U.S. v. Staniforth, 91-3325

• Decision Date: 29 October 1992
• Docket Number: No. 91-3325,91-3325
• Citation: 971 F.2d 1355
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Thomas STANIFORTH, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1355

971 F.2d 1355

UNITED STATES of America, Plaintiff-Appellee, v. Thomas STANIFORTH, Defendant-Appellant.

No. 91-3325.

United States Court of Appeals Seventh Circuit.

Argued April 10, 1992.

Decided Aug. 12, 1992.

Rehearing Denied Sept. 22, and Oct. 29, 1992.

Daniel P. Bach, Asst. U.S. Atty., Larry Wszalek (argued), Office of U.S. Atty., Madison, Wis., for plaintiff-appellee.

Michael S. Heffernan, Stolper, Koritzinsky, Brewster & Neider, Steven C. Underwood (argued), Madison, Wis., for defendant-appellant.

Before POSNER and MANION, Circuit Judges, and BURNS, Senior District Judge. ^*

POSNER, Circuit Judge.

At the end of a four-day trial, a jury convicted Dr. Thomas Staniforth, a dentist in the town of Wisconsin Rapids, of three counts of making false statements for the purpose of influencing a federally insured bank, the Community State Bank of Wisconsin Rapids, in violation of 18 U.S.C. § 1014. The judge gave him concurrent prison sentences of eight months.

Staniforth was a long-term customer of the bank and a personal friend of its chief executive officer, Norbert Brunner. As is common with small banks, the bank's procedures were often informal. In July 1986 Staniforth had a loan outstanding from the bank of $36,000 (we round all dollar figures to the nearest thousand). Brunner called him one day to tell him it was time to renew the loan and the bank would therefore need a new financial statement. Staniforth came over to the bank on his lunch hour. The two met for about a quarter of an hour. Brunner asked Staniforth questions and used the answers to complete a form entitled "Individual Financial Statement," which Staniforth then signed. Brunner asked Staniforth whether he owned any stock and when Staniforth answered that he owned 50,700 shares of common stock of Possis Corporation (a manufacturer of medical devices) Brunner looked up the stock in the Wall Street Journal, computed the total market value of Staniforth's shares, and wrote down the figure ($1,216,000) in the assets column on the financial statement. This turned out to be roughly 90 percent of the total assets listed in the statement. When asked about liabilities Staniforth mentioned only the $36,000 note payable to the bank--the note he was renewing. As a result, his net worth as listed in the statement exceeded $1.3 million. The loan was renewed.

Staniforth had neglected to tell Brunner that the stock had been purchased on margin and that he owed his broker approximately $550,000; and Count I of the indictment alleges that Staniforth knowingly failed to disclose his full liabilities in order to influence the bank to renew the loan. His defense was that he had not thought he had to disclose the debt to the broker, because Brunner did not ask him whether he had purchased the stock on margin. This is weak but it may have disturbed the prosecution sufficiently to make it shift ground and argue to the jury that Staniforth had exaggerated the value of his stock interest by failing to disclose that he was not the full owner of the stock but merely the owner of the equity interest in it, that is, the difference between the market value and the debt to the broker. If the jury believed this it would not have to worry about Staniforth's failure to disclose the debt; the false statement would have been his answer to Brunner's question whether he owned any stock that he owned all 50,700 shares, when in fact he owned just his equity in them.

If this is what the government did, then Staniforth is correct that it amended the indictment and the conviction must be reversed. In the federal system, if you are indicted for X, you cannot be convicted of Y (unless it is a lesser included offense of X) because that would deny you your right not to be charged with a federal crime other than by a grand jury. Stirone v. United States, 361 U.S. 212, 217, 80 S.Ct. 270, 273, 4 L.Ed.2d 252 (1960); Schmuck v. United States, 489 U.S. 705, 719, 109 S.Ct. 1443, 1452, 103 L.Ed.2d 734 (1989); United States v. McAnderson, 914 F.2d 934, 944-45 (7th Cir.1990); United States v. Adams, 778 F.2d 1117, 1122-25 (5th Cir.1985). Staniforth would also be correct that no reasonable jury could have found him guilty of falsely representing the value of his shares of Possis stock. They were worth the market value times the number of shares that he owned. If you own a house worth $250,000 and have a mortgage on it with an unpaid balance of $175,000, you are the "full" owner of an asset worth $250,000, and you should list $250,000 under assets and $175,000 under liabilities--not, as the government unguardedly suggested at the argument of this appeal, $75,000 under assets. That would be nonsense, as shown by the fact that the financial-statement form that Staniforth signed lists "real estate mortgages" in the liabilities column. If in our hypothetical case the homeowner were required to list the value of his house as $75,000 and his real estate mortgage as $175,000, his net worth (assuming no other assets or liabilities) would be -$100,000, rather than +$75,000.

We are distressed by the government's equivocations and confusions over this elementary accounting convention. But we do not think it infected the trial of Count I with fatal error. At trial the government, while mistakenly urging that Staniforth did not own all the stock, did not argue that therefore he had made a false entry in the asset column of his financial statement. Instead the government argued, correctly, that by failing to disclose that he had purchased the stock on margin and owed the brokerage firm a considerable sum, Staniforth had overstated his net worth. It was in this connection that the government brought out the difference between ownership and equity.

Staniforth argues that his failure to disclose his total liabilities was immaterial because even if his net worth was only half of what he represented it to be, it greatly exceeded the modest loan that he was seeking to renew. The word "material" does not appear in section 1014 and, as an original matter, one might have supposed that the omission was deliberate. Section 1014 is a criminal statute and many criminal statutes place greater emphasis on the character of the defendant's act (including the intent behind it) than on the consequences. On the assumption that the omission of the "material" from the statute was deliberate, all that would be required of the government was proof that the defendant intended to influence the bank, although the materiality of his statement would come in by the back door because, the less material the statement was, the less likely it was to have been made for the purpose of influencing the bank, rather than out of sheer forgetfulness, carelessness, or confusion. If an assistant U.S. attorney doesn't know what an asset is, why should a dentist be expected to know what a liability is?

The courts nevertheless have held that materiality, defined as being capable of influencing the bank, is an element of the offense under section 1014. United States v. Shriver, 842 F.2d 968, 976-77 (7th Cir.1988); United States v. Henderson, 645 F.2d 569, 575 (7th Cir.1981); United States v. Braverman, 522 F.2d 218, 223 (7th Cir.1975); United States v. Key, 859 F.2d 1257, 1261 (7th Cir.1988) (dictum); United States v. Haddock, 956 F.2d 1534, 1550-51 (10th Cir.1992); United States v. Ribaste, 905 F.2d 1140, 1143 (8th Cir.1990). It is true that our decision in United States v. Hoag, 823 F.2d 1123, 1125-26 (7th Cir.1987), which interprets a similar false-statement statute, 18 U.S.C. § 1010, as not requiring proof of materiality, has created, as we noted in United States v. Shriver, supra, 842 F.2d at 977 n. 12, an unresolved tension with the decisions cited above. Hoag neither cites any of them nor refers to section 1014. But despite Hoag, and despite the argument in the preceding paragraph, we think the better view is that materiality is an element. Otherwise the statute would punish harmless attempts--that is, the making of a false statement incapable of influencing a bank--and this would greatly expand the potential reach of the statute, with few benefits that we can see.

The cases also hold that materiality is a question of law, and hence to be decided by the judge. E.g., United States v. Shriver, supra, 842 F.2d at 977; United States v. Haddock, supra, 956 F.2d at 1550. This is more than a little puzzling. A criminal defendant is entitled to require the prosecutor to prove to the jury's satisfaction every element of the offense, Estelle v. McGuire, --- U.S. ----, 112 S.Ct. 475, 480, 116 L.Ed.2d 385 (1991); Bates v. McCaughtry, 934 F.2d 99, 102 (7th Cir.1991), and materiality, we have just seen, is one of the elements in a prosecution under section 1014. The proposition that it is a question for the judge traces back to cases involving prosecutions for perjury, e.g., Sinclair v. United States, 279 U.S. 263, 298, 49 S.Ct. 268, 273, 73 L.Ed. 692 (1929), where materiality refers to the legal relevance of the question to the trial or investigation in which the defendant answered the question falsely, while here it refers to the factual issue of whether the false statement could have influenced the bank in making a loan. The Supreme Court applied the perjury rule to a false-statement statute (18 U.S.C. § 1001) in Kungys v. United States, 485 U.S. 759, 772, 108 S.Ct. 1537, 1547, 99 L.Ed.2d 839 (1988), on the authority of Sinclair, without remarking the difference between that context and the one in which the rule had been developed. See also Weinstock v. United States, 231 F.2d 699, 702-03 (D.C.Cir.1956). But Kungys involved a false statement to a government agency (the Immigration and Naturalization Service), and the tendency of a statement to mislead the government depends on its relevance to the criteria applied by the agency. So the Court went on to examine whether the misrepresentation concerned a fact relevant, under the governing s...