U.S. v. Hays
| Decision Date | 25 April 1989 |
| Docket Number | No. 88-1366,88-1366 |
| Citation | 872 F.2d 582 |
| Parties | 28 Fed. R. Evid. Serv. 300 UNITED STATES of America, Plaintiff-Appellee, v. James L. HAYS and Weldon J. Hays, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Michael S. Fawer, Herbert V. Larson, Jr., New Orleans, La., for defendants-appellants.
Delonia A. Watson, Terence J. Hart, Joseph Revesz, Asst. U.S. Attys., Marvin Collins, U.S. Atty., Dallas, Tex., for plaintiff-appellee.
Appeal from the United States District Court for the Northern District of Texas.
Before RUBIN, POLITZ, and JOHNSON, Circuit Judges.
Defendants-appellants James L. Hays and Weldon J. Hays appeal their convictions for conspiracy, misapplication of funds and making false entries in the records of a federally insured savings and loan association. Concluding that the district court's admission of unnecessarily cumulative, prejudicial and irrelevant evidence impermissibly affected substantial rights of the defendants, we are constrained to reverse.
In 1982, an appellant-defendant in this case, James Hays, became the president of Lancaster First Federal Savings and Loan Association (hereinafter Lancaster) in Lancaster, Texas. Prior to assuming that position, James Hays, a former Texas Savings and Loan bank examiner, had been Lancaster's vice-president and a member of its board. James Hay's son, Weldon Hays, also a former Texas Savings and Loan bank examiner and the other appellant-defendant in this case, likewise was involved in the savings and loan business as an employee at Lancaster and also as president of the Colony Savings and Loan (hereinafter Colony). This appeal arises from the criminal convictions of James and Weldon Hays for improper activities regarding certain loans and deposits involving the Lancaster's funds. What follows is a brief description of the loans and deposits which are relevant to the issues presented by this appeal.
In early 1982, Francis Allen Clark (hereinafter Clark), a real estate developer, met Paul Jensen (hereinafter Jensen), the president of Mountain West Mortgage Company (hereinafter Mountain West), a mortgage brokerage company. Mountain West did not actually fund mortgages, but rather was in the business of putting together borrowers and lenders. As a result of Clark's acquaintance with Jensen, Clark tendered to Mountain West a proposal to purchase and develop a 22 1/2 acre tract of land near Lake Ray Hubbard near Dallas. Responding favorably to Clark's proposal, Jensen, through Mountain West, arranged the necessary financing for the venture from Lancaster. Accordingly, Lancaster loaned Clark $1.5 million and the land was purchased on July 22, 1982. In attendance at the closing were Jensen, Clark and James Hays. It was at that time that James Hays first met Clark. Thereafter, Mountain West and Clark formed Lake Ray Hubbard, Ltd., LL, a limited partnership, to pursue development of the Lake Ray Hubbard property.
In August 1982, Lancaster made another loan, this time for construction on the 22 1/2 acre Lake Ray Hubbard tract which was previously purchased and described above. The proceeds of the Hubbard II loan, also in the amount of $1.5 million, went to another newly formed limited partnership, Lake Ray Hubbard Ltd. I. Lake Ray Hubbard Ltd. I was to provide the necessary construction on the Lake Ray Hubbard property. The partnership distribution of Lake Ray Hubbard Ltd. I was as follows: Clark, a general partner held 45.5% interest; Mountain West, a limited partner held 45.5% interest; James Hays, a limited partner held 4% interest; 1 and Richard Randall, a limited partner held 5% interest.
Later in 1982, Lancaster loaned Plano Ltd. I, another limited partnership, $3,000,000 for the purchase of a twenty-eight acre tract near Plano, Texas. Plano Ltd. I was structured as follows: Clark, a general partner held 41% interest; First Financial Mortgage Corporation, 2 a limited partner held 41% interest; James Hays, a limited partner held 4% interest; and Richard Randall, a limited partner held 10% interest. Allegedly, this loan was overfunded by approximately $300,000. 3
In August 1982, a partnership was formed by Weldon Hays, William O. Henry and Lawrence Moffitt as equal partners. Known as HLH Joint Venture, the partnership was created to purchase and develop land. Allegedly, Weldon Hays had been brought into the partnership by Henry and Moffitt because Weldon Hays had the ability to procure the necessary financing and appraisals through his father, James Hays, who was then president of the Lancaster. The HLH partnership agreement provided that any two of the three partners could sign documents for the partnership.
The loans made by Lancaster to the HLH Joint Venture were as follows: the first loan was for $1,000,000 and was made in August 1982; the second loan was for $840,000 and was made in December 1982; and the third loan was for $380,000 and was made in January 1983. The $1,000,000 loan was allegedly overfunded by $423,016 and the $380,000 loan by $19,782.
Weldon Hays never signed any of the loan agreements, although the other two partners did. According to the Government, the conspicuous absence of Weldon Hays' signature on the loan agreements reflected an intent to conceal his partnership interest in the HLH Joint Venture. Ultimately, the HLH Joint Venture was dissolved and Weldon Hays was paid $245,330 for his interest in the partnership.
Some time after Weldon Hays left his position as an examiner with the Texas Savings and Loan Department, he was approached by an individual by the name of Harry Hunsicker (hereinafter Hunsicker). Hunsicker, a real estate appraiser and investor, owned a shopping center in the Colony, a suburban community near Dallas. Seeking a new tenant for his shopping center, Hunsicker convinced Weldon Hays that the Colony needed its own savings and loan association which could be housed in Hunsicker's shopping center. It would be called the Colony Federal Savings and Loan.
After receiving advice from a regulatory consultant, Weldon Hays sought to acquire a provisional charter for his new savings and loan. The requisites for a provisional charter are not particularly cumbersome and are in fact, remarkably simple. First, marketing studies are required. Those studies must reflect that a new savings and loan association is not only needed in the community but that its presence would not have an adverse impact. Next, organizers must pledge $250,000 in deposits as protection against losses by initial depositors until insurance is obtained from the Federal Savings and Loan Insurance Corporation (FSLIC). The organizers' pledges are then attached to an application for a provisional charter to the Federal Home Loan Bank (hereinafter FHLB). Upon approval by the regional FHLB, the application is forwarded to the FHLB Board in Washington where, upon final approval, a provisional charter is issued. After the issue of the provisional charter, the organizers have six months to obtain deposits in the amount of $2,000,000 from 1,000 depositors, seventy-five percent of whom must be from the institution's market area. When the above requirements are met, and the appropriate insurance premiums are paid to the FSLIC, the new savings and loan may engage in a full range of services.
The Colony met the above described initial requirements and was granted a provisional charter. Unfortunately, however, Weldon Hays and the other organizers of the Colony were unable to meet the depository requirements for an unqualified charter. A six month extension was sought and granted. Nevertheless, Colony failed to secure the necessary deposits and the provisional charter expired. It was thereafter surrendered by Weldon Hays on November 4, 1982. Significantly, some $400,000 of Lancaster's funds were deposited in Colony before its demise even though the deposits of Colony had not been, nor ever were, federally insured.
The Government charged James and Weldon Hays with illegally receiving pecuniary benefits in connection with the above described loans. Those benefits are as follows: On September 9, 1982, First Financial Mortgage Company (hereinafter First Financial) paid James and Weldon Hays each $15,000 in fees earned by First Financial on the Plano loan. Later, on October 14, 1982, First Financial paid James Hays $12,500 for loan expenses on the Hubbard II loan. Additionally, James and Weldon Hays were paid $44,400 in commissions from First Financial for the HLH Joint Venture loans. On December 30, 1982, Lancaster issued a check that was signed and approved by James Hays in the amount of $22,008 to First Financial. That check was then used to purchase another check in the amount of $22,008 which was payable to Weldon Hays. Despite receiving these benefits, James Hays, on January 11, 1983, signed a "representation letter" in which he failed to disclose his receipt of fees as well as his ownership interest in an entity to which Lancaster had loaned money.
In addition to the above mentioned benefits in connection with the loans made by Lancaster, the government charged Weldon and James Hays with receiving other improper benefits as a result of their savings and loan activities. Namely, in October 1982, $46,000 of Lancaster's funds were used to purchase two Cadillacs which were used by James and Weldon Hays. Moreover, Weldon Hays used his Cadillac before he was employed by Lancaster and the automobile was later purchased by the HLH Joint Venture from Lancaster. Finally, as mentioned previously, Weldon Hays received $245,330 for his interest in the HLH Joint Venture Partnership upon its dissolution.
On October 28, 1987, a federal grand jury returned an eleven count indictment against James Hays and Weldon Hays. Count 1 of the...
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