U.S. v. Montgomery, 91-6056

• Citation: 980 F.2d 388
• Decision Date: 24 November 1992
• Docket Number: No. 91-6056,91-6056
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. N. Eddie MONTGOMERY, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 388

980 F.2d 388

UNITED STATES of America, Plaintiff-Appellee, v. N. Eddie MONTGOMERY, Defendant-Appellant.

No. 91-6056.

United States Court of Appeals Sixth Circuit.

Argued Oct. 13, 1992.

Decided Nov. 24, 1992.

Wendy Goggin, Asst. U.S. Atty. (argued and briefed) Ernest W. Williams, U.S. Atty., Nashville, Tenn., for plaintiff-appellee.

William R. Willis, Jr., Willis & Knight, Nashville, Tenn. (argued and briefed), for defendant-appellant.

Before: KENNEDY and MILBURN, Circuit Judges; and POTTER, Senior District Judge. ^*

KENNEDY, Circuit Judge.

Defendant N. Eddie Montgomery appeals his conviction of executing a scheme with intent to defraud Sovran Bank by "check kiting" and mail fraud. The defendant asserts that the District Court erred in its instruction to the jury concerning the appropriate definition of check kiting. The defendant also argues that the District Court erred in denying defendant's motion for judgment of acquittal on the mail fraud counts, and in other instructions on those counts. For the following reasons, we AFFIRM.

I.

Defendant was a licensed attorney practicing in the field of real estate law since 1978. In January 1983, Defendant contracted with Stewart Title Insurance Company to be its agent for issuing title insurance policies to homebuyers and mortgage companies. That relationship continued until May 1988. Pursuant to the terms of their agreement, defendant was required to maintain a balanced escrow account to hold funds deposited with him by clients of his real estate closing firm. These funds represented money paid to defendant by homebuyers and mortgage companies for the closing of real estate transactions. The funds were to be used to pay off any existing liens on the property being purchased and for other closing costs, as well as to pay the sellers for the property. The real estate escrow account was kept at Sovran Bank Central South in Nashville, Tennessee.

As agent for Stewart Title, defendant was authorized to issue title insurance commitments and policies. The title commitments were issued by defendant before closing and would enumerate the outstanding liens on the property. These title commitments indicated that prior liens would have to be paid and released before title policies would be issued by defendant (on behalf of Stewart Title). After the deposit of purchase money funds into the defendant's escrow account and the closing of real estate transactions, title insurance policies, written on Stewart Title, would be issued by defendant to the purchasers and mortgage companies. These title insurance policies guaranteed that the homebuyers had clear title to their property and that all prior liens had been satisfied. It was stipulated at trial that the title policies involved in each of the mail fraud counts of the indictment had been mailed through the United States mails to the policy holder.

In 1985, defendant started a business called Southland Properties of which he was a two-thirds owner. The business of Southland Properties was to syndicate real estate and other projects through limited partnerships and to engage in real estate development. Between 1985 and 1988, Southland Properties was involved in the purchase and development of several large tracts. To help Southland Properties fund these transactions, checks were written to Southland out of defendant's escrow account.

Because defendant was withdrawing money from his real estate escrow account for this improper and extraneous purpose, that account began experiencing shortages. To cover these shortages, defendant would hold the checks written to pay off lienholders. In many cases the payoff checks were never mailed and, consequently, prior encumbrances were never extinguished. Despite holding payoff checks and failing to clear title, defendant continued to issue and mail title insurance policies to purchasers and their mortgage companies. These policies insured clear title to the purchased property when, in fact, prior liens had not been released, thus putting Stewart Title at risk. To cover the deficiencies in this real estate account, defendant began depositing into the account checks from various other bank accounts in excess of the balances in those accounts.

On April 18, 1988, defendant opened an account at Sovran Bank under the name Southland Escrow Services with a deposit of $500,000 representing the proceeds of a loan from Sovran. At this time defendant also had an account at Metropolitan Federal Savings and Loan Association under the name of Lakeside Partners. ¹

Defendant then engaged in the following course of action: on April 25, 1988, six days after the Southland Escrow account was opened, checks totaling $1,154,272.50 were drawn on that account payable to Lakeside Partners and deposited into the Lakeside Partners account at Metropolitan Federal. ² On April 27, 1988, the defendant deposited a total of $1.6 million into the Southland Escrow account at Sovran Bank. Included in this deposit were checks totaling $1,372,716.52 from the Lakeside Partners account at Metropolitan Federal. On the next day, defendant deposited a total of $2,780,023.49 into the Southland Escrow account. Included in this deposit were three checks drawn on the Lakeside Partnership account totaling $1,507,377.24. Checks were also written between other accounts defendant had at Sovran Bank. When officials at Metropolitan Federal became suspicious that such large checks were being deposited back and forth between the account at Sovran Bank and the account at their bank, they froze the Metropolitan Federal account. As a result, the Sovran Bank checks were returned for insufficient funds and Sovran Bank sustained a substantial loss.

Defendant was charged by a grand jury with knowingly executing a scheme and artifice to defraud Sovran Bank and Metropolitan Federal by "kiting" checks between the two banks, "that is, by exchanging checks, unsupported by actual funds, between an account in Sovran Bank ... and an account at Metropolitan Federal ..., and drawing against the unsupported deposits," in violation of 18 U.S.C. §§ 1344 and 2. Defendant was also charged with thirty-one counts of mail fraud in violation of 18 U.S.C. §§ 1341 and 2. Three of the mail fraud counts were dismissed prior to trial. The jury found the defendant guilty on the charge of bank fraud as well as on the remaining twenty-nine counts of mail fraud. Defendant has appealed, claiming that the District Court erred in its jury instructions, and erred in failing to direct a verdict of acquittal on the mail fraud charge.

II.

The defendant argues that the trial court erred in admitting expert testimony giving various definitions of check kiting that differed from the definitions set forth in both the indictment and set forth in the case of United States v. Street, 529 F.2d 226 (6th Cir.1976); and that the court compounded this error by failing to give the jury defendant's proposed instruction on the definition of "check kiting."

Throughout the course of the trial several definitions of "check kiting" were offered by witnesses for the government and were admitted into evidence over the objections of the defendant. LeRoy Wolfe, a Certified Public Accountant and partner at Deloite & Touche, testified that kiting was "a method whereby a depositor takes advantage of and utilizes the time it takes a check to clear the bank in order to obtain an unauthorized loan."

Similarly, Hal Bishop, a Senior Vice President at Sovran Bank, testified as follows:

Well, a check kite bears the characteristics of having deposits into the bank and almost equivalent withdrawals on the same day recovering the activity by making other deposits. You look to see where those checks come from and if they come from say Third National Bank into your account and the subsequent check going back to Third National Bank, you have all the evidence of a kiting.

Mr. Bishop also explained the bank's written policy on check kiting, reading to the jury the part of that policy stating the characteristics of check kiting:

Typical characteristics of a kite operation include but are not limited to: a) approximate equal daily or cycle to date dollar debits and credits, b) low average daily balances compared to total deposit level, c) repetitive drawings against today's deposits or negative collected funds, d) repetitive similar dollar debits and credits involving one other party, including the second account of the kite suspect, and e) physical items where the depositor, drawer and endorser are the same entity.

Mr. Bishop went on to testify that the definition of a "kite" is:

[A] scheme created by an individual or individuals using two or more accounts whereby they deposit into one account checks drawn on the other one and then subsequently redeposit in the second account checks drawn on the first to cover the check they deposited in the first account.

In addition, Phillip Elam, an officer of Metropolitan Federal, gave the following definition of a check kite:

When you open a checking account, and you deposit a check into it, and that check is not good, and it is sent back by the bank that it's drawn on as uncollected, on a continuing basis, that's part of what's termed kiting. In other words, you're making a deposit with checks that are not good.

The defendant contends that it was improper for the District Court to allow these witnesses to testify about what constitutes check kiting as a matter of law. A trial court's decision to allow an expert to testify on a given matter will not be disturbed absent an abuse of discretion. Molecular Technology Corp. v. Valentine, 925 F.2d 910, 919 (6th Cir.1991) (citing Davis v. Combustion Engineering, Inc., 742 F.2d 916, 919 (6th Cir.1984)). Here, where the expert testimony was closely related to the element of the crime of check kiting, we must also keep in mind that this Court has repeatedly held that it is impermissible for a trial judge to delegate...