McDonald v. United States

• Decision Date: 08 May 1917
• Docket Number: 2609.
• Citation: 241 F. 793
• Parties: McDONALD et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — Sixth Circuit

241 F. 793

McDONALD et al. v. UNITED STATES.

No. 2609.

United States Court of Appeals, Sixth Circuit.

May 8, 1917

Caruthers Ewing, of Memphis, Tenn., for plaintiffs in error.

Wm. D Kyser, Asst. U.S. Atty., of Memphis, Tenn.

Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.

DENISON Circuit Judge.

Plaintiffs in error were, with six others, indicted under section 215 of the Penal Code (Act March 4, 1909, c. 321, 35 Stat. 1130 (Comp. St. 1916, Sec. 10385)) for using the mails pursuant to a scheme to defraud. One of the respondents was never found one pleaded guilty, two were discharged at the trial upon a nolle prosequi, two were acquitted by the jury, and the two plaintiffs in error were convicted. The indictment contained five counts, each resting upon the same alleged scheme, but each involving the mailing of a distinct letter. The indictment is very prolix, and it is by no means easy to identify, out of the mass of evidential things recited, the scheme which was intended to be charged. The trial also reveals confusion as to what this charge was. However, the respondents proceeded without objection to the indictment for vagueness and uncertainty, and we are required to construe it as best we may, and review the case from the standpoint of that construction.

Respondent Sims (who pleaded guilty) formerly resided in Kansas City Mo. He was a man of some banking experience, and, so far as the record shows, of good reputation. He devised a plan for organizing a company, which should be called a bank, but which in substance should be a holding company or a chain of banks, so that it should receive such of the earnings as were paid as dividends, and should also make profit by acting as depositary, correspondent, etc., for its constituent banks. Intending to start the enterprise at Chattanooga, he was diverted, more or less by chance, to Memphis. He interested in his plan Bonds, a banker at Kansas City, and Hendrey, a banker at Memphis. These three, with three others who did not expect to be stockholders, but signed only as an accommodation, joined in the organization papers of a Tennessee corporation named the 'American Trust Company,' and, under the Tennessee law, they constituted the board of directors until there should be an election. No one of them subscribed for capital stock, such subscription being unnecessary under the Tennessee law. The company had an authorized capital of $500,000. This was on February 14, 1911. It was Sims' plan that part of the stock should be issued in exchange for the controlling stock of small banks, which would go into the treasury of the holding company, and that, upon these stocks so held, money could be borrowed, with which other stocks could be purchased, etc., and that the deposits and balances of the constituent banks would furnish working cash capital-- all to the end that it would not be necessary to sell for cash any great part of the stock. Already Sims had interested McDonald, who controlled three small banks in the Southwest, and Hilton, who had one. McDonald turned in his equity in his stock in the three banks and received the American Trust Company's stock, as did also Hilton with reference to his bank. Defendant Hendrey says that he never agreed to nor did subscribe, except by signing the organization papers, never turned over any bank stock, and never received any trust company stock. There was no formal election. Stationery was printed showing McDonald to be president, Sims treasurer, and these two, with Hendrey and others, to be directors. In fact, Sims and McDonald began to try to sell stock and handle some paper. They thereafter gave their time to the enterprise. It had no cash paid in, but for itself or in Sims' name borrowed promotion expenses from Hendrey's bank, until-- to Hendrey's alleged surprise-- the loan had mounted up to $12,000. In the end, all stock-selling efforts were without success. About the 1st of June it was determined to open as an ordinary bank of deposit, and advertisements were published and deposits received. The bank survived only until August 8th.

The indictment alleges that the whole scheme of organization was fraudulent from the beginning, and that all the dubious steps afterward taken were in original contemplation as part of the scheme. Detached sentences in the charge to the jury seem to imply that, unless the respondents were guilty of this original underlying scheme, they must be acquitted. A review of the record convinces us that no conviction upon this distinct theory could be sustained. The record is insufficient to support the conclusion that the respondents, at and before the organization of the company, or at the date shortly thereafter when McDonald and Sims began to push it, had any scheme or plan to defraud, or any intention, except to organize and prosecute an enterprise which, while highly speculative, did not contemplate the defrauding of any one. If this were the only theory upon which conviction could stand, we should agree with respondents' counsel that it could not be sustained.

It was not the only theory. United with this in the indictment and throughout the trial and in the judge's charge was the idea of a scheme to defraud consisting in an attempt to sell stock and to operate by getting deposits and credit for the bank through means of false representations about its capital and assets, or, what is practically the same thing, to maintain its standing and keep it up as a going concern by means of similar classes of false representations. The indictment may be fairly interpreted as charging, also, such a scheme; the testimony was mainly devoted thereto; and the charge, taken as a whole, must have indicated to the jury that there could be a conviction based upon a scheme formed after the organization of the company. If there was evidence to support this theory, the respondents' requests for directed verdicts were rightly refused.

So far as concerns the refusal to direct a verdict, it is evident, also, that this would not be error, if there was evidence to support any one count, since the sentence imposed was not more than the law permitted to be imposed under one count.

Upon the theory of the indictment which we have approved, it is not to be denied that the case against McDonald was for the jury. His active participation in the circulation by mail of false representations about the capital stock and assets of the bank, and with the purpose of getting deposits and credit for it, are conceded by him. His excuses and justifications, and his claims of good faith in intention, were, to say the least, not convincing.

As to Hendrey the situation is different. He had no ostensible connection with the bank, except that his name appeared as a director. He claimed not to be a stockholder. He claims he had nothing to do with the management and took no interest, excepting as a creditor; but this is in dispute. We see nothing here from which it can fairly be said that he was a party to the scheme to sell stock by means of direct false representations to those who might purchase, or that he caused the mails to be used in sending the letters written by Sims or McDonald in the course of specific efforts to get particular persons to buy stock. However, two of the counts depend upon letters which were sent to other banks soliciting business, and one count rests upon a letter inclosing a statement of assets and liabilities to a mercantile agency. These three letters were sent by Sims or McDonald, and, so far as we observe, there is nothing to make Hendrey responsible for the mailing of any one of the three, unless upon the theory that these things were so likely to be done by the active managers in carrying out the scheme that any party to the scheme should be regarded as having authorized them to be done for him on the general principles of agency.

Our opinion in Sparks v. United States, 241 F. 777 . C.C.A. . . ., filed this day, describes a situation where the use of the mails by those active in the bank management was for the purpose of transmitting a statement required by law to be sent to a state officer and customarily forwarded by mail. In such a case it might be that this use of the mails would so far fall within the implied authority given to the management by the directors as to make them responsible under section 215, upon the theory that they caused the mails to be used. We are not prepared to say that a jury might not apply the same principle, so as to make Hendrey liable in this case for using the mails, upon one of these three counts. We prefer to leave that question undecided. The record is very long, and has not been printed, and we can never be confident that a decision finding there was no evidence sufficient to support a proposition of fact may not overlook some item somewhere in such a...