United States v. Haynes

• Citation: 620 F. Supp. 474
• Decision Date: 22 October 1985
• Docket Number: No. 3-84-00209.,3-84-00209.
• Parties: UNITED STATES of America v. Raymond Gary HAYNES.
• Court: U.S. District Court — Middle District of Tennessee

620 F. Supp. 474

UNITED STATES of America v. Raymond Gary HAYNES.

No. 3-84-00209.

United States District Court, M.D. Tennessee, Nashville Division.

October 22, 1985.

William Warren, Asst. U.S. Atty., Nashville, Tenn., for the U.S.

Aubrey Harwell, Nashville, Tenn., for Haynes.

MEMORANDUM

WISEMAN, Chief Judge.

Before the Court is a motion by defendant to dismiss the superseding indictment against him.¹ The indictment in this case arises from an alleged scheme to defraud farmers who had guaranteed the repayment of funds borrowed by the Blanton Smith Corporation from the Springfield (Tennessee) Production Credit Association "PCA". Defendant was the president of the Springfield PCA at the time the farmers guaranteed the loans. The indictment alleged three counts of mail fraud (18 U.S.C. § 1341),² one count of conspiracy to commit mail fraud (18 U.S.C. § 371)³, and one count of criminal conflict of interest (18 U.S.C. § 208(a)).⁴ Defendant has moved to dismiss the indictment on four grounds. For the reasons stated below, the Court denies defendant's motion to dismiss Counts One, Two, Three, and Four, and grants defendant's motion to dismiss Count Five.

A. Criminal Conflict of Interest

The Court first shall address defendant's challenges to Count Five of the indictment. Defendant contends that Count Five, alleging a violation of 18 U.S.C. § 208, should be dismissed because the statute does not apply to employees of production credit associations. Generally, this statute imposes penalties on certain classes of government employees if they participate in a government decision in which they have a present or prospective financial interest. See Exchange National Bank of Chicago v. Abramson, 295 F.Supp. 87 (D.C.Minn. 1969). The statute applies to officers and employees of the executive branch, of any independent agency of the United States, or of the District of Columbia, and directors, officers and employees of the Federal Reserve Bank.⁵ Defendant argues that 18 U.S.C. § 208(a) is inapplicable because a production credit association is not an "independent agency" of the United States.

Production credit associations are federally chartered instrumentalities under the Farm Credit Act of 1933, as amended, 12 U.S.C. §§ 2001-2259. 12 U.S.C. § 2091. They fall under the broad umbrella of the Farm Credit System.⁶ Although the parties dispute the issue of whether or not production credit associations are independent agencies of the United States, they have failed to detail the government's involvement, or lack thereof, in the creation and operation of production credit associations.

Few courts have considered the government's involvement in the operation of production credit associations. Those that have considered the issue as it relates to various statutes have reached conflicting results. The government cites Schlake v. Beatrice Production Credit Association, 596 F.2d 278, 281 (8th Cir.1979), for the proposition that the federal government has "pervasive involvement ... in the creation and operation of production credit associations." The court in Matter of Sparkman, 703 F.2d 1097, 1101 (9th Cir. 1983), relied on this language in stating that "production credit associations are more than private institutions with a federal charter" and held that production credit associations are "federal instrumentalities" which enjoy immunity from punitive damages. As recognized by the dissent in Sparkman, however, the circuit court in Schlake merely refers to the lower court's "extensive" unreported findings regarding the government's "pervasive" involvement with production credit associations rather than detailing that involvement itself. Sparkman, 703 F.2d at 1102 n. 1 (Frye, J., dissenting). The dissent also noted that production credit associations are "privately organized, privately owned, and privately operated corporations, albeit federally chartered." Id. at 1101. See also Birbeck v. Southern New England Production Credit Association, 606 F.Supp. 1030, 1041 (D.Conn.1985) (except in those areas where Congress specifically has legislated and regulated, "institutions within the Farm Credit System were meant to be treated as local privately-owned entities, citizens of the states in which their principal offices were located, and subject to state law"); Bowling v. Block, 602 F.Supp. 667 (S.D. Ohio 1985) (without addressing the issue, the court characterized production credit association as nonfederal defendant).

Defendant attempts to distinguish independent federal agencies from federally chartered instrumentalities by drawing an analogy between national banks in the Federal Reserve System and production credit associations in the Farm Credit System. While the Court has found no case adopting this reasoning, the Court finds this comparison well-founded and incorporates it as part of its holding. The organization of the Federal Reserve System is similar to that of the Farm Credit System⁷ and, like production credit associations, national banks are federally chartered instrumentalities. First National Bank of Boston v. Belloti, 435 U.S. 765, 779 n. 14, 98 S.Ct. 1407, 1416-17 n. 14, 55 L.Ed.2d 707, 719 n. 14 (1978). National banks are not independent agencies of the United States for purposes of 18 U.S.C. § 208(a). Under this analysis, analogizing to the Federal Reserve System, neither are production credit associations.⁸ Therefore, after reviewing the Farm Credit Act of 1971, its legislative history and its subsequent amendments, the Court concludes that a production credit association, much like a national bank, is not an "independent agency" of the United States for purposes of the federal conflicts of interest statute, 18 U.S.C. § 208. Accordingly, Count Five of the indictment is dismissed for failure to state an offense.

B. Mail Fraud

1. Allegation of Fraudulent Scheme

Defendant also contends that Counts One, Two and Three of the indictment, which allege violations of the mail fraud statute, 18 U.S.C. § 1341, must be dismissed. A violation of the mail fraud statute may be established only if the government can prove: (1) a scheme to defraud; and (2) the use of the mails to execute that scheme. Pereira v. United States, 347 U.S. 1, 8, 74 S.Ct. 358, 362, 98 L.Ed.2d 435 (1954). See, e.g., United States v. Good-paster, 769 F.2d 374, 377 (6th Cir.1985) and cases cited therein.⁹ Defendant asserts that the confidentiality provisions of the Privacy Act of 1974, 5 U.S.C. § 552a, and federal banking regulations,¹⁰ on which he relied in good faith, imposed on him a legal obligation not to disclose the information pertaining to the financial dealings of the Blanton Smith Corporation which was alleged in the indictment as having been unlawfully withheld from the farmers.¹¹ Defendant also argues that his failure to disclose an alleged conflict of interest is insufficient to constitute the necessary intent to defraud for purposes of the mail fraud statute. Accordingly, defendant argues no fraudulent scheme exists.¹²

Defendant's reference to the Privacy Act first must be addressed.¹³ The purpose of the Privacy Act is to protect against an invasion of personal privacy by restricting the disclosure by Federal agencies of personal information of individuals without their consent to a limited number of routine uses. See Local 247, American Federation of Government Employees v. Defense General Supply Center, 423 F.Supp. 481 (E.D.Va.1976), aff'd 573 F.2d 134 (4th Cir.1978); see generally Pub.L. 93-579, § 2 (1974). Defendant's claimed reliance on the Privacy Act is misplaced for two reasons. First, the Blanton Smith Corporation is not an "individual" for purposes of the Privacy Act. See 5 U.S.C. § 552a(a)(2) (definition of "individual") institutions are not government controlled corporations for purposes of the Privacy Act and the Freedom of Information Act. See note 13 supra. This Court considered the amount of governmental control over production credit associations in an earlier part of this opinion dealing with the federal conflicts of interest statute, 18 U.S.C. § 208, and drew an analogy between production credit association and national banks. The same reasoning applies for the Privacy Act. Therefore, the Court holds that a production credit association is not an "agency" bounded by the constraints of the Privacy Act, 5 U.S.C. § 552a.

Defendant's claimed reliance on the federal regulations governing operation of the Farm Credit Administration and its affiliated associates¹⁴ as justifying his nondisclosure of information regarding the activities of the Blanton Smith Corporation also is misplaced. Citing Parr v. United States, 363 U.S. 370, 391, 80 S.Ct. 1171, 1183-84, 4 L.Ed.2d 1277, 1291 (1960), defendant argues that an act required to be performed under the "imperative command of duty" imposed by law cannot form the basis for a mail fraud prosecution. In Parr, defendants were nine individuals and two state banking corporations who, through their control of a Texas school board, misappropriated funds of the school district and used the mails in connection with the collection of school taxes. The Supreme Court overturned their mail fraud convictions because the mailings for tax collection purposes were required to be made by state law. The Court stated that even if some of those who are legally required to do the mailing plan to steal some of the moneys when or after received, the scheme to defraud required for a mail fraud conviction is not present. Id. Thus, defendant's characterization of Parr's holding is overbroad and misleading. Parr requires that the mailings themselves be required by law. Nothing in the record at this point indicates that the mailings which are the subject of Counts One, Two and Three of the indictment were required by law, leaving a question of fact for the jury.

Defendant's next objection involves a question of fact. Defendant argues that his good faith, evidenced by his compliance with federal...