U.S. v. Lewis

• Decision Date: 28 September 1995
• Docket Number: No. 94-30214,94-30214
• Citation: 67 F.3d 225
• Parties: 95 Cal. Daily Op. Serv. 7583, 95 Daily Journal D.A.R. 12,998 UNITED STATES of America, Plaintiff-Appellee, v. Larry Joseph LEWIS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 225

67 F.3d 225

95 Cal. Daily Op. Serv. 7583, 95 Daily Journal

D.A.R. 12,998

UNITED STATES of America, Plaintiff-Appellee, v. Larry Joseph LEWIS, Defendant-Appellant.

No. 94-30214.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 9, 1995.

Decided Sept. 28, 1995.

Norman Sepenuk and Douglas A. Stringer, Portland, Oregon, for defendant-appellant.

Kent S. Robinson, Assistant United States Attorney, Portland, Oregon, for plaintiff-appellee.

Appeal from the United States District Court for the District of Oregon.

Before: HALL, O'SCANNLAIN, and RYMER, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

Larry Joseph Lewis appeals his jury conviction on twelve counts of bank fraud under 18 U.S.C. Sec. 1344 and two counts of wire fraud under 18 U.S.C. Sec. 1343. This appeal requires us to resolve a statutory construction issue of first impression--whether a state chartered, non-federally insured branch of a foreign bank is subject to the bank fraud statute. We also consider Lewis' challenge to jury instructions defining "intent to defraud" under the bank and wire fraud statutes. We have jurisdiction over this timely appeal pursuant to 28 U.S.C. Sec. 1291, and we reverse.

I.

In August, 1984 twenty-seven-year-old Larry Lewis became manager of the Portland, Oregon branch of the Hong Kong and Shanghai Bank ("HKSB"), a title he would hold until his resignation in June, 1988. Lewis, whose previous position at HKSB was limited to supervising tellers and assisting in import/export loans, had no prior experience in granting loans or in managing a bank. With his promotion came the weighty task of improving the revenues of the singularly unprofitable Portland branch.

Shortly after becoming branch manager, Lewis made a large authorized loan to Financial Reserve Group ("FRG"). He soon learned that the principals of FRG were the targets of a criminal grand jury investigation, and concluded that it was unlikely that FRG's debt would ever be repaid. Rather than reporting the bad debt to his superiors, which would have caused the branch to reflect a loss in his first full year as manager, Lewis agreed to make an unauthorized loan to Gary Diers, an FRG principal who had been exonerated in the criminal investigation. Diers agreed to use part of the $1.8 million ¹ loan to pay off the FRG debt. This allowed the Portland branch to carry a profit on its books in 1985. With the remaining portion of the loan, Diers acquired a substantial amount of real estate for a development project he wished to pursue. Over the next year, Lewis made further unauthorized loans to Diers, bringing Diers' total debt to $3.6 million.

In 1987, Diers incorporated his real estate development project under the name of Thiel Creek Development Company ("Thiel Creek"). Lewis made an unauthorized $6.3 million secured loan (bank fraud Count I) to Thiel Creek, the proceeds of which were used to pay the principal and interest on the $3.6 million Diers loan and to purchase additional property for Thiel Creek's development project. At this point, it was becoming clear to Lewis that the amount necessary to fund the development project substantially exceeded Diers' projections. Because he was "in too far" to turn back, Lewis made four additional secured loans to Thiel Creek in the amount of $1.6 million (bank fraud Counts II through V) in the hope that continued funding would increase the bank's chances of recouping its money.

Counts 8 through 12 of the indictment arose out of unauthorized lines of credit and loans that Lewis was instrumental in obtaining for Pacific Corridor International, Inc. ("PCI"), a wood products broker, as well as overdrafts permitted and concealed by him. ² Count 8 alleged that Lewis made various false statements in a line of credit application, including underreporting PCI's bank debt, designed to induce his superiors to double PCI's line of credit. After gaining approval to increase PCI's credit limit, Lewis permitted PCI to progressively overdraw its line of credit until the company's checking account reflected an overdraft of more than $4.5 million over its authorized limit. To conceal the overdraft, Lewis made an unauthorized transfer of $5 million from a bank suspense account into PCI's checking account (Count 9). Count 10 alleged that Lewis made false statements in connection with an application submitted on behalf of PCI for a $3.4 million short term loan. Counts 11 and 12 were based on Lewis' deposit of a $5 million insufficient funds check from PCI, and the creation of computer data entries concerning the deposit which were later communicated by wire to HKSB's regional office in New York.

The remaining bank and wire fraud counts against Lewis related to unauthorized lines of credit and loans granted to Western Line Corporation ("WLC"), a wood products manufacturer. Lewis was charged with obtaining two unauthorized lines of credit for WLC by making false statements on a credit application, including underreporting WLC's bank debt and falsely representing that WLC would soon obtain a capital infusion, a portion of which would be posted as collateral. Although HKSB's approval of the loan was expressly conditioned on the capital infusion and the posting of collateral, Lewis removed these conditions from the loan documents. When one of the lines of credit came due, Lewis faxed a request to HKSB's regional office in New York for an extension of the due date, which was approved. The fax substantially underreported WLC's existing debt to the bank, and failed to disclose the fact that the collateral and capital infusion had never been received.

Lewis did not deny that he made unauthorized loans, that he granted credit exceeding approved limits or that he failed to obtain required collateral. In his defense, he claimed variously that he continued to extend unauthorized credit facilities to keep the borrowers from going out of business and to enable them to repay prior loans, that he relied in good faith on representations made by the companies, that certain of his misrepresentations were unintentional, and that he was acting in the best interests of HKSB. A jury convicted Lewis on all bank and wire fraud counts. ³

II.

Prior to the commencement of the jury trial, Lewis filed an unsuccessful motion to dismiss the bank fraud counts for lack of jurisdiction, arguing that 18 U.S.C. Sec. 1344 did not apply to HKSB. The version of Sec. 1344 in effect during 1987 and 1988, the time period charged in the indictment, defines bank fraud as the knowing execution or attempted execution of "a scheme or artifice ... to defraud a federally chartered or insured financial institution." ⁴ The essence of this case revolves around the meaning of the phrase "federally chartered ... financial institution," defined, in pertinent part, by Sec. 1344(b)(5) as "a bank ... or other banking or financial institution organized or operating under the laws of the United States." 18 U.S.C. Sec. 1344(b)(5) (1988) (emphasis added). There is no dispute that HKSB is a foreign entity incorporated under the laws of the British Crown Colony of Hong Kong, and is thus not organized under the laws of the United States. It is also undisputed that the Portland branch has an Oregon state charter and is neither federally chartered nor federally insured. Thus, the only question is whether the bank is operated under the laws of the United States as that term is used in Sec. 1344(b)(5). ⁵

Based on the "comprehensive federal regulations [applicable to HKSB] through the International Banking Act of 1978," the district court held that HKSB operates under the laws of the United States. United States v. Lewis, 838 F.Supp. 474, 477 (D.Or.1993). We review questions of statutory construction and questions of federal subject matter jurisdiction de novo. United States v. Bailey, 41 F.3d 413, 416 (9th Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 2563, 132 L.Ed.2d 815 (1995); Hellon & Assoc., Inc. v. Phoenix Resort Corp., 958 F.2d 295, 297 (9th Cir.1992). We disagree with the district court's conclusion that HKSB was operating under the laws of the United States within the meaning of Sec. 1344(b)(5), and we therefore hold that Lewis' conviction on the bank fraud charges must be reversed and his sentence vacated.

Canons of statutory construction dictate that if the language of a statute is clear, we look no further than that language in determining the statute's meaning. See Sullivan v. Stroop, 496 U.S. 478, 482, 110 S.Ct. 2499, 2502-03, 110 L.Ed.2d 438 (1990); United States v. Ron Pair Enter., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290 (1989). Particular phrases must be construed in light of the overall purpose and structure of the whole statutory scheme. Dole v. United Steelworkers of America, 494 U.S. 26, 35, 110 S.Ct. 929, 934, 108 L.Ed.2d 23 (1990). A court looks to legislative history only if the statute is unclear. Blum v. Stenson, 465 U.S. 886, 896, 104 S.Ct. 1541, 1547-48, 79 L.Ed.2d 891 (1984).

A. Plain language

Based upon the "plain language" of the statute, each party offers its own reading of Sec. 1344(b)(5), neither of which is persuasive. Lewis offers an exceedingly narrow interpretation of the bank fraud statute, contending that a bank is only "operating under the laws of the United States" if it has a federal charter. Because neither HKSB nor its Portland branch possesses a federal charter, Lewis argues, he could not be prosecuted for bank fraud. This argument, however, violates the elementary principle of statutory construction that "a statute must, if possible, be construed in such fashion that every word has some operative effect." United States v. Nordic Village, Inc., 503 U.S. 30, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992). See also Boise Cascade Corp. v. U.S.E.P.A., 942 F.2d 1427, 1432 (9th Cir.1991) (statutes must be interpreted "as a whole, giving effect to each word and making every effort not to interpret a...