Schledwitz v. U.S., 97-6057
| Decision Date | 03 March 1999 |
| Docket Number | No. 97-6057,97-6057 |
| Citation | 169 F.3d 1003 |
| Parties | 51 Fed. R. Evid. Serv. 352 Karl A. SCHLEDWITZ, Petitioner-Appellant, v. UNITED STATES of America, Respondent-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Ann C. Short (argued and briefed), Herbert S. Moncier (briefed), Law Office of Herbert S. Moncier, Knoxville, Tennessee, Arthur J. Andrews (briefed), Andrews & Hudson, Knoxville, Tennessee, for Petitioner-Appellant.
Jimmie Baxter, Asst. U.S. Attorney (argued), Knoxville, Tennessee, Gary Humble, Asst. U.S. Attorney (briefed), Chattanooga, Tennessee, for Respondent-Appellee.
Before: MERRITT, JONES, and SILER, Circuit Judges.
SILER, J. (pp. 1017-18), delivered a separate dissenting opinion.
OPINION
For the third time, Karl A. Schledwitz appeals to this court seeking relief from his 1992 conviction for mail fraud. In the instant appeal, Schledwitz contends that the district court erroneously denied his motion to vacate, set aside, or correct his sentence pursuant to 28 U.S.C. § 2255 based on the government's failure to disclose (1) material, exculpatory information in violation of Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963), and (2) the full extent of an apparently "neutral" governmental witness's involvement in the investigation against him. Although we have already rejected a similar challenge to Schledwitz's conviction, Schledwitz now submits that he has uncovered even more previously-undisclosed Brady evidence and discovered that the "neutral" witness was even more intimately involved in the investigation than as originally believed. Since we cannot reconcile the findings of the district court with the Supreme Court's decision in Kyles v. Whitley, 514 U.S. 419, 115 S.Ct. 1555, 131 L.Ed.2d 490 (1995), we will reverse the district court's denial of the § 2255 motion, and vacate Schledwitz's conviction.
Because this case has a lengthy procedural history, and because the underlying facts to Schledwitz's conviction have already been recited in previous decisions rendered by this court, we will borrow from the background contained in those opinions, sometimes verbatim.
Schledwitz was an attorney in Memphis, Tennessee. He was also a political activist, as well as an associate of Jacob F. ("Jake") Butcher and his brother, C.H. Butcher, Jr. Prior to the early 1980s, the Butcher brothers together effectively controlled as many as twenty-five financial institutions in Tennessee and Kentucky.
According to the government, Schledwitz was a "player" or a "nominee" for the Butcher brothers in a scheme based on numerous fraudulent bank loans. Schledwitz allegedly agreed to receive loans from the Butcher-controlled banks with no intention of ever repaying them. Instead, these loan proceeds were allegedly used for a variety of improper purposes to benefit the Butcher brothers personally, such as for manipulation of the Butchers' bank stock and satisfaction of the Butchers' personal debts. Additionally, the government contended that the loan proceeds were used to promote an alliance between the Butcher brothers and then-Congressman Harold E. Ford, who was Tennessee's most powerful African-American politician at the time. In return for Schledwitz's role in the scheme, the Butchers provided Schledwitz with business for his law practice and allowed him to keep some of the loan proceeds for his own use.
In total, the Butcher-controlled banks loaned more than $1.5 million in Schledwitz's name. Many of these loans were unsecured, and were made to Schledwitz at a time that he did not have the personal income to justify such loans. For example, in 1980, due to his loans from the Butcher banks, Schledwitz was billed $89,709.69 in interest, while he reported only $28,385 in total income. J.A. at 200. In 1981, the total interest due on his loans was $122,647.91, whereas his total income was only $31,994. Id. at 200. In 1982, his interest obligations were $172,957,57, but his total income was $52,163. Id. at 203. In fact, the 1982 interest obligation alone exceeded Schledwitz's total income for the combined years of 1978 to 1982.
In 1983, the Butchers' banking empire collapsed. Charges were brought against each of the Butcher brothers. For his part in the scheme, Jake Butcher pled guilty to bank fraud in 1984 and was sentenced to 20 years in prison. He served six years and eight months at a federal prison, and was paroled in 1992. After being acquitted of related charges, C.H. Butcher pled guilty to five counts of bankruptcy fraud in April 1987. He agreed to cooperate with federal authorities in their cases related to the collapse of the Butcher banking empire, and eventually served seven years in prison.
An investigation by federal regulators following the collapse of the Butcher banks revealed that Schledwitz owed $1.5 million to the Federal Deposit Insurance Corporation ("FDIC"); and $485,000 to the Southern Industrial Banking Corporation ("SBIC"), an uninsured state-regulated thrift. Schledwitz eventually settled those obligations for $90,000 and $30,000, respectively. On April 24, 1987, Schledwitz, Congressman Ford, and two others were charged in the Eastern District of Tennessee in a nineteen count indictment with conspiracy, bank fraud and mail fraud. 1 The case was transferred to the Western District of Tennessee upon defendants' motion, and a jury trial, presided by the Honorable Odell Horton, was held in Memphis.
On April 27, 1990, the Memphis proceedings ended in a mistrial after the jury announced it was hopelessly deadlocked. A year later, Judge Horton ruled that a new trial for the defendants would be held in Memphis, but, over defendants' objections, the jury pool for the new trial would be selected from Western Tennessee communities outside of Memphis. We upheld Judge Horton's ruling on appeal. See In re Ford, 987 F.2d 334 (6th Cir.1992). Upon retrial presided by the Honorable Jerome Turner, a federal jury found Schledwitz and his co-defendants not guilty on all charges on April 9, 1993.
In the meantime, Schledwitz alone was indicted on additional, related charges in the Eastern District of Tennessee on January 21, 1992. Schledwitz was then charged with eight counts of mail fraud, in violation of 18 U.S.C. §§ 1341 and 1342, for bilking the Butcher banks and defrauding the FDIC and SBIC in their attempts to recoup the lost loans. The case was assigned to the Honorable Thomas Gray Hull, who subsequently dismissed five of the eight counts--all of which were based on defrauding the FDIC and SBIC. The remaining three counts were (1) that Schledwitz allegedly used the loans to assist Jake Butcher's manipulation of United American Bank ("UAB") stock in banks controlled by the Butchers; (2) that Schledwitz allegedly borrowed $40,000 from the City and County Bank of Roane County (which was controlled by the Butchers) to repay C.H. Butcher's Las Vegas gambling debts; and (3) that Schledwitz borrowed $115,000 from the City and County Bank of Anderson County (which was also controlled by the Butchers) to promote the Butchers' political interests in West Tennessee.
Prior to his trial, Schledwitz requested that the government provide him with exculpatory evidence as mandated by Brady v. Maryland. 2 Specifically, Schledwitz requested: "Any prior testimony, which tends to exculpate the defendant, made to the Department of Justice, the United States Attorney's Office, the FDIC, other federal agencies, and/or the Grand Jury by ... Jacob H. 'Jake' Butcher." J.A. at 785. In response, the government stated that it had complied with its Brady obligations, and had supplied Schledwitz with all exculpatory evidence.
At trial, the prosecution produced evidence of Jake Butcher's scheme to create a market for bank stock in his banks, and to make loans in furtherance of this scheme and in furtherance of the Butchers' personal and political interests. As an alleged "player" in this scheme, the prosecution showed at trial how Schledwitz received numerous loans from the Butcher banks when his income did not justify those loans.
With regard to the Jake Butcher loans involved in count one, Schledwitz borrowed approximately $450,000 to buy UAB of Knoxville stock at a time when his total annual income was $34,313. An associate of Jake Butcher's, Jesse Barr, testified at trial that Jake asked Schledwitz to buy the UAB of Knoxville stock. Barr claimed he arranged for two loans to finance Schledwitz's stock purchases, and that Schledwitz would provide Barr with numerous bank notes and blank personal checks so Barr could make the interest payments for him. One loan for $300,000 was from UAB of Memphis and was later transferred to UAB of Hamilton County. By shifting the funds to different banks, the loans appeared current and were less suspicious to bank examiners. Barr also testified that a large portion of the loan proceeds from Schledwitz's loans either went directly to Jake Butcher or were used to pay Butcher's bills. Jake Butcher himself did not testify at Schledwitz's trial, apparently because both the government and Schledwitz were uncertain whether Butcher's testimony would have been favorable to their respective positions.
One of the most prominent government witnesses at trial was Jay Horne, who had retired from the Internal Revenue Service ("IRS") with twenty-five years experience as an investigator. Horne submitted to the court and jury that he had been (1) hired by the government, at the rate of $20.00 an hour, to review and analyze the financial records used by Schledwitz in his scheme and (2) subpoenaed by the federal government to explain the meaning of Schledwitz's financial documents to the jury....
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