U.S. v. Willis

• Decision Date: 03 November 1978
• Docket Number: No. 77-5838,77-5838
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Richard Lee WILLIS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 203

583 F.2d 203

UNITED STATES of America, Plaintiff-Appellee, v. Richard Lee WILLIS, Defendant-Appellant.

No. 77-5838.

United States Court of Appeals Fifth Circuit.

Nov. 3, 1978.

Eugene C. Fitzhugh, Little Rock, Ark. (Court-appointed), for defendant-appellant.

LeRoy Morgan Jahn, Asst. U. S. Atty., Jamie C. Boyd, U. S. Atty., Ronald P. Guyer, Asst. U. S. Atty., San Antonio, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Texas.

Before GEWIN, RONEY and GEE, Circuit Judges.

GEWIN, Circuit Judge:

Richard Lee Willis was found guilty by a jury of conspiracy to defraud the United States by making false statements to a government agency and to defraud certain lending institutions by making false statements in violation of 18 U.S.C. §§ 371, 1001, and 1014. He appeals from the judgment of conviction asserting numerous errors by the trial court. We affirm.

In 1959 appellant acquired and began operating a commercial and trade school known as San Antonio Commercial College (SACC). James C. Williams was employed by Willis in 1960 to work at the school. ¹ Stanley Dennis worked at SACC as a bookkeeper and accountant from 1965 to 1967. ²

In 1969, Willis incorporated Educational Career Systems (ECS) in Arizona and was its majority shareholder. Willis became President of the company and Williams Vice-President. In 1969, Dennis again became associated with Willis as Secretary-Treasurer of ECS. Willis transferred his ownership in SACC to ECS and in 1970 the company acquired Gregg Business School of Arizona in Phoenix, Arizona. During the following two years, ECS came into ownership of several additional commercial schools.

Shortly after its incorporation, Educational Career Systems was approved as a lender under the Federally Insured Student Loan Program (FISL). Under this program, the federal government, through the Department of Health, Education, and Welfare, guarantees the repayment of student loans made to students by eligible lending institutions. Eligible lenders can include banks, savings and loan associations, and schools that have applied for and obtained approval from HEW.

To procure a federally insured loan, a student, generally with the lender's aid, applies to HEW for the loan insurance. Once HEW has approved the application and the lender has paid the insurance premium, the student signs a promissory note to the lender. The lender then disburses the funds to the student or the school and signs a Lenders Manifest with HEW, showing disbursement of the funds. The promissory note is negotiable and may be transferred from one eligible lender to another.

The purpose of the loans insured by the program is to pay for the student's education. Once a participating student completes the school term for which a loan is received, the school has earned the funds and may use them for any purpose. If the student fails to complete the term, a refund liability is created. The school has not earned the monies and must make a refund to either the student or the lending institution holding the student's note. If a student defaults on a note, the lender, after using due diligence to collect, may obtain payment of the loan from the government.

SACC began participating in the FISL program in 1969 or 1970 with ECS as its approved lender. SACC salesmen actively recruited students to enroll, informing them of the loan program. On the request of such salesmen, the students signed loan applications and blank promissory notes payable to ECS, and school employees completed the forms. ³

Despite its active use of loan programs, ECS did not have sufficient funds to distribute the money loaned to participating students or to two of its schools, SACC and Gregg Business School. Instead, once the loan was insured, the company sold the notes to various lending institutions, including Texas State Bank of San Antonio, Texas, and United States Life Savings of California. From 1970 to 1972, when both schools were closed, ECS sold in excess of $1,000,000 in student notes to U. S. Life Savings and over $125,000 to Texas State Bank.

Among notes sold to the lenders were those of students who had never appeared for courses or failed to complete them, creating a refund liability by ECS. By October 1972, Educational Career Systems' total refund liability was $892,525.00 of which HEW has paid $813,210.00 due to student default.

Despite the fact that many of the loans were liabilities, Willis, Williams and Dennis utilized the funds as if the students had completed the courses and the schools had earned the money. For example, in 1972 Willis purchased a parking lot with proceeds from the sale of 115 FISL notes to Texas State Bank. 96 of the 115 notes were filed as being in default and 57 of the students had dropped out of school before their notes were sold to Texas State Bank.

The United States contended at trial that appellant Willis conspired with Williams and Dennis to defraud the federal government by diverting funds procured through the FISL program for improper purposes. The government further alleged that appellant conspired to make false statements to HEW in the Lenders Manifest that the student borrowers were actively attending school and to make the same misrepresentations to other lending institutions in order to negotiate the notes.

Appellant Willis raises several issues on appeal. After careful consideration we find his contentions to be without merit. He first argues that he was immune from criminal prosecution under 11 U.S.C. § 25(a) (1966) because he filed a voluntary bankruptcy proceeding in the Eastern District of Arkansas in April, 1975 and the government used evidence from that civil action to convict him in the case at bar. The record shows that after Willis filed his bankruptcy petition, the Department of HEW filed a civil action against him in the bankruptcy proceeding to obtain a personal judgment. Appellant contends that the government improperly comingled the bankruptcy action with its concurrent criminal investigation by using such proceeding to obtain evidence for its criminal case. On the fourth day of trial of the instant case, appellant raised this ground by objecting to the introduction of the government's evidence. The trial court treated the objection as a motion to suppress and after an evidentiary hearing, denied the motion as untimely. Alternatively, the court resolved that Willis was not immune from prosecution and hence the proof was admissible because the government had established an evidentiary source independent of the bankruptcy proceedings.

He asserts that his in-trial objection was a proper and timely objection and not a motion to suppress. We are convinced, however, that the trial court correctly characterized the objection as a motion to suppress prosecutorial evidence. A trial court's factual findings on a motion to suppress must be sustained unless shown to be clearly erroneous. United States v. Griffin, 555 F.2d 1323, 1324 (5th Cir. 1977); United States v. James,528 F.2d 999, 1018 (5th Cir. 1976), Cert. denied sub nom. Henry v. United States, 429 U.S. 959, 97 S.Ct. 382, 50 L.Ed.2d 326 (1976). Appellant has failed to make this showing. Rule 12(b)(3) Fed.R.Crim.P. requires motions to suppress to "be raised prior to trial" or be waived, unless good cause is shown. Appellant untimely filed the motion on the fourth day of trial. He has failed to establish good cause for his delay in making the motion. His counsel in the instant case represented him in the bankruptcy proceedings and was fully cognizant of all facts pertinent to the suppression issue.

Moreover, we agree with the trial court's finding that appellant was not immune from criminal prosecution. The Bankruptcy Act, 11 U.S.C. § 25(a) provides that the bankrupt must submit to an examination concerning the conduct of his business, the cause of his bankruptcy, etc. " . . . but no testimony given by him shall be offered in evidence against him in any criminal proceeding . . ." This circuit has previously examined the scope of this derivative use immunity provision in United States v. McDonnel, 550 F.2d 1010 (5th Cir. 1977), Cert. pending, and United States v. Seiffert, 501 F.2d 974 (5th Cir. 1974). In McDonnel and Seiffert the court determined that if the government can establish by a preponderance of the evidence an independent source of the evidence, the proof is admissible at a subsequent criminal proceeding, even though it may be the same evidence as adduced at the bankruptcy proceeding. 550 F.2d at 1012; 501 F.2d at 982. Here, the government demonstrated on the record and the trial court found that the prosecution came by its proof from an independent source. The criminal investigation of Willis had been underway for approximately two years when he voluntarily filed a bankruptcy proceeding. As in Seiffert, all of the witnesses were interviewed before the bankruptcy proceeding and all FBI reports were completed eighteen months before appellant's filing of the bankruptcy petition. Furthermore, the documentary evidence used at trial was obtained from leads found in a letter written by Willis to HEW's Office of Education in Dallas, Texas two years before the proceeding. It is evident that the trial court's conclusion that the government's evidence was untainted is amply supported by the record.

Appellant next contends that the trial court erred in denying pre-trial motions to dismiss the indictment for insufficiency and to dismiss for preindictment delay. Willis argues that the indictment was insufficient in that it was vague and failed to allege a conspiratorial agreement between appellant, Dennis, and Williams. An additional defect asserted by Willis is the omission from the indictment of any overt acts of a criminal nature.

Rule 7(c) of the Federal Rules of Criminal Procedure states that an indictment shall "be a plain, concise, and definite written statement of the...