U.S. v. Kington

• Citation: 875 F.2d 1091
• Decision Date: 09 June 1989
• Docket Number: No. 88-1408,88-1408
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. James L. KINGTON and Don Earney, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 1091

875 F.2d 1091

58 USLW 2082

UNITED STATES of America, Plaintiff-Appellee, v. James L. KINGTON and Don Earney, Defendants-Appellants.

No. 88-1408.

United States Court of Appeals Fifth Circuit.

June 9, 1989.

Rehearing Denied July 14, 1989. ^*

Ben L. Krage, Kasmir & Krage, Dallas, Tex., for Kington.

Emmett Colvin, David W. Coody, Dallas, Tex., for Don Earney.

J. Michale Worley, Asst. U.S. Atty., Marvin Collins, U.S. Atty., Fort Worth, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before ALDISERT, ^* REAVLEY, and HIGGINBOTHAM, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

James L. Kington and Don Earney appeal from convictions for misapplying bank funds, making false entries in bank records, causing a bank to fail to file a Currency Transaction Report, and, in Kington's case, filing a false tax return. Kington and Earney contend that the jury instructions on the misapplication counts incorrectly stated the specific intent element of the crime; that there was insufficient evidence to support conviction on any count; and that they were not tried within the time limits prescribed by the Speedy Trial Act. We reverse the conviction of both defendants on three counts because we find insufficient evidence to support the verdict. We reverse Earney's conviction on one other count, also for reason of insufficient evidence. We affirm the remaining convictions.

I

This case is now before the Circuit for the third time. See United States v. Kington, 801 F.2d 733 (5th Cir.1986) (reversing district court's order, which had declared certain evidence inadmissible); United States v. Kington, 835 F.2d 106 (5th Cir.1988) (rejecting defendants' claims that retrial subjected them to double jeopardy).

James L. Kington was Vice President of the Abilene National Bank. Don Earney was President of the same bank. Kington and Earney both sat from time to time on the bank's Loan and Discount Committee, which approved loans for submission to the Board of Directors. During the periods covered by the indictment, Kington had no personal loan authority, and could act only with Earney's approval. Between 1980 and 1982, Kington became actively involved in arranging sales and purchases of the bank's stock. According to the government, Kington took commissions, apparently without the knowledge of the buyers or the bank. Some of this money made its way to Earney.

The first set of transactions took place between January 1980 and March 1981. During that period, Kington would find a seller and a purchaser for bank stock. Kington would buy the stock himself, and would arrange for a loan from the bank to the purchaser covering the entire purchase price of the stock. The proceeds of that loan would go to Kington, who would then deliver the stock to the purchaser. The loan application forms did not disclose Kington's interest in the transaction. Kington apparently made over $90,000 during this first period. The government contended at trial that in October 1980, Kington paid Earney $18,000 from the proceeds of one particular set of transactions.

The second set of transactions commenced in March 1981. After that date, Kington would not himself purchase the stock. Instead, he would find a buyer and a seller, and then arrange for the buyer to finance the entire purchase with a loan from the bank. According to the government, Kington would quote one price to the buyer, and a lower price to the seller. He would directly remove the loan proceeds from the bank, and deposit most of the proceeds to the seller's account (or buy a check payable to the seller). Kington would, however, keep some money for himself. According to the government, Kington did not fill out appropriate reporting forms. He also did not report the money on his personal income tax return, and did not disclose to the bank his personal interest in the loans which he helped to arrange.

Finally, there was one multi-party transaction with a particularly large pay-off. This transaction began in October 1981. One of the bank's "control group" shareholders--a group of shareholders who had reciprocal agreements with Earney for the use of their stock--wished to sell, and told Earney so. Earney approached a rich oil man, Cloyce Talbot, and asked him to buy the shares temporarily. Earney guaranteed Talbot against losses, and told Talbot that he could keep any profit upon sale of the stock. By December 1982, Kington had found twelve buyers. The buyers each had to assume 1/12 of Talbot's purchase-money debt, plus make a cash payment of $66,667 for each block of 10,000 shares. Ten of the buyers borrowed the full cash payment from Abilene National; Kington submitted the loans to the discount committee and recommended approval. The loan applications did not reveal that the proceeds were to be used to buy stock in the bank itself, or that Kington and Earney were involved in the sale arrangement. Kington and Earney eventually received from Talbot checks in the amount of $347,893.28. Talbot, Kington, and Earney contend that these checks were low-interest loans which Talbot issued because he was grateful to Kington and Earney for including him in so profitable a venture. The government contends that the checks were essentially a pay-off on a complicated embezzlement scheme.

The multi-party Talbot transaction was the basis for Count 49 of the indictment, which was dismissed by the district court after the jury verdict because of a variance between the date of the transaction and the date alleged in the indictment. The Talbot transaction nonetheless forms the predicate for Counts 50-52. Those counts, which charged Earney with causing the bank to fail to file CTR's, were not infected by the variance in Count 49. The jury convicted Earney on all three counts, and the district court did not disturb those findings.

Talbot was involved in one additional count of the indictment. Talbot deposited money to the bank under the fictitious name of "Frank Nito." The government contends that there were false entries, and a failure to meet reporting requirements, in connection with that deposit.

Kington and Earney were indicted pursuant to 18 U.S.C. Sec. 656 (criminalizing embezzlement by officers and directors of FDIC-regulated banks, and other national banks); 18 U.S.C. Sec. 1005 (criminalizing false reporting and recordkeeping by officers and directors of banks); 31 U.S.C. Secs. 1059 and 1081 (1982) (later recodified as 31 U.S.C. Secs. 5322 and 5313, respectively) (criminalizing conduct which causes a bank to fail to file Currency Transaction Reports); 18 U.S.C. Sec. 2 (general accessory liability); and, in Kington's case, 26 U.S.C. Sec. 7206 (filing a false income tax return). The indictment originally contained fifty-three counts, but eighteen were eventually dismissed. Kington and Earney were found guilty on the remaining thirty-five counts.

II

The government and the defendants agree that the government must establish four elements in order to obtain a conviction under 18 U.S.C. Sec. 656. First, the government must show that the accused was an officer, director, agent or employee of a bank. Second, the government must show that the bank was in some way connected with a nationally or federally insured bank. Third, the government must show that the accused willfully misapplied the monies or funds of the bank. Fourth, the government must show that the accused acted with the intent to injure or defraud the bank. The defendants' first point of error goes to the fourth and final of these elements.

The defendants challenge the court's instruction to the jury with respect to the mens rea for a Sec. 656 violation. The court's instruction was as follows:

"Intent to injure or defraud" means to act with the specific intent to deceive or cheat, ordinarily for the purpose of gaining some financial benefit or causing a financial loss to someone else. "Intent to injure or defraud" exists if the defendant acts knowingly and if the natural consequences of his conduct is or may be to injure the bank. However, it is not necessary that actual injury to the bank be shown because the essence of the offense is willfull conduct depriving the bank of the use of its funds and the right to decide how its funds are to be used. And the Government is not required to prove that the loans or transactions in question were bad loans or transactions, and it is not material whether the loans were later repaid--or not repaid--to the bank.

The defendants aim their fire at the second sentence in this passage. They contend that the sentence effectively creates a mandatory presumption that equates "intent to injure or defraud" with "knowing action that has a natural tendency to injure." If such a presumption were created, the instruction would inappropriately dilute the mental state required for conviction. It would then be necessary to vacate the defendants' conviction. Sandstrom v. Montana, 442 U.S. 510, 99 S.Ct. 2450, 61 L.Ed.2d 39 (1979).

Specific intent is generally hard to define and hard to prove. Not surprisingly, appeals in Sec. 656 cases frequently involve challenges to the instructions or evidence regarding specific intent. See, e.g., United States v. Adamson, 700 F.2d 953 (5th Cir.1983) (Unit B en banc), cert. denied, 464 U.S. 833, 104 S.Ct. 116, 78 L.Ed.2d 116 (1983); United States v. Cauble, 706 F.2d 1322 (5th Cir.1983), cert. denied, 465 U.S. 1005, 104 S.Ct. 996, 79 L.Ed.2d 229 (1984); United States v. Brock, 833 F.2d 519 (5th Cir.1987). It is equally unsurprising that much of the jury argument in this case centered upon the specific intent element. The prosecutor argued to the jury as follows:

Intent to injure or defraud. You know we can't cut open the defendants' head and say "Ah-ha, there is the intent to injure or defraud." So what do you look at; what do you look at to determine whether or not there was intent to injure or defraud? We look...