United States v. Gens, No. 73-1220 to 73-1222.

Decision Date13 March 1974
Docket NumberNo. 73-1220 to 73-1222.
Citation493 F.2d 216
PartiesUNITED STATES of America, Appellee, v. Richard H. GENS, Defendant, Appellant, UNITED STATES of America, Appellee, v. Anthony W. CARLETON, Defendant, Appellant. UNITED STATES of America, Appellee, v. Richard T. PORTER, Defendant, Appellant.
CourtU.S. Court of Appeals — First Circuit

Harold Hestnes, Boston, Mass., with whom James D. St. Clair, Robert F. McLaughlin, and Hale & Dorr, Boston, Mass., were on brief, for Richard H. Gens, defendant, appellant.

William P. Homans, Jr. and Edward J. Lonergan, Boston, Mass., with whom Julian T. Houston, Featherston, Homans, Klubock & Griffin, Paul G. Counihan, Robert E. McLaughlin, and The McLaughlin Brothers, Boston, Mass., were on brief, for Anthony W. Carleton and Richard T. Porter, defendants, appellants.

George V. Higgins, Sp. Asst. U. S. Atty., with whom James N. Gabriel, U. S. Atty., was on brief, for appellant.

Before COFFIN, Chief Judge, ALDRICH and McENTEE, Circuit Judges.

McENTEE, Circuit Judge.

Appellants were convicted on eight counts of willfully misapplying funds of the Massachusetts Bank and Trust Company of Brockton, Massachusetts, a federally-insured bank, in violation of 18 U.S.C. § 656 (1970).1 Several issues are raised in this consolidated appeal, including adequacy of the indictment, sufficiency of the evidence and the correctness of the trial court's charge to the jury. We reverse.

I.

The grand jury indicted appellants on eleven counts charging willful misapplication of bank funds. Upon the government's motion, Counts 3, 5, and 8 were dismissed prior to trial. The remaining counts, on which appellants were convicted, charged that appellants committed willful misapplication "in that they granted and caused to be granted" eight unsecured loans to parties "who were, then and there, as the defendants well knew, not the actual beneficiaries of said loans."2 The indictment further charged "that by means of the granting of the said loans, the defendants converted the proceeds thereof to the use of appellant Gens." The foregoing is the complete extent of the physical acts alleged in the indictment.3 It was further alleged that appellants Porter and Carleton were officers and directors of the bank at all times material to the eight counts, and that appellant Gens was a director at all times material to the final six counts.4

The evidence adduced at trial was as follows. In the fall of 1969, Porter and Carleton gained control of the Massachusetts bank. They did so with financial assistance from Gens, whose principal business was the operation of several nursing homes in the New England area.5 At that time Gens' nursing homes were experiencing cash shortages, mainly due to delays in Commonwealth of Massachusetts welfare payments. To add needed cash to his business, Gens borrowed $80,000 from the Massachusetts bank. That amount represented the bank's self-imposed loan limit. The record is not clear, but apparently Gens' business also borrowed funds from the bank at this time.

Besides these loans directly to Gens and his business, during the next twelve months the bank also granted the eight loans totaling $235,000 which are in issue in this case. It was undisputed at trial that the named debtors turned over the proceeds of all eight loans to Gens, and that he in turn invested these sums in the nursing homes. The eight loans are best described in three categories: four loans to Hyman H. Silver; one loan to Charles Roazen; and three to J. Peter Felopoulos, Dennis Ditelberg and their law firm.

Hyman H. Silver was for many years Gens' partner in the nursing home business. At trial Silver acknowledged signing for the four loans from the Massachusetts bank alleged in Counts 1, 2, 4 and 6, in the total amount of $80,000. He testified that he had neither sought these loans nor received the proceeds. All he did was sign papers for them at the behest of his partner Gens. He also said he presumed Gens would employ the loan proceeds in their nursing home business, which is what Gens did. Silver further testified that these sort of cursory financial transactions on his part were not unusual. Over the years he had been in charge of the day-to-day operations in their business, while Gens was in charge of finances. Silver said he routinely signed whatever financial papers Gens placed before him, apparently even when such papers were blank notes representing his personal obligation rather than that of their business.6 On cross-examination, Silver said that he recognized in signing for such loans that he could be held personally responsible for their repayment should the business fail to do so, even though he personally did not receive the proceeds.7 Silver also testified that at the time he signed for the four loans in issue in this case he had a net worth of between $500,000 and $700,000. It may be, however, that these figures represented the assets of the nursing home business as well as Silver's personal assets. The general impression derived from Silver's testimony is that he rarely, if ever, distinguished his personal finances from those of the nursing home business.

Charles Roazen was a neighbor and close friend of Silver and through him became acquainted with Gens. At trial, Roazen acknowledged signing for the $80,000 loan alleged in Count 9 and further testified that upon deposit of that sum in his account he immediately made out a check to Gens for the same amount. According to Roazen, the loan came about in the following manner. Sometime around January 1970 Gens said that he, Silver, Porter and Carleton wanted to purchase stock in yet another bank, the Garden City Bank and Trust Company of Newton, Massachusetts. Gens told Roazen that they needed a fifth person "to come in with them because they were going to use money borrowed from the Massachusetts Bank and Trust Company." Gens said that he and Silver had borrowed up to their limits at the Massachusetts bank8 and that Porter and Carleton did not want their names publicly associated with the stock purchase. Despite vigorous cross-examination suggesting otherwise, Roazen maintained that it was his understanding that although he was to sign for a loan to help out the other four, he personally would not have to repay the loan, barring some "catastrophe."9 Roazen said he agreed to this proposal because he and Silver had been friends for a long time. In addition, Gens had pointed out to Roazen that the stock purchase would be beneficial to Roazen's automotive-parts business because the Garden City bank thereafter would be amenable toward making loans to Roazen's customers. Roazen's position was also supported by the fact that when the Garden City bank stock purchase was called off, Gens felt free to invest the $80,000 proceeds of the Roazen loan into his cash-hungry nursing home business. He did not consult Roazen on this. On the other hand, appellants' position that Roazen had agreed to purchase stock in the bank along with the four others, and that the loan was clearly a personal obligation of Roazen's, is supported by a letter which Gens gave Roazen at the time of the loan, evidencing a beneficial interest on Roazen's part in the stock to be acquired.10 Also, there is no question that Roazen was a man of wealth who could afford to repay the $80,000 loan. On this record the jury could reasonably have reached either conclusion as to Roazen's agreed-upon role with respect to the loan that he signed for.

Finally, J. Peter Felopoulos and Dennis Ditelberg were partners in a law firm which did a substantial amount of work for Gens and Silver's nursing home business around the time of the loans in question. These two attorneys testified that in early 1970 Gens and Silver came to them and asked to borrow money for their business. They replied that they had no cash available. Gens and Silver then told the attorneys that if they could present a financial statement, "they could perhaps arrange a loan for us; and, that's how we got to know the Massachusetts Bank and Trust Company." Subsequently, the loans cited in Counts 7, 10 and 11, in the total amount of $75,000, were arranged. The two attorneys never personally went to the bank or spoke with Porter or Carleton about these loans. Instead, after financial statements were prepared, Gens brought them the notes and they signed them. Immediately after each loan, the proceeds were forwarded to Gens by check. In exchange, they received notes from Gens and Silver. Like Silver, Felopoulos and Ditelberg said that they "fully recognized" that the three loans from the Massachusetts bank were personal obligations of theirs. The apparent motive was the attorneys' desire to keep the favor of a substantial client. There appears to be no question that they possessed sufficient resources at the time to repay the three loans. At the close of the government's case, appellants moved for judgment of acquittal for lack of evidence. These motions were denied.

In its charge to the jury, the trial court first stated that the government's theory of willful misapplication was as follows:

". . . that Defendant Gens dominated and controlled Defendants Porter and Carleton or at least worked in concert with them to arrange loans to the persons named in each count in the indictment, knowing that such person was not the true borrower and that Defendant Gens was to be the true beneficiary thereof, and that each of such persons was used as the borrower either with or without the knowledge and consent of the common borrower in order to disguise the concentration of the bank\'s funds to Defendant Gens."

The court then instructed the jury that it had to find that appellants "misapplied or caused to be misapplied money, funds, or credits of the bank by granting a loan for the amount and to the person named in the particular count so that these funds could be converted to the use of Defendant Richard...

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