U.S. v. Whitehead
| Decision Date | 08 April 1999 |
| Docket Number | No. 998-2289,98-2290,998-2289 |
| Citation | 176 F.3d 1030 |
| Parties | UNITED STATES of America, Appellee/Cross-Appellant, v. John C. WHITEHEAD, Appellant/Cross-Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Michael A. Nelson and Stephen E. Achelpohl, Omaha, NE, argued, for Appellant/Cross-Appellee.
Robert F. Kokrda, Asst. U.S. Atty., Omaha, NE, argued, for Appellee/Cross-Appellant.
Before BOWMAN, Chief Judge, MURPHY, Circuit Judge, and VIETOR, 1 Senior District Judge.
John C. Whitehead appeals on numerous grounds his convictions of two counts of bank fraud under 18 U.S.C. § 1344(1), and one count of making a false statement to a financial institution under 18 U.S.C. § 1014. Count I of the indictment charges a violation of § 1344(1) based on an alleged check kiting scheme involving four federally insured financial institutions running from October 1991 through March 1992. Count II charges a violation of § 1344(1) based on an alleged scheme to defraud Columbus Bank and Trust Company ("CBTC"), in connection with a loan forgiveness agreement entered between Whitehead and CBTC on January 4, 1990. Count III charges a violation of § 1014 based on an alleged misrepresentation of insolvency that Whitehead made to CBTC in the January 4, 1990, loan forgiveness agreement. Whitehead also appeals from the district court's sentence on all counts, arguing the court improperly determined the amount of loss. The government cross-appeals the loss calculation with regard to Count I. For the reasons discussed below, we reverse Whitehead's convictions on Counts II and III and remand for a new trial on these counts in accordance with this opinion. We affirm the conviction on Count I, but remand for re-sentencing in accordance with this opinion.
Whitehead was engaged in a farming enterprise in the 1980s. In 1987, Whitehead and his wife, Linda, maintained three credit lines at CBTC--one for Whiteacre Farms, a farming operation; one personal; and one for Whitehead Brothers, a general partnership comprised of Whitehead and his wife and Whitehead's brother and his wife. The Whitehead Brothers credit line stemmed from a March 19, 1986, promissory note signed by all four members of the general partnership. The promissory note states that
Each of the three credit lines were in default by late 1987. Also in late 1987, Whitehead and CBTC agreed that these credit lines would be liquidated and the underlying collateral sold. Pursuant to this agreement, Whitehead and CBTC executed a February 13, 1988, loan agreement ("Agreement") that provided for the forgiveness of the personal credit line in return for a cash payment of $35,000. The Agreement stated:
Bank desires to express its release of claims against Whiteheads, and each of them, subject only to performance of this Agreement, and to enter into its binding, unconditional covenant to forego collection of any deficiency balance, and not to sue Whiteheads, or either of them, for any deficiency sums remaining after performance of the terms of this Agreement.
Whitehead's attorney, David Domina, drafted the Agreement. The Agreement did not cancel or forgive the Whitehead Brothers credit line. Domina testified that he explained to Whitehead that the Agreement would release Whitehead and his wife from personal liability from all three credit lines.
Whitehead was able to borrow the $35,000 from another financial institution, Equitable Savings & Loan Association ("Equitable"). In a letter written to Whitehead and his wife, Equitable stated that the $35,000 loan was "subject to our favorable review of a letter from your creditors indicating that the $89,000 deficit figure, which indicates your value in Whitehead Brothers, will not become a future cause of a deficiency action." In response to Equitable's request, CBTC wrote a letter dated July 13, 1988, to Whitehead and his wife stating: "This is to advise that the Columbus Bank and Trust Company will not instigate a deficiency legal action against you and Linda for any shortfall that may occur on the Whitehead Bros. credit line."
On July 17, 1988, Whitehead's mother-in-law died. Whitehead's wife inherited approximately $55,000 in cash and $77,000 in farmland from her. Whitehead never informed CBTC of this inheritance, but did inform other banks of these assets. On January 4, 1990, a loan forgiveness agreement ("Forgiveness Agreement") was entered into between CBTC, Whitehead and his wife, and Whitehead's brother and his brother's wife. The bank agreed that if Whitehead Brothers paid a total of $80,000, the bank would forgive the remaining principal and interest on the debt, totaling approximately $243,000. The Forgiveness Agreement contained this recital: "Borrowers are insolvent and are unable to pay the total amount of the debt." Domina testified that Whitehead was insolvent at the time of the Forgiveness Agreement. Whitehead contended CBTC never required that he submit a personal financial statement in conjunction with the Forgiveness Agreement. An executive at CBTC testified that if Whitehead had been more forthcoming about his assets, including those inherited as a result of his mother-in-law's death, CBTC would have sought more money from Whitehead in exchange for the Forgiveness Agreement.
From October 1991 through April 1992, Whitehead engaged in a scheme involving four banks and five checking accounts. The banks include Sherman County Bank, Republic Bank of Nebraska, First National Bank and Trust Company ("First National"), and CBTC. All of the banks are located in Nebraska. The scheme consisted of Whitehead systematically depositing insufficient funds checks into one or more of the accounts that were drawn on accounts at the other banks. This activity erroneously inflated Whitehead's balances on the receiving bank's official books and records. First National honored the insufficient funds checks it received, but charged an overdraft fee. Whitehead payed these overdraft fees, but often used insufficient funds checks from other accounts to do so. This activity was a cyclical and continuous scheme. Over the six month period, for example, Whitehead wrote in the neighborhood of 50 insufficient funds checks to First National alone. On March 31, 1992, a $4000 check written by Whitehead on an account maintained at Sherman County Bank was returned to First National due to insufficient funds. First National personnel then inspected Whitehead's account, revealing activity indicating a check kiting scheme, and reported the activity to authorities. An investigation commenced, leading to Whitehead's prosecution in this case.
FBI Special Agent Daniel Dubree testified as an expert for the government on check kiting activity. He testified to the meaning and definition of check kiting, explaining that a check kiting scheme "is a systematic depositing of nonsufficient funds checks into one or more accounts, which causes the bank balance on the official books and records of that bank to be increased, to be inflated." Tr. 563:21-24. Dubree also discussed some of the most common characteristics of check kiting:
[T]he checks being written among the accounts are in whole dollar amounts, and that is they have no cents to them, for example $2000 even, $3000 even. Another characteristic is there's a substantially large volume of checks being written among the accounts that are within the common control of the parties involved. Other characteristics seems [sic] to be that there is a common control, that, for example, that in the situation where if one person's conducting a kite, they have caused or written the majority of the checks to be deposited. Normally there are [sic] more than one bank involved....
Whitehead challenges the admissibility of Dubree's testimony, arguing that under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), the expert's testimony should have been excluded. We review district court decisions regarding the admissibility of expert testimony for an abuse of discretion. See Peitzmeier v. Hennessy Indus., Inc., 97 F.3d 293, 296 (8th Cir.1996). After a hearing that elicited detailed testimony regarding Dubree's background and methodology, the district court ruled, citing United States v. Yoon, 128 F.3d 515, 527-28 (7th Cir.1997), that his testimony was reliable and would aid the trier of fact in understanding the evidence. In Yoon, the defendants were convicted of bank fraud by way of a check kiting scheme in violation of 18 U.S.C. § 1344. The Seventh Circuit Court of Appeals agreed with the trial court's decision to...
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