U.S. v. Adamson

Decision Date10 March 1983
Docket NumberNo. 80-7284,80-7284
Citation700 F.2d 953
PartiesUNITED STATES of America, Plaintiff-Appellee, v. John R. ADAMSON, III, Defendant-Appellant. . * Unit B
CourtU.S. Court of Appeals — Fifth Circuit

Martin C. Puetz, Asst. Federal Public Defender, Augusta, Ga., for adamson.

William T. Moore, Jr., U.S. Atty., Melissa S. Mundell, Frederick W. Kramer, Asst. U.S. Attys., Savannah, Ga., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Georgia.

Before GODBOLD, Chief Judge, RONEY, TJOFLAT, HILL, FAY, VANCE, KRAVITCH, JOHNSON, HENDERSON, HATCHETT, ANDERSON, and CLARK, Circuit Judges.

R. LANIER ANDERSON, III, Circuit Judge:

The appellant, John R. Adamson, III, and three others were indicted under 18 U.S.C.A. Secs. 656, 1 1005, 2 1014, 3 and 2 4 (West 1976) in connection with several loans made by the First Augusta Bank and Trust Company. After a jury trial, appellant was convicted of one count of willful misapplication of bank funds in violation of Sec. 656, one count of making a false entry in the books, reports and statements of the bank in violation of Secs. 1005 and 2, and three counts of knowingly making false statements to the bank for the purpose of influencing loan applications in violation of Secs. 1014 and 2. A panel of this court affirmed the convictions under Secs. 656 and 1014, but reversed the conviction under Sec. 1005. United States v. Adamson, 665 F.2d 649 (5th Cir.1982). Rehearing en banc was granted, and the panel opinion vacated. 665 F.2d 660. Upon rehearing, appellant did not argue that the panel erred when it held that the evidence was sufficient to support convictions on the three Sec. 1014 counts for knowingly making false statements to the bank for the purpose of influencing its action on loan applications; accordingly, Part IV of the panel opinion, sustaining the Sec. 1014 convictions, is reinstated. Similarly, appellant did not argue that the panel erred when it rejected appellant's argument that the district court improperly admitted a certain cease and desist order into evidence; accordingly, Part V of the panel opinion also is reinstated.

The only issues presented to the en banc court relate to the propriety of the jury instructions under Secs. 656 and 1005. We conclude that the jury instructions improperly lowered the mens rea standard under Sec. 656 to mere "recklessness." Consequently, we reverse appellant's conviction on the willful misapplication count under Sec. 656. However, we conclude that the error did not taint the jury charge with respect to Sec. 1005, and therefore we affirm appellant's conviction on that false entry count.

I. FACTS AND POSTURE OF THE ISSUES

This case arises out of a series of events which contributed to the failure of the First Augusta State Bank of Augusta, Georgia. The bank was insured by the Federal Deposit Insurance Corporation. During the times covered by the indictment, appellant Adamson was the president and a director of the bank. He also served as a lending officer and was a member of the bank's Loan and Investment Committee. Two of Adamson's co-defendants, Glenn Bertrand Hester and R. Eugene Holley, also were convicted on both the Sec. 656 count and the Sec. 1005 count. Hester was a major stockholder of the bank, a member of the bank's executive committee, and the attorney for the bank. Holley, a close friend, business associate and law partner of Hester, was also a major borrower from the bank. Hester and Holley also appealed, but both appeals subsequently were dismissed upon motions for voluntary dismissal.

The two counts presented to the en banc court involve a substantial loan which appellant Adamson authorized and which ostensibly was made to Island Summit, Inc., a corporation either wholly owned by or under the control of Hester. The actual beneficiaries of the loan were co-defendants Hester and Holley, who signed the note as guarantors. The evidence permitted a finding by the jury that the corporation was inactive and financially unable to repay the loan. Further, the defendants admitted that no one expected the corporation to repay the loan; rather, the loan was made on the strength of the net worth of the actual beneficiaries of the loan, Hester and Holley. At trial, the government's theory of the case was that appellant Adamson authorized a sham loan to a nominal corporate borrower in order to conceal an illegal and potentially unsafe concentration of bank loans to a single debtor. The evidence justified a finding that the loan would have violated the bank's legal aggregate lending and unsecured loan limits if it had been made directly to Holley. The evidence also permitted a finding that the loan was structured in a way which made detection difficult and which tended to deceive the bank and the bank examiners about the true state of affairs. The jury found appellant guilty of willful misapplication of bank funds (Sec. 656) and a false entry in the bank's records (Sec. 1005) in connection with this loan.

With respect to Sec. 656, appellant contends that the jury instructions erroneously defined the requisite mental state that the accused must have in order to commit willful misapplication of bank funds. In particular, the appellant objects to the charge that:

A reckless disregard of the interest of the bank is the equivalent of the intent to injure or defraud the bank.

....

I charge you that the element of criminal intent necessary for conviction for a willful misapplication of bank funds is not fulfilled by a mere showing of indiscretion or foolhardiness on the part of the bank officer. His conduct must amount to reckless disregard of the bank's interests ...

....

The word "willful" is also employed to characterize a thing done without ground for believing it is lawful, or conduct marked by a reckless disregard, whether or not one has the right to so act.

Record on Appeal, Vol. VIII, at 21, 23-24. If the proper mens rea for Sec. 656 is knowledge, and if the jury instructions as a whole either equate recklessness with knowledge or substitute recklessness for knowledge, then Sandstrom v. Montana, 442 U.S. 510, 99 S.Ct. 2450, 61 L.Ed.2d 39 (1979), compels the conclusion that the charge is erroneous. Neither the government nor the dissenting judges dispute this. Sandstrom found error in a charge under which the requisite mens rea was merely presumed. Here there was more than a presumption; the charge actually equated the lesser recklessness mens rea with the higher mens rea of knowledge.

To resolve the issues raised by appellant, we first must determine the appropriate mens rea for a Sec. 656 conviction (Part II). Then we must decide whether the jury instructions as a whole erroneously permitted the jury to apply a lower recklessness mens rea standard to the Sec. 656 count (Part III). Finally, although the jury instructions regarding the Sec. 1005 count did not include a reference to the recklessness mens rea, we must address appellant's argument that the jury instructions on Sec. 656, which immediately preceded those on Sec. 1005, carried over and tainted the Sec. 1005 charge (Part IV).

II. MENS REA FOR Sec. 656
A. Background

As explained in the panel opinion, 665 F.2d 649, 654-56, a previous Fifth Circuit case, United States v. Welliver, 601 F.2d 203 (5th Cir.1979), held that a defendant's reckless disregard for the interests of the bank was sufficient to satisfy the intent requirement of Sec. 656. If the rule as stated in Welliver is correct, then the instant charge which permitted a finding of guilt based on a mens rea of recklessness would not be erroneous. We brought this case en banc to reconsider Welliver 's Sec. 656 holding because it is inconsistent with the Supreme Court's interpretation of the predecessor statute, because it is inconsistent with the position taken by the other circuit courts of appeal, because other Fifth Circuit cases cast some doubt on the rule, and because of the inconsistent mens rea requirement of the related statute, Sec. 1005.

B. The Predecessor Statute

The predecessor to Sec. 656 was 12 U.S.C. Sec. 592 (Rev.Stat. Sec. 5209), which utilized language substantially the same as that of the current statute. 5 The Supreme Court, 6 the Fifth Circuit, 7 and other circuits 8 had held that knowledge or purpose was the required mens rea for the predecessor statute. The legislative history of Sec. 656 makes it clear that no change of substance or meaning was intended. The Reviser's Note to 18 U.S.C.A. Sec. 656 asserts: "The original section, containing more than 500 words, was verbose, diffuse, redundant, and complicated .... The revised section without changing in any way the meaning or substance of existing law, clarifies, condenses, and combines related provisions largely rewritten in matters of style." (Emphasis added.) See also Williamson v. United States, 332 F.2d 123, 133 n. 15 (5th Cir.1964) ("The statute, 18 U.S.C.A. Sec. 656, is a recodification of former 12 U.S.C.A. Sec. 592.... Therefore, the old cases under 12 U.S.C.A. Sec. 592 are pertinent."). See generally United States v. Klock, 100 F.Supp. 230, 232-233 (N.D.N.Y.1951), rev'd on other grounds, 210 F.2d 217 (2d Cir.1954) (general review of the legislative history of Sec. 656 with respect to the "intent to injure or defraud" requirement).

C. The Positions of Other Circuit Courts of Appeal

The Fifth Circuit's rule permitting a conviction under Sec. 656 based on a reckless disregard of a bank's interest stands alone. Cases in the other circuits uniformly state that knowledge is the proper mens rea standard for Sec. 656.

One of the leading cases in the area is the First Circuit's decision in United States v. Gens, 493 F.2d 216 (1st Cir.1974). There the defendant, Gens, helped two other defendants, Porter and Carleton, gain control of a Massachusetts bank. Porter and Carleton were officers and directors of the bank, and Gens was a director. After Gens reached his loan limit with...

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