U.S. v. Stoddard

• Decision Date: 26 May 1989
• Docket Number: No. 88-1063,88-1063
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Stanford C. STODDARD, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1233

875 F.2d 1233

UNITED STATES of America, Plaintiff-Appellee, v. Stanford C. STODDARD, Defendant-Appellant.

No. 88-1063.

United States Court of Appeals, Sixth Circuit.

Argued Nov. 8, 1988.

Decided May 26, 1989.

James C. Mitchell, (argued) Asst. U.S. Atty., Office of the U.S. Atty., Detroit, Mich., for U.S.

E. Barrett Prettyman, Jr. (argued), Hogan & Hartson, Washington, D.C., for Stanford C. Stoddard.

Before WELLFORD and BOGGS, Circuit Judges; and SIMPSON ^*, District Judge.

WELLFORD, Circuit Judge.

This case presents a difficult and troublesome set of facts concerning a conviction under 18 U.S.C. Sec. 656 for misapplication of bank funds. Stanford C. Stoddard was president of the bank holding company that owned Michigan Bank-Midwest (Midwest). The government alleged that Stoddard selected property that the bank would lease, purchased the property indirectly, and leased it to the bank for excessive rents. About two months after the jury verdict, it was revealed that Michigan Bank-Midwest was not a member of the Federal Reserve System as alleged in the indictment and proven at trial. Stoddard claims that this post-trial revelation destroys the court's jurisdiction and requires that the conviction be reversed. He also claims that the evidence was insufficient to sustain a verdict or that the weight of the evidence was against the verdict requiring a new trial. The district court rejected all three arguments. We reverse.

I. FACTUAL BACKGROUND

Stanford C. Stoddard was convicted of misapplying bank funds in violation of 18 U.S.C. Sec. 656 on August 10, 1987, ¹ and was sentenced to three years in prison and a $5,000 fine. During all relevant time periods, Stoddard was chairman of the board and president of Michigan National Corporation (MNC), a bank holding company, which had purchased Midwest in 1981. The government's theory was that Stoddard arranged for a partnership in which he was interested to acquire property that Midwest needed and, in turn, leased the property to the bank at an exorbitant and unreasonable rate.

After several superseding indictments had been filed, the specified charge averred:

Stanford C. Stoddard, ..., with intent to injure and defraud the Michigan Bank-Midwest, a member of the Federal Reserve System, did willfully and knowingly misapply and caused to be misapplied, and aided, and abetted in the misapplication of money and funds of said bank by arranging for the purchase of a property known as 105-109 East Michigan Avenue, Jackson, Michigan, for $41,500 and the lease of said property to the Michigan Bank-Midwest for ten years at an annual rate of $27,000, which was substantially in excess of the amount which would have been negotiated by unrelated, willing parties under the existing circumstances, and that Stanford C. Stoddard, ..., was, at the time, an officer of the Michigan National Corporation and was connected to Michigan Bank Midwest by virtue of its being a subsidiary of Michigan National Corporation, in violation of Secs. 656 and 2, Title 18, United States Code (emphasis added).

At trial, the government offered evidence of the circumstances surrounding the transactions. On November 24, 1981, Stoddard had attended a board of directors meeting of the recently acquired Midwest bank in Jackson, Michigan. During that meeting, there were discussions regarding the unavailability of a permanent location for a temporary branch office operating in the downtown Jackson area. After the board meeting, Stoddard, accompanied by Howard Cochran, then a senior vice president of MNC and a director of Midwest, found a vacant building at 105 East Michigan Avenue in downtown Jackson. That same day, after inspecting the interior of the property with Stoddard, Cochran made a "fully assignable" purchase offer agreement, offering $38,500 for the property. It was Cochran's sole intent in making the offer to assist in acquiring a branch site for Midwest. Stoddard and Cochran returned to the property with Ruben Bergman, then president of Midwest, and advised him that this would be the new location of the permanent downtown branch.

While driving back to Detroit later that day, Stoddard advised Cochran that, with respect to the purchase of the 105 East Michigan Avenue property, Stoddard would have "Mr. Terova handle it," and also, that he would "give Mr. Zweig a call."

That evening Stoddard called Curt Terova, a consultant to MNC and in 1983 a vice president of MNC, and told Terova about the downtown Jackson property. Stoddard said that it would cost about $35,000 and was suitable for a branch bank location. Stoddard then noted that "[it] would be a good property for Amberly Properties to own." Amberly Properties was a partnership comprised of Stoddard and Terova that leased several buildings to MNC banks. Stoddard claims that these affiliations were completely disclosed and a matter of public record. ²

Terova told Stoddard "we can't own it because we are officers of the corporation," and "we can't buy it." Stoddard responded, "Well, I'll have Ray [Zweig] buy it.... We'll let Ray own it for a year or so, and then we'll buy it back." At Stoddard's request, Stoddard's attorney, Zweig, purchased the property for $41,500 and leased the property to Midwest for ten years at $27,000 per year. Ruben Bergman signed the lease on behalf of Midwest indicating that the specifics of the lease were negotiated by MNC, not by himself, and that in his opinion the lease offered by Zweig was not subject to negotiation. Bergman also complained to Stoddard through Cochran that the lease payments were too high by about one-half. Cochran related Bergman's complaints to Stoddard personally.

In January of 1983, Stoddard told Terova that it was time to buy the Jackson property back from Zweig and to have Zweig write the letter offering to sell the property to Amberly Properties. Shortly thereafter, Zweig sold the Jackson property to Amberly Properties for $41,500, and also assigned the $27,000 per year lease to Amberly. He notified Midwest to begin sending the payments directly to Amberly.

In November, 1984, Midwest sent a letter to Amberly indicating its dissatisfaction with the lease terms and its intention to withhold future payments. Significantly, Stoddard and Terova then deeded the Jackson property to Midwest at no cost and agreed to pay $25,000 cash to settle the potential civil claim by the bank over the lease.

Proof that the terms of the lease were excessive was critical to the government's case. At trial, Bergman testified that he thought the lease terms were high. Howard Ginther, a real estate broker in Jackson, Michigan, who showed the property to Stoddard and sold it to Zweig, testified that the $27,000 a year rental rate for the Jackson property was higher than neighboring properties. He testified that normally such properties would be leased for $2 to $3 per square foot. Ginther, however, could not name a specific building that was rented at that rate. He also noted that the CityBank building, which was across the street from the Jackson property, was renting for $5 to $6 a square foot.

William McConkey, a real estate broker and vice president of the Jackson Board of Realtors, testified that the lease in question was very favorable to the landlord. The triple net lease is a lease in which the tenant is responsible for taxes, insurance, utilities, and maintenance. He thought that a comparable building would lease for between $2.50 and $3 per square foot. He also testified that the rental market in downtown Jackson was very depressed.

The defendants offered the testimony of two appraisers. The first, Meagher, testified that the fair annual rental of the lease would be $24,750. He based his opinion on six buildings in the vicinity of the Jackson Bank building. Parkinson, the other appraiser, testified that the lease would be worth about $27,769.50 on an annual basis. The defendants also proved that a photography studio near the Michigan Avenue property paid $6.90 per square foot for its studio.

At trial, two witnesses testified that Midwest was a member of the Federal Reserve System. The witnesses also testified that the bank was insured by the Federal Deposit Insurance Corporation (FDIC). The certificate of FDIC status is in our record on appeal but it is not clear that it was produced at trial. The prosecutor stated in closing argument, and the defendant conceded, that Midwest was a member of the Federal Reserve System.

After the jury verdict and prior to sentencing--the defendant advised his attorneys that he thought that Midwest was not a member of the Federal Reserve System. Stoddard then filed his "Motion to Dismiss and/or Motion for New Trial Based on Newly Discovered Evidence," which asserted that Midwest was not a part of the Federal Reserve. The motion was denied by the trial judge on December 2, 1987.

Stoddard raises two issues on appeal--jurisdiction and sufficiency of evidence. First, Stoddard claims that because in fact Midwest was not a member of the Federal Reserve System as alleged and "proven" at trial, the subject matter jurisdiction of this prosecution was lost because, by the terms of the indictment, federal jurisdiction was based solely on the fact that Midwest was a member of the Federal Reserve System. Second, Stoddard claims that the evidence submitted to the jury was insufficient to sustain the verdict of wilfull misapplication of bank funds. The district court rejected both arguments and this appeal ensued.

II. JURISDICTION

The first question before this court is whether the discovery, after trial, that evidence of Midwest's membership in the Federal Reserve System was mistaken, deprived the court of jurisdiction. Insured status or reserve membership is an essential element of a Sec. 656 violation and must be established by the government. See United States v. Glidden, 688 F.2d 58, 59 (8th Cir.1982) (making similar statement regarding federal prosecution under 18...