Garrett v. United States

• Decision Date: 18 November 1968
• Docket Number: No. 24819.,24819.
• Citation: Garrett v. United States, 396 F.2d 489 (5th Cir. 1968)
• Parties: Bernard S. GARRETT and Joseph B. Morris, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

396 F.2d 489 (1968)

Bernard S. GARRETT and Joseph B. Morris, Appellants, v. UNITED STATES of America, Appellee.

No. 24819.

United States Court of Appeals Fifth Circuit.

June 13, 1968.

Rehearing Denied August 26, 1968.

Certiorari Denied November 18, 1968.

Joe Tonahill, Jasper, Tex., William F. Kemp, Austin, Tex., Emmett Colvin, Jr., Dallas, Tex., for appellants.

Jamie C. Boyd, Harry Lee Hudspeth, Asst. U. S. Attys., Ernest Morgan, U. S. Atty., El Paso, Tex., for appellee.

Before RIVES, BELL and GOLDBERG, Circuit Judges.

GRIFFIN B. BELL, Circuit Judge.

Appellants Garrett and Morris were convicted of willfully misapplying national bank funds insured by the Federal Deposit Insurance Corporation in violation of 18 U.S.C.A. § 656. They were charged in a two-count indictment. The first count alleged a substantive violation of the statute; the second charged a conspiracy to violate the statute in the same manner. They were convicted on both counts and received concurrent sentences.

There are two assignments of error. The first rests on the contention that the indictment was insufficient and thus the court erred in overruling the motion to dismiss the indictment. The second assignment is that the evidence was insufficient to support the verdict of guilty under each count. The principal question, however, whether viewed from sufficiency of the indictment or sufficiency of the evidence, is one of statutory construction and applicability. The statute, 18 U.S.C.A. § 656,¹ makes it an offense against the United States for persons in certain categories to willfully misapply the funds of various types of banking institutions including national banks and banks with deposits insured by the Federal Deposit Insurance Corporation. The statute applied to the bank involved here since it was a national bank and its deposits were so insured. This much is undisputed.

It is the position of appellants that they are not included in the categories of persons proscribed by the statute. The statute applies to officers, directors, agents, or employees of such banks and to persons "* * * connected in any capacity * * *" with such banks. Appellants were not officers, directors, agents or employees of the bank. The theory of the government is, however, that they were connected with the bank in a capacity contemplated by the statute. Thus it is their connection with the bank which must be examined.

They were the controlling stockholders in the First National Bank of Marlin, Texas. They purchased the stock, financed the purchase, and directed that the stock be placed in the name of other persons and entities. Appellants are Negroes and they determined, because of the possibility of racial prejudice in the small town of Marlin, that they should not appear of record as owners of the stock. There were 10,000 shares outstanding and they purchased a total of 5,470 shares. Of these, 3,700 shares were placed in the name of a corporation owned by appellants, Republic National Finance Company, and 1,570 shares were placed in the name of a business associate under a trust arrangement. They then caused four of their employees and associates to be elected to the seven-member board of directors of the bank.

The defalcation with which they are charged came about in their receiving a commission on a purchase of mortgages by the bank. They personally sought a package of real estate mortgages for purchase by the bank. They arranged to increase deposits in the bank by a million dollars. Garrett personally paid a $5,000 fee for a part of these deposits. The bank then purchased the mortgages for $970,000 by a check payable to a title company. This was the full face amount of the mortgages being purchased. The seller of the mortgages then paid $189,186.04 to Valley National Mortgage Company, a corporation owned by appellants. This corporation, in turn, opened a bank account in Houston with Morris and Garrett as the only persons authorized to draw on the account. One day later they withdrew the entire $189,186.04 by a series of checks payable to cash or to one or the other of them.

There are four elements in the substantive offense. The proof was clearly adequate as to three: One, the bank was a national bank and it was also federally insured; two, the evidence was sufficient to sustain the charge of a willful misapplication of bank funds; and three, the evidence was sufficient to sustain a specific intent to injure and defraud the bank as charged in the indictment. The other element depends on whether defendants were within the class of persons covered by the statute. On the question of elements of the offense, see Ramirez v. United States, 9 Cir., 1963, 318 F.2d 155; United States v. Vanatta, D.Hawaii, 1960, 189 F.Supp. 939.

We conclude that the statute is applicable to these defendants. They are included in the category of persons "connected in any capacity" with the bank. They purchased a controlling interest in the bank; they exercised this control through naming four employees and associates to the board of directors as a majority of the board. They were active in the affairs of the bank through increasing the deposits in an amount sufficient to purchase...