facts And Procedural History

In August 2005, Kenneth Lee, a contractor who built houses in the Sevierville, Tennessee area, owed a substantial debt to Jeff Whaley, a contractor and real estate developer who also did business in the Sevierville area, for loans that Whaley had made to Lee to finance houses that Lee was building. Whaley proposed a scheme to Lee that would allow Lee to repay Whaley and other investors in Lee's projects and to obtain funds to operate his business. Whaley told Lee that they could “milk[ ] down” the equity in high-priced cabins that Whaley and his sister, Joyce Whaley, had built in the Black Bear Ridge Resort by recruiting individuals to act as straw buyers in sham purchases of the properties.

Pursuant to this arrangement, Lee recruited straw buyers for eight transactions occurring over several months in late 2005 and early 2006. At Whaley's suggestion, Lee referred the straw buyers to Mary Bevins, a mortgage broker at Gateway Mortgage, with whom Whaley and his sister had dealt in previous real estate transactions. For each transaction, the Whaleys prepared the purchase agreement and set the purchase price without input from or negotiation by the straw buyer. Bevins used this information to prepare loan applications that falsely inflated the buyers' incomes and assets and falsely stated that they would be bringing their own funds to closing, and submitted the papers to SunTrust Mortgage and Citizens Bank.1

At Whaley's direction, Bevins arranged for all of the closings to be conducted by Kerley's title company, Guaranty Land Title (GLT), which the Whaleys had used for many of their previous real estate transactions. GLT employees prepared the closing documents, including the HUD–12 settlement statements, pursuant to SunTrust's and Citizens's closing instructions, and sent the documents to the lenders for approval. Although none of the buyers brought their own funds to the closings, Kerley signed the final HUD–1 forms that GLT returned to SunTrust and Citizens. Each HUD–1 form indicated on Line 303 that the purchaser had brought his or her own funds to the closing and confirmed that the representations therein were “a true and accurate account of the funds which were received and have been or will be disbursed by the undersigned as part of the settlement of this transaction.”

In each transaction, Kerley determined or approved how the HUD–1 Line 303 cash-from-borrower amount would be satisfied. For the transactions involving 1230 Bird Nest Way, 1437 Eagle Cloud Way, 1518 Firefly Trail Way, and 1234 Bird Nest Way, Kerley instructed his employee, Gina Hurst, to reduce the actual disbursement of the amount shown on the HUD–1 as going to Whaley's company, GBO Enterprises (GBO), by the cash-from-borrower amount stated on Line 303.

The cash-from-borrower requirement for the 1016 Black Bear Cub Way transaction was handled in a different manner. In that transaction, the buyer, Rodney Parton, brought a check from Lee's company, Regency Development, LLC, that Lee had given to him to take to the closing.3 Kerley was present at the time Parton provided the Regency check, and had previously told Whaley that Lee could bring a business check to closing. When it turned out that the Regency account did not have sufficient funds to cover the check, Lee stopped payment and Whaley replaced the Regency check with a cashier's check drawn on his GBO business account at Tennessee State Bank, payable to GLT and showing Parton as the remitter.

The cash-from-borrower requirement for two other transactions, 1531 Trappers Ridge Lane and 954 Black Bear Cub Way, was satisfied in yet another manner—from pre-closing disbursements of SunTrust escrow funds. The HUD–1 for the 1531 Trappers Ridge Lane sale, which was Whaley's own property, required the buyer to bring $38,755.11 of his own funds to closing and showed that $99,350 was to be disbursed to Regency. Prior to the closing, GLT issued a check to Regency in the amount of $99,350. Whaley picked up the check from GLT, had Lee's employee, Ed Walker, endorse it, and deposited it into his GBO bank account. Whaley then obtained two cashier's checks from his GBO account, one payable to GLT in the amount of $38,755.11, showing Ed Walker as the remitter, and the other payable to Regency in the amount of $60,594.89. Whaley delivered the $38,755.11 cashier's check to GLT. The 954 Black Bear Cub Way transaction had a more complicated structure, but employed a similar method of satisfying the Line 303 cash-from-buyer requirement.

The final transaction, involving 3515 Peggy Lane, was structured as a property “flip” consisting of two simultaneous sales. In the first sale, Diane Koch sold the property to Lee's employee, Ed Walker, for $280,000. In the second sale, Walker sold the property to William Hasket, another employee of Lee, for $385,000. The Koch–Walker sale was not disclosed to SunTrust Mortgage. Prior to the closing, a warranty deed that Kerley drafted, conveying the property from Koch to Walker for $280,000, was filed with the Sevier County Register of Deeds. At the time, no money had been exchanged between Koch and Walker because the funds from the second sale, which had not closed, were to be used to fund the first sale. Two weeks later, Kerley conducted the closing for the Walker–Haskett sale. The cash-from-borrower requirement was purportedly satisfied by a cashier's check for $4,544.46 drawn on Whaley's GBO account. Whaley personally requested the cashier's check and requested that Haskett be shown as the remitter. At the closing, Walker received a GLT check payable to Walker in the amount of $92,389.40.

Walker later endorsed the check and gave it to Whaley, who deposited the $92,389.40 check into his GBO account.

Following the “sales,” the properties went into foreclosure, and SunTrust and Citizens incurred substantial losses on the loans. Whaley, Kerley, Lee, and Bevins were charged with various offenses relating to the eight real estate transactions. Lee and Bevins pled guilty and agreed to cooperate with the government. Prior to trial, Kerley moved to sever his trial, arguing that introduction of a pre-indictment statement that Whaley made to law enforcement implicating Kerley would violate Kerley's Confrontation Clause rights as set forth in Bruton v. United States, 391 U.S. 123, 88 S.Ct. 1620, 20 L.Ed.2d 476 (1968). Whaley joined in with his own motion, arguing that severance was justified on a so-called “reverse Bruton ground. That is, Whaley argued that limiting him to presenting a redacted version of his statement at a joint trial that excluded all references to Kerley would violate both his right to present a defense and the rule of completeness under Federal Rule of Evidence 106. The magistrate judge denied Kerley's motion to sever after concluding that the government's proposed redactions to Whaley's statement remedied any potential violation of Kerley's Confrontation Clause rights. He also denied Whaley's motion on the grounds that Whaley was not entitled to introduce his own hearsay statements and that the rule of completeness did not provide an avenue for the admission of such statements.

Over Defendants' objections, the district court permitted the government to call SunTrust representative Barbara DeMichele and Citizens representative Ronalda Owens to testify about the materiality of the misrepresentations at issue to their respective employers' loan approval decisions. DeMichele, a Vice President and Underwriting Manager, had worked as an underwriting supervisor at SunTrust since November 2005 and was familiar with, and had applied, SunTrust's underwriting guidelines in 2005 and 2006. Although she was not involved with the underwriting review or any other aspect of the loans at issue, DeMichele testified about the loan approval and underwriting process and about the documents contained in SunTrust's files for each of the loans in question. She confirmed that, had SunTrust known that the borrowers were not providing their own funds at...

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