U.S. v. Freed, 17-2816

• Decision Date: 22 April 2019
• Docket Number: No. 17-2816,17-2816
• Citation: 921 F.3d 716
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Laurance H. FREED, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

921 F.3d 716

UNITED STATES of America, Plaintiff-Appellee,

v.Laurance H. FREED, Defendant-Appellant.

No. 17-2816

United States Court of Appeals, Seventh Circuit.

Argued February 7, 2019

Decided April 22, 2019

Stuart D. Fullerton, Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Chicago, IL, for Plaintiff-Appellee.

John D. Cline, Attorney, LAW OFFICE OF JOHN D. CLINE, San Francisco, CA, for Defendant-Appellant.

Before Bauer, Hamilton, and Brennan, Circuit Judges.

Bauer, Circuit Judge.

It appears that Laurance Freed did everything he could to keep his real estate business alive. Unfortunately for Freed, much of that was illegal. Freed lied to prospective lenders about the availability of collateral and to ensure those lenders remained in the dark about numerous defaults, he lied to the City of Chicago. The government also proved that Freed entered into loan agreements with no intention of abiding by their terms. We affirm Freed’s convictions for bank fraud ( 18 U.S.C. § 1344 ); mail fraud ( 18 U.S.C. § 1341 ); wire fraud ( 18 U.S.C. § 1343 ); and making false statements to a financial institution ( 18 U.S.C. § 1014 ).

I. BACKGROUND

Laurance Freed was the president and chief executive officer of Joseph Freed and Associates ("JFA"), a real estate development company. Freed also created and managed several real estate ventures including Uptown Goldblatts Venture, LLC ("UGV"). UGV was responsible for developing a building in the Uptown neighborhood and secured tax increment financing ("TIF") from the City of Chicago to fund the project in 2002. Tax increment financing is a mechanism for funding projects approved by the Chicago City Counsel. After identifying a region in need, the city assesses the property taxes collected in that area and freezes the determined amount in place. Taxes collected in subsequent years that exceed that amount are funneled into the TIF program. The city issued two TIF notes that entitled UGV to the payment of TIF funds: a redevelopment note for $ 4.3 million and project note for $ 2.4 million. UGV was required to file an annual requisition form with the city that certified, among other things, it was not in default on any loans and it had not entered into any transactions that would harm its ability to meet its financial obligations. If any event of default occurred, the city would be discharged of its obligation to provide UGV with TIF payments.

Freed obtained a loan from Cole Taylor Bank in 2002 that was secured in part by the $ 2.4 million project note. This agreement provided that attachment of any security interest or lien to the collateral used to secure the loan would constitute an event of default.

In 2006, two other Freed entities entered into a loan agreement with a bank consortium for a $ 105 million line of credit. The parties referred to this as "the big line of credit," as shall we. To secure this loan they pledged as collateral properties known as the Evanston Plaza and the Streets of Woodfield, and Freed personally guaranteed $ 50 million of the loan. UGV subsequently entered into an agreement to become a borrower under the big line of credit and pledged the $ 2.4 million project note as collateral. UGV represented that it owned the note free of any encumbrances despite the fact that the TIF note was already pledged to Cole Taylor. In August 2008, a representative from Cole Taylor sent an email to Freed reminding him the project note was collateral in their still-outstanding 2002 loan. Freed forwarded this email to JFA’s lawyer who informed him that the project note was double-pledged—once to Cole Taylor and once for access to the big line of credit. This constituted an event of default under the Cole Taylor loan agreement.

By fall of 2008, Freed had withdrawn millions of dollars from the Streets of Woodfield to meet the ongoing financial obligations of his various properties and projects. Opposed to this tactic and citing concerns that these withdrawals would leave them unable to meet property tax obligations, the chief financial officer of JFA resigned. JFA failed to make its payment on the big line of credit in November 2008, an event of default on this loan. Approximately $ 900,000 in taxes were due on the Evanston Plaza property in November which went unpaid as well.

Freed sought a $ 10 million loan modification from a bank consortium to address these issues. Freed gave presentations to the bank consortium on December 15, 2008, and January 20, 2009. During these presentations Freed presented slides that contained three potentially fraudulent statements. The first indicated that the Streets of Woodfield could serve as collateral for the loan modification, but failed to explain that approximately $ 3.6 million had been withdrawn from the property. Second, a slide indicated the Evanston Plaza property could serve as collateral for the loan modification, but failed to alert the consortium of the $ 900,000 in unpaid taxes. Finally, a slide indicated the project note was available to serve as collateral and worth $ 2.4 million. In truth, the project note was worthless to the consortium since it was already serving as collateral for two different loans. Furthermore, the payments already made by the city had decreased the value of the project note to $ 2.1 million.

Bank of America was willing to provide the loan modification and Freed signed the agreement on April 2, 2009. The agreement prohibited withdrawal of funds from the Streets of Woodfield unless the money that remained with the entity was sufficient to cover property tax payments and security deposits for all tenants. When Freed signed the agreement the Streets of Woodfield had only $ 19,000 in its reserves, a tax obligation of around $ 4 million per year, and several tenants with security deposits. The next day, when funds were distributed to the Streets of Woodfield, Freed immediately withdrew $ 273,000 and in the following weeks made seven withdrawals totaling around $ 1.3 million.

Shortly thereafter, Cole Taylor sought to amend the UGV loan and discovered the project note had been double pledged. Cole Taylor drafted an amendment that stated Freed would obtain a release of the project note from Bank of America by October 2009. One of Freed’s associates at a meeting with Cole Taylor represented that UGV was already in talks with Bank of America to obtain a release. But Freed never discussed the release with Bank of America and they failed to even discover the double pledge until 2010.

The final part of Freed’s scheme was the annual requisition forms he provided the city pursuant to the TIF note agreement, which required him to certify UGV was not in default on any loans. Freed claimed none of his entities were in default in signed affidavits he provided the city in December of 2008, 2009, and 2010, in order to continue receiving TIF payments.

A jury convicted Freed on three bank fraud counts, one mail fraud count, and four false-statement counts. On appeal, Freed makes two principal arguments. Freed asserts two jury instructions were incorrect and there was insufficient evidence for several of his convictions. We disagree and affirm.

II. ANALYSIS

A. Jury Instructions

Before we reach the merits of Freed’s appeal, we must determine whether waiver is appropriate because Freed failed to object to the assailed instructions at the jury instruction conference. Waiver is often the result when a party fails to object, but recently we have acknowledged the harshness of this rule may be inappropriate if it appears counsel merely "negligently bypassed a valid argument rather than [making] a knowing intentional decision." United States v. Pust , 798 F.3d 597, 602 (7th Cir. 2015) (quoting United States v. Natale , 719 F.3d 719, 729–30 (7th Cir. 2013) ). "The touchstone of waiver is a knowing and intentional decision." United States v. Al-Awadi , 873 F.3d 592, 597 (7th Cir. 2017). When it appears a reflexive "no objection" response was given during a rote colloquy with the district court, we may examine the record to determine whether the objection was forfeited rather than waived. Natale , 719 F.3d at 730–31. The necessity of review may also arise absent an objection if the jury instruction "inaccurately state[d] the law by minimizing or omitting elements required for conviction." Id. at 731.

The record demonstrates that the jury instruction conference was anything but an exercise in the reflexive. The failure to object was not part of a series of call-and-response "no objections," but occurred between in-depth discussions of other instructions. If this is not waiver, appellant has forfeited these arguments and we must review for plain error. Because the defendant could not meet his burden, even under plain error review, we need not decide the waiver issue.

This court will find plain error if the defendant can establish (1) an error or defect, (2) the error is clear or obvious and not subject to reasonable dispute, (3) the error affected substantial rights, and (4) the error seriously affects the fairness, integrity, or public reputation of judicial proceedings. United States v. Navarro , 817 F.3d 494, 499 (7th Cir. 2015). If the defendant meets this high bar, this Court, in its discretion, may remedy the error. United States v. Ajayi , 808 F.3d 1113, 1122 (7th Cir. 2015) ; Puckett v. United States , 556 U.S. 129, 135, 129 S.Ct. 1423, 173 L.Ed.2d 266 (2009).

Pattern instructions are presumed to accurately state the law. United States v. Marr , 760 F.3d 733, 744 (7th Cir. 2014). Freed assails Seventh Circuit Pattern Jury Instruction § 5.06, which covers the criminal liability of principals codified at 18 U.S.C. §§ 2(a) and (b). See Pattern Criminal Jury Instructions of the Seventh Circuit § 5.06, at 64 (2012). The instruction the district court gave mirrored § 5.06(a): "Any person who knowingly aids; counsels; commands; induces; or procures the commission of an offense may be found guilty of that offense if he knowingly participated in the...