U.S. v. Wolf

• Citation: 820 F.2d 1499
• Decision Date: 06 July 1987
• Docket Number: No. 86-3041,86-3041
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Thomas E. WOLF, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1499

820 F.2d 1499

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

No. 86-3041.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 5, 1987.

Decided July 6, 1987.

Lance A. Caldwell, Portland, Or., for plaintiff-appellee.

Norman Sepenuk, Portland, Or., for defendant-appellant.

Appeal from the United States District Court for the District of Oregon.

Before KOELSCH, GOODWIN and THOMPSON, Circuit Judges.

GOODWIN, Circuit Judge:

Thomas Wolf appeals his conviction on numerous counts of misapplying bank funds, 18 U.S.C. Sec. 656; making false entries in bank records, 18 U.S.C. Sec. 1005; and one count each of issuing an obligation of the bank without authorization, 18 U.S.C. Sec. 1005, and conspiring to defraud the United States, 18 U.S.C. Sec. 371. Wolf argues that the evidence did not sustain the verdict and that references to violations of civil bank regulations unfairly prejudiced him. We hold that sufficient evidence supported the verdict, but that the testimony and arguments regarding civil bank regulations tainted the trial on most of the misapplication and false entry counts. We affirm in part, reverse in part and remand for retrial.

Wolf was a founder and director of Columbia Pacific Bank in Portland, Oregon. From the bank's inception in 1976 to its ruin in 1983, Wolf served as its chief legal counsel and sat on its board of directors. At the same time, he was trustee for his law firm's retirement trust account, which invested several hundred thousand dollars in the bank. From about 1978 on, Wolf was also one of four founders and shareholders of First Northwest Mortgage Company, which made loans to real estate developers. Columbia Pacific Bank was the mortgage company's main source of capital and Wolf used his connections at the bank to fund loans for the mortgage company.

First Northwest borrowed more than $400,000 from Columbia Pacific, reaching the borrower's legal limit for that type of loan under Oregon law. When the mortgage company needed more capital, Wolf arranged for his fellow shareholders in Northwest Mortgage, Dale Brookens, Les Hardy and Anderson Griffith (who was also Wolf's law partner), to establish individual lines of credit at Columbia Pacific. Wolf prevailed on the bank's president, Thomas Pendergraft, to approve loans of hundreds of thousands of dollars to the shareholders, who immediately turned over the loan proceeds to First Northwest. The loan documents listed Brookens, Hardy and Griffith as the borrowers and did not indicate that the beneficial user would be First Northwest. When Pendergraft reported the loans to the other directors, as he was required to do, he likewise did not disclose that the loans to the individuals were ultimately used to supply funds to First Northwest.

In two successive annual director's reports, Wolf disclosed to Columbia Pacific his interest in First Northwest. Wolf stopped these disclosures after July 1980 when he transferred title to most of his First Northwest shares to his law partner and fellow shareholder, Griffith. Wolf also did not disclose to the bank that he had signed a guarantee making him jointly liable with fellow First Northwest shareholders for the loans taken from Columbia Pacific for the benefit of First Northwest.

First Northwest initially repaid its various Columbia Pacific loans from its returns on real estate loans. When Oregon's economy abruptly declined in the early 1980's, however, many of First Northwest's customers fell behind on their mortgage repayments and First Northwest found it increasingly difficult to repay Columbia Pacific. Disaster struck when First Northwest attempted to rescue one of its struggling customers, the CAS company of Medford, Oregon. At Wolf's instigation, the CAS company reorganized, becoming the Village Joint Venture Partnership, which borrowed approximately one million dollars from First Northwest. When this loan failed to restore the vitality of Village Joint Venture, Wolf next suggested that the company go into partnership with three of First Northwest's partners, Griffith, Brookens and himself. (Hardy, by this time, had dropped out of First Northwest). He proposed that each participant put up a substantial sum of money, which would enable Village to pay its debts and begin to develop property. The joint venture partners eagerly accepted this proposal. Village Joint Venture became the Central Point Development Company, which inherited the financial debility of Village. Central Point soon found itself urgently in need of money. Wolf suggested that it borrow from Columbia Pacific. As Central Point would need far more money than Columbia Pacific could legally lend to any one customer, Wolf caused Central Point to spin off two new companies, Kingsland Manor Partnership and Rogue Valley Corporation. Central Point, Kingsland and Rogue Valley each borrowed hundreds of thousands of dollars from Columbia Pacific without revealing Wolf's relationship to these entities.

Another event leading to Wolf's prosecution occurred when First Northwest sought to borrow money from Canadian Imperial Bank of Commerce. Canadian Imperial refused to lend money to First Northwest until the borrower obtained a "take out" commitment from another bank to provide permanent financing after six months. At Wolf's urging, Pendergraft provided a letter committing Columbia Pacific to the "take out" loan without informing the bank's board of directors.

Columbia Pacific failed in 1983. In 1984, the grand jury returned a 41-count indictment against Wolf. Count 1 charged him with conspiring with Pendergraft and others to defraud the United States by concealing from bank examiners his interest in the loans to First Northwest and its shareholders and related companies. Counts 2-15 charged him with misapplying bank funds in connection with Columbia Pacific's loans to Brookens, Hardy and Griffith. Counts 16-29 charged him with making or causing to be made false entries in connection with the same loans. Count 30 charged him with causing the issuance of an obligation of the bank without authority from directors. Counts 31-33 charged him with misapplication of bank funds in connection with the loans to Kingsland Manor, Rogue Valley and Central Point. Counts 34-36 charged him with making a false entry with regard to the same loans. (Count 36, which involved the Central Point loan, was later dropped from the indictment). The remaining counts, 37-41, charged Wolf with false entries in connection with the annual director's audit confirmations and other documents which failed to disclose his interests in loans from Columbia Pacific to entities under his control.

Before Wolf's trial, defense counsel moved to strike from the indictment all reference to civil banking statutes. The court denied the motion.

At trial, Richard Warriner, a bank examiner for the Federal Deposit Insurance Corporation, testified over Wolf's objection regarding Federal Reserve Board Regulation O (12 C.F.R. Sec. 215), and Oregon Revised Statute Sec. 708.305, pertaining to bank lending limits. At the close of the evidence, Wolf proposed jury instructions defining terms in Regulation O and explaining that Or.Rev.Stat. Sec. 708.305 permitted the bank to lend money to related corporations even if the aggregate sum exceeded the maximum the bank could lend to any one borrower. The court refused to give Wolf's proposed instructions, and instead instructed the jury that the testimony about civil banking laws was background information only. The jury convicted Wolf on all counts.

Wolf argues that the district court erred in denying his motion for acquittal. Fed.R.Crim.P. 29(a) requires the district court to grant a motion for acquittal if the evidence is insufficient to sustain a conviction. On appeal from the denial of such a motion, we review de novo the sufficiency of the evidence and affirm if, viewing the evidence in the light most favorable to the government, any rational juror could have found the elements of the crime beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979); United States v. Buras, 633 F.2d 1356, 1359 (9th Cir.1980).

The elements of the crime of misapplication of bank funds, 18 U.S.C. Sec. 656, are: (1) defendant is an executive officer of a bank; (2) the bank is connected with the Federal Reserve; (3) defendant willfully misapplied the bank's funds; and (4) defendant acted with intent to injure and defraud the bank. United States v. Christo, 614 F.2d 486, 490 (5th Cir.1980); United States v. Krepps, 605 F.2d 101 (3d Cir.1979). Wolf concedes the first two elements, but argues that the government did not prove willful misapplication or criminal intent.

The misapplication charges in Counts 2-15 derived from the loans Columbia Pacific made to Griffith, Hardy and Brookens for the benefit of First Northwest. Counts 31-33 derived from the loans Columbia Pacific made to Kingsland Manor and Rogue Valley for the benefit of Central Point Development Company. With regard to each series of loans, the jury found that Wolf failed to disclose either the ultimate recipient of the borrowed funds or that he had an interest in the loans. This nondisclosure, the government argues, caused the bank to make loans it otherwise would not have made.

Wolf admits that Griffith, Hardy and Brookens borrowed from Columbia Pacific in order to transfer funds to First Northwest and that Kingsland Manor and Rogue Valley borrowed in order to transfer funds to Central Point Development. Wolf asserts that these transactions do not constitute misapplication because the "nominal" borrowers were willing and able to repay the loans. Ability to repay is not a defense in this circuit. United States v. Kennedy, 564 F.2d 1329 (9th Cir.), cert. denied, 435 U.S. 944, 98 S.Ct. 1526, 55 L.Ed.2d 541 (1978); Hargreaves v. United States, 75 F.2d 68 (9th Cir.), cert. denied, 295...