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United States v. Heine

United States District Court, D. Oregon

October 5, 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, 1600 Pioneer Tower, 888 SW Fifth Avenue, Portland, OR 97204. 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, 1000 SW Broadway, Suite 2000, Portland, OR 97205. Of Attorneys for Defendant Diana Yates.

          OPINION AND ORDER ON MOTIONS IN LIMINE, MOTIONS TO DISMISS, AND OTHER PRETRIAL OBJECTIONS AND MATTERS

          Michael H. Simon, District Judge.

         CONTENTS

         BACKGROUND ............................................................................................................................ 5

         DISCUSSION ................................................................................................................................. 8

         A. Government's Motions in Limine (ECF 670) .................................................................. 8

         1. Definition of “Materiality” ........................................................................................... 8

         2. Self-Serving Hearsay .................................................................................................... 9

         3. Character Evidence ..................................................................................................... 10

         4. Government Agents in the Courtroom ....................................................................... 11

         5. Admissibility of Business Records ............................................................................. 12

         6. FDIC Civil Investigation ............................................................................................ 14

         7. Reciprocal Discovery ................................................................................................. 15

         8. Actual Monetary Loss ................................................................................................ 16

         B. Defendant Heine's Motions in Limine ........................................................................... 17

         1. Loan Collection Efforts (ECF 812) ............................................................................ 17

         2. State of Mind Speculation (ECF 648) ........................................................................ 18

         3. Lay Opinion by Ms. Klein or Others (ECF 809) ........................................................ 18

         4. Statements Made Outside Alleged Conspiracy (ECF 653) ........................................ 19

         5. Legal Expenses (ECF 654) ......................................................................................... 23

         6. Proffer of Coconspirator Statements (ECF 655) ........................................................ 24

         7. Inflammatory Language (ECF 656) ........................................................................... 25

         8. False Statements Not Alleged in the Indictment (ECF 657) ...................................... 25

         9. Streamlined Objections (ECF 658) ............................................................................. 27

         10. Compound Questions (ECF 664) ............................................................................... 27

         11. Actions Toward Ms. Yates After Her Resignation (ECF 811) ................................... 27

         C. Defendant Heine's Motion to Exclude Evidence of Other Acts (ECF 800) .................. 28

         1. Legal Standards under Fed.R.Evid. 404(b) .............................................................. 28

         2. Purported Interaction with Minor ............................................................................... 30

         3. Purported Sexual Harassment of Bank Employees .................................................... 31

         4. “Redlining” Hispanic Borrower's Loan ..................................................................... 31

         5. Purported Extramarital Affair ..................................................................................... 31

         6. 2005 Credit Card ........................................................................................................ 31

         7. 2006 Divorce Proceeding ........................................................................................... 32

         8. $5, 000 Personal Tax Deduction .................................................................................. 32

         9. Attempt to Secure a Loan in 2011 .............................................................................. 32

         10. Stock Transfers ........................................................................................................... 32

         11. 2010 and 2011 Requests for Extension of Line of Credit .......................................... 32

         12. Failure to Disclose MOU to Shareholders .................................................................. 33

         13. Bank Loan to Diana Yates .......................................................................................... 33

         14. Stone Bridge Transaction ........................................................................................... 33

         15. Information Concerning Former Board Chairman ..................................................... 33

         16. Heine's Firing of Bank Employees ............................................................................ 34

         17. Heine's Computer Password ...................................................................................... 34

         18. Heine's Son ................................................................................................................. 34

         19. Charitable Donation .................................................................................................... 34

         D. Defendant Yates's Motions in Limine (ECF 671) ......................................................... 34

         1. September 2011 Loan to Yates ................................................................................... 34

         2. Yates's Financial Condition ....................................................................................... 35

         3. Testimony of Government Experts ............................................................................. 35

         4. Causation of Financial Loss to Bank .......................................................................... 35

         5. Rule 404(b) Other Acts Evidence ............................................................................... 35

         6. Vices ........................................................................................................................... 36

         7. Yates's Involvement after March 30, 2012 ................................................................ 36

         8. Foreclosure on A Avenue Property ............................................................................ 36

         9. Use of the terms “Straw Buyer” or “Straw Purchaser” .............................................. 36

         10. Use of the Word “Fraud” ............................................................................................ 36

         11. Use of the Phrase “Hard-Money Lending” ................................................................. 36

         12. Advancement of Yates's Legal Fees and Indemnification ......................................... 36

         13. Fannie Mae ................................................................................................................. 36

         14. Later-Enacted Laws and Regulations ......................................................................... 36

         15. Yates's Approval of Heine's Line of Credit ............................................................... 37

         16. Use of the Word “Victim” .......................................................................................... 37

         17. Inculpatory Statements by Heine about Yates ............................................................ 37

         18. “Red Herrings” and Work Papers ............................................................................... 37

         19. Stone Bridge E-Mail Chain ........................................................................................ 38

         20. Jury Deliberations ....................................................................................................... 38

         21. Geoffrey Walsh's iPhone Extraction Report .............................................................. 38

         22. Yates's Claim that She Was a CPA ............................................................................ 38

         23. Bank's Memorandum of Understanding .................................................................... 38

         E. Defendant Yates's Supplemental Motions in Limine (ECF 652) .................................. 38

         1. Brandon Lawler .......................................................................................................... 38

         2. Stephen Gordon .......................................................................................................... 38

         3. Martin Muenchau ....................................................................................................... 39

         4. Thomas Wallace ......................................................................................................... 39

         5. Peter Kovalski ............................................................................................................. 39

         6. A Avenue Property ..................................................................................................... 39

         F. Defendant Yates's Objections Regarding Mark Dixon (ECF 824) ............................... 39

         G. Defendant Yates's Motion for Coconspirator Statements (ECF 687) ........................... 41

         H. Defendant Yates's Motion to Exclude Summary Exhibits (ECF 816) .......................... 42

         I. Other Objections to Trial Exhibits ................................................................................. 42

         J. Objections to Amended Expert Witness Disclosures .................................................... 42

         1. Heine's Objections to Government's Amended Notice (ECF 841) ........................... 42

         2. Government's Objections to Yates's Amended Notice (ECF 834) ............................ 42

         3. Heine's Objections to Yates's Amended Notice (ECF 842) ...................................... 42

         K. Defendant Yates's Motion to Compel FDIC-OIG (ECF 882) ....................................... 42

         L. Defendant Heine's Motion to Dismiss Based on Speedy Trial Rights (ECF 894) ........ 43

         1. Reason for Delay ........................................................................................................ 44

         2. Prejudice ..................................................................................................................... 47

         M. Defendant Yates's Motion in Limine to Exclude Heine Exhibit 4733 (ECF 898) ........ 48

         N. Defendant Heine's Motion to Dismiss Based on Multiplicity (ECF 904) ..................... 48

         CONCLUSION ............................................................................................................................. 50

         Defendants Dan Heine (“Heine”) and Diana Yates (“Yates”) are charged in this criminal action 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 (the “Bank”). Before the Court are the parties' motions in limine and other pretrial objections and motions.

         BACKGROUND

         Heine and Yates co-founded the Bank in 2004. Until August 2016, the Bank had been a financial institution engaged in the business of personal and commercial banking and lending, headquartered in Lake Oswego, Oregon.[1] The Bank is insured by the Federal Deposit Insurance Corporation (“FDIC”). Heine previously served as the Bank's President and Chief Executive Officer. Heine also was a member of the Bank's Board of Directors (“Board”). Heine left the Bank in September 2014. Yates previously served as the Bank's Executive Vice President and Chief Financial Officer. Yates also was the Secretary of the Board. Yates resigned from the Bank on March 22, 2012.

         On June 24, 2015, a federal grand jury indicted Heine and Yates for conduct related to their time with the Bank. On March 9, 2017, a federal grand jury returned a Superseding Indictment (the “Indictment”), which 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. §§ 2 and 1005.[2] ECF 623. As alleged in the Indictment, between September 2009 and September 2014, Heine and Yates conspired to defraud the Bank through materially false representations and promises. The 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 public, and the Bank's regulators, including the FDIC. According to the 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 (including the FDIC), all in an effort to conceal the Bank's true financial condition.

         The Indictment against Heine and Yates alleges the following 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 Bank's 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 Indictment further alleges that Heine and Yates knowingly made, or aided and abetted the making of, 18 false entries in the books, reports, and statements of the Bank with the intent to injure and defraud the Bank and to deceive any officer of the Bank, the FDIC, any agent or examiner appointed to examine the affairs of the Bank, and the Bank's Board. Heine and Yates allegedly did so by omitting material information about the true status and condition of the Bank's loans and assets. Id. at 12-13.

         The Indictment also names Geoffrey Walsh (“Walsh”) as a person who played a role in the alleged conspiracy. Joining the Bank in January 2009, Walsh was the Bank's Senior Vice President of Lending. Id. at ¶ 13. On May 2, 2012, the Bank, acting through Heine, terminated the employment of Walsh, 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 to certain charges. In his plea agreement, Walsh accepted responsibility for his role in many of the same acts alleged in the Indictment against Heine and Yates. Walsh is awaiting sentencing.

         DISCUSSION

         A. Government's Motions in Limine (ECF 670)

         1. Definition of “Materiality”

         GRANTED.

         The Government moves to preclude testimony or argument that may confuse the jury regarding the legal definition of “materiality” relevant to the charges at issue. The Government does not dispute that the definition of “materiality” may be different in the context of either Generally Accepted Accounting Principles (“GAAP”) or the Bank's Call Reports, but the Government requests an appropriate limiting instruction be given to reduce jury confusion when such testimony is presented.

         The Court currently intends to instruct the jury both in preliminary and final jury instructions approximately as follows:

A statement or omission is material if it is relevant or important to a decision. A statement is material when it contains information that has a natural tendency to influence, or is capable of influencing, the decision of the decision-making body to whom or which it was addressed. Similarly, omitted information is material when the information that has been left out has a natural tendency to influence, or is capable of influencing, the decision of the decision-making body to whom or which it was addressed. The government does not have to prove actual reliance upon a defendant's misrepresentation to show the materiality of that representation.

See United States v. Lindsey, 850 F.3d 1009, 1014-16 (9th Cir. 2017); United States v. Woods, 335 F.3d 993, 997-998, 1000 (9th Cir. 2003) (holding that omissions of material fact may be used to establish a scheme to defraud); Neder v. United States, 527 U.S. 1, 25 (1999) (“[T]he government does not have to prove actual reliance upon the defendant's misrepresentations” to show materiality.) (citation omitted). Finally, although the Court will not preclude a party from discussing materiality in the context of GAAP or Call Reports, when relevant, the Court may give a limiting instruction upon request and if appropriate.

         2. Self-Serving Hearsay

         DEFERRED UNTIL TRIAL, WITH LIMITATIONS.

         The Government argues that defendants may attempt to elicit their own self-serving statements through the testimony of other witnesses and that such statements are inadmissible hearsay. The Government moves to preclude a defendant from presenting self-serving hearsay that the Government cannot cross-examine. The Government observes that a defendant may attempt to introduce his or her own statements under Fed.R.Evid. 106 (the Rule of Completeness), Fed.R.Evid. 801(d)(1)(B) (prior consistent statement), Fed.R.Evid. 803(3) (then-existing state of mind or emotion), or on some other basis, including an “opened door” rationale.

         The Court defers ruling until trial on the admissibility of any particular purported self-serving statement. No party, however, may attempt to elicit in the presence of the jury any self-serving statement of that party without prior leave of court. Any party seeking to elicit any such statement must first inform the Court, and the matter will be heard outside the presence of the jury. In addition, the Court will enforce the limitation contained in the hearsay exception of Fed.R.Evid. 803(3) (statements of the declarant's then-existing state of mind), which excludes “a statement of memory or belief to prove the fact remembered or believed.”

         3.Character Evidence

         a. ...


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