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United States v. Heine

United States District Court, D. Oregon

April 7, 2017

UNITED STATES OF AMERICA,
v.
DAN HEINE and DIANA YATES, Defendants.

          Billy J. Williams, United States Attorney, and Claire M. Fay, Michelle Holman Kerin, and Quinn P. Harrington, Assistant United States Attorneys, United States Attorney's Office for the District of Oregon, Of Attorneys for the United States of America.

          Jeffrey Alberts and Mark Weiner, Pryor Cashman, LLP, Caroline Harris Crowne and Michael C. Willes, Tonkon Torp, LLP, Of Attorneys for Defendant Dan Heine.

          Janet Lee Hoffman, Kelsey R. Jones, Andrew T. Weiner, Katherine Feuer, and Douglas J. Stamm, Janet Hoffman & Associates, LLC, Matthew J. Kalmanson, Hart Wagner, LLP, Of Attorneys for Defendant Diana Yates.

          OPINION AND ORDER

          Michael H. Simon, United States District Judge

         Defendants Dan Heine (“Heine”) and Diana Yates (“Yates”) are charged with conspiring to commit bank fraud and making false bank entries, reports, or transactions during the time when they were the two most senior officers of The Bank of Oswego (“Bank”). In this Opinion and Order, the Court resolves the following motions filed by Defendants Heine and Yates: (1) Defendant Yates's Motion for Evidentiary Hearing on Willful Spoliation of Evidence and Adverse Inference Jury Instruction (ECF 558); (2) Defendant Yates's Motion to Dismiss and Alternative Motion for Jury Instruction (ECF 574), which Defendant Heine joins (ECF 590 at 4); (3) Defendant Heine's Renewed Motion for Severance (ECF 598), which Defendant Yates joins and provides additional arguments (ECF 682); (4) Defendant Heine's Motion to Dismiss (ECF 590); and (5) Defendant Heine's Third Motion for a Bill of Particulars (ECF 592).[1]Defendant Yates requests an evidentiary hearing for her first motion and oral argument for her second. Defendant Heine does not request oral argument. After reviewing all of the pending motions, all supporting memoranda and declarations, all memoranda and declarations in opposition, and all reply memoranda and declarations, the Court does not believe that an evidentiary hearing is warranted or that oral argument will be helpful on any of the motions addressed in this Opinion and Order. For the reasons that follow, these motions are denied.

         BACKGROUND

         Heine and Yates co-founded the Bank in 2004. The Bank is a financial institution engaged in the business of personal and commercial banking and lending. The Bank is headquartered in Lake Oswego, Oregon.[2] Heine served as the Bank's President and Chief Executive Officer (“CEO”). As President and CEO, Heine supervised and managed the Bank's affairs and operations. Heine also was a member of the Bank's Board of Directors (“Board”). Heine left the Bank in September 2014. Yates served as the Bank's Executive Vice President and Chief Financial Officer (“CFO”). As CFO, Yates was responsible for ensuring the Bank's compliance with federal and state regulations. Yates also was the Secretary of the Board. Yates resigned from the Bank on March 22, 2012.

         Both Heine and Yates were responsible for ensuring that the Bank operated in a sound and safe manner and for keeping the Board informed about the Bank's financial condition and the adequacy of the Bank's policies, procedures, and internal controls. Additionally, Heine and Yates were members of the Bank's Internal Loan Committee (“ILC”). The duties of the ILC included approving loans that were outside the authority of individual Bank loan officers, ensuring the quality of the Bank's loan portfolio, and minimizing risks in that portfolio.

         The Bank's deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”), and the Bank is subject to regular monitoring and examinations by the FDIC. For example, federal regulations require the Bank to file with the FDIC what are commonly known as “Call Reports” on a quarterly basis. A Call Report contains information about the Bank's financial position and is divided into a number of schedules. One of the schedules, known as “Schedule RC-N, ” requires disclosure of the correct value of outstanding loans.

         On March 9, 2017, a federal grand jury returned a 19-count Superseding Indictment against both Heine and Yates, alleging misconduct related to their activities with the Bank. ECF 623.[3] The Superseding Indictment charges Heine and Yates with one count of conspiring to commit bank fraud, in violation of 18 U.S.C. § 1349, and 18 counts of making false bank entries, reports, or transactions, in violation of 18 U.S.C. §§ 1005 and 2.[4] The Superseding Indictment alleges that between September 2009 and September 2014, Heine and Yates conspired to defraud the Bank through materially false representations and promises. The Superseding Indictment further alleges that one of the purposes of the conspiracy was to conceal the true financial condition of the Bank from the Board, the Bank's shareholders, the Bank's regulators (including the FDIC), and the public. According to the Superseding Indictment, Heine and Yates reported false and misleading information about loan performance, concealed information about the status of foreclosed properties, made unauthorized transfers of Bank proceeds, and failed to disclose material facts about loans to the Board, shareholders, and regulators, all in an effort to conceal the Bank's true financial condition.

         The Superseding Indictment against Heine and Yates alleges the following five schemes that purportedly advanced the alleged conspiracy's purpose of falsely creating a healthier appearance of the Bank's finances than actually existed:

1. Payments Made on Delinquent Loans.
Heine and Yates made payments, using Bank proceeds, on behalf of Bank customers who were delinquent on their loans. The payments sometimes were made without the knowledge or consent of the Bank's customer. The payments were made so that the delinquent loans would not appear in the Call Reports. On March 31, 2011, Yates transferred funds from a Bank customer's business checking account to the customer's personal loan account, which was delinquent, without the customer's consent. Heine and Yates's alleged practice of paying delinquent loans with Bank or other proceeds hid delinquent loans that otherwise would have been included in the Call Reports and reported to the Board.
2. Wire Transfer and Loan to Bank Customer M.K.
Between July 2010 and September 2010, Heine and Yates permitted to be made an unsecured draw in the amount of $675, 000 for Bank customer M.K. and then approved a $1.7 million loan for the benefit of M.K. in order to conceal the unsecured draw and to pay other Bank borrowers' delinquent loans. Yates approved the unsecured draw.
3. Straw Buyer Purchase (A Avenue Property).
From October 2010 through May 2011, Heine and Yates recruited a Bank employee, D.W., to facilitate a straw buyer purchase of real property located at 952 A Avenue, Lake Oswego, Oregon 97034 (“A Avenue Property”) for the purpose of concealing a loss to the Bank. Heine and Yates gave D.W. two checks totaling $267, 727.89 from the Bank's cash account to purchase the A Avenue Property. Yates falsely represented in transactional documents that D.W. funded the purchase personally.
4. Other Real Estate Owned (“OREO”) Properties Sold to Bank Customer R.C.
From March 2010 through June 2013, Heine and Yates removed two properties from the Bank's OREO account after the properties were sold to a Bank borrower, R.C., even though the sales did not meet the requirements to remove the properties from the account. Heine and Yates did not require R.C. to make any down payment and provided R.C. with full financing from the Bank for both properties. As a result of the transactions, the properties were no longer reported on the Call Reports as OREO assets. On January 24, 2011, FDIC examiners questioned the validity of the removal of the properties from the Bank's OREO account and advised Heine and Yates that the purchases did not meet the minimum equity requirements needed to remove the properties. Yates advised the FDIC examiners that R.C. was going to make down payments for the two homes, which would then permit the Bank properly to remove the properties from the OREO account. On January 31, 2011, Yates prepared two memos to each of the R.C. loan files that falsely stated R.C. was willing to make a 15 percent down payment on the properties. Heine and Yates represented that R.C. paid down payments for the properties, when in fact no payment was received by the Bank.
5. Misrepresentations to Shareholders.
From September 2009 through September 2014, Heine and Yates caused the Bank to misrepresent to the Bank's shareholders the Bank's “Texas Ratio, ” which is a measure of the Bank's credit troubles and potential for bank failure, thus misrepresenting the true extent of the Bank's delinquent loans.

ECF 623 at 4-11, ¶¶ 13-26. The Superseding Indictment further alleges that Heine and Yates knowingly made 18 false entries in the books, reports, and statements of the Bank with the intent to injure and defraud the Bank. Heine and Yates allegedly did so by omitting material information about the true status and condition of loans and assets from the Call Reports and reports to the Board. Id. at 12-13.

         The Superseding Indictment also names Geoffrey Walsh (“Walsh”) as a person who played a role in the alleged conspiracy. Walsh was the former Senior Vice President of Lending at the Bank. Id. at ¶ 13. On May 2, 2012, the Bank, acting through Heine, terminated the employment of Walsh for cause, in part based on Walsh's alleged misconduct concerning lending practices. On June 11, 2012, Heine called the Federal Bureau of Investigation (“FBI”) to report alleged criminal activity by Walsh. In July 2013, a federal grand jury indicted Walsh in a separate case for conspiracy to commit wire fraud, wire fraud, and conspiracy to make false entries in bank records, among other charges. United States v. Walsh, Case No. 3:13-cr-00332-SI-1 (D. Or.) (“Walsh Criminal Action”). On July 22, 2015, Walsh pleaded guilty in the Walsh Criminal Action to certain charges alleged in a superseding indictment and second superseding information. In Walsh's plea agreement, he accepted responsibility for his role in many of the same acts described in the Superseding Indictment against Heine and Yates. Walsh is awaiting sentencing.

         RULINGS ON PENDING MOTIONS

         A. Defendant Yates's Motion for Evidentiary Hearing on Willful Spoliation of Evidence and Adverse Inference Jury Instruction

         Defendant Yates moves for an evidentiary hearing on willful spoliation of evidence and for an adverse inference jury instruction “stating that the Bank, acting through Dan Heine and others, destroyed documents that contained favorable evidence for Ms. Yates.” ECF 558 at 2. In her motion, Yates does not seek a remedy against the Government, but adds that she “might do so after the evidentiary hearing.” Id. at 12 n.5.

         1. Background

         According to Yates, when she resigned from the Bank, she left behind her contemporaneous work papers for the period relevant to the Superseding Indictment. In addition, Yates contends that Walsh kept a file or notebook that contained negative information about every Bank employee during his tenure. According to Yates:

It is likely that Ms. Yates's work papers and Mr. Walsh's notebook contained highly relevant evidence. The work papers are perhaps the best source of documentary evidence of what Ms. Yates knew at the time, and that she was not part of a “conspiracy” to defraud the Bank. Walsh's notebook almost certainly contains ...

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