84 F.3d 1497 (5th Cir. 1996), 93-7719, United States v. Crouch

Docket Nº:93-7719.
Citation:84 F.3d 1497
Party Name:UNITED STATES of America, Plaintiff-Appellant, v. A. Guy CROUCH, III and Michael J. Frye, Defendants-Appellees.
Case Date:May 30, 1996
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 1497

84 F.3d 1497 (5th Cir. 1996)

UNITED STATES of America, Plaintiff-Appellant,

v.

A. Guy CROUCH, III and Michael J. Frye, Defendants-Appellees.

No. 93-7719.

United States Court of Appeals, Fifth Circuit

May 30, 1996

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[Copyrighted Material Omitted]

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Guy L. Womack, Houston, TX, Paula Camille Offenhauser, James Lee Turner, Gaynelle Griffin Jones, U.S. Attorney's Office, Houston, TX, for plaintiff-appellant.

Jimmy L. Phillips, Jr., Angleton, TX, Neil Colman McCabe, Houston, TX, for Crouch.

William Edward King, Kemah, TX, Theo W. Pinson, Pinson & Associates, Houston, TX, for Frye.

Appeal from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, and KING, GARWOOD, JOLLY, HIGGINBOTHAM, DAVIS, JONES, SMITH, DUHE, WIENER, BARKSDALE, EMILIO M. GARZA, DeMOSS, BENAVIDES, STEWART, PARKER and DENNIS, Circuit Judges.

GARWOOD, Circuit Judge:

In this prosecution for alleged savings and loan offenses, the district court, prior to trial, dismissed the indictment against Guy Crouch III (Crouch) and Michael Frye (Frye) for pre-indictment delay, notwithstanding that the statute of limitations had not run. United States v. Crouch, 835 F.Supp. 938 (S.D.Tex.1993). The government appeals.

The district court, following a hearing before a magistrate judge, concluded that the delay was sufficiently extensive "to constitute substantial presumptive prejudice" and was also shown to "have resulted in some actual prejudice." Id. at 943. Characterizing the government's reasons for the delay as essentially "insufficient personnel available to investigate or properly prepare," the district court concluded that such reasons were "at best, entitled to only slight weight in the balance of due process considerations" and did not outweigh the "prejudice, actual and presumptive." Id. at 946. Although opining that the delay "certainly smacks of negligence," the court determined that "the record, in its present form, will not justify a finding of bad faith, but because of [discovery and evidentiary] limitations imposed by ... the Magistrate Judge, it cannot be ruled out." Id. at 943 & n. 6.

A divided panel of this Court affirmed the dismissal of the indictment. United States v. Crouch, 51 F.3d 480 (5th Cir.1995). The panel majority recognized that for pre-indictment delay "the triggering prejudice must be actual, not presumptive," but concluded that the district court's finding of actual prejudice was adequately supported. Id. at 484-485. Relying on United States v. Townley, 665 F.2d 579 (5th Cir.), cert. denied, 456 U.S. 1010, 102 S.Ct. 2305, 73 L.Ed.2d 1307

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(1982), the panel majority further held that no showing of prosecutorial bad faith was required, and that instead the reasons for the delay would be balanced against the extent of the prejudice. Crouch at 483. The panel majority held that the government's reasons--"essentially, lack of manpower and the low priority which this investigation was assigned"--were "insufficient to outweigh the actual prejudice to Crouch and Frye." Id. at 485. It concluded that "requiring Crouch and Frye to stand trial now would be fundamentally unfair and violative of due process." Id. We granted the government's suggestion for rehearing en banc.

We now reverse the district court's order dismissing the indictment. We hold that where the indictment is not barred by the statute of limitations, dismissal for pre-indictment delay requires an appropriate showing not only of prejudice but also that the prosecution purposely delayed the indictment to gain tactical advantage or for other bad faith purpose. We further hold that the present record does not support a finding of the requisite actual, substantial prejudice--as opposed to potential prejudice--to justify dismissal prior to trial. "Events of the trial may demonstrate actual prejudice, but at the present time appellees' due process claims are speculative and premature." United States v. Marion, 404 U.S. 307, 326, 92 S.Ct. 455, 466, 30 L.Ed.2d 468 (1971).

BACKGROUND

Offenses Charged

The instant indictment was returned November 12, 1992. It contains 19 counts. Crouch is named a defendant in all counts, and Frye is named a defendant in counts 1, 2, 8, 13, and 18. The only other defendant charged in the indictment--Kerry Shawell, charged in counts 1, 2, 9, 14, and 19--had pleaded guilty, and agreed to cooperate with the government, before the hearing on the motions of Crouch and Frye to dismiss for preindictment delay. The indictment concerns seven loans, all of which closed June 28, 1985, made by Delta Savings Association (Delta), a federally-insured savings and loan association located in Alvin, Texas. Crouch was the Chairman of the Board of Delta, and a member of its loan committee, from approximately January 1985 until resigning in September 1986. He was also Delta's attorney, and was half owner, with his father, of the title company at which the loans in question, and apparently many other Delta loans, closed. The seven loans included: two (for $915,000 and $1,439,000) to Robert Ferguson, a real estate broker and investor, and his company, Ferguson C & D, Inc., to buy from Bankers Savings and Loan Association (Bankers), a federally-insured savings and loan association located in Galveston, Texas, certain real estate on which Bankers had foreclosed (known as real estate owned, or REO); three loans (for $505,780, $825,300, and $1,200,000) to Mark Connally (Connally), two of which were for the purchase from Ferguson of the REO Ferguson had purchased from Bankers and one of which was an operating capital loan; one $3,950,000 loan to Frye, a real estate investor and developer, and his company, J.M.G. Financial Corporation (J.M.G.), to buy from Delta a Delta REO tract; and one $1,250,000 loan to Shawell and his company, Kerry Shawell Interests, Inc., to buy from Delta another Delta REO tract. The indictment charges false entries, 18 U.S.C. § 1006; false statements, 18 U.S.C. § 1014; misapplication of funds, 18 U.S.C. § 657; bank fraud, 18 U.S.C. § 1344; and conspiracy under 18 U.S.C. § 371 to commit those offenses.

The conspiracy and the bank fraud (executing and attempting to execute "a scheme and artifice to defraud Delta") were charged in counts one and two, respectively, and allegedly lasted from "about December, 1984 and continuing through on or about August 1985." The remaining counts are substantive counts, and are alleged to have been committed "on or about June 28, 1985" in counts 3 through 14, and "between June 1985 and August 1985" in counts 15 through 19. Counts 3 through 7 charge Crouch alone with section 657 misapplication of Delta funds as to, respectively, the two loans to Ferguson and the three loans to Connally. Count 8 charges Crouch, aided by Frye, with section 657 misapplication as to the Frye loan; and count 9 charges Crouch, aided by Shawell, with section 657 misapplication as to the

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Shawell loan. Counts 10, 11, and 12 charge Crouch alone with section 1006 false entries as to, respectively, each of the three loans to Connally. Count 13 charges Crouch, aided by Frye, with section 1006 false entry as to the Frye loan; and count 14 charges Crouch, aided by Shawell, with false entry as to the Shawell loan. Counts 15, 16, and 17 charge Crouch alone with section 1014 false statements as to, respectively, each of the three Connally loan applications. Count 18 charges Crouch and Frye with section 1014 false statements as to the Frye loan; and count 19 charges Crouch and Shawell with section 1014 false statements as to the Shawell loan.

While certain aspects of the government's theory of the case are not entirely clear, it is evident that the loans to Connally, Frye, and Shawell are all alleged to be nominee loans, with Frye and Shawell being nominees for Ferguson, and Connally also, at least to some extent, being a nominee for Ferguson. It may further be the government's theory that Connally was also to some extent a nominee for the partnership of Ben Barnes and John Connally. The nominee status was in each instance allegedly at least in part for the purpose of avoiding loans to one borrower limitations, particularly as to Ferguson. The section 1006 false entry and section 1014 false statement counts are predicated on falsely identifying the particular nominee borrower (Connally, Frye, and Shawell) as being the true borrower.

Count one, the conspiracy count, appears to essentially allege the counts 3 through 19 substantive offenses as objects of the conspiracy. It alleges that Crouch, Frye, and Shawell conspired with each other and "with other individuals, both known and unknown." In response to a motion for bill of particulars, the government identified Carl Gerjes--who was president of Delta until he was discharged sometime during May or June 1985--and Ferguson as "[t]he unindicted co-conspirators." The government also stated that "arguably" the term "may also cover" Barnes and Mark Connally. 1 The conspiracy count also refers to activities in furtherance of the conspiracy by "Delta insiders," and the response to the bill of particulars states that "Delta insiders" refers to Gerjes, Cholakian, a Delta officer who succeeded Gerjes as president in May or June 1985, and Erskin, another Delta officer. The government's general theory of the case is set forth in its response below to Frye's motion to dismiss for failure to charge an offense, as follows:

"1. Between December, 1984 and June 28, 1985, defendant Crouch, Robert B. Ferguson and others devised a scheme to rid Delta's records of various tracts of real estate acquired by the thrift through foreclosure. Part of the scheme required that Ferguson provide persons willing to pretend to be bona fide buyers of the property and to sign loan...

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