U.S. v. Schultz, 92-2828

• Decision Date: 10 March 1994
• Docket Number: No. 92-2828,92-2828
• Citation: 17 F.3d 723
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Tom SCHULTZ and James Chaplin, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 723

17 F.3d 723

UNITED STATES of America, Plaintiff-Appellee, v. Tom SCHULTZ and James Chaplin, Defendants-Appellants.

No. 92-2828.

United States Court of Appeals, Fifth Circuit.

March 10, 1994.

Thomas J. Bevans, Houston, TX (Court-appointed), for Schultz.

Walter E. Herman, III, Humble, TX (Court-appointed), for Chaplin.

Katherine L. Haden, Gaynell G. Jones, U.S. Atty., Paula C. Offenhauser, Asst. U.S. Atty., Houston, TX, for U.S.

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

Before JOHNSON, GARWOOD, and JOLLY, Circuit Judges.

JOHNSON, Circuit Judge:

Defendants James Chaplin and Tom Schultz were charged in a seventeen-count indictment with criminal acts surrounding a bank fraud scheme. Although a jury found each man guilty of the charged offenses, the Government failed to proffer sufficient evidence of federal jurisdiction. We therefore reverse.

I. Facts and Procedural History

Defendants Chaplin and Schultz were charged along with a third man, Kenneth E. "Jason" Lothamer, with executing a scheme to defraud and submit false statements to Texas Commerce Bank-Sugar Land ("TCB-Sugar Land" or "the bank") in violation of 18 U.S.C. Secs. 2, 371, 1014, 1344. Lothamer was the director, president, and sole shareholder of Construction International, Limited of Texas ("CIL"), a company which provided environmental products to chemical companies, railroad companies, and hospitals. On October 1, 1987, Defendant Chaplin joined CIL to manage the hospital hazardous waste division of the company and to become CIL's chief financial officer ("CFO"). As CFO, Chaplin assisted Lothamer in obtaining loans from TCB-Sugar Land. According to Chaplin, Lothamer would provide information to Chaplin, who compiled that information for presentation to the bank. Based upon that information, TCB-Sugar Land extended to CIL a line of credit which aggregated to approximately $5,000,000.00.

Because the bank required collateral worth twice the amount of each loan, Lothamer would furnish the bank with invoices representing debts owed to CIL by various companies. Several of those invoices listed Dow Chemical Company and Rock Wool Insulation Company as owing CIL millions of dollars for thousands of feet of track pans. ¹ Those invoices were completely fabricated by Lothamer. On the Dow Chemical invoices, he represented that the contact person was Barbara Nelson and listed her Dow Chemical telephone number. In actuality, that telephone number was a CIL number, and Lothamer instructed his secretary, Susan Pickford, to answer that telephone line as Barbara Nelson and to verify the Dow Chemical invoices in question. The other CIL employees were instructed never to answer that particular line. Lothamer allegedly set up a similar system with Defendant Schultz. Schultz owned fifty percent of Rock Wool Insulation Company. That company, located in a Chicago, Illinois, suburb, installed fiberglass insulation. It did not purchase or install track pans. However, bank officials were able to verify the Rock Wool invoices for the purchase of track pans by calling Defendant Schultz on his "private line." That line was actually Schultz's home telephone number.

This scheme unravelled in June of 1989, when the Sugar Land bank president could not reach Schultz to verify an invoice. The president, Lewis Garvin, therefore obtained Rock Wool's office number by calling information. Upon calling Rock Wool, Mr. Garvin learned for the first time that Rock Wool had not ever purchased track pans from CIL and, in fact, did not use track pans at all. After failing in its attempts to obtain valid invoices or the repayment for the latest loan--worth approximately $1,000,000.00--TCB-Sugar Land involved the FBI. On April 20, 1992, the Government filed a second superseding indictment against Lothamer, Schultz, and Chaplin, charging them with aiding and abetting, ² conspiracy, ³ making false statements to an FDIC insured bank, ⁴ and bank fraud against an FDIC insured bank. ⁵

Lothamer pled guilty just prior to his trial. Chaplin and Schultz received a joint jury trial. After the Government rested, Mr. Chaplin's counsel moved for acquittal, contending that the Government had not proved that TCB-Sugar Land was insured by the FDIC. ⁶ The Government had produced an FDIC insurance certificate not for TCB-Sugar Land, but for TCB-National Association. Counsel for the Government argued that bank officials had testified that the Sugar Land bank fell under the charter of TCB-National Association. The district court, accepting the Assistant U.S. Attorney's representations, denied Chaplin's motion. The jury found Chaplin and Schultz guilty, as charged, and the district court sentenced Chaplin to thirty-seven months' imprisonment on counts one and two and a concurrent twenty-four month prison term on the remaining counts. The court sentenced Schultz to twenty-seven months' imprisonment on counts one and two and a concurrent twenty-four month prison term on his remaining counts. Both men were held jointly and severally liable for restitution to Texas Commerce Bank in the amount of $1,003,076.85. Raising several points of error, Defendants Chaplin and Schultz appeal.

II. Discussion

Each of the crimes for which the defendants have been convicted requires the Government to prove, inter alia, that TCB-Sugar Land was insured by the FDIC. As this Court has repeatedly and consistently stated, proof of FDIC insurance is not only an essential element of the bank fraud and false statement crimes, but it is also essential for the establishment of federal jurisdiction. United States v. Slovacek, 867 F.2d 842, 845 (5th Cir.), cert. denied, 490 U.S. 1094, 109 S.Ct. 2441, 104 L.Ed.2d 997 (1989); United States v. Trice, 823 F.2d 80, 86 (5th Cir.1987). Criminal defendants may therefore claim that the Government insufficiently proved the jurisdictional element post-verdict. Trice, 823 F.2d at 87. That Defendant Schultz failed to move for acquittal due to the insufficiency of the evidence of the jurisdiction issue is therefore of no moment. He did not waive the alleged jurisdictional error, and the applicable standard of review as to Schultz does not escalate to plain error. The insufficiency of the evidence standard is applicable to both Schultz and Chaplin. That standard, though more lenient than the plain error standard, is still quite formidable. The Court must review all of the admissible evidence and the reasonable inferences which flow therefrom in a light most favorable to the verdict to determine whether a reasonable trier of fact could find that that evidence established guilt beyond a reasonable doubt. Trice, 823 F.2d at 86; United States v. Maner, 611 F.2d 107, 108-09 (5th Cir.1980).

Here, the Government claims that the FDIC certificate of insurance for TCB-National Association, along with the testimony of two TCB-Sugar Land bank presidents and a TCB-Houston loan management vice-president sufficiently established that TCB-Sugar Land was insured by the FDIC. A review of that evidence follows.

Lanny Brenner, president and chief executive officer of TCB-Sugar Land from 1983 until February 1, 1988, testified that Texas Commerce Banks were grouped into six bank clusters. Although he did not list each of the banks which belonged to his cluster, Mr. Brenner testified that TCB-Stafford was the largest bank in the cluster and that he, along with the presidents of the other four smaller banks, answered to the president and CEO of TCB-Stafford. Mr. Brenner also stated that loans had to be approved by the Loan and Discount Committee, which was composed of the presidents of the six banks in his cluster.

After Mr. Brenner left TCB-Sugar Land, Lewis Garvin became president of the bank. The Government introduced into evidence reports addressed to the Loan and Discount Committee in which Mr. Garvin requested approval of loans to CIL. Several of the reports also requested that "TCB-Houston, Stafford Branch" or "TCB-Houston" participate in portions of the loans. Additionally, Mr. Garvin testified that after he became concerned about the bank's loans to CIL, he contacted the "Loan Management Department at the bank." He specifically talked with Mark Harris, John Kaszynski, and Cheryl Pace. Mr. Garvin neither explained the structure of the Loan Management Department nor identified "the bank" in which the department was located. He intimated, however, that he was subordinate to that department.

Cheryl Pace, vice-president of the Loan Management Department, testified that that department operated out of the downtown location of TCB-Houston. Ms. Pace testified that she began working for Texas Commerce Bank in 1980 and transferred to TCB-Houston in May 1987, "when branching became effective in Texas." Ms. Pace confirmed that the chairman of TCB-Sugar Land was subordinate to the chairman of TCB-Stafford, who, according to Ms. Pace, was in charge of five banks in the southwest area. Ms. Pace also mentioned the "branch manager" of TCB-Sugar Land and intimated that all TCB banks were part of the same organization.

The Government argues that this evidence, coupled with TCB-National Association's FDIC insurance certificate, sufficiently established that TCB-Sugar Land was a branch of TCB-National Association and was covered by TCB-National Association's FDIC insurance policy. ⁷ Although we agree that the Government proved that TCB-Sugar Land was, in some way, related to TCB-Stafford, TCB-Houston, and to a larger, but nebulous, Texas Commerce Bank organization, ⁸ we find that the Government failed to prove that TCB-Sugar Land was insured by the FDIC--whether under TCB-National Association's policy or otherwise.

The FDIC insurance certificate and accompanying documents introduced into evidence conclusively refute the Government's contention that TCB-Sugar Land was a branch insured by TCB-National Association's insurance policy. Those documents specifically set forth the history...