U.S. v. Payne

• Decision Date: 24 September 1979
• Docket Number: No. 78-3735,78-3735
• Citation: 602 F.2d 1215
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. Wilburn E. PAYNE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1215

602 F.2d 1215

UNITED STATES of America, Plaintiff-Appellant, v. Wilburn E. PAYNE, Defendant-Appellee.

No. 78-3735.

United States Court of Appeals Fifth Circuit.

Sept. 24, 1979.

Richard Nettum, Asst. U. S. Atty., Macon, Ga., for plaintiff-appellant.

Harry Jay Altman, II, Thomasville, Ga., for defendant-appellee.

Appeal from the United States District Court for the Middle District of Georgia.

Before WISDOM, AINSWORTH and RONEY, Circuit Judges.

WISDOM, Circuit Judge:

This appeal presents the question whether "check kiting" ¹ violates 18 U.S.C. § 1014. We hold that it does. After a hearing in which the government proffered detailed proof of what its evidence would show if the case were allowed to go to trial, the district court dismissed the indictment on the ground that check kiting does not violate 18 U.S.C. § 1014. We reverse.

I.

Section 1014 of Title 18 U.S.C. in pertinent part provides:

Whoever knowingly makes any false statement or . . . willfully overvalues any . . . property or security, for the purpose of influencing in any way the action of . . . any bank the deposits of which are insured by the Federal Deposit Insurance Corporation (FDIC) . . . upon any . . . advance . . . or loan . . . or extension of the same . . . shall be fined not more than $5,000 or imprisoned not more than two years, or both.

Section 1005 of Title 18 provides that it is an offense against the United States to make and cause to be made false entries in the books, reports, and records of certain banks with the intent to deceive the officers of such banks. Count one of the indictment charges that Wilburn E. Payne, the defendant-appellee, conspired with certain others, in violation of §§ 1014 and 1005, wilfully to overvalue securities for the purpose of influencing the actions of banks, insured by the Federal Deposit Insurance Corporation (FDIC), to make advances and extension of credit. Eight substantive counts allege the details of the check kiting scheme.

Payne operated the South Georgia Auto Auction, Inc., a dealer's used car auction in Valdosta, Georgia. He kept the company's business account at the Toney Brothers Bank in Doerun, Georgia. Booker T. Fountain, the co-conspirator, operated a used car business in Berrien County, Georgia, in the town of Nashville. Fountain had two companies, sole proprietorships, Northside Motors and Berrien Auto Sales, which had company checking accounts at the Bank of Alapaha, Nashville, Georgia.

On October 1, 1977, the Bank of Alapaha informed Fountain that it would no longer give him immediate credit on sight drafts presented for collection in operating his used car business. It would continue to give immediate credit for checks deposited in the bank. Fountain then went to Payne and informed him of his problem. The two agreed to exchange checks. Fountain would sell an automobile to himself through Payne's company, South Georgia Auto Auction, Inc., and as the buyer pay for it with a check to the company. South Georgia Auction would then issue a corresponding company check to Fountain as the seller of the automobile after deducting $40 as an auction fee.

The sales Fountain made to himself through Payne's company were fictitious. The automobiles did not exist. Indeed, during December 1977 and January 1978 Fountain sold to himself the same non-existent automobile seven or eight times a week. These fictitious sales were all recorded on the books of South Georgia Auto Auction and, of course, Payne knew that the sales were fictitious. After an exchange of checks, each would deposit in his bank the other's check. Fountain put the South Georgia Auto Auction checks into his account at the Bank of Alapaha. Payne would deposit Fountain's checks in the South Georgia Auto Auction account at the Toney Brothers Bank.

The scheme operated successfully from October 1, 1977 through January 1978. Fountain used the immediate credit he received from the Bank of Alapaha to operate his business. Payne used the funds from the kite to operate his business. In some instances Payne gave Fountain checks drawn on the account of South Georgia Auction when the account was overdrawn $40,000 to $50,000; on one occasion, by $100,000. When a Georgia State bank examiner spotted the kite and put an end to the scheme, the Bank of Alapaha was left with $178,000 in worthless checks.

The district court issued a brief order dismissing the indictment because counts two through nine did "not state facts sufficient to constitute an offense against the United States"; that therefore the "facts alleged in count one would not constitute a conspiracy to violate the laws of the United States".

II.

On appeal, the government argues that a check is a security within the meaning of the statute. Each time one of the checks in the kite was presented to a bank, the defendant was misrepresenting the value of the check. The bank's giving of immediate credit on the deposit of each check constituted an extension of credit or a loan or an advance. The presentation of worthless checks to a bank, therefore, is a transaction intended by Congress to be covered by the statute. We agree with this argument. We note that this case does not involve an isolated transaction in which a bank account is, in good faith, overdrawn. Here we have an extended series of transactions involving the extension of credit based on the defendant's willful misrepresentation.

A. The defendant's argument on appeal is essentially the same as the reasoning articulated in United States v. Edwards, M.D.Pa.1978, 455 F.Supp. 1354. Edwards appears to be the only case directly in point. The facts are indistinguishable from the facts here presented, except that the kite here was a two-man kite.

The key language in Edwards, on which the defendant relies is as follows:

presenting a check to a federally insured bank is not a "statement" which can be rendered false by the fact that the drawer of the check does not possess sufficient funds to cover the instrument but is an order to the drawee bank to pay the instrument according to its terms. . . .

. . . a check itself is not the type of statement which can be true or false. (Defendant) contends that a check is simply a direction to a bank to pay the instrument according to its terms. A direction can be neither true nor false. The Uniform Commercial Code defines a check as a draft drawn on a bank, payable on demand, payable to either order or bearer, signed by the drawer and containing an unconditional promise to pay a sum certain. (109A-3-104). As such, if a check is no more than a promise to pay, it cannot be true or false.

455 F.Supp. at 1356.

There has never been any doubt that a check is a "direction to a bank to pay" or that a check is "a promise to pay". But this over-simplified description of a check is not inconsistent with the necessary implications a check carries. "In giving a check, the drawer impliedly represents that he has on deposit with the drawee banks funds equivalent to the face amount of the check." Whitney, The Law of Modern Commercial Practices, § 341 (1965). If payment of the check depends on the deposit of the check of another, the necessary implication is that the other's check will be paid from an account having funds at least equivalent to the face amount of the check. We consider that the necessary implications which a check carries, and of which Payne and Fountain were fully aware, are the legal equivalent of a representation or statement as to the value of the checks. Here, we are not dealing with a man careless in balancing his check-book. We have here two business men who contrived a kiting scheme that would have the effect of giving them Credit or a Loan or an Advance on their false representation of the value of their checks. It is unnecessary to belabor the point that a check is more than a simple "order or direction". All states have "bad check" laws based on the concept that giving a kited check is a form of fraud and misrepresentation. See, for example, Ga.Code Ann. 26-1704.

B. The language of 18 U.S.C. 1014 is not a barrier to prosecution in this case. A check is a "security". In 18 U.S.C. § 2311, relating to stolen property, "security" is specifically defined to include "any . . . check". In United States v. Huntley, 5 Cir. 1976, 535 F.2d 1400, 1403, this Court held that "checks fall within the broader class of 'falsely made' Securities whose interstate transportation is forbidden by § 2314". The Uniform Commercial Code states: "A bank has a security interest in . . . an item deposited in an account to the extent to which credit given for the item has been withdrawn or applied . . . . (and) if it makes an advance on or against the item" Ga.Code Ann. 109A-4-208(1)(a) and (c).

C. To fall within 18 U.S.C. § 1014 the overvaluation must be "for the purpose of influencing in any way the action of . . . any bank . . . upon any . . . advance, . . . or loan". The essence of check kiting is the obtaining of credit in the nature of an...