Warner v. Zent

• Decision Date: 26 July 1993
• Docket Number: No. 92-4339,92-4339
• Parties: Marvin L. WARNER, Petitioner-Appellant, v. Rex A. ZENT, Warden, Respondent-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 116

997 F.2d 116

Marvin L. WARNER, Petitioner-Appellant, v. Rex A. ZENT, Warden, Respondent-Appellee.

No. 92-4339.

United States Court of Appeals Sixth Circuit.

Argued April 29, 1993.

Decided June 7, 1993.

Rehearing and Rehearing En Banc Denied July 26, 1993.

Michael R. Barrett, Cincinnati, OH, Timothy K. Ford (argued and briefed), MacDonald, Hoague & Bayless, Seattle, WA, for petitioner-appellant.

John J. Gideon, Office of the Atty. Gen. of Ohio, Mark A. Vander Laan, Carl J. Stich, Jr. (argued), Kenneth S. Resnick, Lawrence Anthony Kane, Jr. (briefed), Mary Gabrielle Hils, Dinsmore & Shohl, Cincinnati, OH, for respondent-appellee.

Before: JONES, GUY, and NELSON, Circuit Judges.

DAVID A. NELSON, Circuit Judge.

Marvin L. Warner, the petitioner in this habeas corpus case, owned a controlling interest in the corporation of which Home State Savings Bank, a Cincinnati building and loan association, was once a subsidiary. In 1985, a few months after selling an issue of debentures to the public, Home State went bankrupt. The bankruptcy was precipitated by the financial collapse of a Florida securities dealer with which both Home State and Mr. Warner had had extensive business dealings over the years and to which Home State had paid over $114 million in 1983 pursuant to a series of margin calls.

Following the demise of Home State, Mr. Warner and two co-defendants were placed on trial in an Ohio common pleas court on charges of securities fraud, willful misapplication of Home State funds, and unauthorized transfer of drafts or other written instruments belonging to Home State. The jury found Mr. Warner innocent of the majority of the charges against him, but a verdict of guilty was returned on three counts of securities fraud and six counts of unauthorized transfer. The convictions were set aside by an Ohio court of appeals, but were later reinstated by the Supreme Court of Ohio. See State v. Warner, 55 Ohio St.3d 31, 564 N.E.2d 18 (1990), cert. denied, --- U.S. ----, 111 S.Ct. 1584, 113 L.Ed.2d 649 (1991). Mr. Warner instituted the present federal habeas corpus proceeding in 1991. The matter is before us now on appeal from a judgment in which the district court denied habeas relief.

Mr. Warner contends that the district court ought to have held that the State of Ohio violated his federal constitutional rights by (1) construing ambiguous state laws as criminalizing acts (recklessly making wire transfers of institutional funds without authorization) the forbidden character of which had not been clear at the time the acts were committed; (2) failing to give Mr. Warner fair notice, in the indictment or elsewhere, of the culpable mental state required for conviction on the unauthorized transfer charges; (3) physically delivering to the jury written instructions to which counsel were not privy, and failing to let the jury see written instructions that it should have seen; and (4) allowing the jury to find Mr. Warner guilty of securities fraud on the basis of a conclusive presumption that he misrepresented facts "knowingly," although the proofs presented at trial only showed that he ought to have known the facts to be other than as represented.

The respondent warden, represented by a special prosecutor retained by the state, maintains that (1) Ohio law was clear on the criminality of what Mr. Warner did, and the claim of constitutional error in this respect was not preserved for habeas review in any event; (2) Mr. Warner received actual notice of the culpable mental state prescribed by statute for the unauthorized transfer offenses, and he suffered no prejudice by reason of the deficiencies of the indictment in this respect; (3) the error committed by the state trial court in refusing to let counsel see the written copy of the jury instructions which (along with 12 boxes of exhibits) went to the jury room after the jury had been instructed orally did not so prejudice the defense as to make Mr. Warner's conviction unconstitutional; the factual issues associated with the supposed failure to give supplemental written instructions, moreover, were conclusively resolved against Mr. Warner by the Ohio courts; and (4) the statutory "presumption" complained of, as set forth in Ohio Rev.Code § 1707.29, is not a presumption at all; as the Ohio Supreme Court noted, the statute "merely sets forth what the term knowledge encompasses for purposes of criminal liability...." State v. Warner, 564 N.E.2d at 42.

Upon review of the briefs and such of the record as has been placed before us, and upon consideration of the oral arguments presented at a hearing held (at Mr. Warner's request) on an expedited basis, we conclude that the district court did not err in denying the petition for a writ of habeas corpus. We shall therefore affirm the district court's judgment.

I

Although he was not an officer or director of Home State, Mr. Warner controlled the institution through ownership of stock in its parent company, Home State Financial, Inc. In 1977 Mr. Warner was instrumental in having Home State Savings Bank embark on what proved to be a long-term business relationship with ESM Government Securities, Inc., a small broker-dealer located in Florida. ESM became the primary broker for Home State's purchases and sales of government securities and borrowings under reverse repurchase agreements, or "repos." ¹

Over the years, Home State relied on ESM to purchase many hundreds of millions of dollars' worth of government securities for it and to provide the financing for such purchases. As noted above, Home State "sold" the securities to ESM under long term reverse repurchase agreements that represented collateralized borrowings by Home State; ESM did not necessarily retain the collateral, however, because it could sell the securities to others under new repurchase agreements.

Home State's transactions with ESM came under the scrutiny of the Ohio Division of Savings and Loan Associations, a regulatory arm of the state, and the Ohio Deposit Guarantee Fund, a private entity that insured Home State deposits. Both the Division and the Fund became concerned that Home State was giving ESM far too much collateral in relation to the amount of money borrowed. An examiner for the Division concluded in a 1982 report that Home State's overcollateralization was "unsafe and unsound." The Fund agreed, and beginning in 1982 it issued a series of directives in which Home State was told to reduce its involvement with ESM. Home State did not comply, and early in 1983 it entered into a $700 million reverse repo transaction with ESM.

On February 25, 1983--apparently before it knew of the most recent transaction--the Fund sent Home State a letter saying, among other things, that:

"We are most concerned with the extreme amount of over-collateralization of the reverse repo (borrowed money) with ESM Government Securities. As of June 30, 1982, [Home State] has borrowed money from ESM of $83.8 million and collateral assigned aggregating a market value of $177.1 million, which is $93.3 million in excess[,] or a voluminous 211.2% of the amount borrowed.

* * * * * *

"This substantial over-collateralization of the borrowed money to ESM is an unsafe and unsound practice, and is completely unacceptable to the Ohio Deposit Guarantee Fund as it should be to you. This potential risk to Home State and the Fund cannot be permitted to continue.

"We direct you to reduce the market value of Home State's collateral to an amount ranging from 105 to 110% of the amount borrowed from ESM. This reduction must occur as soon as possible, but in no event later than the present term of the reverse repos which, we understand, is no later than June 30, 1983."

On April 28, 1983, Home State's board of directors resolved to comply with the February 25 letter from the Fund. Evidence presented at trial indicated that the board's resolution was not subsequently modified or rescinded, "and that the board never gave anyone [including Mr. Warner] authority to act contrary to its terms." State v. Warner, 564 N.E.2d at 24.

The market value of the government securities purchased by Home State declined in 1983, and, pursuant to the repurchase agreements, Home State received a series of margin calls. Between May of 1983 and October of that year ESM made 41 margin calls totaling more than $114 million. Home State honored each of these margin calls, notwithstanding that the institution was thereby violating the April 28 resolution of its board of directors.

Mr. Warner personally approved the honoring of the last six margin calls, pursuant to which a total of $12.2 million was transferred from Home State to ESM by wire. The payments on the six margin calls in question, made between August 29 and October 14, 1983, constituted the "unauthorized transfers" for which Mr. Warner was ultimately convicted.

The securities fraud charges against Mr. Warner arose out of Home State's sale of a multi-million dollar debenture issue in 1984. Home State Financial, the parent corporation, needed to raise almost $30 million to retire maturing debt. The parent corporation filed a registration statement with the Securities and Exchange Commission for a new issue of debentures, but the SEC, concerned about the ESM situation, did not permit the proposed offering to go forward. This problem was circumvented through the stratagem of merging the parent into the subsidiary. The surviving company--a financial institution exempt from SEC registration--was able to issue the debentures without registration.

The offering circular for the new issue of debentures was reviewed and revised by Mr. Warner personally. The circular greatly overstated the value of Home State's assets. It also incorporated by reference certain reports that contained misstatements as to Home State's relationship with ESM.

Early in 1985 Mr. Warner and Home State learned that ESM had sustained huge losses. These losses--which ESM had been covering...