U.S. v. Severson

• Decision Date: 23 June 2009
• Docket Number: No. 08-1508.,08-1508.
• Citation: 569 F.3d 683
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Bryan J. SEVERSON, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

569 F.3d 683

UNITED STATES of America, Plaintiff-Appellee, v. Bryan J. SEVERSON, Defendant-Appellant.

No. 08-1508.

United States Court of Appeals, Seventh Circuit.

Argued January 13, 2009.

Decided June 23, 2009.

Grant C. Johnson (argued), Attorney, Office of the United States Attorney, Madison, WI, for Plaintiff-Appellee.

Michael D. Huitink (argued), Attorney, Godfrey & Kahn, Milwaukee, WI, for Defendant-Appellant.

Before BAUER, POSNER and ROVNER, Circuit Judges.

BAUER, Circuit Judge.

Bryan J. Severson was convicted of 28 various counts of money laundering, bank fraud and bank embezzlement and was sentenced to 140 months' imprisonment. Severson challenges both his conviction and sentence. With regard to his conviction, Severson argues that the government failed to prove his knowledge of illegality on ten counts and that a deliberate avoidance instruction was improperly given to the jury. As to his sentence, Severson argues that the loss was improperly calculated and that prior misdemeanors erroneously enhanced his criminal history. For the following reasons, we affirm Severson's conviction and sentence.

I. BACKGROUND

Mark Hardyman was the President of the First National Bank of Blanchardville, Wisconsin (FNBB). FNBB was an FDIC insured financial institution, regulated by the Office of the Comptroller of Currency (OCC). In May 2003, the OCC conducted a regularly scheduled examination of the bank. The OCC examiners' review revealed that there were violations of the bank's legal lending limit. The bank examiners determined that the violations pertained to loans that were not being repaid but were being renewed, giving the impression that the loans were not in default. The examiners found that the violations totaled approximately $14,000,000. The OCC closed the bank's doors.

The FBI investigated FNBB's closing to determine whether any criminal statutes had been violated. What this investigation uncovered was a series of rampant illegalities orchestrated by bank president Hardyman that, ultimately, had milked the bank dry.

With the bank in financial trouble, Hardyman sought to mask the bank's dilapidating condition and to present the illusion of a financially sound bank. For example, his activities included, but were not limited to, intentionally misstating information in internal and external reports, issuing loans without the required Board of Directors approval, renewing uncollectible, non-paid loans, and soliciting bank customers to issue fraudulent checks on essentially non-existent accounts. Severson was a reoccurring figure in this fraud; we discuss only the facts relevant to his appeal.

Severson was the owner of a small tow-truck company who originally financed his business through FNBB. As his business grew, Severson started up other small businesses through similar financing from FNBB. The fact was, however, that Severson was insolvent, consistently overdrawn, and yet he repeatedly received loans from the bank.

To cover up Severson's overdrawn status and help reflect a positive balance on the bank's books, Severson and Hardyman conspired to defraud FNBB by having Severson, through his various companies, issue and deposit checks without sufficient funding into Severson's overdrawn accounts. This scheme proved a cover for Hardyman and Severson: Hardyman's bank hid its true condition and reflected a positive balance; and Severson covered his insolvency and received loans to which he would never have been entitled.

The scheme was hardly subtle. For example, faced with the need to cover Severson's overdrafts from an upcoming scheduled audit, Hardyman and Severson agreed that David Boyington, one of Severson's employees, would write NSF checks for various amounts to Severson. These checks were ultimately deposited and Hardyman told Severson that the checks would be deposited into Severson's accounts to cover the overdrafts and reflect positive balances.

The overdraft coverup continued. Severson wrote nine NSF checks, drawn on another bank, to cover his overdrafts. At trial, Hardyman identified a summary chart listing multiple NSF checks (totaling $824,019.32), drawn on either Severson's NSF checks or closed accounts at the Bank of Cazenovia, that were deposited into Severson's accounts at FNBB to cover overdrafts.

As part of the scheme, Hardyman also loaned money to the insolvent Severson. For example, Severson desired additional funding to finance the purchase of a limousine for one of his businesses. Because the amount already loaned to Severson had exceeded FNBB's legal limit, Hardyman testified that he loaned $18,500 to Jason Schuepbach, another Severson employee. Hardyman noted that he discussed with Severson why the transaction had to be structured this way and that all parties understood that the loan would be for Severson. Ultimately, Severson took possession of the limousine. Hardyman also testified that Severson would be paying on the loan and no inquiry was made into Schuepbach's ability to pay.

Since this loan, and other loans, were made to insolvent Severson companies, Hardyman covered the fraud by altering quarterly reports, so that Severson's past-due loans would not be reflected. Hardyman also concealed Severson's loans from the FNBB's Board by making changes to monthly Board reports prior to Board meetings. At one point, FNBB transferred some of Severson's debt to Highland Bank. Hardyman informed Severson that he was selling some loans to Highland. Although Severson supplied a financial statement to FNBB, Hardyman directed Severson to fraudulently amend his financial statements because they could not give Highland accurate statements since they "did not look good from a financial standpoint." Together, they changed Severson's financial statements so that several of Severson's loans could be sold to the participating bank.

NSF checks were also used to make fraudulent payments on Severson's loans with FNBB. Severson made payments on the many loans issued by the bank with NSF checks to avoid past-due status. Hardyman testified that he and Severson agreed that Severson would pay his loans out of his insolvent checking accounts. Again both benefitted; on the one hand, the bank did not have to report Severson's past-due loan to its regulators, as required; and, on the other hand, Severson received more money than his credit allowed.

In January 2003, at the peak of Hardyman and Severson's conspiracy, Severson received an unsecured one million dollar loan from FNBB for the purchase of a racetrack while his accounts were all overdrawn. The loan was later secured in May 2003 by a mortgage, prior to an upcoming audit. OCC examiner Michael Wills testified that this loan had no viable source of repayment as the Severson companies that received the loans were insolvent.

Overall, the gross amount loaned to Severson was approximately $8.7 million. This amount can be generally put into two categories: (1) approximately $6.6 million as proceeds attributable to Severson, which were either money directly loaned or money used to coverup overdrafts; and (2) approximately $2.1 million as renewed loans.

The grand jury returned a 28-count superseding indictment against Severson for his participation in the collapse of FNBB. The indictment charged various counts of bank fraud, bank embezzlement, and money laundering. Severson was found guilty on all counts.

During sentencing, the government argued that the overall loss should be the intended loss, excluding any collateral presented by Severson. Severson argued that the money eventually received from the sale of the later-pledged mortgage on the racetrack loan should be applied as collateral to reduce the intended loss. The district court found that the loss amount would be the full amount of the intended loss ($7,136,461.29); it also determined that no credit would be given for any amount received from the racetrack's sale.

Ultimately, the district court found that Severson had a total offense level of 33, with four criminal history points, and a criminal history category of III. This history included one point for prior misdemeanor convictions. The Sentencing Guidelines ranged from 168 to 210 months; the district court sentenced Severson to 140 months' imprisonment.

This timely appeal followed.

II. DISCUSSION

Severson mounts two attacks on his conviction. He first argues that the government failed to present sufficient evidence of his knowledge of illegality at the time he received three certain loans. Severson also argues that the district court erred by including a "deliberate avoidance" or "ostrich" jury instruction, which allowed the jury to infer that Severson knew of Hardyman's fraud when he received the loans.

Severson pursues another two-pronged attack on his sentence. He argues that the district court miscalculated the amount at issue when it refused to consider collateral later pledged as security on a loan and that the district court improperly calculated his criminal history level by including prior misdemeanor offenses.

A. Conviction

Severson challenges only 10 counts of his conviction, which all stem from three particular loans made to Severson. Severson argues that the government failed to present sufficient evidence that at the time he received the loans, he was aware that Hardyman had defrauded the bank's directors by not seeking their approval.

A defendant challenging the sufficiency of the evidence must show that "after viewing the evidence in the light most favorable to the prosecution," no rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt. United States v. Farris, 532 F.3d 615, 618 (7th Cir.2008) (internal citations omitted). Moreover, "we will overturn a conviction based on insufficient evidence only if the record is devoid of evidence from which a reasonable jury could find guilt beyond a reasonable doubt." Id. In this inquiry, we do not weigh the evidence or...