U.S. v. Heath

• Decision Date: 20 August 1992
• Docket Number: No. 91-1112,91-1112
• Parties: 36 Fed. R. Evid. Serv. 523 UNITED STATES of America, Plaintiff-Appellee, v. Simon Edward HEATH and Paul Sau-Ki Cheng, Defendants-Appellants
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1397

970 F.2d 1397

36 Fed. R. Evid. Serv. 523

UNITED STATES of America, Plaintiff-Appellee, v. Simon Edward HEATH and Paul Sau-Ki Cheng, Defendants-Appellants.

No. 91-1112.

United States Court of Appeals Fifth Circuit

Aug. 20, 1992.

Rehearing and Rehearing En Banc

Denied Sept. 29, 1992.

Charles W. Blau, Denise M. Dumon, Johnson & Gibbs, Dallas, Tex., for Heath.

Abbe David Lowell, Susan B. Smith, Brand & Lowell, Washington, D.C., for Cheng.

Sara Criscitelli, Washington, D.C., for U.S.

Appeals from the United States District Court for the Northern District of Texas.

Before HIGGINBOTHAM and DUHE, Circuit Judges and HUNTER, District Judge. ¹

DUHE, Circuit Judge:

Defendants-Appellants Simon Heath and Paul Cheng were convicted of numerous counts of bank fraud, wire fraud, misapplication of funds, false entries, and interstate transportation of funds obtained by fraud. They seek reversal of their convictions. Because we find two counts of the indictment multiplicitous, we remand in part. The remaining convictions are affirmed.

BACKGROUND

Cheng and Heath were founding partners of Pacific Realty Corporation (PRC), a large national real estate development company. In 1984, PRC and Cheng and Heath, individually, acquired Guaranty Federal Savings & Loan, a Dallas savings and loan then in receivership. The purchase agreement contained a forbearance clause exempting Guaranty from banking regulations that prohibit loans to insiders. Thus, Guaranty was authorized to loan money to PRC and its clients.

Soon after acquiring Guaranty, PRC bought forty-two acres of land in Florida for development. Problems occurred, however, when the local government imposed a sewer moratorium. At the same time, the company with which PRC had planned to develop the land withdrew from the deal. Cheng and Heath then tried to sell the land, but were unsuccessful.

In December 1985, Cheng and Heath made a deal with Don Farris, of the Don Companies, an Arizona real estate development company. Farris, a major borrower at Guaranty, was to buy almost thirty acres of the Florida property for $10 million with money loaned to him by Guaranty. The loan would be non-recourse and collateralized solely by the Florida property. Farris would then establish a $2 million reserve account to pay interest on the loan, funded with proceeds from the sale to PRC of property he owned in Arizona. PRC agreed to buy the Arizona property with $3.3 million loaned to it by Guaranty and secured solely by the property.

The $10 million loan from Guaranty to Farris required a loan-to-property value ratio Although it corrected its original letter, Marshall & Stevens did not immediately provide Guaranty with the necessary full narrative appraisal because it was unable to verify its initial $11.2 million estimate. In light of the zoning laws and sewer moratorium, one Marshall & Stevens's appraiser suggested that the Florida property was worth less than half of the $11.2 million evaluation. In the meantime, in March 1986, the Federal Home Loan Bank (FHLB) discovered that the loan had been made without the required full narrative appraisal.

                of ninety percent.   For the deal to be successful, therefore, the Florida property had to be appraised at $11 million, more than twice the value quoted to Cheng and Heath during their earlier unsuccessful attempts to sell the property.   In an effort to obtain such a favorable appraisal, Heath, in the presence of Cheng and another PRC employee, directed Ben Romero, an officer of PRC, to secure an appraisal on an "as built basis" by informing the appraisers that twin highrise apartment towers would be built on the land.   At the time, Cheng and Heath had no intention of actually building the highrises.   Based on this misrepresentation, Romero obtained a preliminary opinion letter from Marshall & Stevens, a Chicago appraisal firm, appraising the full 42.40 acres at $11.2 million.   Marshall & Stevens was not aware that its preliminary letter was going to be used to close the Guaranty/Farris loans, and the letter was technically deficient for such purposes.   Using this letter, however, PRC and Farris closed the deal on January 17, 1986.   On January 18, at Cheng and Heath's request, Marshall & Stevens sent PRC a corrected back dated letter, addressed to Guaranty and appraising only the thirty acres of property sold to Farris
                

To provide Marshall & Stevens with a factual basis for the $11.2 million figure, Romero made to them specific false representations about the development potential of the Florida property, including assurances that sewer and treatment facilities were available, that the density of the purported twin towers was permissible under current zoning, and that it was physically possible to build the highrises on the land. Based on these misrepresentations, Marshall & Stevens completed the full narrative appraisal for $11.2 million.

For their participation in the scheme, the Government brought a seventeen count indictment against Cheng and Heath. Count one alleged conspiracy, counts two and three alleged bank fraud based on the loans for $10 million and $3 million procured from Guaranty. Counts four through seven alleged wire fraud, misapplication of funds, and false entries. The final ten counts were for interstate transportation of funds obtained by fraud, based on Cheng and Heath's use of funds obtained through the Florida deal to purchase stock from a New York broker.

ANALYSIS

Together, the Defendants attack their convictions on many grounds. Initially, they charge that the indictment was multiplicitous with regard to the two bank fraud charges stemming from a single transaction. Next they attack the sufficiency of the evidence on all counts, asserting that the evidence did not support the finding of fraud necessary to each count. They also claim that their convictions for interstate transportation of fraudulently obtained funds fail because the Government did not prove that each individual transfer involved proceeds of a fraudulent transaction. Finally, they cite numerous trial errors, including prosecutorial misconduct, mistakes in the district court's evidentiary rulings, and flaws in the district court's instructions to the jury.

I. Indictment Multiplicity

" 'Multiplicity' is charging a single offense in more than one count of an indictment." United States v. Lemons, 941 F.2d 309, 317 (5th Cir.1991). The Defendants argue that Counts 2 and 3 of their indictments, which charged them with bank fraud under 18 U.S.C. § 1344, are multiplicitous in that each of the counts seeks to punish them for participation in the same scheme against Guaranty. The Government counters that each transaction, the $3.3 million Phoenix loan and the $10 million Florida loan, must be viewed as subjecting In Lemons, we stated that "the bank fraud statute imposes punishment only for each execution of the scheme." Id. at 318. Thus, unlike the mail or wire fraud statutes, the bank fraud statute does not allow punishment for each act in execution of a scheme or artifice to defraud. Id. Although we so interpreted the bank fraud statute, we expressly declined to hold that "the execution of a scheme cannot result in the imposition of multiple liability.... Id. 941 F.2d at 318, n. 6. Our note specifically referred to United States v. Farmigoni, 934 F.2d 63 (5th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1160, 117 L.Ed.2d 407 (1992). Farmigoni, in contrast to this case and Lemons, involved a scheme to defraud two different banks, giving rise to prosecution in each of the banks' home states. Although both indictments in Farmigoni arose from the same scheme, "neither require[d] proof of intent to defraud the other unnamed financial institution." Id. at 66. The instant scheme involves intent to defraud only one bank, Guaranty, albeit by procuring two loans. The two loans, however, were integrally related; one could not have succeeded without the other. Indeed, the sale of the Phoenix property was conceived for the sole purpose of facilitating the Florida sale.

Guaranty to separate risks of loss, giving rise to multiple liability under the statute.

Although a two-loan scheme may subject an institution to greater risk than a scheme involving only one transaction, it is the execution of the scheme itself that subjects a defendant to criminal liability, not, as we stated in Lemons, the execution of each step or transaction in furtherance of the scheme. Because the Defendants' indictments sought to punish them for execution of the multiple steps involved in the scheme, the counts are multiplicitous. Therefore, we remand the case with the instruction to the Government to choose the count it wishes to leave in effect. The district court then should vacate the convictions on the remaining count and resentence Heath and Cheng. See United States v. Saks, 964 F.2d 1514, 1526 (5th Cir.1992); United States v. Moody, 923 F.2d 341, 347-48 (5th Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 80, 116 L.Ed.2d 54 (1991).

II. Sufficiency of the Evidence

Convictions must be affirmed if the evidence, viewed in the light most favorable to the verdict, with all reasonable inferences and credibility choices made in support of it, is such that any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979); United States v. Kim, 884 F.2d 189, 192 (5th Cir.1989). In making this determination, we need not exclude every reasonable hypothesis of innocence. United States v. Henry, 849 F.2d 1534, 1536 (5th Cir.1988). Juries are free to use their common sense and apply common knowledge, observation, and experience gained in the ordinary affairs of life when giving effect to the inferences that may reasonably be drawn from the evidence. United States v. Cruz-Valdez, 773 F.2d 1541, 1546-47 (11th Cir.1985) (en banc), cert. denied, 475 U.S....