United States v. Lonich
| Decision Date | 27 January 2016 |
| Docket Number | Case No. 14-cr-00139-SI-1 |
| Court | U.S. District Court — Northern District of California |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. DAVID LONICH, SEAN CUTTING, and BRIAN MELLAND, Defendants. |
On January 22, 2016, the Court held a hearing on defendants' motions to dismiss or strike the indictment, or in the alternative, for a bill of particulars. For the reasons set forth below, the Court hereby DENIES defendant Lonich's motion to dismiss Counts 1-22 of the indictment; DENIES defendant Lonich's motion to dismiss Count 29 but GRANTS the alternative motion to strike the surplusage "among other things" from that count; GRANTS defendant Lonich's motion to strike the surplusage "and others" from the prefatory allegations and from Counts 1 and 3-8; GRANTS defendant Lonich's motion to dismiss Counts 1-8 to the extent those counts allege an omissions theory of fraud; DENIES defendant Melland's motion to dismiss Counts 1-23; and DENIES defendant Cutting's motion to dismiss Counts 11-14.
On March 18, 2014, the government filed a twenty-nine count indictment against defendants David Lonich, Brian Melland and Sean Cutting.1 Melland, Cutting and Lonich are charged with conspiracy to commit wire and bank fraud in violation of 18 U.S.C § 1349 (CountOne), bank fraud in violation of 18 U.S.C. § 1344 (Count Two), wire fraud in violation of 18 U.S.C. § 1343 (Counts Three through Eight), conspiracy to make false statements to a bank in violation of 18 U.S.C. § 371 (Count Nine), conspiracy to commit money laundering in violation of 18 U.S.C. §1956(h) (Count Ten), and money laundering in violation of 18 U.S.C. § 1957 (Counts Eleven through Twenty-Two). Melland and Cutting are charged with conspiracy to misapply bank funds in violation of 18 U.S.C. § 371 (Count Twenty-Three). Cutting and Lonich are charged with making false bank entries in violation of 18 U.S.C. § 1005 (Counts Twenty-Four through Twenty-Eight), and Lonich alone is charged with attempted obstruction of justice in violation of 18 U.S.C. § 1512 (Count Twenty-Nine). Madjlessi was a real estate developer, Lonich was Madjlessi's attorney, Cutting was President and CEO of Sonoma Valley Bank until it failed in August 2010, and Melland was the Senior Vice President and Chief Loan Officer of Sonoma Valley Bank until March 2010.2
The following facts are alleged in the indictment. "No later than approximately March 2009 until approximately September 2012, the defendants devised and executed a material scheme to defraud Sonoma Valley Bank and others and to obtain money from Sonoma Valley Bank and others by means of materially false and fraudulent pretenses, representations, and promises and by omissions and concealment of material facts." Indictment ¶ 7. In or around April 2008, Madjlessi defaulted on an IndyMac Bank loan of more than $30,000,000 that he had personally guaranteed and that had been used to fund construction of a condominium project called the Park Lane Villas ("PLV") East. Id. ¶ 8. In May 2008, IndyMac Bank filed a civil lawsuit seeking recovery of the loan proceeds. Id. By July 2008, IndyMac Bank had failed. Id. The FDIC took over as Receiver and decided to auction the loan through a contractor, The Debt Exchange, also known as DebtX. Id.
Madjlessi, Melland, Cutting and Lonich conspired to have Madjlessi bid on and obtain this defaulted loan contrary to FDIC regulations and through a straw borrower, J.H. Id. ¶ 89 In March 2009, Lonich created an entity called 101 Houseco, and installed J.H. as its nominal owner. Id. ¶ 10. In fact, J.H. was a straw buyer who exercised no meaningful control of 101 Houseco; instead, Madjlessi and Lonich exerted control over the company. Id. In March 2009, J.H. signed a document effectively assigning his ownership interest in 101 Houseco to Madjlessi's daughter at any time upon her signature. Id.
To fund the bid for the defaulted IndyMac loan, Madjlessi approached Sonoma Valley Bank executives Melland and Cutting seeking a loan for 101 Houseco. Id. ¶ 11. Melland and Cutting knew that 101 Houseco was a straw purchaser, and they took steps to authorize that loan, which was initially disbursed to 101 Houseco in March 2009. Id. Between March 2009 and November 2009, with Melland and Cutting's assistance, the loan balance to 101 Houseco increased from an initial balance of less than $5,500,000 to a final balance of almost $9,500,000. Id. Of the final balance, more than $4,000,000 was used to purchase Madjlessi's defaulted IndyMac loan through DebtX and more than $4,500,000 went to Masma Construction, a company controlled by Madjlessi. Id. "In or about January 2010, MADJLESSI and LONICH, utilizing J.H., caused 101 Houseco to settle the pending civil suit relating to that loan with MADJLESSI, foreclose on PLV East, and obtain title to the project." Id. ¶ 12.
In order to obtain Freddie Mac refinancing, between approximately 2009 and 2011, Madjlessi, Lonich, and Cutting took steps to purchase PLV East units that had been sold as residential condominiums prior to the start of this scheme and then transfer them to 101 Houseco so that the residential portion of PL V East could be converted to an apartment complex. Id. ¶ 13. Madjlessi and Lonich helped accomplish these purchases by fraudulently utilizing straw purchasers and by obtaining a loan from a New York-based firm for 101 Houseco by fraudulently utilizing J.H. as a straw borrower. Id. Cutting helped accomplish the purchases by issuing letters on Sonoma Valley Bank letterhead falsely stating that potential buyers had sufficient funds available at Sonoma Valley Bank for purchase. Id. In or about September 2012, Madjlessi and Lonich obtained refinancing on the PLV East from Freddie Mac. Id. ¶ 14.
The indictment alleges that in furtherance of their scheme, the defendants made material misrepresentations, and omitted and concealed material facts, including the following: (1) Madjlessi, Lonich, Cutting, and Melland falsely claimed to Sonoma Valley Bank that J.H. was the borrower behind 101 Houseco for a loan it sought, knowing that Madjlessi and Lonich were the true borrowers as the individuals in actual control of 101 Houseco; (2) Cutting and Melland recommended to Sonoma Valley Bank's loan committee that it should make the loan to 101 Houseco without disclosing their knowledge that approving the loan would likely violate the bank's legal lending limit to Madjlessi and his related entities; (3) Lonich falsely claimed to a DebtX representative that J.H. was the bidder as 101 Houseco for Madjlessi's defaulted IndyMac loan, knowing that Madjlessi and Lonich were the true bidders as the individuals in actual control of 101 Houseco; (4) Cutting, using Sonoma Valley Bank letterhead, falsely claimed in letters intended for sellers of PLV East Condominiums that potential buyers had assets at Sonoma Valley Bank that they did not, while Madjlessi and Lonich falsely claimed that potential buyers were individuals when in fact they were straws used by 101 Houseco to regain control of all PLV East units; (5) Madjlessi and Lonich falsely claimed to a New York-based firm that J.H. was the borrower behind 101 Houseco for a loan it sought, knowing that Madjlessi and Lonich were the true borrowers as the individuals in actual control of 101 Houseco; and (6) Madjlessi and Lonich, while negotiating and obtaining refinancing for PLV East, omitted the material fact 101 Houseco and this scheme were the subjects of a criminal investigation and falsely claimed that Madjlessi was unaffiliated with 101 Houseco. Id. ¶ 15.
Now before the Court are motions to dismiss the indictment filed by defendants Lonich, Cutting and Melland. In the alternative, defendants seek a bill of particulars. Each defendant has joined in the motions filed by the other defendants.
Federal Rule of Criminal Procedure 7(c) provides that an indictment must contain "a plain, concise, and definite written statement of the essential facts constituting the offense charged." In the Ninth Circuit, an indictment is usually sufficient if it sets forth the elements of the offensescharged. United States v. Fernandez, 388 F.3d 1199, 1200 (9th Cir. 2004); see also United States v. Woodruff, 50 F.3d 673, 676 (9th Cir. 1995) . In considering a motion to dismiss an indictment, the Court may not look beyond "the four corners of the indictment in analyzing whether a cognizable offense has been charged." United States v. Boren, 278 F.3d 911, 914 (9th Cir. 2002). An indictment is sufficient to withstand a defendant's motion to dismiss "if it contains the elements of the charged offense in sufficient detail (1) to enable the defendant to prepare his defense; (2) to ensure him that he is being prosecuted on the basis of the facts presented to the grand jury; (3) to enable him to plead double jeopardy; and (4) to inform the court of the alleged facts so that it can determine the sufficiency of the charge." United States v. Rosi, 27 F.3d 409, 414 (9th Cir. 1994) (citation omitted).
Counts 1 through 22 charge defendants with bank fraud, wire fraud, conspiracy to make false statements to a bank, money laundering, and conspiracy to commit wire and bank fraud. Lonich moves to dismiss these claims for failure to state an offense. Defendant Lonich argues that these counts should be dismissed because the indictment alleges that Sonoma Valley Bank executives Cutting and Melland knew the material facts allegedly misrepresented and/or omitted,...
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