U.S. v. Williams

• Decision Date: 20 March 1990
• Docket Number: Nos. 88-2827,88-2843,s. 88-2827
• Citation: 899 F.2d 898
• Parties: UNITED STATES of America, Plaintiff-Appellant-Cross-Appellee, v. John H. WILLIAMS, Jr., Defendant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 898

899 F.2d 898

UNITED STATES of America, Plaintiff-Appellant-Cross-Appellee, v. John H. WILLIAMS, Jr., Defendant-Appellee-Cross-Appellant.

Nos. 88-2827, 88-2843.

United States Court of Appeals Tenth Circuit.

March 20, 1990.

Tony M. Graham, U.S. Atty., N.D. Okl. (Susan K. Morgan and Ron Wallace, Asst. U.S. Attys., with him on the briefs), Tulsa, Okl., for plaintiff-appellant-cross-appellee.

Joel L. Wohlgemuth of Norman, Wohlgemuth & Thompson (John E. Dowdell of Norman, Wohlgemuth & Thompson, James C. Lang and G. Steven Stidham of Sneed, Lang, Adams, Hamilton & Barnett, Tulsa, Okl., with him on the briefs), for defendant-appellee-cross-appellant.

Before McKAY, SEYMOUR, and MOORE, Circuit Judges.

McKAY, Circuit Judge.

In this case, the trial court dismissed, without prejudice, a seven count bank fraud indictment after concluding that the government wrongfully withheld from the grand jury information that was substantially exculpatory. The court held that the government's failure to disclose the exculpatory evidence rendered the grand jury's decision to indict "gravely suspect." The government appeals.

I. FACTS

Defendant John H. Williams, Jr. is a businessman in Tulsa, Oklahoma. Between September 1984 and November 1985 defendant obtained loans and loan renewals from several banks in Tulsa. With each loan or renewal request, defendant presented the banks with two types of financial statements. The first type of financial statement, referred to as a "Market Value Balance Sheet," contained a category of assets called "Current Assets." The label "current assets" is a term commonly used to describe assets that will be realized in cash within one year, such as a receivable whose due date falls within the next twelve months. At the center of this case is a series of "Notes Receivable" that defendant listed under the "Current Assets" section of his "Market Value Balance Sheet." The "Notes Receivable" included notes amounting to between $5 million and $6 million receivable by defendant from several companies in which defendant had invested. Each of the companies was a relatively new venture with negative net worth. Thus, the government claimed that the classification of the notes as "current assets" was misleading because the poor financial condition of the debtor companies rendered the notes uncollectible in the short term.

The other type of financial disclosure at issue was contained in defendant's "Statement of Projected Income and Expense." One source of income listed on this statement was interest income payable on the notes receivable discussed above. The government alleged that due to the poor financial condition of the debtor companies, any interest accruing on the notes could only be paid to defendant with money loaned to the companies by defendant himself. Thus, according to the government, the disclosure of interest income was misleading because banks were likely to believe that the interest was a source of outside income to defendant.

After a six-month investigation, defendant was indicted for defrauding a bank in violation of 18 U.S.C. Sec. 1014 (1982). The indictment charged defendant with seven counts of alleged material false statements and the willful overvaluation of notes, assets, and interest income. Defendant then filed a motion to compel the government to disclose any evidence that tended to exculpate defendant. In response, the government indicated it would comply with its continuing duty under Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963), by providing any exculpatory evidence. At the hearing on defendant's motion, defendant claimed there was a discovery dispute because the government had not provided any Brady material. The government, after being ordered to provide any exculpatory material, agreed to provide defendant with edited portions of the grand jury transcript and to submit the unedited transcript to the court.

After reviewing the grand jury transcript, defendant filed a motion to dismiss the indictment, claiming that the grand jury's decision to indict was suspect because "the Government failed to present substantial exculpatory evidence to the Grand Jury." Record, vol. 1, Doc. 46. The evidence on which defendant based his argument consisted of defendant's ledgers, tax returns, and financial statements, all of which tended to show that defendant had consistently accounted for the notes receivable and interest the same way he presented them to the banks. In addition to the financial records, defendant claimed that the government had in its possession, but failed to produce, a five-volume deposition given by defendant in an earlier bankruptcy proceeding. According to defendant, the deposition testimony contained explanations of defendant's methods of accounting and financial reporting that would have exonerated him. After a hearing, the district court denied defendant's motion.

Subsequently, a hearing was held on several pretrial motions, at which time defendant entered a motion to reconsider the earlier motion to dismiss the indictment. On reconsideration, the court found that the government had possessed substantially exculpatory information that was not presented to the grand jury. The court stated that the evidence "raises reasonable doubt about the defendant's intent to defraud," because it "indicate[s] a lawful basis for the information provided to the banks." Record, vol. 1, Doc. 85, Order, November 7, 1988, at 8. The court held that the absence of this evidence rendered the grand jury's indictment "gravely suspect" and dismissed the indictment without prejudice. Id. at 8-9.

The government appeals from the district court's finding that the government withheld substantially exculpatory evidence from the grand jury. In the alternative, the government argues that the remedy of dismissal was inappropriate. Defendant agrees with the district court's dismissal, but claims that the indictment should have been dismissed with prejudice.

II. DISCUSSION

A. Exculpatory Evidence

The district court's finding that the government withheld exculpatory evidence is a finding of fact. "Questions of fact are reviewed under the deferential, 'clearly erroneous' standard as set forth in Fed.R.Civ.P. 52(a). Although the standard is a rule of civil procedure, it is applied to certain issues in criminal proceedings." United States v. Ortiz, 804 F.2d 1161, 1164 n. 2 (10th Cir.1986).

If the district court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.

Lone Star Steel Co. v. United Mine Workers, 851 F.2d 1239, 1242 (10th Cir.1988).

We have previously held that a prosecutor has the duty to present substantial exculpatory evidence to the grand jury. See United States v. Page, 808 F.2d 723, 728 (10th Cir.1987). Although we do not require the prosecutor to "ferret out and present every bit of potentially exculpatory evidence," id., we do require that substantial exculpatory evidence discovered during the course of an investigation be revealed to the grand jury. Id. Other courts have also recognized that such a duty exists. See, e.g., United States v. Flomenhoft, 714 F.2d 708, 712 (7th Cir.1983), cert. denied, 465 U.S. 1068, 104 S.Ct. 1420, 79 L.Ed.2d 745 (1984); United States v. Ciambrone, 601 F.2d 616, 622-23 (2d Cir.1979); United States v. Phillips Petroleum Co., 435 F.Supp. 610, 620 (N.D.Okla.1977). This requirement promotes judicial economy because "[i]f a fully informed grand jury cannot find probable cause to indict, there is little chance the prosecution could have proved guilt beyond a reasonable doubt to a fully informed petit jury." Page, 808 F.2d at 728.

The indictment contains seven counts alleging bank fraud against the defendant under 18 U.S.C. Sec. 1014 (1988). Section 1014 makes it a crime for someone knowingly to make a false statement concerning a material fact to a financial institution for the purpose of influencing the financial institution's action. The substance of the indictment alleges that defendant knowingly overvalued his current assets to obtain approvals and renewals of various loans. Although count two involves oral representations, all of the offenses charged allege that overvaluations were made by the defendant in his financial statements, income statements, or projected income statements. The overvaluations alleged by the government concern the value and/or classification of income (including interest income), collateral, and notes receivable.

One essential element of the offense for which defendant was indicted is the intent to influence the bank's action by the use of a false statement. See United States v. Smith, 838 F.2d 436, 439-40 (10th Cir.1988); United States v. Bonnette, 663 F.2d 495, 497 (4th Cir.1981), cert. denied, 455 U.S. 951, 102 S.Ct. 1456, 71 L.Ed.2d 666 (1982). Although we recognize the burden of proof for conviction at trial is greater than the finding of probable cause by the grand jury, the presentation of the government's case to the grand jury must be based upon the essential elements of the offense.

The government argued below and on appeal that "under its theory" of the case, it presented all relevant evidence. The government claims that because the tax returns, general ledgers and depositions were not relevant, they cannot be considered exculpatory. The district court found that this evidence was substantially exculpatory because it supported a lawful basis for the information provided as opposed to the intent to defraud. In so doing, the district court separated the withheld evidence into two categories as follows:

(1) written material generated in the bankruptcy proceedings involving defen...