U.S. v. Cartwright, 79-5372

• Decision Date: 18 December 1980
• Docket Number: No. 79-5372,79-5372
• Citation: 632 F.2d 1290
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Robert Harris CARTWRIGHT, Defendant-Appellant. . Unit A
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1290

632 F.2d 1290

UNITED STATES of America, Plaintiff-Appellee, v. Robert Harris CARTWRIGHT, Defendant-Appellant.

No. 79-5372.

United States Court of Appeals, Fifth Circuit.

Unit A

Dec. 18, 1980.

Robert Everett L. Looney, Austin, Tex., for defendant-appellant.

Anna E. Stool, Asst. U.S. Atty., Houston, Tex., for plaintiff-appellee.

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

Before WISDOM, AINSWORTH and GEE, Circuit Judges.

WISDOM, Circuit Judge:

Robert Harris Cartwright appeals his jury conviction on 14 counts of bank fraud under four federal statutes. We affirm.

For a period of about two years, beginning in May 1975, Robert Harris Cartwright obtained a number of loans, totaling over a quarter of a million dollars, from five Houston lending institutions. All of these institutions were federally insured either by the Federal Deposit Insurance Corporation (FDIC) or by the Federal Savings & Loan Insurance Corporation (FSLIC). Cartwright borrowed the money under false pretenses, using his father's name, submitting false financial statements, and on one occasion misrepresenting the use to which the loan money would be put. In 1976, about nine months after embarking on his trail of deceit, Cartwright became chief shareholder and president of Sinton Savings Association, which was also federally insured. Again by misrepresentation, he convinced the board of directors to purchase Sinton Service Corporation, a mortgage banking business wholly owned by himself. Through various fraudulent devices, Cartwright then began converting Sinton Service Corporation funds to his own personal use and to the personal use of others, in some cases using the funds to pay off debts he had previously contracted under false pretenses.

A federal grand jury returned a thirty-count indictment against Cartwright. For his fraudulent activities involving Sinton Service Corporation funds, he was convicted on five counts of misapplying the funds of a federally insured institution in violation of 18 U.S.C. § 657, two counts of falsifying documents in violation of 18 U.S.C. § 1001, and one conspiracy count under 18 U.S.C. § 371. For his fraudulent activities involving other Houston-area lenders, he was convicted on six counts of making false statements to federally insured lending institutions in violation of 18 U.S.C. § 1014. Cartwright was sentenced to three four-year terms to be served consecutively.

Cartwright's first challenge addresses the counts that involve his illegal use of Sinton Service Corporation funds. He contends that those misdealings are beyond the reach of the two federal statutes under which he was charged, 18 U.S.C. §§ 657 and 1001. He apparently agrees that Sinton Savings Association, as a federally insured lender, is protected by these statutes from the types of fraud he is accused of committing. Cartwright points out, however, that his actions involved only the funds of Sinton Service Corporation, an entity which, though wholly-owned by Sinton Savings, was not itself federally insured. Moreover, Cartwright argues, even if the statutes do reach frauds on wholly-owned subsidiaries of federally insured institutions, Sinton Service Corporation never became a wholly-owned subsidiary because the purchase of Sinton Service by Sinton Savings was not approved by the state savings and loan commissioner.

Under 18 U.S.C. § 657, it is a criminal offense for an officer of a federally insured lending institution to misapply funds "belonging to" that institution. It is perhaps true that under principles of corporations law the assets of a wholly-owned subsidiary do not "belong" to the sole shareholder in a legal sense. That, however, is merely a byproduct of the corporate fiction, a fiction readily abandoned when used "to defeat public convenience, justify wrong, protect fraud, or defend crime". Quinn v. Butz, D.C.Cir. 1975, 510 F.2d 743, 758. Thus, the fiction was cast aside where a majority stockholder sought to shield himself from criminal liability for false statements he made to a federal agency. Sell v. United States, 10 Cir. 1964, 336 F.2d 467, 471-72. Similarly, this Circuit disregarded the corporate fiction in a recent criminal case, brought under a fraud statute related to section 657, where the defendant made the same argument as Cartwright attempts here. See United States v. Kehoe, 5 Cir. 1978, 573 F.2d 335. As the Court pointed out in Kehoe, it is difficult to assail the argument that depleting the assets of a wholly-owned subsidiary reduces the value of the subsidiary's stock and thus directly diminishes the assets of the parent. We therefore conclude that the funds of a wholly-owned subsidiary "belong to" the parent within the meaning of 18 U.S.C. § 657.

Section 1001 of the Criminal Code reaches Cartwright's mishandling of Sinton Service Corporation funds somewhat differently. It prohibits, among other things, falsification of documents "in any matter within the jurisdiction of any department or agency of the United States". The issue then is whether the business dealings of a wholly-owned subsidiary of an institution insured by the FSLIC are matters within the jurisdiction of that agency.

We note at the outset the Supreme Court's command that the term "jurisdiction" should not be given a "narrow or technical meaning for purposes of § 1001". Bryson v. United States, 1969, 396 U.S. 64, 70, 90 S.Ct. 355, 359, 24 L.Ed.2d 264. Though the term has never been defined explicitly by either the Supreme Court or this Court, the Court of Appeals for the Ninth Circuit has held that it is synonymous with "power to act". Ogden v. United States, 9 Cir. 1962, 303 F.2d 724, 743. Other courts have adopted the same formula with some slight modifications. See United States v. Adler, 2 Cir. 1967, 380 F.2d 917; Friedman v. United States, 8 Cir. 1967, 374 F.2d 363. Without necessarily limiting this Court to that definition, we adopt it to demonstrate that Sinton Service Corporation's activities were matters within the jurisdiction of the FSLIC.

The FSLIC has authority to require the institutions it insures to permit "such examinations as in the judgment of the Corporation may from time to time be necessary for its protection and the protection of other insured institutions". 12 U.S.C. § 1726(b). The FSLIC also has enforcement powers to remedy unsound business practices, including the power to issue cease and desist orders and to suspend or remove directors and officers of insured institutions. 12 U.S.C. § 1730(e)-(g)....