U.S. v. Morganfield

• Decision Date: 25 September 2007
• Docket Number: No. 05-51395.,05-51395.
• Citation: 501 F.3d 453
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Ellis MORGANFIELD; Leroy Thomas, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

501 F.3d 453

UNITED STATES of America, Plaintiff-Appellee, v. Ellis MORGANFIELD; Leroy Thomas, Defendants-Appellants.

No. 05-51395.

United States Court of Appeals, Fifth Circuit.

September 25, 2007.

Joseph H. Gay, Jr., Asst. U.S. Atty., San Antonio, TX, Mara A. Blatt (argued), El Paso, TX, for Plaintiff-Appellee.

Kimberly S. Keller (argued), The Keller Law Firm, San Antonio, TX, for Ellis Morganfield.

James Scott Sullivan (argued), San Antonio, TX, for Leroy Thomas.

Appeals from the United States District Court for the Western District of Texas.

Before HIGGINBOTHAM, DAVIS and BARKSDALE, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Ellis Morganfield and Leroy Thomas were each convicted on one count of conspiracy to violate 18 U.S.C. § 514(a), and one count of aiding and abetting the violation of 18 U.S.C. § 514(a) and 18 U.S.C. § 2. Morganfield was also convicted on two counts of aiding and abetting bank fraud in violation of 18 U.S.C. § 1344 and 18 U.S.C. § 2. They appeal their convictions. We affirm in part, reverse in part, vacate Morganfield's sentence, and remand for resentencing.

I.

Ellis Morganfield and Leroy Thomas were key participants in a simple but effective check cashing scheme. The scheme essentially operated in four steps. First, registering an entity with a local authority, they obtained a d/b/a certificate for the business. There was no business, however, just a nonexistent shell company. Second, the conspirators used the d/b/a certificates to open commercial checking accounts in the names of the shell companies, making a small initial deposit. The banks would assign account numbers and issue checks in the names of the shell companies. The conspirators used the personal identifications of other persons, which were bought or stolen, when opening the checking accounts. Third, the conspirators would make the shell company checks, styled as payroll checks, payable to fake payees using the names of persons whose identifications they also had either bought or stolen. The checks were signed with the name of a nonexistent person, often with a signature stamp. The amounts the checks were drafted for would exceed the value of the deposit used to open the checking account. Finally, the conspirators would cash the checks at unsuspecting grocery and convenience stores.

II.

Morganfield and Thomas, along with Gordon Dunn, Alexis Morganfield, Reggie President, Shalita Williams, Ebonie Toye, and Douglas Jones, were indicted by a grand jury sitting in the Western District of Texas. Count one charged Morganfield and Thomas with conspiracy to utter a fictitious instrument in violation of 18 U.S.C. § 514(a)(2); count two charged them with aiding and abetting the uttering of a fictitious instrument in violation of 18 U.S.C. § 514(a)(2) and 18 U.S.C. § 2. Counts five and six charged Morganfield with aiding and abetting bank fraud in violation of 18 U.S.C. § 1344 and 18 U.S.C. § 2.

Morganfield and Thomas were tried by jury in April 2004, and found guilty on all counts. Numerous members of the conspiracy testified against Morganfield and Thomas.

The district judge sentenced Morganfield to 60 months' imprisonment on count one and 145 months' imprisonment on each of counts two, five, and six, to run concurrently, and supervised release. Thomas received a sentence of 60 months' imprisonment on count one and 100 months' imprisonment on count two, to run concurrently, and supervised release. Thomas's sentence was enhanced for using a minor, his then-minor girlfriend, in furtherance of the scheme.

Morganfield and Thomas now appeal. They first contend that there was insufficient evidence to find them guilty on counts one and two because a check, even if it is worthless, is not, as a matter of law, a "false or fictitious instrument." We agree.¹

Morganfield raises three challenges to his bank fraud convictions: the government failed to prove the use of "false or fraudulent pretenses, representations, or promises" to obtain funds; intent to defraud financial institutions; and that any financial institution faced a risk of loss or civil liability. He also alleges that statements in the prosecutor's rebuttal argument were improper and require reversal of his conviction and a new trial. We disagree with all four contentions.

III.

Morganfield and Thomas argue that, as a matter of law, there was insufficient evidence to sustain their convictions on counts one and two because 18 U.S.C. § 514(a)(2) applies, in the words of Morganfield's brief, to the "passing of wholly nonexistent types of financial instruments, not the passing of worthless checks."²

Section 514(a)(2) provides that

[w]hoever, with intent to defraud, passes, utters, presents, offers, brokers issues, sells, or attempts or causes the same, or with like intent possesses, within the United States, any false or fictitious instrument, document, or other item appearing, representing, purporting, or contriving through scheme or artifice, to be an actual security or other financial instrument issued under the authority of the United States, a foreign government, a State or other political subdivision of the United States, or an organization, shall be guilty of a class B felony.

Terms in § 514(a) are defined by reference to 18 U.S.C. § 513(c).³ Section 513(c)(3)(A) defines a "security" as including a check. Neither § 514 nor § 513(c) define what constitutes a "false or fictitious instrument, document, or other item."

As the Ninth Circuit noted, § 514 "is a relatively new statute; under it, prosecution appears to be infrequent."⁴ As such, there is not a wealth of case law interpreting it. The legislative history is helpful in interpreting its scope. According to then-Senator Alfonse D'Amato's floor statement introducing the legislation:

This legislation combats the use of factitious [sic] financial instruments to defraud individual investors, banks, pension funds, and charities. These fictitious instruments have been called many names, including prime bank notes, prime bank derivatives, prime bank guarantees, Japanese yen bonds, Indonesian promissory notes, U.S. Treasury warrants, and U.S. dollar notes.

. . .

Because these fictitious instruments are not counterfeits of any existing negotiable instrument, Federal prosecutors have determined that the manufacture, possession, or utterance of these instruments does not violate the counterfeit or bank fraud provisions contained in chapters 25 and 65 of title 18 of the United States Code. The perpetrators of these frauds can be prosecuted under existing Federal law only if they used the mails or wires, or violated the bank fraud statute.

Mr. President, we have worked closely with the Treasury Department and various U.S. Attorneys' Offices to prepare the Financial Instruments Anti-Fraud Act of 1995. This bill makes it a violation of Federal law to possess, pass, utter, publish, or sell, with intent to defraud, any items purporting to be negotiable instruments of the U.S. Government, a foreign government, a State entity, or a private entity. It closes a loophole in Federal counterfeiting law.⁵

The Ninth Circuit's decision in United States v. Howick offers the most thorough analysis of the section's scope. In Howick, the defendant was convicted of, among other things, possessing with intent to defraud $100,000,000 and $500,000,000 Federal Reserve notes in violation of § 514(a). The Federal Reserve had never printed notes in those denominations. After quoting the section's legislative history, the court explained that "[a] `counterfeit' obligation is a bogus document contrived to appear similar to an existing financial instrument; a `fictitious' obligation is a bogus document contrived to appear to be a financial instrument, where there is in fact no such genuine instrument, and where the fact of the genuine instrument's nonexistence is presumably unknown by, and not revealed to, the intended recipient of the document."⁶ In other words, according to the court, "`false or fictitious instrument' in section 514 [refers] to nonexistent instruments, whereas the phrase `falsely made, forged, counterfeited, or altered obligation' in section 472 refers to doctored up versions of obligations that truly exist."⁷ Other courts have similarly interpreted § 514(a).⁸

The government argues that the dichotomy between existent and nonexistent securities is too formalistic. Instead, the government urges that "the proper inquiry is whether through `scheme or artifice' the defendants have sought to create a false or fictitious obligation, not whether they used an ostensibly genuine piece of paper."⁹

In support of its argument, the government first points to the section's title, "Fictitious obligations." This argument is not helpful on two accounts. First, the section heading is itself question begging. The American Heritage Dictionary defines "obligation" as including both "[a] legal agreement stipulating a specified payment or action" and "the document containing the terms of such an agreement." While the former supports the government's position, the latter supports the construction of the statute urged by Morganfield and Thomas. "For interpretative purposes, [titles] are of use only when they shed light on some ambiguous word or phrase."¹⁰ Second, and more important, "headings and titles are not meant to take the place of the detailed provisions of the text."¹¹ The text of § 514(a), while not an exemplar of precise drafting, supports the Ninth Circuit's, and other courts', view that the statute's concern is nonexistent instruments.

Most basically stated, the statute prohibits the use of "false or fictitious instruments, documents, or other items" that appear, represent, or purport to be "actual securities." The statute thus contemplates two universes of instruments: "false or fictitious" ones and "actual securities." "False" and "fictitious" have overlapping definitions. According to the American Heritage...