U.S. v. Mallen, s. 87-1590

• Decision Date: 10 May 1988
• Docket Number: 87-1722,Nos. 87-1590,s. 87-1590
• Citation: 843 F.2d 1096
• Parties: 25 Fed. R. Evid. Serv. 538 UNITED STATES of America, Appellee, v. James E. MALLEN, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1096

843 F.2d 1096

25 Fed. R. Evid. Serv. 538

UNITED STATES of America, Appellee, v. James E. MALLEN, Appellant.

Nos. 87-1590, 87-1722.

United States Court of Appeals,

Eighth Circuit.

Submitted Dec. 14, 1987.

Decided April 4, 1988.

Rehearing and Rehearing En Banc Denied May 10, 1988.

Raymond Rosenberg, Des Moines, Iowa, for appellant.

Robert L. Teig, Asst. U.S. Atty., Cedar Rapids, for appellee.

Before JOHN R. GIBSON, BOWMAN and WOLLMAN, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

James Mallen appeals from his conviction of failing to disclose loans "for the accommodations of others" in answering a Bank Officer's Questionnaire submitted to the Federal Deposit Insurance Corporation in violation of 18 U.S.C. Sec. 1001 (1982). Mallen was also convicted of failing to disclose that he had an interest in certain limited partnerships in a financial statement when, in fact, he knew that he had such interests in violation of 18 U.S.C. Sec. 1014 (1982). The district court set aside the jury's conviction on this latter count on the ground that the indictment failed to sufficiently allege a violation of the statute and the United States appeals from this ruling. Mallen argues that there was insufficient evidence to support his conviction as his understanding of "accommodation loans" was such that his failure to disclose them was not willful. He also claimed error in the court instructions and the admission of evidence. We affirm the convictions on both counts.

In April, 1980, Lee Nikolas approached Mallen, President of the Farmers State Bank of Kanawaha, Iowa, about investing in certain real estate projects. When Nikolas could not raise sufficient capital, it was decided that Elmwood Limited Partnership (Elmwood) would be formed, with Nikolas as the general partner. Mallen, as well as Nikolas, solicited individuals to invest as limited partners in Elmwood and the Farmers State Bank made loans to a number of these investors for the purpose of investing in Elmwood. According to Elmwood's Certificate of Limited Partnership, one of the limited partnership shares was held by Nikolas, as agent. No disclosure was made that Nikolas held the share for Mallen and a partnership he formed, Mallen, et al., consisting of himself and four other directors of the Bank.

Farmers State Bank never loaned money to Elmwood directly. Instead, the bank loaned money on a number of occasions to Carl Martin, William Dahl and Robert and William Shipman, limited partners of Elmwood. After being told by Mallen that the loans were the responsibility of Elmwood, these limited partners signed bank notes in their own names. The loan proceeds were deposited in the individual partners' checking accounts and then immediately transferred to Elmwood's checking account. The notes had stated "investment" and "operating" purposes, although the proceeds were used to pay Elmwood's operating expenses and other obligations. ¹ There was evidence that Mallen devised this method of funding Elmwood's day-to-day monetary needs by making loans to the limited partners and that he prepared the loan documents.

Elmwood filed bankruptcy in December, 1982. The limited partners were sued on their notes and had judgment entered against them and they in turn filed suit against the Bank, the directors and Mallen. This led to the FDIC discovering Mallen's involvement with Elmwood and the extent of the loan transactions.

In annual 1981 and 1982 FDIC examinations, the FDIC reviewed Mallen's individual financial statements. These statements, signed in January of 1981 and 1982 and prepared by Mallen, made no reference to his personal investment in Elmwood. In addition, Question 5 of a Bank Officer's Questionnaire required Mallen to: "[l]ist all extensions of credit made since last examination for the accommodation of others than those whose names appear on the bank's records or on credit instruments in connection with such extensions." In response to this question, Mallen disclosed a loan to an individual for the purpose of his incorporated sand and gravel business, but made no reference to any of the loans made to the Elmwood limited partners for the purpose of paying the expenses and obligations of the Elmwood partnership. The Bank Officer's Questionnaire and Mallen's individual financial statement were required filings with the FDIC for bank officers.

About two months before Mallen answered the Officer's Questionnaire, he had also failed to disclose the Elmwood partners' loans on an identical question asked by state regulators and was told that the loans should have been disclosed. Mallen previously had earlier problems with a limited partnership interest and a lending limit violation, and state regulators had fined his bank for habitual lending limit violations. He told others that he did not want his interest in Elmwood known to federal regulators. There was evidence that an FDIC examiner had seen a typed settlement proposal in the bank's loan file of one of the other Elmwood limited partners, Clarence Brcka. The proposal referred to the Brckas giving the bank and Mallen a hold harmless agreement relating to Elmwood matters. Later, the examiner attempted to get a copy of the typed statement, but he found only a handwritten version, which he copied. A year later the FDIC subpoenaed the Brckas' loan file and the bank produced a third version of this agreement which had no reference to the hold harmless agreement for Mallen. Both the second and third versions of this agreement were in Mallen's handwriting.

Count I of the indictment charged Mallen with failing to disclose his interest in Elmwood or the Mallen partnership in the financial statements filed with the FDIC. Count II charged Mallen with failing to disclose in the Officer's Questionnaire the loans made to the limited partners for the purpose of paying Elmwood's various obligations and expenses. After a jury trial, Mallen was convicted on both counts. On its own motion, the district court set aside the conviction on Count I on the grounds that the indictment failed to sufficiently allege a violation of 18 U.S.C. Sec. 1014.

On appeal Mallen argues that the evidence at trial was insufficient to support his conviction on Count II and that the district court erred in permitting evidence that the bank's financial condition had deteriorated and in instructing on reasonable doubt. The United States argues on cross-appeal that the district court erred in setting aside the conviction on Count I.

I.

There is apparently no dispute concerning the basic facts recited above. Instead, the factual dispute centers on whether the failure to disclose the loans to the Elmwood partners as "accommodation loans" in response to Question 5 was intentional; that is, knowing, willful and done with the intent to defraud. See 18 U.S.C. Sec. 1001.

In evaluating the sufficiency of the evidence, we view the evidence in the light most favorable to the government and give the government the benefit of all inferences that may reasonably be drawn from the evidence. It is for the jury, not a reviewing court, to evaluate the credibility of witnesses and to weigh their testimony. Hamling v. United States, 418 U.S. 87, 124, 94 S.Ct. 2887, 2911, 41 L.Ed.2d 590 (1974); Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942); United States v. Hudson, 717 F.2d 1211, 1213 (8th Cir.1983). A conviction may be based on circumstantial as well as direct evidence. Holland v. United States, 348 U.S. 121, 140, 75 S.Ct. 127, 137-38, 99 L.Ed. 150 (1954); Hudson, 717 F.2d at 1213. Willfulness, intent and guilty knowledge may be proven by circumstantial evidence alone and frequently cannot be proven in any other way. Hudson, 717 F.2d at 1213.

Mallen essentially maintains that he believed the loans in question were not "accommodation loans" and therefore he lacked the requisite "willful and knowing" intent to violate the statute. At trial, Mallen and Veldhouse, vice president of the bank, as well as Bruce Holmgren, an FDIC examiner, testified that the purpose of Question 5 is to advise the FDIC of who the ultimate beneficiary of a loan is so as to determine if there are any lending limit violations. Holmgren testified that lending limits are determined by adding the obligations of the borrowing customer of the bank with any obligations of others whose loan proceeds went to the borrowing customer.

Mallen and Veldhouse testified that they did not consider the loans to be accommodation loans for two reasons. First, the loans were made to individuals whose obligations were within the bank's lending limits. There was no need to add the loan amounts to the loans of Elmwood because Elmwood received no direct loans from the bank and therefore was not a "borrowing customer" of the bank. Second, Mallen and Veldhouse testified that the three $110,000 loans were sold immediately to a correspondent bank. The loans were not on the bank's books and therefore they believed the loans did not need to be included in the response to Question 5 of the Officer's Questionnaire.

However, the government introduced testimony and evidence from which the jury could have inferred that Mallen's failure to disclose the loans in response to Question 5 was "willful and knowing." Mallen told several individuals that he did not want his interest in Elmwood known to FDIC, and there was evidence that Mallen attempted to conceal his and the bank's interest in Elmwood from the FDIC. For example, the notes which the three bank directors obtained from the bank to fund their investment in the Mallen partnership stated that the loans were obtained for "operating" rather than "investment" purposes. While Elmwood's Certificate of Limited Partnership revealed only that Nikolas held one of the limited partnership shares as "agent," he held the share "as agent" for a partnership Mallen formed, which consisted of Mallen and three other bank directors. The notes signed by...