United States v. Parkes, 09–6525.

• Decision Date: 02 February 2012
• Docket Number: No. 09–6525.,09–6525.
• Citation: 668 F.3d 295
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Timothy H. PARKES, Defendant–Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

668 F.3d 295

UNITED STATES of America, Plaintiff–Appellee,

v.Timothy H. PARKES, Defendant–Appellant.

No. 09–6525.

United States Court of Appeals, Sixth Circuit.

Argued: Jan. 11, 2012.Decided and Filed: Feb. 2, 2012.

ARGUED: David M. Garvin, Miami, Florida, for Appellant. Debra A. Breneman, Assistant United States Attorney, Knoxville, Tennessee, for Appellee. ON BRIEF: David M. Garvin, Miami, Florida, Wade V. Davies, Ritchie, Dillard & Davies, PC, Knoxville, Tennessee, for Appellant. Debra A. Breneman, Assistant United States Attorney, Knoxville, Tennessee, Gary S. Humble, Assistant United States Attorney, Chattanooga, Tennessee, for Appellee.Before: KETHLEDGE and STRANCH, Circuit Judges; GWIN, District Judge.^*

OPINION

GWIN, District Judge.

A jury convicted businessman Timothy Parkes on ten counts of bank fraud involving the creation of ten fraudulent entries on the books of a small bank in Benton, Tennessee. At trial, the government offered the theory that Parkes and the bank's President jointly created the phony entries in an effort to disguise some of the bank's earlier, troubled loans to Parkes's business.

Parkes now appeals his conviction, challenging, among other things, the sufficiency of the government's evidence; the exclusion of evidence that the bank's President had, unassisted, previously engaged in a large number of identical frauds; and the prosecutor's suggestion to the jury that an acquittal would deliver a financial windfall to Parkes. Because the government offered no direct evidence and insufficient circumstantial evidence to show that Parkes knew about or participated in the bank President's fraud—a fraud that the bank President had independent reasons for creating—we conclude that the evidence was insufficient to prove Parkes's guilt beyond a reasonable doubt, and reverse.

I.

With this criminal case, the United States says that Defendant Timothy Parkes defrauded a federally insured financial institution by participating in a scheme to have the bank's President change the names of borrowers on the bank's records to avoid FDIC limits on the amount that could be lent to any one customer. The United States says that Parkes participated in this scheme but did not offer evidence that Parkes knew of the lending limitations. The United States says that Parkes participated in this scheme even though the bank's Board of Directors had years before approved loans to Parkes's business in excess of the FDIC limits. And the United States says that Parkes participated in this scheme in December 2002 even though Parkes and his business were not seeking any changed borrowing authority at that time and even though Parkes had guaranteed his business's payments to the bank.

* * *

Timothy Parkes and his codefendant Mark Mourier founded Remington Industries, Inc. (Remington Industries or Remington), a manufacturer and distributor of automobile floor mats. Mourier was Remington's chief financial officer and supervised Remington's office while Parkes took more responsibility for outside sales. In 1986, the two men moved Remington from Canada to Tennessee, where they became acquainted with Jim Goddard. Goddard was the President of Benton Bank (the Bank), and helped Parkes and Mourier arrange financing for Remington's operations. Remington became one of the biggest businesses in Benton, Tennessee, at one point employing more than 200 people.

Benton Bank and Remington Industries had a long relationship. Remington first borrowed money from the Bank for the construction and later expansion of an assembly plant in Benton. And with the Bank's help, Remington operated successfully. In 1999, however, Remington began a completely new manufacturing process, with disastrous results. The new process used unfamiliar chemicals, required an expensive new manufacturing line, and resulted in floor mats that could melt in the summer heat. The manufacturing choice nearly ruined Remington.

Although Remington had been profitable before its decision to switch manufacturing processes, the company lost more than $1,500,000 each year from 2000 through 2002. In 2002, and after recognizing that the new manufacturing process had become a “black hole,” Remington shut down its production line and outsourced its manufacturing, mostly to Chinese manufacturers. The company quickly returned to profitability, earning nearly $380,000 in profit during the five-month period starting September 1, 2002, and more than $1,600,000 during fiscal year 2004.

By August 2001, however, Remington Industries had approximately $2,500,000 in debt to Benton Bank. In addition, Remington was overdrafting its checking account hundreds of times each month. Rather than refuse payment on Remington's bad checks, Benton Bank had been paying them and then treating the overdrafts as additional loans. At some times, Remington owed Benton Bank as much as $4,000,000.

During this time, Benton Bank was a small bank with less than $10,000,000 in capital. FDIC and internal Benton Bank regulations limited the amount the Bank could lend to any individual customer.¹ Remington's debts to the Bank exceeded, and had exceeded, these limits. Because Remington's loans were too large given Benton Bank's capital, Bank President Goddard asked Remington to obtain credit from other lenders. To that end, Remington sought another source of credit from Livingston Company (Livingston), a private-equity investment firm. Benton Bank President Goddard, Parkes, and Mourier intended the Livingston credit to reduce Benton Bank's loans to Remington. Livingston agreed to loan $2,250,000 to Remington Industries to pay down Remington's loans at Benton Bank if Benton Bank would give Livingston irrevocable letters of credit. In effect, Benton Bank would receive the broad majority of the Livingston $2,250,000 investment but Benton Bank would guarantee Remington's repayment of the Livingston loans. Benton Bank agreed to provide this guarantee to Livingston.

Remington used nearly all of the money it borrowed from Livingston to pay down its debts at Benton Bank. But in October 2002, Remington Industries defaulted on the Livingston loans. In turn, Livingston demanded that Benton Bank honor its letter of credit. The Bank then paid Livingston $2,250,000, the balance Remington owed on the loans from Livingston.

After this payment to Livingston, Remington owners Parkes and Mourier each signed personal, unsecured forty-five-day notes for $1,125,000 to Benton Bank. Nevertheless, when those notes came due in December 2002, Parkes and Mourier could not pay. In addition to the $1,125,000 notes, Parkes and Mourier had earlier guaranteed Remington's loans from Benton Bank.

Shortly thereafter, from mid- to late-December 2002, Goddard recorded false entries in the Bank's books showing that loans totaling the same $2,250,000 had been made to ten new entities. Although Goddard changed the Bank's records to show that the loans were made to borrowers other than Remington, Goddard never cancelled the Remington, Parkes, or Mourier notes and each remained obligated to pay Benton Bank.

Goddard had played games with the Benton Bank books before. At a time when he was also embezzling from Benton Bank, Goddard had changed the notes of other, unrelated borrowers: At trial, Parkes tried—but was denied the opportunity—to offer evidence that Goddard had falsely documented more than three hundred loans to other borrowers and had done so without the borrowers' knowledge or participation.

Generally, Goddard's schemes worked like this: When a large loan ( e.g., Remington's) looked like it was going bad, Goddard would repackage the large loan into a number of smaller loans, usually in the name of fictitious entities with fake taxpayer-identification numbers. Goddard assigned these loans to thirteen addresses that he stocked for this purpose, many of which were Post Office boxes. By hiding large loan defaults, Goddard tried to avoid careful scrutiny of the Bank's records, scrutiny that would have revealed Goddard's violation of the Bank's capital-lending limits. Likely more important for Goddard, FDIC review would threaten disclosure of his embezzlement of more than a million dollars of the Bank's money.

Bank President Goddard used this scheme to hide Remington's loans, more specifically, to hide the $2,250,000 Benton Bank paid Livingston on Remington's behalf. Most likely, Goddard hoped to hide the Bank's violation of FDIC lending limitations. Benton Bank's Board of Directors already knew that the Bank had outsized exposure to Remington.² Less than two weeks after Parkes and Mourier failed to pay their $1,125,000 personal notes, Goddard changed the Bank's books to show ten new Benton Bank loans in the names of ten as-yet-nonexistent entities. The Bank's books reflect that each entity received one loan for an amount between $200,000 and $250,000, and that the total value of the ten loans was $2,250,000, exactly the sum Parkes and Mourier owed on their personal notes.

Eventually Goddard's years of wrongdoing unraveled and he left the Bank. Thereafter, other Bank employees found a fax in Goddard's office from someone at Remington to Goddard, sent December 16, 2002. The fax was a printed copy of an email from Parkes to Remington's outside attorney, requesting the creation of ten “c corp[s].” The original email shows that Mourier—Remington's chief financial officer —was carbon copied. That email, dated December 13, 2002, read:

Kent these are the ten names we want to use. The sense of urgency in getting this done is very high. We will see you Monday

CDN Sales

White Oak Investments

Motorworks Corporation

Canmark

Davis corporation

AMS Inc.

Polar Inc.

Automotive Coordinates

OEM Specialties Inc

T & T Inc

In December 2002, Benton Bank President Goddard fraudulently designated these entities as Benton Bank borrowers.³

Bank President Goddard pleaded guilty to two counts of misapplication of bank funds, in violation of 18 U.S.C. § 656....