U.S. v. Flanders

• Decision Date: 03 July 2007
• Docket Number: No. 05-6379.,05-6379.
• Citation: 491 F.3d 1197
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Gary W. FLANDERS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

491 F.3d 1197

UNITED STATES of America, Plaintiff-Appellee, v. Gary W. FLANDERS, Defendant-Appellant.

No. 05-6379.

United States Court of Appeals, Tenth Circuit.

July 3, 2007.

Sean Connelly, Reilly, Pozner & Connelly LLP, Denver, CO, for Defendant-Appellant.

Vicki Zemp Behenna, Assistant United States Attorney (John C. Richter, United States Attorney with her on brief), Oklahoma City, OK, for Plaintiff-Appellee.

Before LUCERO, McKAY, and MURPHY Circuit Judges.

McKAY, Circuit Judge.

A jury convicted Defendant Gary Flanders, former CEO and supermajority shareholder of MetroBank, of two counts of willful misapplication of bank funds, in violation of 18 U.S.C. § 656, two counts of scheming to defraud a bank, in violation of 18 U.S.C. § 1344(1), one count of making a false entry in a bank record, in violation of 18 U.S.C. § 1005, and one count of conspiring to make a false statement to a bank, in violation of 18 U.S.C. § 1014.

Defendant was sentenced to ninety-six months' imprisonment — some eighteen months above the Sentencing Guideline recommendation — and ordered to pay $80,000 restitution, among other penalties. Defendant appeals his conviction alleging insufficiency of the evidence on five of the six counts,¹ violation of his Sixth Amendment right to chosen counsel, and commission of numerous sentencing errors.

BACKGROUND

In providing the pertinent facts, we view the record in the light most favorable to the government. United States v. Weidner, 437 F.3d 1023, 1027 (10th Cir.2006).

Defendant acquired MetroBank, a federally chartered, FDIC-insured bank operating in Oklahoma City, Oklahoma, from the FDIC in 1989 by purchasing a bank stock loan on which the original investors defaulted. In September 1997, Defendant took out two loans totaling $3,838,000 from Bridgeview Bank Group ("Bridgeview") primarily to satisfy the bank stock loan that he used to acquire MetroBank. As collateral for this loan, Bridgeview took Defendant's certificate for 248,000 shares of MetroBank stock and placed liens on Defendant's Colorado Springs, Colorado home, a separate 125-acre tract in Colorado Springs, and miscellaneous assets.

Defendant's first payment obligation to Bridgeview was due January 1998. It went unpaid, and payment negotiations between Defendant and Bridgeview ensued. These negotiations dragged on for months without Defendant ever tendering valid payment.² On October 16, 1998, not long after Bridgeview informed Defendant of its intention to accelerate the loan and ultimately foreclose, Defendant filed for Chapter 11 bankruptcy. Defendant's attempts to reorganize under Chapter 11 protection proved unsuccessful. As a result, the bankruptcy court converted Defendant's Chapter 11 bankruptcy to Chapter 7 on December 17, 1999.

In accordance with Chapter 7 procedure, the bankruptcy court appointed a trustee to liquidate Defendant's assets, including his MetroBank stock. Due to FDIC rules that require bank officers and directors to own stock in the banks they serve, Defendant faced removal. At a special shareholders' meeting on January 19, 1999, Defendant resigned his position, and the MetroBank board of directors ratified his resignation.

Defendant's six-count conviction arose out of four transactions — an automobile loan, two independent real estate loans, and the attempted sale of the MetroBank building — conducted during Defendant's bankruptcy. Defendant initiated these transactions in an apparent attempt to generate funds with which to satisfy his substantial outstanding debts. As the supermajority shareholder, Defendant received dividends from MetroBank profits. Defendant typically took upward of ninety percent of the profits in dividends. These dividends were Defendant's sole source of income.

A. The Fischer Automobile Loan

1. Automobile Ownership

In January 1998, the Office of the Comptroller of the Currency ("OCC"), a division of the United States Treasury Department tasked with supervising the operations of federally chartered banks, learned that Defendant had been driving a 1995 Mitsubishi Eclipse owned by MetroBank. MetroBank acquired the Mitsubishi following its repossession due to an unrelated, unpaid loan. The OCC criticized Defendant's personal use of the vehicle without reimbursing MetroBank for expenses associated with its use. It demanded that Defendant either reimburse the bank or purchase the vehicle outright.

Defendant selected the latter option. In late January 1998, he purchased the vehicle from MetroBank on credit by executing a $9,000 note in favor of MetroBank with MetroBank taking a lien against the vehicle. Defendant thereafter timely made the monthly loan installment payments. In early January 1999, however, Defendant approached Nancy Bainbridge, MetroBank's chief financial officer, about reversing the loan and returning the vehicle to MetroBank's possession. Ms. Bainbridge informed Defendant that the loan reversal was not possible.

At that point, Defendant informed Ms. Bainbridge that he had failed to title the vehicle in his name. The existing title certificate listed MetroBank as the owner on the front side, but the back side bore a notarized acknowledgment of the transfer of ownership to Defendant. Defendant requested that Ms. Bainbridge obtain a duplicate title, which would not bear notarized evidence of the previous transfer. Defendant claimed that with the duplicate title he could properly title the vehicle without having to pay a penalty for not having titled the vehicle within the time allotted by the Oklahoma department of motor vehicles. Ms. Bainbridge refused Defendant's request.

Nevertheless, a title was issued on January 12, 1999, listing MetroBank as the owner of the vehicle. Despite the title confusion, an OCC examiner testified that the car in fact belonged to Defendant.

2. Automobile Loan

In March 1999, Defendant sold the Mitsubishi for $10,000 to Michelle Fischer, an acquaintance of co-defendant David Solomon.³ Defendant required that Ms. Fischer make a $1,000 down payment. Ms. Fischer obtained the remaining $9,000 from a MetroBank loan issued on March 19, 1999. MetroBank took a lien against the vehicle, which had a Kelley Blue Book value of between $9,000 and $10,000. Mr. Solomon acted as a guarantor.

According to Cody Machala, a junior loan officer at MetroBank, Defendant asked him to examine Ms. Fischer's loan application. Mr. Machala's examination revealed that both Ms. Fischer and Mr. Solomon had poor credit. As a result, Mr. Machala "did not feel comfortable making this loan." (App. at 671.) Mr. Machala, however, did not explain his concerns to Defendant because he felt "a little intimidated" by Defendant and because he believed Defendant wanted him to make the loan. (App. at 672.) Instead, Mr. Machala sought the advice of two more senior MetroBank loan officers. Those loan officers both stated that because the amount of the loan was within Defendant's lending authority, Mr. Machala should make the loan. At least one of the loan officers cautioned Mr. Machala, however, to put Defendant's initials on the paperwork to signify that Defendant was in fact the loan officer of record.

Defendant informed Mr. Machala to distribute the loan proceeds to two of Defendant's outstanding loans with MetroBank. Mr. Machala applied $6,476.85 to Defendant's car loan, completely paying off that debt. He applied the remaining proceeds plus the $1,000 down payment to another of Defendant's loans. This distribution was recorded on several official bank forms as well as a nonstandard memorandum created by Mr. Machala for the express purpose of detailing the loan proceed distribution "due to where the proceeds were going." (App. at 676.)

Ms. Fischer timely tendered the first three monthly loan installment payments before defaulting. Mr. Solomon then paid approximately four months' worth of delinquent payments before also defaulting. Ultimately, MetroBank repossessed the Mitsubishi and sold it at auction for $7,130.

B. The Nelco Real Estate Loan

1. The Transaction

In early 1999, Defendant approached Ms. Bainbridge seeking advice regarding the possible purchase by MetroBank of a 160-acre tract in Newcastle, Oklahoma. Defendant explained to Ms. Bainbridge that the property represented a lucrative development opportunity given the State's intended installation of a nearby turnpike. Ms. Bainbridge informed Defendant that banks were prohibited from buying and holding land for purposes of speculation.

Around this time, Mr. Solomon introduced Defendant to unindicted co-conspirator Nels Bentson, an entrepreneur who owned a chain of small-loan and check-cashing service stores for which Mr. Solomon occasionally performed work. Defendant, Mr. Solomon, and Mr. Bentson agreed to purchase the 160-acre parcel and turn it into a housing development known as Eden Estates. Mr. Bentson was in charge of developing Eden Estates, Mr. Solomon of marketing and selling the developed lots, and Defendant of financing the project.

At Defendant's suggestion, Mr. Bentson formed Nelco, Inc. ("Nelco"). Nelco would obtain a $500,000 loan from MetroBank in order to purchase and develop the property. Of the loan proceeds, $352,000 was earmarked to purchase the land with the remaining funds available to draw upon as Nelco incurred development costs. At some point, Mr. Solomon was injected as an intermediate buyer. The transaction then was arranged as a double-escrow closing such that Mr. Solomon would purchase the land for $352,000 and immediately transfer it to Nelco at a cost of $1.2 million, a figure apparently representing a portion of the property's post-development value. In return, Nelco would issue a $910,000 promissory note to Mr. Solomon, who in turn would sell it to MetroBank for a mere $10,000.

The proposed loan transaction was presented to the MetroBank board of directors for approval on April 6, 1999.⁴ Despite concerns over the valuation attached to the land as well as to the promissory...