U.S. v. Jones

• Decision Date: 04 August 1993
• Docket Number: No. 93-1122,93-1122
• Citation: 10 F.3d 901
• Parties: UNITED STATES of America, Appellee, v. Stephen C. JONES, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 901

10 F.3d 901

62 USLW 2378

UNITED STATES of America, Appellee, v. Stephen C. JONES, Defendant, Appellant.

No. 93-1122.

United States Court of Appeals First Circuit.

Heard Aug. 4, 1993.

Decided Dec. 3, 1993.

Morris M. Goldings with whom Richard S. Jacobs and Mahoney, Hawkes & Goldings, Boston, MA, were on brief for defendant, appellant.

Margaret D. McGaughey, Asst. U.S. Atty., with whom Jay P. McCloskey, U.S. Atty., and Raymond C. Hurley, Asst. U.S. Atty., Portland, ME, were on brief for appellee.

Before SELYA and STAHL, Circuit Judges, and FUSTE, ^* District Judge.

FUSTE, District Judge.

Defendant Stephen C. Jones was convicted of conspiracy to defraud two federally insured banks and to transport forged securities in interstate commerce in violation of 18 U.S.C. Sec. 2314 (Count 1), bank fraud in violation of 18 U.S.C. Sec. 1344 (Counts II and III), and the interstate transportation of forged securities in contravention of 18 U.S.C. Sec. 2314 (Counts IV and V). Jones argues on appeal that (1) a UCC-3 release of collateral form is not a "security" as defined by pertinent statute and his conviction on Counts IV and V should, therefore, be reversed; (2) the judge incorrectly gave a willful blindness instruction as to Jones' intent; (3) there was insufficient evidence to support the verdicts; (4) the court erroneously denied a motion to sever Jones' trial from that of his codefendant, and (5) the sentence was overly severe and was incorrectly based on Jones' occupation as an attorney.

We conclude that a UCC-3 release of collateral form is not a security as provided for in the applicable statute, the willful blindness instruction was correctly given, and the denial of the motion for severance was not an error. We reverse the conviction on Counts IV and V and the consecutive ten-year sentence imposed for the transportation of forged securities. We find that there was sufficient evidence to support Jones' conviction on Counts I, II, and III and therefore the five-year concurrent sentences imposed on those counts shall stand.

I. Background

Viewing the evidence in the light most favorable to the government, see United States v. Rivera-Santiago, 872 F.2d 1073, 1078-79 (1st Cir.), cert. denied, 492 U.S. 910, 109 S.Ct. 3227, 106 L.Ed.2d 576 (1989), the following facts were established at trial. During the early 1970s, defendant Stephen C. Jones, together with his father Allan and Jones' codefendant, Robert Welch, formed a holding company called Iyanough Management, which over the years acquired a number of hotels, motels, and other property. In 1985, Iyanough Management entered into a partnership known as Armory Hotel Associates with a group of contractors and developers in Maine. The purpose of the partnership was to convert an old armory building in Portland, Maine, into the Portland Regency Inn. The renovations were financed through a loan from Patriot Bank for $8.2 million, which was secured by a mortgage of the building and a security interest covering the furniture, fixtures, and equipment of the hotel. A further cash infusion into the project was obtained from the Berkshire Saving Bank in the form of a $2 million irrevocable line of credit, which was secured by a second mortgage on the building and a second security interest in the furniture, fixtures, and equipment of the hotel. As a part of the original mortgage agreement with the two banks, Armory Hotel Associates signed a UCC-1 form with each bank. This form is a financing statement which certifies that a party holds a security interest in particular property. The UCC-1 is filed with the Secretary of State's office so that any later parties will be aware that there is an encumbrance upon the property. Each of the mortgage agreements with the banks provided that no additional encumbrances upon the collateral could be incurred, and in the event that any part of the security was sold or transferred, the entire mortgage debt would be due and payable on demand. As one of the partners in the Armory Hotel Associates, Jones signed the notarized mortgage security agreements with both banks.

Beginning in 1987, Iyanough Management began to experience financial difficulties. As a measure to generate cash flow, a sale and lease back of the furniture, fixtures, and equipment of the Portland Regency Inn was negotiated through broker David Mudie. Mudie was originally led to believe that Iyanough Management owned the Portland Regency and its furniture, fixtures and equipment. Through a search with the Secretary of State's Office, Mudie found out that Armory Hotel Associates actually owned the hotel and its contents, and discovered the lien on the fixtures, furniture and equipment. As a result, in order to complete the sale and lease back, Kansallis Finance Ltd., the group financing the transaction, required that a release of the security interests of Berkshire County Savings Bank and Patriot Bank be perfected through the filing of UCC-3 forms. A UCC-3 is a document which can be used to release a security interest in certain property which has been memorialized in a UCC-1. ¹ Welch induced employees of Iyanough Management to forge the signatures of the loan officers of the two banks on the release forms. The two forged documents, purporting to release the interest of the two banks, were filed with the Secretary of State's office in Maine in August 1987. Welch also directed an employee to forge the signature of one of the Maine partners of the Armory Hotel Associates on various other forms required by Kansallis.

One of Kansallis' prerequisites for the closing was an opinion letter from counsel for Armory Hotel Associates opining that Kansallis was receiving a first security interest in the collateral consisting of the furniture, fixtures, and equipment. Two drafts of the opinion letter were sent to Jones at his law firm by the attorney for Kansallis. The final opinion letter was returned to Kansallis' counsel on the letterhead of Jones' law firm, and was signed by John Aufiero, counsel for Iyanough Management. Aufiero testified at trial that he was given the form by Jones to sign. David Mudie testified that he spoke with Jones several times about the transaction and the documents necessary to complete the arrangement. When the transaction was completed, the sum of $1,288,533 was wired to Iyanough Management's account. Approximately $290,000 of the proceeds of the loan were eventually transferred into an account in Jones' name.

FBI Agent James Osterrieder interviewed Jones as part of his investigation of the forged documents. During the interview, Jones stated that initially it was his idea to carry out the sale and lease back of the furniture, fixtures, and equipment, in order to generate cash. Jones stated that he knew that the banks had a lien on the equipment, but thought that there was a clause in the closing document which would allow for the sale and lease back. Jones also told the agent that he and Welch had discussed the need for a UCC-3 release of interest before the sale and lease back could proceed, but that Welch said that he would take care of the problem. Jones admitted that he had seen a draft of the opinion letter which was required by Kansallis to consummate the sale and lease back deal, and that he arranged to have Aufiero sign the letter because Jones was out of town at the time.

Robert Welch pled guilty to bank fraud and interstate transportation of forged securities, and proceeded to trial on the conspiracy charge. At trial, Welch testified that he completed the arrangement for the sale and lease back without telling Jones the details of the transaction, and that Jones never questioned Welch about the deal. Both defendants argued that Welch, working alone, caused the UCC-3 documents to be forged by Iyanough Management employees and filed with the Secretary of State. Welch was found guilty of conspiracy and Jones was found guilty on all counts.

II. Discussion

A. Release of Collateral as a Security Interest

Jones first argues that a UCC-3 is not a "security" for the purposes of 18 U.S.C. Sec. 2314. 18 U.S.C. Sec. 2311 defines the term "security" as used in Sec. 2314. ² The district court found, and the government argues, that a UCC-3 is analogous to an "instrument or document or writing ... transferring or assigning any right, title or interest in or to goods, wares and merchandise." We disagree and hold that a UCC-3 release of collateral is not a "security" for the purpose of 18 U.S.C. Sec. 2314.

Statutory interpretation is a question of law and, therefore, is subject to de novo review. United States v. Taylor, 802 F.2d 1108, 1112 (9th Cir.1986), cert. denied, 479 U.S. 1094, 107 S.Ct. 1309, 94 L.Ed.2d 164 (1987). It has been found that Congress intended a broad definition of securities in the context of outlawing the transportation of falsely made or forged securities in interstate commerce. United States v. Speidel, 562 F.2d 1129, 1131 (8th Cir.1977), cert. denied, 435 U.S. 915, 98 S.Ct. 1468, 55 L.Ed.2d 505 (1978). An analysis of the cases applying the definition of "security" under section 2314, however, does not result in a clear picture of exactly what is encompassed in this broad definition, or how to proceed in determining whether novel instruments should also be included.

The district court relied upon Speidel, supra, in support of its finding that a UCC-3 is a security. In Speidel, the Eighth Circuit held that a quitclaim deed is a security. The court found that although a quitclaim deed is not the type of item normally considered as a security by the commercial and financial community, such an instrument is an express conveyance of whatever interest and title the grantor has in a piece of property. Although it warrants no specific interest in property, it does transfer some interest in property. Such a deed may be used to convey interests in land, to clear title to land encumbered by liens or to transmit full title to...