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United States v. Heine

United States District Court, D. Oregon

June 4, 2018

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 Willes, Tonkon Torp, LLP, Of Attorneys for Defendant Dan Heine.

          Janet Lee Hoffman, Andrew T. Weiner, Katherine Feuer, and Douglas J. Stamm, Janet Hoffman & Associates, LLC, Of Attorneys for Defendant Diana Yates.

          OPINION AND ORDER ON POST-TRIAL MOTIONS

          Michael H. Simon, United States District Judge.

         Defendant Dan Heine (“Heine”) was the President and Chief Executive Officer of The Bank of Oswego (the “Bank”). Defendant Diana Yates (“Yates”) was the Executive Vice President and Chief Financial Officer of the Bank. Beginning October 10, 2017, and ending November 28, 2017, a federal jury in Portland, Oregon heard testimony from 43 witnesses, received 584 exhibits admitted in evidence, and deliberated for four days. The 12-person jury then returned its unanimous verdict, finding both Heine and Yates guilty on the same 13 out of 19 charges alleged. The jury found both Defendants guilty on one count of conspiracy to commit bank fraud and 12 counts of making a false bank entry. The jury also found both Defendants not guilty on six counts of making a false bank entry. Pending before the Court are Defendant Heine's post-trial motion for judgment of acquittal or new trial, joined by Defendant Yates, and Defendant Yates's separate amended post-trial motion for judgment of acquittal or new trial. For the reasons that follow, Defendants' motions are denied.

         BACKGROUND

         In 2004, Heine founded the Bank. Until August 2016, the Bank was 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”). In addition to serving 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. In addition to serving 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”), charging 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] 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 Bank's Board, shareholders, and 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 Bank's Board, shareholders, and regulators, all in an effort to conceal the Bank's true financial condition.

         DISCUSSION

         Defendants Heine and Yates ask the Court to set aside their convictions and enter judgment of acquittal pursuant to Rule 29 of the Federal Rules of Criminal Procedure. That rule provides, in relevant part: “If the jury has returned a guilty verdict, the court may set aside the verdict and enter an acquittal.” Fed. R. Crim. P. 29(c)(2). Defendants Heine and Yates also ask the Court, in the alternative, for a new trial pursuant to Rule 33 of the Federal Rules of Criminal Procedure. That rule provides, in relevant part: “Upon the defendant's motion, the court may vacate any judgment and grant a new trial if the interest of justice so requires.” Fed. R. Crim. P. 33(a).

         A. Defendant Heine's Motion for Judgment of Acquittal or New Trial

         1. Heine's Argument that He Did Not Take “Something of Value” from the Bank

         In Count One of the Indictment, both Defendants are charged with conspiracy to commit bank fraud, in violation of 18 U.S.C. § 1349.[3] The underlying crime of bank fraud, although not separately charged, is a violation of 18 U.S.C. § 1344(1). That subsection provides that it is a crime to “knowingly execute, or attempt[] to execute, a scheme or artifice . . . to defraud a financial institution.” 18 U.S.C. § 1344(1). At trial, the Court instructed the jury that the three elements of the crime of bank fraud are: (1) a defendant knowingly executed a scheme to defraud a bank as to a material matter; (2) the defendant did so with the intent to defraud a bank; and (3) the bank was insured by the FDIC. ECF 999 (Instr. No. 25).

         The Court next instructed the jury about the meaning of the phrase “scheme to defraud a bank.” The Court stated:

The phrase “scheme to defraud a bank” means any deliberate plan of action or course of conduct by which someone intends to (a) deceive or cheat (b) a bank out of something of value. In this context, the words “deceive” and “cheat” are different ways of saying the same thing. Both require dishonesty or misleading conduct. For there to be a scheme to defraud a bank, it is not necessary for the government to prove that the bank was the only or sole victim of that scheme. Also, for there to be a scheme to defraud a bank, it is not necessary for the government to prove that a defendant actually was successful in defrauding the bank or that the bank actually lost any money or property as a result of the scheme.

         ECF 999 (Instr. No. 26) (emphasis added). After that, the Court instructed the jury about the meaning of the phrase “intent to defraud a bank, ” explaining:

A person acts with intent to defraud a bank if he or she (a) acts knowingly (b) with the intent either to deceive or to cheat a bank (c) out of something of value. In this context, the words “deceive” and “cheat” are different ways of saying the same thing. Both require dishonesty or misleading conduct.

         ECF 999 (Instr. No. 27) (emphasis added). The Court did not instruct the jury on the meaning of “something of value.” The government presented evidence at trial to show that Defendants acted with the intent to deceive or cheat the Bank out of something of value. During the government's closing argument, the government told the jury:

But right now I want to talk to you about the element in bank fraud of depriving the bank of something of value. This is the kind of reason why the defendant sought to deceive the bank, and they sought to deprive the Bank of Oswego and the board of directors first, accurate financial information in the bank's books and records.
They sought to ensure that the defendants' salaries and bonuses and that they maintain the use of bank's lending services and throughout the course of the conspiracy they misled the bank and the board of directors for the use of bank funds to continue their conspiracy.
Mr. Walsh told you that one of the primary reasons that he made the payment as well was because he needed to keep his job.
With respect to the accurate financial information of the bank's books and records, Ms. Yates, Mr. Heine, and Mr. Walsh sought to make the bank's books and records look better throughout the course of the conspiracy.
What you heard from Shepanek, from Mr. Harnish, and even Mr. Kelley, the defendants' own expert, was that the board of directors relies on the accuracy of the information in the financial records to perform their duties, particularly records about delinquencies and OREO [Other Real Estate Owned].
You heard from Ms. Comer and from Mr. Walsh and Mr. Kelley that having accurate information about the status of past due loans permits the bank to analyze the risks posed by the various borrowers who are late. Not having that information does not give the bank and the board of directors that information so it can properly make the analysis of that risk.
I want you to think about -- during the course of my argument and in the course of the arguments throughout the day -- I predict you will hear a lot about Geoff Walsh today when I sit down. And I want you to think between Geoff Walsh, between Dan Heine, and between Diana Yates, which of those individuals had control over the information to the board of directors? It was Mr. Heine and Ms. Yates.
And between those three individuals, who had the ability to make entries in financial records? To direct the entries in financial records? It was Mr. Heine and Ms. Yates.
Who can control -- between those three - what goes on the call reports to the FDIC? Mr. Heine and Ms. Yates.
Who sat through the examination about the financial conditions and the regulators expressing their concerns about the asset quality? It was Mr. Heine and Ms. Yates.
The defendants sought to deprive the bank of their significant salaries and bonuses, their use of bank lending service, and they desired that their stock go up.

ECF 1016-5 (Gov't. Closing, Nov. 20, 2017) (emphasis added).

         In his post-trial motions, Heine argues that the government advanced three distinct theories of “something of value, ” namely: (1) the Bank's accurate financial information; (2) Defendants' salaries and bonuses paid by the Bank and Defendants' access to the Bank's lending services for their personal benefit; and (3) the value of Defendants' stock in the Bank. Heine further argues that these are three separate legal theories, and if any is legally insufficient, the jury's verdict must be overturned because it is impossible to tell which theory formed the basis for conviction. Heine then challenges the legal sufficiency of all three “theories.”

         In response, the government argues that Heine and Yates were charged with a single conspiracy involving a single objective, namely, to defraud the Bank out of something of value. The jury was instructed that for a defendant to be found guilty of conspiracy, the government must prove that there was an agreement between two or more persons to commit the crime of bank fraud and that the defendant became a member of that conspiracy knowing of its objective and intending the help accomplish it. The jury was further instructed that the elements of bank fraud required the government to prove that a defendant knowingly executed a scheme to defraud a bank as to a material matter, that the defendant did so with the intent to defraud the bank, and that the bank was insured by the FDIC. Finally, the jury was instructed that “a scheme to defraud a bank” means any deliberate plan of action or course of conduct by which someone intends to deceive or cheat a bank out of something of value.

         In this context, the “something of value” is analogous to particular facts that may be used to satisfy the overt act element of a conspiracy charge, when such an overt act is required to be shown. In such a circumstance, the Ninth Circuit has explained, “[w]hile jurors need not unanimously agree on the particular facts satisfying the overt act element of a conspiracy charge, jurors must still unanimously agree that the defendant is guilty of participating in a particular conspiracy-i.e., of forming an agreement with at least one other particular individual to pursue a particular criminal goal.” United States v. Lapier, 796 F.3d 1090, 1096 (9th Cir. 2015) (citation omitted). The jurors were instructed that, in order to find a defendant guilty, they must unanimously agree that the defendant is guilty of forming an agreement with at least one other particular individual to pursue the particular criminal goal of executing a scheme to defraud the Bank as to a material matter, and did so with the intent to defraud the Bank. Thus, the jury was properly instructed. Further, there is sufficient evidence to support the jury's verdict.

         In addition, the government's articulation of “something of value, ” which is a necessary part of a scheme to defraud, is not legally insufficient. When Defendants failed to provide the Bank's Board of Directors with accurate information about the Bank's past due loans, Defendants created a risk that the Bank would be prevented from collecting debts that were due to the Bank or that the Bank would credit borrowers with payments they did not make. In United States v. Ely, 142 F.3d 1113 (9th Cir. 1997), the Ninth Circuit recognized these actions as a deprivation of a bank's property.

To deprive a bank of property you do not have to move cash out of its vaults. You deprive a bank of property if you prevent its collection of debts that are due or if you arrange for the bank to credit you with a payment you have not made. That is what these defendants are alleged to have done, to have prevented Statebank from collecting loans and interest that were due and to have arranged for Statebank to create further credit in their favor which would pay the interest due. As § 1344 specifies, it is a crime to obtain bank credits by false pretenses.

142 F.3d at 1119 (emphasis added). In the pending case, the government argued and the jury found that Defendants arranged for the Bank to credit certain borrowers with payments that those particular borrowers did not make, thereby placing the Bank at risk of being unable to collect debts owed to the Bank by those borrowers. That arrangement is sufficient evidence of depriving (or attempting to deprive) a bank of something of value.

         In addition, Defendants misrepresented to both the Bank's Board of Directors and the FDIC the true condition of the Bank's past due loans and the facts relating to Defendants' deceptive bank entries. The Bank's former Chairman of the Board, Chris Shepanek, testified that the Board considered both the financial performance of the Bank and how well Defendants were performing their responsibilities, including their responsibilities to provide accurate information to the Bank's Board of Directors and the FDIC, in determining Defendants' compensation levels. Further, a witness from the FDIC testified that a bank that fails to comply with FDIC enforcement directions could be placed under receivership. Thus, had either the Bank's Board or the FDIC been accurately informed about the past due loans or the Defendants' role in these misrepresentations, this likely would have affected Defendants' salary, bonuses, continued access to the Bank's lending services, and even their continued employment by the Bank. By continuing to misrepresent information about the Bank's handling of certain past due loans to the Bank's Board of Directors and the FDIC, Defendants were able to continue to receive their salaries, bonuses, and favorable access to the Bank's lending services. This is all property of the Bank and, thus, something of value, which is a necessary part of a scheme to defraud.

         Heine, however, argues that his salary, bonuses, and favorable access to the Bank's lending services should not be considered to be “something of value.” He asserts that the Bank would have needed to pay that compensation to someone to be chief executive officer and that he, therefore, did not cause the Bank to part with any property with which it otherwise would not have parted. In support, Heine cites several public corruption cases, including United States v. Thompson, 484 F.3d 877 (7th Cir. 2007); United States v. Turner, 465 F.3d 667 (6th Cir. 2006); and Ingber v. Enzor, 664 F.Supp. 814 (S.D.N.Y. 1987). In each of these cases, a public official or public employee was convicted of mail fraud based on corrupt activities committed during the performance of official duties. In each of these cases, the court rejected the prosecution's case as inconsistent with the Supreme Court's earlier decision in McNally v. United States, 483 U.S. 350 (1987) (rejecting the intangible-rights doctrine in public corruption cases). Public corruption cases, however, are distinguishable from the pending case.

         In 2016, the Supreme Court noted that “fraud targeting the Government [is] an area of the law with its own special rules and protections. We have found no relevant authority in the area of mail fraud, wire fraud, financial frauds, or the like supporting Shaw's view.” Shaw v. United States, 137 S.Ct. 462, 468 (2016). Thus, the Court finds that the decisions in the public corruption cases of Thompson, Turner, and Ingber, cited by Heine, are distinguishable. Moreover, all of these cases precede Shaw, and the Supreme Court in Shaw gave a broad reading to the bank fraud statute, 18 U.S.C. § 1344(1), which is the statute in Count One that Heine and Yates are alleged to have violated. In Shaw, the Supreme Court confirmed that to be liable for bank fraud in violation of § 1344(1), a defendant who fraudulently sought to obtain the funds of a bank's customer thereby sought to deprive a bank of certain bank property rights as well. Id. at 466. In addition, the Supreme Court in Shaw held that the government need not prove that the defendant intended to cause financial harm to the bank, id., or even make any showing of intent to cause financial loss. Id. at 467.

         The Supreme Court's reading of the bank fraud statute in Shaw supports the conclusion that evidence that Heine misrepresented to the Bank's Board of Directors how he and others under his supervision were handling the Bank's past due loans to show that the Bank was performing better than it actually was, and thereby hoped to continue to receive his salary, pay increases, bonuses, and favorable access to the Bank's lending services, is sufficient to show a course of conduct to deceive the Bank out of something of value. See also United States v. Bonallo, 858 F.2d 1427, 1433 (9th Cir. 1988) (observing in the context of the bank fraud statute, 18 U.S.C. § 1344, that it is “clear that Congress sought to apply to bank fraud cases the same broad standard used in determining whether a scheme to defraud is covered by the mail fraud statute”).

         Heine also relies upon Skilling v. United States, 561 U.S. 358 (2010). In that case, Enron's Chief Executive Officer Jeffrey Skilling was charged by the government with the crime of conspiracy to commit “honest-services” wire fraud, in violation of 18 U.S.C. § 1346. With that statute, Congress sought to overturn the Supreme Court's 1987 decision in McNally and restore the intangible-rights doctrine.[4] Skilling, 561 U.S. at 401-02. Skilling argued that § 1346 was unconstitutionally vague. To avoid striking down a federal statute as impermissibly vague, the Supreme Court gave it a limiting construction, id. at 403-06, and held that § 1346 encompassed only bribery and kickback schemes, id. at 408-09. In the pending case, neither Heine nor Yates is charged with violating § 1346, and neither argues that the statutes under which they have been charged are unconstitutionally vague. Thus, Skilling has no application here.

         Finally, Heine argues that, even if he had sought to increase the value of his shares of the Bank's stock, that cannot constitute attempting to deceive the Bank out of “something of value” because the stock already belonged to Heine. The government does not disagree. Instead, the government responds that Heine has misunderstood the use to which the government presented this particular evidence. In the government's closing argument, including the slides shown to the jury during that argument, the government told the jury that Defendants sought to deprive the Bank and its Board of Directors of “something of value” in the form of (1) accurate financial information in the Bank's books and records; (2) the Defendants' salaries, bonuses, and use of the Bank's lending services; and (3) the use of Bank funds.[5]

         As the government explains, because both Defendants were struggling financially during the time of the alleged conspiracy and their most significant assets were their stock in the Bank, Defendants had substantial financial motivation not to disclose the Bank's true financial condition and Defendants' own misconduct to the Bank's Board of Directors, in order to avoid the risk of losing Defendants' salaries, bonuses, and access to favorable credit. The Court agrees with the government and finds no grounds in Heine's argument on this point that are sufficient to warrant a new trial.

         2. Heine's Argument that the Government Misstated Facts in Closing Argument

         “While the government may not suggest that information not in evidence supports its case, prosecutorial misconduct violates due process only if evidence is presented which taken as a whole gives a jury a false impression.” Downs v. Hoyt, 232 F.3d 1031, 1038 (9th Cir. 2000) (quotation marks and citations omitted). Further, a court should grant “a new trial for prosecutorial misconduct only where, considered in the context of the entire trial, the prosecutor's conduct seems likely to have affected the jury's discharge of its duty to judge the evidence fairly.” United States v. Sanchez, 944 F.2d 497, 499 (9th Cir. 1991).

         a. A Avenue Property Transaction

         Several of the charges against Heine and Yates relate to the purchase by the Bank of residential real property known as the “A Avenue Property.” The government presented evidence, and the jury found, that Heine and Yates enlisted a bank officer and employee (Danny Williams) to serve as a straw buyer to purchase that property from the Federal National Mortgage Association (commonly known as “Fannie Mae”). The A Avenue Property previously served as collateral for a second, or junior, loan issued by the Bank. After the borrower defaulted on both the first loan and the second, the property was foreclosed upon and taken over by Fannie Mae. The Bank was legally unable to purchase the A Avenue Property directly from Fannie Mae at the time that the property became available for sale to owner-occupiers, so the Bank asked its employee Danny Williams to serve as a straw buyer to purchase the property. Using the Bank's money, Williams purchased the property in his own name from Fannie Mae and falsely represented to Fannie Mae that Williams would be using the property as his personal residence. After Williams purchased the property from Fannie Mae, the Bank bought it from Williams, and then sold it to a third-party to reduce the Bank's loss. Through these maneuvers and deceptions, the Bank avoided having to show on its books the loss that would have resulted from the defaulted second loan.

         i. Testimony by Kelly Francis

         In closing argument, the government stated:

You heard evidence from Mr. Walsh, from Mr. Williams, and from Ms. Francis that Dan Heine, Diana Yates, Geoff Walsh and Danny Williams met; that they met and that they agreed that Danny Williams was the only person at The Bank of Oswego who could purchase the property, because he was young and didn't have a house.

         Trial Tr., Nov. 20, 2017 (Gov't. Closing). Heine argues that this statement was false to the extent that it implies that testimony from Ms. Kelly Francis implicated Heine in the deception by Williams concerning the A Avenue Property transaction. Heine cites the following testimony from witness Kelly Francis:

Q: So I want to go back just for a second. You said earlier that you heard something from Danny Williams about the A Avenue property?
A: Correct.
Q: What did you hear?
A: He [Danny Williams] asked me if I should - I'm sorry - he told me that Geoff [Walsh] and Diana [Yates] wanted him to buy a house for the bank, and he asked me if he should do it.

         Trial Tr., Nov. 1, 2017 (K. Francis). According to Heine, Francis was the only person of these three witnesses who was not criminally implicated in the A Avenue Property transaction, and she never testified that Heine met with Walsh or Williams to discuss the A Avenue Property. Heine adds that Francis also did not testify that Williams was “the only person at the Bank” who could purchase the A Avenue Property. Instead, according to Heine, Francis's testimony corroborated Heine's defense that Walsh and Yates put Williams up to this scheme without Heine's knowledge.

         The government makes two points in response. First, the government states that Defendants did not object to this comment during the government's closing argument. Second, the government states that evidence from multiple people corroborated the government's theory that a meeting of Walsh, Williams, Heine, and Yates occurred during which they all agreed that Williams would act as the Bank's straw buyer to purchase the A Avenue Property. The government acknowledges that although Francis did not include Heine in this portion of her testimony, she did corroborate that a meeting took place with Walsh and Yates during which there were discussions about Williams purchasing the A Avenue Property as a straw buyer. The government also states that Francis testified that she expressed concern over Williams using his “first-time homeowners' credit” on this transaction. In addition, the government, during its closing argument, displayed to the jury a slide that correctly recited Francis's testimony on this issue as follows: “Kelly Francis - Williams told her Walsh and Yates wanted him to buy A Avenue.” ECF 1016-17 at 20 (Ex. Q., p. 20).

         During Heine's closing argument, which came next, Heine's counsel told the jury that the government had misstated Francis's testimony in its closing, and Heine's counsel displayed to the jury an excerpt from the transcript of Francis's trial testimony. In the government's rebuttal closing, the government clarified this issue and told the jury:

Let's take A Avenue, for example. Now, to be clear, I'm not going to parse the words and read to you what I think each witness said or read a bunch of my own questions. You've been in the same courtroom as I have. And as the judge has instructed you on numerous occasions, your memory controls. But I want you to keep in mind a few things while you are deliberating.
Remember that Danny Williams told you about a meeting with Geoff Walsh, Dan Heine, and Diana Yates. It will be up to you to decide whether you believe what he told you about that. In making that decision, think about all the other evidence in this case and the other witnesses whom you've heard from.
Remember that Kelly Francis told you that Danny Williams told her about the A Avenue transaction. She said that Danny Williams told her that Diana Yates and Geoff Walsh wanted him to buy A Avenue.

         Trial Tr., Nov. 21, 2017 (Rebuttal Closing) (emphasis added).

         The Court concludes that the government's statement in closing that Heine now challenges did not unambiguously and expressly tell the jury that Francis testified in a manner that would impute knowledge to Heine of Williams's serving as a straw buyer for the Bank in buying the A Avenue Property. Nevertheless, the Court recognizes that the government's statement might have been interpreted by the jury in that manner and, if it were, such a conclusion would have been incorrect. Any such incorrect interpretation, however, was corrected by the government both in its slide shown during closing argument and in the government's rebuttal argument after this issue was called to the jury's (and the government's) attention by Heine's counsel during Heine's closing argument. Further, the government presented sufficient evidence at trial in the form of testimony from both Williams and Walsh that Heine was aware of and approved Williams's deception concerning the A Avenue Property transaction.

         ii. Testimony ...


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