U.S. v. Fontana

• Citation: 948 F.2d 796
• Decision Date: 11 September 1991
• Docket Number: No. 91-1529,91-1529
• Parties: UNITED STATES, Appellee, v. N. John FONTANA, II, Defendant, Appellant. . Heard
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 796

948 F.2d 796

UNITED STATES, Appellee, v. N. John FONTANA, II, Defendant, Appellant.

No. 91-1529.

United States Court of Appeals,

First Circuit.

Heard Sept. 11, 1991.

Decided Oct. 30, 1991.

James L. Sultan, with whom Rankin & Sultan, Boston, Mass., was on brief, for defendant-appellant.

Peter E. Papps, First Asst. U.S. Atty., with whom Jeffrey R. Howard, U.S. Atty., Concord, N.H., was on brief, for appellee.

Before TORRUELLA, Circuit Judge, TIMBERS, ^* Senior Circuit Judge, and CYR, Circuit Judge.

TIMBERS, Circuit Judge:

Appellant N. John Fontana appeals from a judgment of conviction for bank fraud, 18 U.S.C. § 1344 (1988), and for interstate transportation of falsely made securities, 18 U.S.C. § 2314 (1988).

Fontana's conviction results from a check kiting scheme in which he maintained two distinct checking accounts on behalf of Medical Dental Convenient Care, Inc., a corporation of which he was then President, and in which he wrote checks drawn on one account containing insufficient funds and deposited those checks in the other account. That activity resulted in inflated checking account balances in both banks.

Fontana raises three issues on appeal: first, whether his conviction under § 1344 can stand in light of the government's failure to prove fraudulent misrepresentation; second, whether his convictions under § 2314 can stand, in that his own signature, not a forgery, appeared on the checks in question; and third, whether the district court erred in refusing to suppress incriminating statements made by Fontana after he asserted his Fifth Amendment right to counsel.

For the reasons which follow, first, we affirm the bank fraud conviction (Count One) pursuant to § 1344, holding that the indictment and the jury charge both were adequate and that neither required the government to bear the burden of proving fraudulent misrepresentation in establishing the existence of a scheme or artifice to defraud. Second, we affirm Fontana's conviction pursuant to § 2314, since as a matter of law his activity constituted the transportation of "falsely made securities"; but we hold, with the government's consent, that only Counts Two and Thirteen may be affirmed; we vacate the convictions on the remaining twenty counts on which Fontana was convicted; but we hold it is unnecessary to remand for resentencing, since Fontana was sentenced under the Sentencing Guidelines, with all counts grouped and the ultimate sentence being based on the amount of loss. See Castle v. United States, 368 U.S. 13, 82 S.Ct. 123, 7 L.Ed.2d 75 (1961) (per curiam) (applying the holding in Bell v. United States, 349 U.S. 81, 75 S.Ct. 620, 99 L.Ed. 905 (1953)). The penalty assessment is reduced to $150. Third, we affirm the district court's refusal to suppress Fontana's incriminating statements.

I.

We shall summarize only those facts and prior proceedings believed necessary to an understanding of the issues raised on appeal.

Fontana was the President of Medical Dental Convenient Care, Inc. (Medical Dental), a corporation doing business in New Hampshire. Fontana and his wife, Terri Fontana, were the sole stockholders of the corporation. From February 1, 1989 to May 31, 1989, as President of that corporation, Fontana maintained a checking account in the name of the corporation at the Numerica Savings Bank (Numerica), located in Manchester, New Hampshire. Terri Fontana was the sole authorized signatory of that account according to signature cards maintained by Numerica. Fontana maintained a second checking account in the name of Medical Dental at the State Street Bank (State Street), located in Boston, Massachusetts. Fontana's son, N. John Fontana III, the former president and treasurer of Medical Dental, was the sole signatory of that account according to the State Street signature card. All deposits were insured by the Federal Deposit Insurance Corporation.

On August 15, 1990, a federal grand jury indicted Fontana, charging bank fraud by check kiting in Count One, in violation of 18 U.S.C. § 1344. Counts Two through Twenty Four charged that this activity violated 18 U.S.C. § 2314, which prohibits the knowing transportation of falsely made securities in interstate commerce.

We believe that a general overview of the banking process may be helpful in understanding the operation of the check kiting scheme. A check is deemed "uncleared" until it has travelled through the entire check processing cycle. This cycle is best illustrated by example: during a normal cycle, a check drawn on the Medical Dental account in State Street would be presented by Fontana for deposit in the corporation's account maintained in Numerica. The check then would be forwarded from Numerica to a check processing center, and ultimately back to State Street, the bank of origin, for payment out of the Medical Dental checking account there. This process normally would require several days from the date of deposit in Numerica to the date of presentation and transfer of funds from the State Street account to the Numerica account.

At the time of deposit, Numerica has discretionary power to await completion of the full processing cycle before releasing to Medical Dental the funds represented by the check, where the deposits exceeded $5,000. For certain valued customers, however, Numerica maintains a policy which allows it to release funds represented by the amount of the check prior to the close of the processing cycle, essentially resulting in an advance or loan in the amount of the check to Medical Dental's Numerica account. This early release also is known as "drawing from uncollected funds". Numerica's advance or loan would then be recouped once the check had completed the processing cycle and Numerica had collected the funds from Medical Dental's State Street account. State Street also maintains a similar policy of early payment for certain of its customers.

For checks drawn on the State Street account when the account had adequate funds to cover the amounts of the checks, the advance by Numerica raised no problems. For checks drawn on the State Street account when the account had insufficient funds, however, Numerica's decision prematurely to advance funds to the Medical Dental account left Numerica with no means of recouping or repaying the advances. The bank's only recourse in such a case was to pursue a civil remedy against the depositor, Medical Dental, who had reaped the immediate benefit of the advance.

In the instant case, the government charged that Fontana wrote checks drawn on the State Street account when that account had insufficient funds to cover the checks and subsequently deposited those checks in the second account maintained at Numerica. In view of the accelerated release of funds under Numerica's internal policy, the balance established in the Numerica account immediately reflected the new deposit. Fontana then would write a check drawn on the inflated Numerica account and deposit that check in the State Street account. The latter account would reflect immediately the new deposit because of State Street's policy of premature deposit of funds in that account. By a synchronized schedule of deposits, the account balances appeared larger than the actual balances as of each date of deposit. This enabled Fontana for relatively short periods to use bank funds advanced to him as his own but which were not his.

The checks drawn on insufficient funds involved in this scheme totalled approximately $18.7 million. An overdraft clerk at State Street first uncovered this scheme when it became clear that Medical Dental's account repeatedly was drawing from the bank's uncollected funds--a pool designated to cover checks which had not cleared the check processing cycle. This resulted in repeated internal overdraft notices to certain State Street officials. In response, State Street began to return checks drawn on the Medical Dental account for insufficient funds. This terminated the discretionary advance of funds and required that the checks pass through the processing cycle before release of deposited funds in Fontana's account. As a result, State Street was able to limit its damages to some extent.

Numerica, however, sustained an initial loss of $348,000 as a result of its discretionary deposit of funds in Fontana's account. On June 1, 1989, the approximate date when Numerica's officials reported this conduct to the authorities, Fontana negotiated a promissory note with Numerica in the amount of $354,928.86. This acknowledged his indebtedness and converted his Numerica account into a loan secured by Medical Dental's assets. Numerica recovered part of the outstanding loss before it seized the Medical Dental assets and sold them in further satisfaction of the debt.

On the morning of August 28, 1990, the Federal Bureau of Investigation culminated its investigation into the scheme by sending Special Agent Kenneth J. Jackson to arrest Fontana at the offices of Vail Internal Medicine in Vail, Colorado, where Fontana was employed. Jackson testified at trial that he placed Fontana under arrest and told him that the two then would travel to Denver to appear before a magistrate. Jackson accompanied Fontana to his private office where he frisked him. At that time, Fontana requested use of the telephone to speak to his lawyer. He telephoned his wife and instructed her to contact his lawyer. After this call, Jackson took Fontana to the Vail police station. There Jackson notified other agents by telephone of the arrest. Jackson testified that he recalled no other telephone calls having been made by Fontana.

After leaving the Vail police station, at Fontana's request Jackson drove Fontana to his residence so he could "drop off his car keys" with his wife. That trip took approximately five to ten minutes, during which Fontana asked questions about the arrest and the day's possible events. Jackson testified that Fontana asked more specific questions about the...