Garanflo v. United States

• Decision Date: 16 November 1917
• Docket Number: 4778.,4777
• Parties: GARANFLO v. UNITED STATES. [1] DUNCAN v. SAME.
• Court: U.S. Court of Appeals — Eighth Circuit

246 F. 910

GARANFLO v. UNITED STATES. ^[1]

DUNCAN v. SAME.

Nos. 4777, 4778.

United States Court of Appeals, Eighth Circuit.

November 16, 1917

George W. Murphy, of Little Rock, Ark. (M. J. Manning, George W Emerson, Wallace Townsend, and E. L. McHaney, all of Little Rock, Ark., on the brief), for plaintiffs in error.

W. H Martin, U.S. Atty., of Hot Springs, Ark. (W. H. Rector, Asst U.S. Atty., of Little Rock, Ark., on the brief), for the United States.

Before HOOK, SMITH, and STONE, Circuit Judges.

SMITH Circuit Judge.

The plaintiffs in error were jointly indicted in the District Court of the United States for the Eastern District of Arkansas. There were six counts in the indictment. The first five charged each of the defendants with the willful misapplication of the money, funds, and credits of the State National Bank of Little Rock, in violation of Revised Statutes, Sec. 5209 (U.S. compiled Statutes 1916, Sec. 9772). The sixth count charged them with conspiring to misapply the money, funds, and credits of the said State National Bank under Criminal Code, Sec. 37 (U.S. Compiled Statutes 1916 vol. 10, Sec. 10201, p. 12552). They were tried to a jury, who found them both guilty on all six counts, and upon the verdict of the jury they were each sentenced to six years in the Atlanta Penitentiary upon each of the first five counts and to two years in the same penitentiary upon the sixth count, all of the sentences to run concurrently in point of time. They sued out separate writs of error to this court. They will be styled as defendants in the further consideration of this case.

In view of the concurrent character of the sentences upon the first five counts, if the case is affirmed on any one of them, the sentence will have to stand. Evans v. United States, 153 U.S. 584, 595, 14 Sup.Ct. 934, 38 L.Ed. 830. As, however, the questions raised upon the appeal are common to all the counts, the case must be either affirmed or reversed upon them all. No objection was ever made to the indictment, or to any count thereof, and there is no criticism of any of the instructions given; but all objections are to the rulings on evidence and the refusal of the instructions asked.

In 1902 the State National Bank of Little Rock was organized. It had at all times material here a capital of $500,000 and a surplus of $45,000. The defendant William H. Garanflo was president, and the defendant Robert D. Duncan was its vice president and cashier. The bank closed its doors and went into voluntary liquidation June 19, 1914.

On February 17, 1915 the Comptroller of the Currency appointed Gen. Lloyd England receiver of the bank.

In 1907 there was organized under the state laws of Arkansas the R.D. Duncan Investment Company. Its name was changed to the State Investment & Trust Company. It bore this new name for a year or such a matter, when its name was again changed to he State Trust Company. These two defendants were the principal holders of the stock in that company, and owned together $29,000 of the $50,000 of its capital stock. Defendant R. D. Duncan was president of this company, and defendant W. H. Garanflo was its vice president. This company had its offices in the State National Bank building. The first five counts of the indictment charge the willful misapplication of the funds of the bank, by the turning over by the defendants of the money and credits of the State National Bank to the State Trust Company in the aggregate of between $81,000 and $82,000.

In its charge to the jury the court said:

'To constitute the crime of willful misapplication it is necessary, not only that there should be a conversion of the moneys, funds, or credits of the bank, to some one other than the bank, but it must also appear that the conversion was made with the intent at the time to injure or defraud the bank.'

With the question of fraud thus in the case on the first five counts, and with the sixth count based upon conspiracy, it is not to be wondered at that the plaintiffs in error in their argument say:

'While a wide range is allowed in the introduction of evidence and the examination of witnesses in cases like these, it does not go to the extent of authorizing the admission of testimony which merely tends to facilitate conviction by arousing in the minds of the jury a feeling of prejudice against the accused.'

Bearing in mind that a wide range is allowed in the introduction of evidence in such cases, we now turn to the various questions made upon the admissibility of evidence. Plaintiffs in error say in their brief:

'There was not and is not any dispute about the issuing of the drafts and the transfers of credit charged in the first, second, third, fourth, and fifth counts of the indictment. They were clearly proved by the government's witnesses, the bank examiners, and were also testified to by both defendants. The only question about them relates to willfulness and intent.'

The North Arkansas Land & Timber Company, a local corporation in which the defendant Duncan was interested, bought 8,400 acres of land at $6 per acre, a total investment of $50,400. With this as its sole assets, it issued its bonds in the sum of $80,000 and stock in the sum of $150,000. Up to the time of the trial no portion of the interest on these bonds had even been paid. This land company had borrowed $48,000 from the State National Bank, through the State Trust Company. The State Trust Company had bought $200,000 of the stock of the State National Bank at $240,000. It borrowed $20,000 to make the first payment of the State National Bank, and gave its note for $220,000 to the Bankers' Trust Company of St. Louis, of which it bought the stock. A few days after the failure of the State National Bank, the State Trust Company went into the hands of a receiver. It is perhaps only just to say that Mr. Duncan claims this was due to the failure of the State National Bank, the enormous decline of its stock, and the financial difficulties of the Bankers' Trust Company in St. Louis, and its refusal to renew the remaining notes of the State Trust Company given for the stock in the State National Bank.

That in general the State National Bank was defectively managed is perhaps best shown by the fact that early in 1914 its directors were compelled to take out securities which were not regarded as good by the representative of the Comptroller of the Currency to the amount of $210,000, and, when the bank had thus been helped by the retirement of the worst of the paper held by it, it failed in June, 1914. Before its failure, from various causes, there had been great withdrawals of deposits. The claims filed against it were about $850,000. It should have had the amount of assets to pay this, and to pay its capital of $500,000 and its surplus of $45,000, or about $1,395,000. Two years after its failure it had paid 20 per cent. upon the claims filed, or less than 12 per cent. of what its assets should have been. The government showed that, aside from the State Trust Company indebtedness, Duncan's direct and indirect liability to the bank when it failed was about $103,000, and Garanflo's indebtedness of the same character was about $58,000, and the balance of assets, aside from the liability of the stockholders, was not sufficient to meet the obligations to the depositors. The evidence tends to show that the ultimate deficit in the payment of depositors will exceed $300,000. If to this be added the $500,000 of capital, the $45,000 of surplus, and the more than $200,000 paid in to take up the worst of the bank paper by the directors, it is manifest that the bank had lost more than $1,000,000 under the management of the two defendants.

Bearing now in mind that the sole questions in the case are 'willfulness and intent' and our holdings in Withaup v. United States, 62 C.C.A. 328, 127 F. 530, Olson v. United States, 67 C.C.A. 21, 133 F. 849, Exchange Bank v. Moss, 79 C.C.A. 278, 149 F. 340, Thomas v. United States, 84 C.C.A. 477, 156 F. 897, Colt v. United States, 111 C.C.A. 205, 190 F. 305, Schultz v. United States, 118 C.C.A. 420, 200 F. 234, Trent v. United States, 143 C.C.A. 170, 228 F. 648, Kinser v. United States, 146 C.C.A. 52, 231 F. 856, and Samuels v. United States, 146 C.C.A. 494, 232 F. 536, Ann.Cas. 1917A, 711, all the specifications of error not hereafter specially considered seem to us to be disposed of adversely to the plaintiffs in error.

Gen. Lloyd England, receiver of the bank, was on the witness stand and was asked:

'Q. Have you assessed the stockholders as the federal laws provide with national banks?

'Judge Manning: We object to the testimony as to the assessments by the Comptroller, as irrelevant and incompetent, or any other testimony that has been introduced along that line.

'Court: The objection is overruled.

'Judge Manning: We except.

'A. The Comptroller of the Currency has assessed them. Q. Leaving out of consideration the amount received from the assessment, what could have been realized from the assets of the bank proper? (Objected to by the defendants upon the ground that the same was

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