United States v. Steffen

• Decision Date: 09 August 2012
• Docket Number: No. 12–1098.,12–1098.
• Citation: 687 F.3d 1104
• Parties: UNITED STATES of America, Plaintiff–Appellant v. John R. STEFFEN, Defendant–Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

687 F.3d 1104

UNITED STATES of America, Plaintiff–Appellant

v.John R. STEFFEN, Defendant–Appellee.

No. 12–1098.

United States Court of Appeals,

Eighth Circuit.

Submitted: June 15, 2012.

Filed: Aug. 9, 2012.

Richard E. Finneran, Assistant United States Attorney, argued, Steven Alan Muchnick, Assistant United States Attorney, Michael Wren Reap, Assistant United States Attorney, on the brief, St. Louis, MO, for Appellant.

Robert T. Haar, argued, Lisa Pake, Lee T. Lawless, Federal Public Defender, on the brief, St. Louis, MO, for Appellee.

Before SMITH, BEAM, and SHEPHERD, Circuit Judges.

SHEPHERD, Circuit Judge.

John R. Steffen was indicted on two counts of bank fraud in violation of 18 U.S.C. § 1344, one count of mail fraud in violation of 18 U.S.C. § 1341, and one count of wire fraud in violation of 18 U.S.C. § 1343. Steffen filed a motion to dismiss the indictment for failure to state an offense. The district court ¹ found that a false representation is a required element of a federal fraud offense and that the indictment failed to allege any express misrepresentation by Steffen. The district court further held that “absent a statutory, fiduciary, or independent disclosure duty, mere silence (nondisclosure) is insufficient to state a fraud claim” under any of the three charged offenses and dismissed the indictment. The Government now appeals, arguing that the indictment sufficiently alleged a scheme to defraud. We affirm.

I. Background ²

Steffen was the owner of Pyramid Construction, Inc. and MB Lofts, LLC, two Missouri corporations that were in the construction business. These companies were involved in numerous residential and commercial real estate projects in St. Louis, Missouri. One of MB Lofts' major projects was the redevelopment and rehabilitation of the Metropolitan Building at 500 North Grand Boulevard in St. Louis. As part of the financing for this project, MB Lofts applied for and received $1,424,818 in tax credits from the State of Missouri. In May 2007, Steffen and MB Lofts pledged these tax credits (“the collateral”) as security for a loan from The Business Bank of St. Louis (“the Bank”). Steffen, individually and on behalf of MB Lofts, executed a written “Pledge and Security Agreement” (“the security agreement”). In Section 4 of the security agreement, Steffen promised that any sale of the collateral would be executed under the terms of an attached form sale agreement and that the Bank would be provided with a draft of any such agreement prior to a sale. In Section 5 of the security agreement, Steffen and MB Lofts granted their interest in any proceeds from a sale of the collateral to the Bank. Section 7(c) of the security agreement required Steffen and MB Lofts to obtain the prior written consent of the Bank before selling or otherwise disposing of the collateral. Steffen also executed a “Construction Loan Agreement” (“loan agreement”) with the Bank. Section 10.21 of the loan agreement specified a deposit account with the Bank that should receive the proceeds in the event that the collateral was sold.

Between May 2007 and March 2008, MB Lofts received $1,115,633 from the Bank pursuant to the loan agreement. In December 2007, Steffen, acting on behalf of MB Lofts, sold a substantial portion of the collateral to a third party without sending a draft of the agreement to the Bank or obtaining the Bank's prior approval. Steffen then deposited the proceeds of the sale into an account with another bank instead of the deposit account with the Bank as specified by the loan agreement. On March 7, 2008, MB Lofts requested an advance on the loan in the amount of $5,739.45, and the Bank wired the funds four days later. Shortly thereafter, the Bank discovered the sale of the collateral. MB Lofts ultimately defaulted on the loan.

A. The First Indictment

On July 8, 2010, the Government charged Steffen with bank fraud in a one-count indictment (“the first indictment”). The first indictment alleged that Steffen executed a scheme to defraud a financial institution under 18 U.S.C. § 1344 by selling the collateral he had previously pledged to the Bank for its loan. Steffen filed a motion to dismiss the first indictment for failure to state an offense, arguing that the Government failed to identify any express misrepresentations from Steffen to the Bank. The Government argued that Steffen's failure to tell the Bank about his conversion of the collateral was a material omission that demonstrated a scheme to defraud the Bank. The district court noted that the Government “affirmatively admitted several times at oral argument that defendant made no misrepresentations.” United States v. Steffen, 753 F.Supp.2d 903, 906 (E.D.Mo.2010) (emphasis omitted). The court then relied on United States v. Ponec, 163 F.3d 486 (8th Cir.1998), among other cases, to conclude that “nondisclosure or silence is insufficient to state a bank fraud claim.” Steffen, 753 F.Supp.2d at 911. The court acknowledged, however, that nondisclosure might be part of a scheme to defraud if there were “some independent legal duty to disclose,” but found that the first indictment alleged no such duty owed by Steffen. Id. at 908. Accordingly, the court dismissed the first indictment. Id. at 904.

B. The Second Indictment

On April 5, 2011, the Government filed a second indictment (“the indictment”), which is the subject of this appeal. The indictment elaborated on the Government's original theory of the case by charging Steffen with four counts: bank fraud in violation of 18 U.S.C. § 1344 for the sale of the collateral without first providing the Bank with a draft of the sale agreement (Count 1); mail fraud in violation of 18 U.S.C. § 1341 for using UPS to send the State of Missouri a form reflecting Steffen's transfer of the collateral (Count 2); wire fraud in violation of 18 U.S.C. § 1343 for the transfer of the funds used to purchase the collateral (Count 3); and another violation of 18 U.S.C. § 1344 for the March 7, 2008 draw request to the Bank (Count 4). This time, the Government alleged that Steffen's sale of the collateral and his failure to carry out his disclosure duties under the security agreement amounted to a scheme to defraud for the purposes of the bank, mail, and wire fraud statutes. Count 4 was based on the theory that Steffen's draw against the loan after selling the collateral amounted to an implied false representation under the terms of the security agreement that the collateral was secure.

Once again, Steffen filed a motion to dismiss the indictment for failure to state an offense. Steffen argued that the indictment “simply alleged greater detail regarding the same facts” as the first indictment and that the Government again “fail[ed] to allege the requisite affirmative misrepresentation to the bank.” The district court agreed and dismissed the indictment. The court acknowledged that, unlike the first indictment, the second indictment alleged breaches of Steffen's duty to disclose the sale of the collateral under the terms of the security agreement. However, the court concluded that “in order for a fraudulent disclosure to be actionable fraud (either criminal or civil) the duty to disclose must be independent of any duty imposed by the contract.... [T]he disclosure duty must be imposed by statute or by the existence of a fiduciary relationship.” Finding no duty to disclose beyond the contractual one imposed by the security agreement, the court found that Steffen's “mere silence (nondisclosure) [was] insufficient to state a fraud claim” under any of the four counts.

The Government filed a motion for reconsideration, arguing that the indictment alleged more than mere nondisclosure by demonstrating “active concealment, implied misrepresentations, and fraudulent omissions that together establish a ‘scheme to defraud.’ ” The Government also argued that the court's reliance on Ponec was misplaced because Ponec's language indicating that a scheme to defraud requires an affirmative misrepresentation was either dicta or in conflict with prior opinions of this court. The motion was granted, and after extensive briefing and oral argument, the district court once again dismissed the indictment. The court held that the language in Ponec was not dicta and controlled the outcome. It also reiterated that “[e]ven in the circuits that do not have the Ponec requirement of an affirmative misrepresentation, courts have required active concealment or an independent duty to disclose in order to state a bank fraud claim.” The district court concluded that the indictment failed to allege any non-contractual duty to disclose or any acts of concealment by Steffen.

II. Analysis

We review de novo a district court's dismissal of an indictment for failure to state an offense. United States v. Hirsch, 360 F.3d 860, 863 (8th Cir.2004). “An indictment is legally sufficient on its face if it contains all of the essential elements of the offense charged, fairly informs the defendant of the charges against which he must defend, and alleges sufficient information to allow a defendant to plead a conviction or acquittal as a bar to a subsequent prosecution.” United States v. Fleming, 8 F.3d 1264, 1265 (8th Cir.1993). The central issue in this case is whether the indictment sufficiently alleged that Steffen engaged in a “scheme or artifice to defraud” the Bank and thus contained all of the essential elements of mail, wire, and bank fraud. See18 U.S.C. §§ 1341, 1343, 1344; United States v. Onwumere, 530 F.3d 651, 653 (8th Cir.2008) (elements of mail fraud); United States v. Farrington, 499 F.3d 854, 859 (8th Cir.2007) (elements of wire fraud); United States v. Jenkins, 210 F.3d 884, 886 (8th Cir.2000) (elements of bank fraud).³

The Government argues that the indictment sufficiently stated offenses under the federal fraud statutes. The Government's argument can be divided into two parts. First, the Government contends that under the federal fraud statutes, an...