U.S. v. Christo

• Decision Date: 24 March 1980
• Docket Number: No. 79-5307,79-5307
• Citation: 614 F.2d 486
• Parties: 28 UCC Rep.Serv. 777 UNITED STATES of America, Plaintiff-Appellee, v. John CHRISTO, Jr., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 486

614 F.2d 486

28 UCC Rep.Serv. 777

UNITED STATES of America, Plaintiff-Appellee, v. John CHRISTO, Jr., Defendant-Appellant.

No. 79-5307.

United States Court of Appeals, Fifth Circuit.

March 24, 1980.

Wilfred C. Varn, E. C. Deeno Kitchen, Tallahassee, Fla., Dempsey J. Barron, Panama City, Fla., Robert M. Ervin, Tallahassee, Fla., for defendant-appellant.

Nickolas P. Geeker, U. S. Atty., Pensacola, Fla., Donald S. Modesitt, Asst. U. S. Atty., Tallahassee, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Florida.

Before MORGAN, RONEY and GARZA, Circuit Judges.

GARZA, Circuit Judge:

At all times pertinent to this case, John Christo, Jr. was Chairman of the Board and majority stockholder of Bay National Bank & Trust Company (BNBT) and the First National Bank of Panama City, Florida (First National). On October 12, 1978 a twenty-nine count Indictment was returned against him charging twenty-one counts of "misapplication of bank funds" contrary to 18 U.S.C. § 656 ¹ and 12 U.S.C. § 375a; ² six counts of making or causing to be made "false statements" contrary to 18 U.S.C. § 1001; and two counts of making or causing to be made "false entries" contrary to 18 U.S.C. § 1005. After a trial by a jury, Christo was acquitted on all counts charging "false statements" and "false entries" and three counts of "misapplication of bank funds." Christo appeals, on several grounds, his convictions of the eighteen counts on which he was convicted. Seventeen of the counts involve overdrafts of his personal checking accounts at First National (Count III) and BNBT (Counts IV-XIX). The last count (Count XXVIII) involves a loan of $150,000 to Balbi Corporation (Balbi). The factual circumstances of each count are briefly stated below.

Count III: On June 7, 1974 a BNBT employee drafted a debit memorandum for $35,000 on Christo's personal account at First National. Christo's personal account at First National was without sufficient funds to pay the debit memorandum but First National Vice President, James Rider, approved an overdraft of the account and the debit memorandum was honored at First National and the funds were disbursed to BNBT for deposit in Christo's personal account there. In August, 1974 a $35,000 deposit was made by Christo to clear the overdraft at First National.

Counts IV-XIX: During the period of March 15, 1974 through May 16, 1975, Christo wrote checks on his personal account causing overdrafts which at one point reached a maximum of $81,116.19. Each of these overdrafts were brought to Christo's attention by BNBT employees and each was Appellant-Christo's last overdraft occurred May 16, 1975 and was paid by him May 30, 1975. The first criticism of these overdrafts came from a bank examiner in November, 1975 during a bank examination of BNBT. Shortly thereafter, on December 2, 1975, Christo paid BNBT interest at the maximum lawful rate for all of his overdrafts occurring in the three proceeding years. Christo never again overdrafted.

paid by Christo at that time. The overdrafts were never concealed and always appeared on the BNBT records. Regarding these overdrafts as well as that in Count III, it was the policy of those banks to honor overdrafts of credit-worthy customers ³ and that overdrafts larger than those here involved were regularly permitted by BNBT. It is undisputed that overdrafting by bank "insiders" is a common practice within the banking industry.

Count XXVIII: This count arises from a loan to Balbi Corporation which was owned by Charles A. Whitehead (47.5%), John Christo (5%), John Christo's immediate family (42.5%) and William E. Welliver (5%). In July, 1973, Balbi purchased a 158 acre tract of land and gave a note in payment. The initial payment on the note came from proceeds of a loan to Balbi by way of an overdraft of an account at BNBT on July 24, 1974. The check creating the overdraft was signed by Charles Whitehead, President of Balbi.

On October 2, 1974, Balbi borrowed $150,000 from First National Bank of Fort Walton (Fort Walton) and paid the overdraft plus 10% interest to BNBT. The note securing this loan was executed by Charles Whitehead and Christo gave his personal guaranty. On February 3, 1975, a Fort Walton bank officer telephoned Welliver, BNBT President, requesting payment of the Balbi note. After consulting with Christo as to whether BNBT was authorized to lend Balbi funds, ⁴ Welliver authorized a transfer of BNBT funds in the amount of $151,320.31 to Fort Walton via Florida First National Bank in Jacksonville, Florida a bank at which both BNBT and Fort Walton had correspondent accounts. The amount transferred represented Balbi's full indebetedness to Fort Walton. On February 28, 1975 BNBT received its month-end reconcilement statement from Florida First National and the $151,320.31 charge was entered upon BNBT's reconcilement ledger. On August 4, 1975, Balbi again arranged financing through Fort Walton and paid the BNBT loan together with 8.75% interest.

THE INDICTMENT

Except for Count 28, the government's theory of misapplication of bank funds centers upon violations of 12 U.S.C. § 375a (as it existed at the time of indictment), a civil regulatory banking statute, which generally prohibits a bank from extending credit in excess of $5,000 to one of its executive officers. The indictment and government's case at trial contended that each overdraft which caused or contributed to a negative bank account balance in excess of $5,000 amounted to a violation of 12 U.S.C. § 375a and that these civil violations constituted a criminal misapplication of bank funds under 18 U.S.C. § 656. No one disputes that a civil violation of 12 U.S.C. § 375a may have occurred, but Christo's first argument at trial and now on appeal is that an indictment may not charge nor the government prove violations of a civil regulatory statute as the sole basis for alleged criminal misapplications of bank funds. Specifically, Christo contends that the trial court erred in denying his timely motions for dismissal and for judgments of acquittal on Counts III through XIX of the indictment. In support of his argument, Christo relies upon Christo correctly concludes from Britton that bank funds are not criminally misapplied merely because they are applied in a manner unauthorized or prohibited by the Federal banking statutes, but he erroneously concludes that criminal misapplication and civil violations of maladministration must be mutually exclusive occurrences. There is nothing in Britton which compels this conclusion.

U. S. v. Britton, 107 U.S. 655, 2 S.Ct. 512, 27 L.Ed. 520 (1882), which interprets the statutory predecessor of 18 U.S.C. § 656. In Britton, the Supreme Court held that to constitute the element of "willful misapplication" there must be a conversion of bank funds to the use, benefit or gain of the party charged or a third party. The indictment in Britton alleged that the bank president had borrowed bank funds, purchased bank stock with those funds, and held the stock in his name in trust for the use and benefit of the bank. The Court held that the indictment was insufficient to charge an offense where it expressly negated the requisite mens rea through factual averments. The Britton indictment therefore charged only a maladministration of the affairs of the bank rather than criminal misapplication of its funds. 107 U.S. at 666-667, 2 S.Ct. at 521-522.

The indictment counts against Christo ⁵ allege the four essential elements of criminal misapplication and the overdraft method by which these elements were allegedly accomplished. The recitation of violation of 12 U.S.C. § 375a neither adds to the charges of misapplication or detracts from the substance of the charge. Under § 656, as applicable here, the indictment must allege and the government must prove beyond all reasonable doubt that (1) the accused was an executive officer of a bank, (2) that the bank was connected in some capacity with the Federal Reserve System, (3) that the accused willfully misapplied the funds of that bank, and (4) that the accused acted with intent to injure and defraud that bank. See U. S. v. Welliver, 601 F.2d 203, 207 (5th Cir. 1979). If the government can prove these elements, it matters not that the methods by which the misapplication occurs may also violate a civil regulatory statute. Therefore, we conclude that Counts III through XIX of the indictment were sufficient to charge an offense under 18 U.S.C. § 656.

THE INSTRUCTION

In the event the indictment is sustained, Christo argues in the alternative that the trial court committed plain error by instructing the jury that arguable violations of § 375a could serve as the factual basis for a criminal misapplication conviction regarding Counts III through XIX. In the initial summary of issues the trial court instructed the jury regarding § 375a as follows:

Count III charges the Defendant with having obtained a loan of $35,000 from the First National Bank of Panama City, which loan was in excess of $5,000, which is a limitation, the Government says, placed on monies to officers or directors by the provisions of Title XII, United States Code, Section 375a.

It is the contention of the Government under Count III that the loan was used to overdraft in the Defendant's account in the Bay National Bank. The Government contends that this loan made to the Defendant in excess of $5,000 constitutes a misapplication of funds with intent to injure the bank under the provisions of Title Section 656.

Counts IV through XIX, all under the same section, are the ones dealing with the overdrafts that we have heard so much about. And the Government claims in these counts that these overdrafts were all in excess of $5,000, and that if they are considered as loans to the Defendant, that they are loans in violation of the $5,000 limitation of Section 375 (375a), and that therefore constitute a misapplication of funds...