U.S. v. Clapp

• Decision Date: 09 March 1995
• Docket Number: No. 94-1928,94-1928
• Parties: UNITED STATES of America, Appellee, v. Edward D. CLAPP, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 795

46 F.3d 795

UNITED STATES of America, Appellee, v. Edward D. CLAPP, Appellant.

No. 94-1928.

United States Court of Appeals,

Eighth Circuit.

Submitted Oct. 12, 1994.

Decided Jan. 31, 1995.

Rehearing Denied March 9, 1995.

Bruce A. Peterson, Minneapolis, MN, argued, for appellant.

Mark Pitsenbarger, Asst. U.S. Atty., Minneapolis, MN, argued, for appellee.

Before WOLLMAN, Circuit Judge; HEANEY, Senior Circuit Judge; and HANSEN, Circuit Judge.

HEANEY, Senior Circuit Judge.

Edward D. Clapp was convicted by a jury of two counts of bank fraud in violation of 18 U.S.C. Sec. 1344, stemming from a bank loan he took for the purchase and development of property in Minnesota. ¹ Prior to trial, he moved to suppress evidence seized and statements made pursuant to several search warrants based on his allegation that the affidavit in support of the warrants contained material misstatements and omissions. After a hearing, a magistrate judge recommended that his motion be denied. The district court accepted the magistrate judge's recommendation. On appeal, Clapp raises as error the district court's denial of his motion to suppress the evidence seized and the statements made pursuant to the warrants; the court's exclusion of certain expert testimony; and the court's jury instructions on intent to defraud. We affirm on all issues.

I. BACKGROUND

A. The Purchase of the Property.

The defendant, along with his brother, Frederick H. Clapp, owned and operated Clapp-Thomssen Company ("Clapp-Thomssen"), a real estate brokerage and development corporation. In 1986, Clapp-Thomssen became the listing agent for a 45-acre tract of property in Brainerd, Minnesota, known as the B.N. Center, which was originally used by the Burlington Northern Railroad Company as a manufacturing and maintenance yard. After an unsuccessful attempt by an Arizona-based corporation to buy the property, the defendant informed Richard Smith, the owner of the site, that he and others were interested in purchasing the property for $1,000,000. ² Clapp identified the First Federal Bank in Huron, South Dakota ("First Federal") as a possible source of funding for the property. First Federal agreed to finance the purchase of the property, but only after receiving the assurance of Brainerd city officials that the city would issue tax increment financing ("TIF") bonds and use the proceeds to repay First Federal.

Following approval of the loan, First Federal sent Clapp a loan commitment letter stating that the bank agreed to loan Clapp $1,500,000 to purchase and develop the B.N. Center property. The letter included a provision that all costs in connection with the loan be paid by the borrower. Clapp signed and returned the commitment letter acceding to the terms and conditions set forth therein. The parties later met to discuss the terms of the promissory note, which, in its final version, included the following provision:

Principal amounts under this note shall be advanced from the bank from time to time upon receipt thereby of a written requisition from Clapp-Thomssen Company requesting the amount to be advanced and specifying the purposes for such advance. Such requisition(s) shall be accompanied by an opinion of Bond Counsel to the City of Brainerd attesting that the amount of such advances(s) for such purposes may be reimbursed to Clapp-Thomssen Company from the proceeds of said bonds pursuant to the laws of the State of Minnesota.

Appellant's App. at 262. The provision was an added, but unusual, measure of protection for the bank. In order to obtain money, Clapp had to make a written request specifying the purposes for the money, and provide, in the form of an opinion letter, the assurance of the City of Brainerd that the proposed use of the proceeds was reimbursable from TIF bonds.

In February 1987, Clapp submitted a written request to First Federal requesting an advance of $1,250,000 to be paid through Title Insurance Company of Minnesota ("Title Insurance") to Smith for the purchase of the property. The letter made no mention of fees or commissions. The request was approved by Brainerd's bond counsel, and the relevant parties met to close the deal. The closing statement prepared by Title Insurance showed a selling price of $1,250,000 with net proceeds of $1,240,399 ($1,250,000 minus $9,601 in miscellaneous fees) due Smith. Title Insurance issued Smith a check for $1,240,399, which Smith promptly endorsed. Smith was then asked to sign another document authorizing Title Insurance to issue two checks, one payable to Smith in the amount of $920,399 and the other payable to Clapp- Thomssen in the amount of $320,000. Smith thought the transaction was proper because he had received the amount he expected to receive--$1,000,000 less approximately $70,000 in sales commissions for Clapp-Thomssen. However, the other parties present at the closing, including then president of First Federal, Paul Mavity, were unaware that Clapp had received $320,000. ³

In March Clapp asked the bank to advance the remaining $250,000 of the loan to pay approximately $100,000 in incurred expenses and $150,000 in anticipated expenses. According to the agreed-upon procedure, Brainerd's bond counsel opined that the anticipated expenses could be repaid by the TIF bond proceeds. Clapp was advanced the $250,000. By October the advance had been disbursed for a number of purposes, including commission fees and "other disbursements," e.g., equipment relocation, title insurance, and survey costs. In September 1988, First Federal foreclosed on the loan after no payments were made on it.

In early 1989, Smith met with officers of the Minnesota Department of Revenue ("MDR") regarding his sale of the B.N. Center property. MDR believed that Smith had received approximately $1,250,000 from the sale of the property and wished to know why he had reported net proceeds of only $930,000. Smith confirmed that the purchase price of the property was $1,000,000; that Clapp-Thomssen was paid $320,000 in commissions and sales fees; and that, consistent with discussions he had had with Clapp about satisfying the mortgage lender and the City of Brainerd, commissions and fees were intentionally excluded from the closing statement, but were paid from the initial disbursement of the loan. In February 1990, Smith was interviewed by an agent of the Minnesota Bureau of Criminal Apprehension ("BCA") regarding the property transaction. Smith told Special Agent Ray DiPrima, who recorded Smith's statements in a written report, that the $320,000 issued to Clapp-Thomssen constituted payment of $70,000 for a commission and $250,000 for seed money for the development of the project.

B. The Search Warrants and Accompanying Affidavit.

On March 22, 1990, BCA Special Agent Donald Tweedy and other officers executed a search warrant at Clapp-Thomssen's offices. At Clapp's request, the officers first interviewed him. Clapp admitted that he had received the $320,000 and had not disclosed that payment on the closing statement. Agents executed two more search warrants on May 15, 1990, one for Clapp-Thomssen's offices and storage areas and one for Clapp's personal residence. The same affidavit used to support the March warrant application was used to support both of the May warrant applications. Clapp was subsequently interviewed by BCA officers about information and documents obtained during the searches.

After his indictment on March 3, 1993, Clapp moved to suppress evidence seized and statements made pursuant to the search warrants. Pursuant to Franks v. Delaware, 438 U.S. 154, 98 S.Ct. 2674, 57 L.Ed.2d 667 (1978), a hearing was held to determine whether the affidavit, which was penned by Agent Tweedy, contained material false statements and omissions. Applying the Franks analysis, a magistrate judge found that portions of Tweedy's affidavit contained falsehoods and omissions that were made with reckless disregard for the truth. Magistrate's July 9, 1993, Rpt. and Rec. at 11. Nonetheless he held that probable cause existed for the searches of Clapp's offices and residence in light of inculpatory information that should have been included in the affidavit in the first instance. The district court accepted the magistrate's conclusion that probable cause existed for the searches, but disagreed with his finding that the challenged statements in Tweedy's affidavit were made with reckless disregard for the truth. Rather, the court held the statements were evidence of negligent conduct on Tweedy's part. United States v. Clapp, No. 4-93-44, slip op. at 8 (D.Minn. Sept. 17, 1993).

II.

A. The Franks Challenge.

We review a district court's ruling on a motion to suppress evidence under the clearly erroneous standard. United States v. Lueth, 807 F.2d 719, 725 (8th Cir.1986). Under this standard, a district court's decision will ordinarily be affirmed unless it is unsupported by substantial evidence; based on an erroneous interpretation of applicable law; or, in light of the entire record, the court is left with a firm and definite conviction that a mistake has been made. United States v. Williams, 981 F.2d 1003, 1005 (8th Cir.1992).

To succeed in a Franks-type challenge to the validity of a search warrant, a defendant must establish by a preponderance of the evidence that the affiant, either knowingly and intentionally, or with reckless disregard for the truth, included a false statement within the warrant affidavit. Franks, 438 U.S. at 155-56, 98 S.Ct. at 2676-77; Williams, 981 F.2d at 1005. The same analysis applies to omissions of fact. The defendant must show that the facts were omitted with the intent to make, or in reckless disregard of whether they thereby make, the affidavit misleading. United States v. Humphreys, 982 F.2d 254, 258 n. 2 (8th Cir.1992), cert. denied, --- U.S. ----, 114 S.Ct. 61, 126 L.Ed.2d 31 (1993); United States v. Reivich, 793 F.2d 957, 960-61 (8th Cir.1986). The reviewing court must then determine...