United States v. Musgrave, 29511.

• Decision Date: 26 July 1971
• Docket Number: No. 29511.,29511.
• Citation: 444 F.2d 755
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Kenneth L. MUSGRAVE and Jack Bryant, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

444 F.2d 755 (1971)

UNITED STATES of America, Plaintiff-Appellee, v. Kenneth L. MUSGRAVE and Jack Bryant, Defendants-Appellants.

No. 29511.

United States Court of Appeals, Fifth Circuit.

June 21, 1971.

Rehearing Denied July 26, 1971.

COPYRIGHT MATERIAL OMITTED

A. L. Rhodes, Abilene, Tex., J. Edwin Smith, Houston, Tex., for Kenneth L. Musgrave.

Tom Webb, Webb & Stokes, San Angelo, Tex., Arthur Mitchell, Mitchell, Gilbert

& McLean, Austin, Tex., for Jack Bryant.

Seagal V. Wheatley, U. S. Atty., Wayne F. Speck, Asst. U. S. Atty., and Andrew Gary, Sp. Asst. U. S. Atty., San Antonio, Tex., for plaintiff-appellee.

Before GOLDBERG and DYER, Circuit Judges, and GROOMS, District Judge.

DYER, Circuit Judge:

Kenneth L. Musgrave, Jack Bryant, Marshall Womack¹ and Homer E. Koon, Jr., were charged in a seven-count indictment with violations of 18 U.S.C.A. §§ 371,² 657,³ and 1006.⁴ The genesis of these alleged violations was a transaction involving two loans made to Womack and Koon by the Home Savings Association of Odessa, Texas.

The first count charged Musgrave, Bryant, Womack, and Koon with conspiring to defraud the federally insured Association. The second count charged that Musgrave, aided and abetted by Womack, fraudulently prepared and submitted grossly inflated appraisal reports on real property securing the loans. The fourth count charged that Bryant, aided and abetted by Musgrave and Womack, unlawfully "participated" in the proceeds of the loans. The sixth count charged that Musgrave, as Chairman of the Board of the Association and aided and abetted by Womack and Bryant, fraudulently caused the Association to make the loans, knowing that they were not secured by sufficient collateral. The seventh count charged that Musgrave, aided and abetted by Womack and Bryant, unlawfully shared in the loan proceeds. Counts three and five were dismissed. A jury found Musgrave guilty on counts one, two, four, six, and seven, and Bryant guilty on counts one, four, six, and seven. Both appealed.⁵ We reverse.

The loans to Womack and Koon were arranged with the aid of Musgrave, acting as Chairman of the Board of the Association, to enable Womack to purchase Musgrave's controlling interest in the Association. Musgrave and Womack entered into a contract whereby Musgrave agreed to sell Womack 14,150 shares of his stock in the Permanent Reserve Fund Stock of the Association. Musgrave's stock represented 56 percent of the total outstanding shares and carried a $1,600,000 price tag — $1,200,000 cash and a $400,000 promissory note.

To enable Womack to meet the $1,200,000 down payment, Musgrave agreed to cause the Association to make two loans for a total of $1,460,000: one loan to Womack for $960,000 secured by certain real estate in Fort Worth, Texas, known as the Trans-American Building, and the other loan to Koon, Womack's nominee, for $500,000 secured by a 1,670-acre farm near Toyah, Texas.

The contract was prepared by Musgrave's attorney Bryant after a basic agreement had been reached between Musgrave and Womack. Bryant acted as Musgrave's counsel and disbursed the proceeds of the loans. Out of the loan proceeds, $1,227,629.90 was paid to Womack, who then endorsed checks for $1,200,000 and delivered them to Musgrave, who in turn delivered them to Bryant. After depositing the funds in a trustee account, Bryant made disbursements, including $1,107,000 to Musgrave and $30,000 in attorney's fees to Bryant's law firm.

The various charges in the indictment against Musgrave and Bryant center upon one basic allegation: Musgrave, as Chairman of the Board of the Association and with the aid of Bryant as his counsel, defrauded the Association by causing the loans to be made although Musgrave and Bryant knew the Trans-American Building and the Toyah farm represented grossly inadequate security for the loans and that Musgrave's appraisal reports assigned values to the properties far in excess of their fair market values.

At the time of loan closing, Musgrave submitted appraisals valuing the building at $1,750,000 and the Toyah farm at $667,000. These values would have represented ample collateral for the loans. In submitting these valuations to the Association Musgrave relied on his own appraisals, as well as those of Vernon Thomas. Neither Thomas nor Musgrave was an MAI⁶ appraiser, although the Musgrave-Womack contract provided that the Association be furnished with MAI appraisals of the properties reflecting a fair market value of no less than 133 1/3; percent of the loans to make them "75% loans." The Government put on extensive proof that these valuations were far too high.⁷

Presiding over the Association's loan committee meeting on June 28, 1968, Musgrave presented the two loans for committee approval. Although the committee took no formal action, the loans were closed that same day. On July 2, 1968, the Board of Directors formally approved the two loans.

On appeal Musgrave and Bryant argue that the trial court's jury charge contained numerous errors and that count seven of the indictment is fatally defective. Additionally, Bryant argues that his motion for a judgment of acquittal based on insufficiency of the evidence was erroneously denied.

BRYANT'S APPEAL

We first direct our attention to Bryant's challenge of the sufficiency of the evidence concerning his intent to defraud the Association based upon his alleged knowledge that the Trans-American Building and the Toyah farm were inadequate collateral to secure the two loans made by Home Savings Association.

With respect to the Toyah farm, the Government defends the verdict by pointing out that Bryant discovered, after the contract was executed, that Always, Inc., not Womack, owned the farm, and that Bryant knew that the resolution authorizing Always, Inc. to transfer the property to Womack recited a consideration of $167,000 as compared with a represented value of $667,000 for the loan. The Government additionally relies upon Bryant's close relationship with Musgrave; the fact that Bryant had toured the Trans-American Building and knew it to be only partially occupied; the fact that Bryant received a $30,000 fee; and Bryant's haste to close the loan.

We discern nothing sinister, nor do we think any unfavorable inferences can be drawn, as the Government argues, from the fact that Always, Inc., not Womack, was found to be the owner of the farm. Womack stated that he controlled the corporation. Not only was this undenied, but the conveyance of the farm was made to Womack so that, on the day of closing, his ownership was precisely as it was represented in the contract. Furthermore, Bryant's insistence that the corporate resolution authorizing the conveyance of the Toyah property to Womack be changed from showing "$10.00 and other valuable consideration" to a requirement for the transfer of the title only upon the payment of the existing first lien of $167,000 to American Trust Life Insurance Company, was to insure the payment of the encumbrance, so that there would be no outstanding impediment in obtaining a title insurance policy at the time of closing. There was no evidence that this amount constituted the total consideration to be paid by Womack.

The other circumstances relied upon by the Government to establish Bryant's intent give us little pause. We are entirely unimpressed with the argument that Bryant's close relationship with Musgrave as attorney and client may establish guilt or knowledge; that a tour through a building by an attorney gives him competence to assess its value; or the fact that Bryant received a flat fee for services rendered, which was openly deposited in his firm account, in some manner not only casts suspicion on him but proves his intent to defraud. Finally, under all of the circumstances extant, it seems clear that Bryant did nothing other than well serve his client by expeditiously closing the transaction.

In passing the Government suggests that Bryant was a sometime agent or employee of the Home Savings Association. This contention requires only brief comment. There was no evidence of any agreement, express or implied, between Bryant and anyone representing the Association that he would render any service for it. Bryant had never met any of the directors of the Association when this transaction occurred and, in fact, had never been in its place of business except once to represent a client. It is common knowledge and practice that acting as a closing agent in a loan transaction does not create an agency or employer-employee relationship between the closing agent and the lending institution. Finally, Bryant received no fee from the Association for any service performed by him.

After carefully reviewing the evidence in this case and taking the view most favorable to the Government, we are firmly convinced that there exists no substantial evidence to support the jury's verdict on any of the counts against Bryant. See United States v. Glasser, 1942, 315 U.S. 60, 80, 62 S.Ct. 457, 86 L.Ed. 680; United States v. Hill, 5 Cir. 1971, 442 F.2d 259; United States v. Ramirez, 5 Cir. 1971, 441 F.2d 950; United States v. Reid, 5 Cir. 1971, 441 F.2d 1089; United States v. Warner, 5 Cir. 1971, 441 F.2d 821; Sanders v. United States, 5 Cir. 1969, 416 F.2d 194, 196, cert. denied, 1970, 397 U.S. 952, 90 S.Ct. 978, 25 L.Ed.2d 135; Jones v. United States, 5 Cir. 1968, 391 F.2d 273, 274. Thus Bryant's motion for a judgment of acquittal should have been granted.

MUSGRAVE'S APPEAL

Turning now to the merits of Musgrave's appeal, the Government has with commendable candor conceded that count seven of the indictment is fatally defective since it omitted an essential element of the offense — "intent to defraud the Home Savings Association of Odessa, Texas." Any conviction based on a fatally defective indictment must, of course, be reversed. Honea v. United States, 5 Cir. 1965, 344 F.2d 798, 804; see Pullen v. United States, 5 Cir. 1947, 164 F.2d 756, 760-761.

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