United States v. Faulkner ( 1994 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 92-8037
_____________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
DAVID LAMAR FAULKNER, SPENCER H. BLAIN, JR.,
JAMES L. TOLER and ARTHUR FORMANN,
Defendants-Appellants.
_______________________________________________________
Appeals from the United States District Court for
the Western District of Texas
_______________________________________________________
(March 18, 1994)
Before REAVLEY and DAVIS, Circuit Judges and TRIMBLE*, District
Judge.
REAVLEY, Circuit Judge:
Appellants David Faulkner, James Toler, Spencer Blain, Jr.,
and Arthur Formann appeal their convictions on various counts
arising out of the collapse of several savings and loan
institutions, the funds of which were exhausted in the
development of condominium projects along what is commonly known
as the I-30 corridor in the Dallas area. We reverse a few of the
wire fraud convictions but otherwise affirm the district court.
*
District Judge of the Western District of Louisiana,
sitting by designation.
FACTUAL AND PROCEDURAL BACKGROUND
A. Factual Background
All of the appellants, directly or by adoption of each
other's arguments, challenge the sufficiency of the evidence to
support their convictions. "In deciding the sufficiency of the
evidence, we determine whether, viewing the evidence and the
inferences that may be drawn from it in the light most favorable
to the verdict, a rational jury could have found the essential
elements of the offenses beyond a reasonable doubt." United
States v. Pruneda-Gonzalez, 953 F.2d 190, 193 (5th Cir.), cert.
denied, 112 S.Ct. 2952 (1992). Viewing the evidence in a light
most favorable to the government, appellants engaged in a scheme
during 1982 and 1983 to enrich themselves and others by well over
$100 million through the device of fraudulent real estate loans
from savings and loan institutions. The scheme involved and
indeed required the efforts of numerous participants who served
separate roles. Real estate developers would purchase land for
condominium development. The properties would then undergo one
or more "land flips" at inflated prices. "Syndicators" would
locate investors to purchase subdivided tracts at the end of the
land flip transactions. The initial and intermediate purchasers
would receive huge sums of money in the form of profits from land
sales, "commissions" or other fees. Appraisers would submit
false appraisals to support the prices and loans for the
properties. Lenders who controlled savings and loan institutions
would provide loans for the sales and resales of the properties.
2
In the scheme Faulkner and Toler served as real estate
developers, Blain as one of the inside loan officers, and Formann
as one of the appraisers.
In the late 1970's Faulkner, a real estate developer,
purchased a tract of land off Interstate 30 near Dallas. He
built condominiums in several phases on the property, which he
called Faulkner Point. In the early 1980's Faulkner, Toler,
Blain, Formann and others became involved in the purchase and
sale of numerous other properties in this area, known as the I-30
corridor. Faulkner and Toler, another real estate developer,
became partners on deals in the I-30 corridor. They would buy
large pieces of land outright or on option, which were ultimately
sold to "investors," "builder-investors" or "builder-developers"
at inflated prices in a series of land flips in which the
property changed hands several times, often on the same day.
Faulkner and Toler would subdivide the tracts they purchased
and sell them at a large profit. The properties were sometimes
sold to intermediate buyers, who would in turn sell the
properties to the investors at even higher prices. Toler and
Faulkner would sometimes locate buyers for their properties and
arrange financing for the buyers with lenders.
Clifton Sinclair, who was indicted in another proceeding and
pleaded guilty to certain counts related to the I-30 debacle, was
a key witness for the government. He served a number of roles.
He served as a "syndicator" of sorts, by locating investors and
offering a package deal to them. He would find a group of
3
investors, prepare loan packages for them which he would submit
to lenders, and otherwise offer them an essentially passive
investment, by offering to arrange or oversee the financing,
construction and marketing of condominiums to be built on the
various properties. He or one of his companies was sometimes an
intermediate seller in the land flips. Other intermediate
purchasers included appraiser Paul Tannehill, Blain, and the
principal condominium builder in the area, Wailen York. Sinclair
earned millions of dollars from commissions he received at
closings and profits as an intermediate seller of properties.
Sinclair testified that Faulkner and Toler arranged for financing
of the sale of the properties they owned, and had control over
the price that they would receive and the commissions and other
payments that would be distributed at closing. Commissions
regularly went to Brenda Kennedy, a close friend of Faulkner,
despite a lack of any apparent effort on her part. Faulkner
similarly directed commissions to Kenneth Cansler. Faulkner and
Toler would dictate the price they were to receive, and
appraisals, loan amounts, and closing costs such as commissions
were adjusted or "worked in reverse" to support this price.
Sinclair did business through a number of companies he
controlled, including Kitco Management Company (Kitco). Ernie
Hughes played a syndicator role in the scheme similar to that of
Sinclair's. He would locate investors for properties owned by
Faulkner or Toler earlier in the chain of title. He too pleaded
4
guilty to certain offenses in an earlier proceeding and testified
for the government.
The money for all of these promotions and investments was
always forthcoming from appellant Blain or some other lender
designated by Faulkner. Sinclair testified that he tried to do
deals without Faulkner and Toler, but was unable to obtain
financing. Blain and other savings and loan officers financed
both the land and construction loans required for these land
flips. Blain became chairman and chief executive officer of
Empire Savings and Loan (Empire) in early 1982. He individually
approved all of Empire's loans for these transactions. He
purchased a majority of Empire's stock with the help of a loan
from Faulkner and Toler. Blain had a 25 percent profits interest
in Statewide Service Corporation, a subsidiary of Empire. On
several occasions Statewide was an intermediate seller in a land
flip. Blain paid off his loan to Faulkner and Toler with the
proceeds of a loan that was also used to purchase property from
Toler known as Chalet Ridge.1 Toler assisted Blain in obtaining
the loan to purchase Chalet Ridge. Blain purchased Chalet Ridge
in August and September of 1982 for $686,000. In February of
1983, Blain sold Chalet Ridge to Sinclair for $14.9 million.2
1
Blain purchased Chalet Ridge in separate sales of three
tracts. One tract went from LATO (a Toler company) to Statewide
to Blain; a second from KETO (another Toler company) to Kitco to
Toler to a Faulkner/Toler joint venture to Blain; the third tract
was transferred via a contract assignment from Toler to Blain.
2
The exact amount Blain received is unclear. Sinclair
testified that the figure was actually $16.1 million
5
Blain also received a house in Colorado as additional
consideration for Chalet Ridge. Blain had made no improvements
on the Chalet Ridge property and had attempted unsuccessfully to
rezone the property. According to Sinclair, Toler and Faulkner
were involved in deciding how much to pay Blain for the property.
The government contends that Chalet Ridge was Blain's big payday
for providing some of the loans that fueled the land flips. The
money to pay Blain came in part from an Empire loan to Sinclair
to purchase another property from Faulkner and Toler known as
Kirby Mills. Sinclair testified that the "whole purpose of Kirby
Mills" was "a vehicle to generate funds for Mr. Blain." On
another land transaction Blain received from Sinclair, at
Faulkner's direction, a $1.4 million "consulting fee" for no
apparent effort. Blain received other questionable payments as
well. Empire funded over $100 million in I-30 corridor land and
construction loans.
Paul Jensen gained control or influence over two other
savings and loans, Lancaster Federal Savings and Loan Association
(Lancaster) and Bell Federal Savings and Loan Association (Bell).
He personally received millions of dollars in commissions and
other payments for arranging loans on the I-30 properties.
Sinclair purchased a $4 million mansion for Jensen. Lancaster
and Bell funded over $100 million in I-30 corridor loans.
The lending institutions were able to provide funding for
the I-30 loans with the help of "brokered deposits." By offering
a competitive rate on certificates of deposit, brokers would wire
6
large deposits to the institutions from depositors nationwide.
From the depositors' point of view, the deposits were safe
regardless of the health of the institution, since they were
insured by the government.
The loans which fueled the land flips did not require
investors to put any money down, but instead financed 100% of the
purchase price, future interest payments for some period, a
"development reserve" to the lender, and "up-front" money or
"kickbacks" for the investors at closing. On many occasions
Sinclair and Hughes would assist the investors in preparing
fraudulent financial statements, tax returns and employment
verifications that were submitted to the lenders. The promise of
up-front money, usually in the thousands or tens of thousands of
dollars, was a key incentive to the investors. On the various
loans Empire made it performed no analysis of the appraisals,
financial statements, or other documents which lenders typically
review. Appraisals and other underwriting materials either were
not provided or were simply filed away without any serious review
or study.
Formann and others provided inflated appraisals to support
the larger and larger loans and the escalating land prices.
Appraisals are needed to justify the price of the property to the
lender, regulators and buyer. Appraisals were also used to
inflate the buyers' financial statements, which would sometimes
list as an asset the difference between the price paid or to be
paid for a piece of property and the appraised value of the
7
property. Larry Hutson, another appraiser of the I-30 properties
who sometimes served as a "review appraiser" for Formann,
testified that he would receive a value per square foot for the
properties from Faulkner, Toler, Empire, Kitco or Hughes and
would fabricate an appraisal to reach these values. One method
used to fabricate the appraisals was to use inflated properties
on other I-30 deals as comparable sales.
Faulkner, Toler and others were able to perpetuate the
scheme for approximately two years by fostering the impression
that there was great demand for condominiums in the I-30
corridor, and that every project built was successful. When some
of the builder-developers became concerned about the viability of
the projects or the huge loans they were facing, Faulkner and
others made arrangements to buy them out at a profit. Faulkner
and Toler also hosted regular breakfasts at a local restaurant to
promote the scheme. As many as 200 people would attend these
meetings, which were described as pep rallies. Faulkner and his
sales staff gave the impression that condominium sales were
brisk. Many of the condominiums were not sold to purchasers in
arms-length transactions. For example, Faulkner purchased
numerous units himself. Other units went to Jensen, Faulkner's
son, the fiancee of Faulkner's son, Wailen York, York's son,
Brenda Kennedy, Ernie Hughes, Faulkner's title company closer
Jane Nix and others who were not arms-length purchasers. In
reality, demand from arms-length purchasers for the condominiums
8
was low and far from justifying the land prices, loans and
construction seen in the area.
Blain and other savings and loan officers, including Paul
Jensen and Tommy Nelson, made the whole scheme possible by
agreeing to make the necessary loans. They financed new, larger
loans on projects that had not sold and loans so seriously
overvalued that no project could succeed. They charged high
points and development reserves on loans that then made their
institutions appear healthy.3 They participated in land
transactions designed to earn them personal profits. Loans in
default or otherwise unlikely to be repaid were renewed. Land
acquisition loans were simply "taken out" by even larger
construction loans. Borrowers never came out of pocket to make
interest payments. Interest payments, if made at all, came from
loans provided by the lending institutions.
Federal regulators eventually shut down the savings and loan
institutions, which suffered loan losses in the hundreds of
millions of dollars. Most of the properties went into
foreclosure. Faulkner, Toler, Blain, Sinclair and Jensen made
tens of millions of dollars from the scheme. In 1984 Empire was
shut down by the FSLIC. Ultimately, five savings and loans with
loans connected to the I-30 corridor failed and depositors were
made whole by courtesy of the American taxpayer. According to
the government, Empire alone had over $300 million in bad loans.
3
For example, Empire would "charge" twelve points for a
loan -- a twelve percent loan origination fee of sorts, include
the points in the overall loan, and treat the points as income.
9
The scheme was simple in concept, though complex in its
execution. It bore certain similarities to a classic Ponzi
scheme. The two initial participants at the top of the pyramid -
- Faulkner and Toler -- would buy land and earn large profits by
selling to intermediate purchasers. The intermediate purchasers -
- Sinclair, Blain, Statewide and other individuals and companies
-- likewise profited by selling to large numbers of "investors."
The investors, too, profited in the short run, by walking out of
closings with up-front money, although they signed large notes or
guaranties they could not repay. The lenders supplied the money
for all these loans. Ultimately the taxpayers were
unceremoniously lodged at the bottom of this pyramid, and had to
pay huge sums to insured depositors when the lending institutions
failed.
B. Procedural History
The original 88-count indictment was brought in 1987 against
the four appellants as well as Paul Jensen, Kenneth Cansler and
Paul Tannehill. Count 1 of the indictment is a broad conspiracy
count against all seven defendants under 18 U.S.C. § 371. Count
88 is a RICO conspiracy count against Faulkner, Toler, Blain,
Jensen and Cansler, brought under 18 U.S.C. § 1962(d). The
remaining counts are substantive offense and aiding and abetting
counts brought against one or more defendants under various
criminal statutes.
The indictment was brought in the Dallas division of the
Northern District of Texas. The case was tried to a jury in the
10
Lubbock division of this district, and a mistrial was declared
due to a hung jury. The case was transferred back to the Dallas
division after the mistrial. The case was called to trial in
June of 1991 in Judge Buchmeyer's court, but after several days
of voir dire, the court dismissed the panel due to concern about
the effect of pretrial publicity. Later that month, the court
granted all of the pending motions to transfer venue, which had
been filed by Faulkner, Toler, Blain and Formann. The case was
transferred to Judge Bunton in the El Paso division of the
Western District of Texas. After this transfer, Judge Bunton
announced sua sponte that he was transferring the case to the
Midland division of the Western District. The case proceeded to
trial in September of 1991, and all four defendants were
convicted on some counts. Faulkner, Toler and Blain received
twenty-year sentences, and Formann received a ten-year sentence.
The court also imposed fines against Faulkner and Toler, and
pursuant to 18 U.S.C. § 1963(a)(1), entered RICO forfeiture
judgments against Faulkner, Toler and Blain, for $40 million, $38
million, and $22 million respectively.
DISCUSSION OF POINTS OF ERROR
A. Denial of Blain's Request to Withdraw Motion to Transfer
Venue
On June 26, 1991, Judge Buchmeyer in Dallas held a pretrial
conference to consider pending motions. At the time, the four
appellants all had pending motions to transfer venue on grounds
of pretrial publicity. Based on its efforts to select a jury
earlier in the month, the court initially indicated that Faulkner
11
would be unable to receive a fair trial in Dallas.4 During a
brief recess that followed, Blain instructed his counsel to
withdraw his motion to transfer venue. When the recess ended and
court reconvened, the court announced that it was granting all
the venue motions, and transferring the case to El Paso. Blain's
counsel immediately informed the court that he wished to withdraw
Blain's venue motion. This request was denied, as was a later
written motion to reconsider the denial of the request to
withdraw the venue motion. Blain complains that the district
court erred in denying his request to withdraw the venue motion.
In its order denying the motion to reconsider, the court
noted that it could not transfer those defendants (Tannehill and
Cansler) who had not moved for a change of venue. The order then
explains that granting the motion would have (1) further
fragmented the government's case against the defendants, (2)
permitted Blain to avoid trial for another long period of time,
and (3) perhaps led to even further delays since "Blain would
certainly file a motion to have the charges against him severed
from those against defendant Jensen." The order further states
that the request to withdraw the venue motion that had been on
file for months "is nothing but `posturing,' designed to obtain
further delay and some perceived strategical advantages in
avoiding a prompt trial in the Western District of Texas."
4
The court stated that "I feel very strongly that I
could get a jury here in Dallas as to every Defendant except Mr.
Faulkner. I think the recognition factor of Mr. Faulkner is what
caused a problem with a jury panel."
12
Finally, the district court noted the defendants had not made any
claim that publicity concerning the case would prevent a fair
trial in El Paso.
Whether to vacate an order transferring venue is left to the
district court's sound discretion. United States v. Marcello,
423 F.2d 993, 1005 (5th Cir.), cert. denied, 398 U.S. 959 (1970).
We find no abuse of discretion. The district court correctly
noted that venue could not be transferred as to those defendants
who had not requested a transfer, since those defendant's had a
Sixth Amendment right to be tried in the Northern District of
Texas. United States v. Stratton, 649 F.2d 1066, 1076 (5th Cir.
1981). The district court was well aware that the case was over
three years old at the time and that the first trial in Lubbock
had lasted for months, and it was properly concerned about
further delays in the proceedings and further unnecessary
fragmenting of the government's case. At the June 1991 hearing
counsel for Blain had indicated that he did not want Blain tried
with Jensen, and that he preferred a transfer of venue to a trial
in Dallas with Jensen.5 The court further had reason to question
whether the request to withdraw the venue motion was motivated
out of a genuine concern for the fairness of the venue, or was
5
At one point in the hearing prior to the recess counsel
for Blain had stated: "Do we have an option to stay here and get
tried with the good Dr. Jensen or go to El Paso and get tried
with Danny [Faulkner]? . . . . I don't want to be tried with
[Jensen]. He's a banker. . . . [I]f we have a choice of staying
here without [Jensen], as opposed to going to El Paso, I would
have to think about that one. If I have to stay here with
[Jensen] I don't have to think very long. That's our position."
13
instead a mere strategic ploy. At the hearing counsel gave, as
his reason for his request to withdraw the motion, his belief
that staying in Dallas would facilitate a plea bargain.6 The
court was entitled to ignore such tactical reasons for
withdrawing the venue motion.7
B. The Intradistrict Transfer to Midland
Faulkner and Toler complain of Judge Bunton's intradistrict
transfer of the case from El Paso to Midland. The court ordered
the transfer sua sponte at a pretrial conference where no court
reporter was present.8 While his lawyer was not present at the
hearing, Faulkner contends that he was present and objected pro
se to the transfer.
Under FED. R. CRIM. P. 18, the district court "shall fix the
place of trial within the district with due regard to the
convenience of the defendant and the witnesses and the prompt
administration of justice." We have held that in considering an
intradistrict transfer, "the trial court must balance the
statutory factors of the convenience of the defendant and
6
Counsel stated: "My thought is if the case in El Paso
is tried win or lose the Government -- this case will not get
tried, that they will make -- the Government will make offers
once they're stuck with all the folks here in Dallas, that
probably everybody is going to accept."
7
Compare Marcello, 423 F.2d at 1004 ("The Judge was
entitled, indeed required, to take [Defendant's] claim [for venue
transfer] as presented and proved. His duty was to act and
having acted it was not for the Defendant to reweigh the
strategic or tactical disadvantages of the victory.").
8
The government contends that Judge Bunton transferred
the case to Midland to be closer to his home in Odessa.
14
witnesses and the prompt administration of justice." United
States v. Dickie, 775 F.2d 607, 610 (5th Cir. 1985). Faulkner
and Toler complain that the trial court failed to perform this
balancing test. Faulkner emphasizes that venue is more than a
mere procedural matter, and involves issues of constitutional
dimension. He argues that Judge Buchmeyer specifically
transferred the case to El Paso and rejected the suggested venue
of Midland because it was "within the zone of prejudicial
publicity." The "I-30 scandal" was unquestionably the subject of
enormous publicity in Dallas.9
We first determine the extent to which Faulkner and Toler
preserved error on this point. While Faulkner asserts that he
personally objected to the intradistrict transfer, there is
nothing in the record preserving an objection to the transfer by
either Faulkner or Toler. The government does not agree that
such an objection was made, and contends that this issue is
raised for the first time on appeal and was not properly
preserved for review. Indeed, the only indication in the record
of the defendants' view of the transfer we can find is a
9
According to Toler, the exhibits to his and Faulkner's
joint motion to transfer venue filed in Dallas included an index
to 1100 newspaper articles concerning I-30, a 1990 survey showing
that over 90% of Dallas residents were aware of the case and 60%
admitted to an opinion that the defendants were probably or
definitely guilty, a videotape of the Phil Donahue show filmed in
Dallas during which the mention of Faulkner's name brought a
chorus of "boos," and an Ann Richards campaign advertisement from
the 1990 gubernatorial race in which she sought votes by linking
her opponent to Faulkner. Toler contends, perhaps without
exaggeration, that the "I-30 scandal" received more media
attention in Dallas than any event since the Kennedy
assassination.
15
newspaper article attached to a filing by Toler requesting close
questioning of jurors regarding pretrial publicity. The article
states that Faulkner's attorney "expressed satisfaction Monday
over the trial's relocation" to Midland, and quotes him as
stating that "[w]e have the potential for a fair trial in Midland
that we would have been denied in Dallas." Faulkner and Toler
were represented by extremely able counsel with virtually
unlimited opportunities to file motions or otherwise preserve
their objections to action taken by the trial judge. Under these
circumstances we hold that they did not preserve error on this
point.
Asserted errors as to which a proper objection has not been
raised in the district court can only be reviewed for plain error
under FED. R. CRIM. P. 52(b). United States v. Iwegbu, 6 F.3d
272, 274-75 (5th Cir. 1993). As we recently held in Iwegbu, (1)
plain error should be corrected if failing to do so would
"seriously affect the fairness, integrity or public reputation of
judicial proceedings," (2) a claim of plain error is reviewed
against the entire record, and (3) the defendant bears the burden
of establishing that the error "had an unfair prejudicial impact
on the jury's deliberations." Id.We conclude that the error, if any, in transferring the case
from El Paso to Midland does not rise to the level of plain
error. While we agree that venue generally is a constitutional
16
concern,10 and that "errors of constitutional magnitude will be
noticed more freely under the plain error rule than less serious
errors,"11 we find it equally clear that the place assigned for
trial within a judicial district is not a matter of
constitutional dimension.12
We further do not agree that Judge Buchmeyer found Midland
to be an inappropriate venue because it was within the "zone of
prejudicial publicity." The record does not reflect such a
finding. At the June 26, 1991 pretrial hearing he indicated that
he had checked with Judge Bunton and another judge, and had
agreed with Judge Bunton "that El Paso would be the best place
for the case to be tried." This conclusion was based on a number
of considerations, including courtroom availability, travel time
and pretrial publicity. Read in the context of the entirety of
its comments, the court did not make a specific finding that
10
Article III of the Constitution provides that criminal
trials "shall be held in the State where the said Crimes shall
have been committed . . . ." U.S. CONST. art. III, § 3, cl. 2.
The Sixth Amendment further provides that criminal defendants
have the right to trial "by an impartial jury of the State and
district wherein the crime shall have been committed . . . ."
11
United States v. Brown, 555 F.2d 407, 420 (5th Cir.
1977), cert. denied, 435 U.S. 904 (1978).
12
United States v. Alvarado, 647 F.2d 537, 539 (5th Cir.
1981) ("In criminal actions, the constitutional unit of venue is
the district, not the division."); United States v. James, 528
F.2d 999, 1021 (5th Cir.) ("The venue provision of the Sixth
Amendment provides only for trial in the district where the crime
shall have been committed. There is no reference to a division
within a judicial district."), cert. denied, 429 U.S. 959 (1976);
Bostick v. United States, 400 F.2d 449, 452 (5th Cir. 1968)
("[T]he division has no constitutional significance; the vicinage
is the district."), cert. denied, 393 U.S. 1068 (1969).
17
Midland would be an inappropriate venue because it was too close
to Dallas and "within the zone of prejudicial publicity."13
Later in the hearing counsel for the government suggested that
the trial be moved to Midland. The court responded that "I've
already made my ruling on El Paso. If you want to make a motion
for Judge Bunton then you can do so and let him decide that." In
13
The court stated at the hearing: "Now, I have explored
with the Chief Judge Clark of the 5th Circuit and with Lucius
Bunton, Chief Judge of the Western District as to alternatives.
There is no Judge available in New Orleans that could take the
case. I mentioned to the attorneys that I have some personal
commitments, and I've done further work on those and those
personal commitments would simply preclude me from going to New
Orleans for an extended period of time. If I went I would be
subjecting the parties to a risk that I may have to pick up and
not be able to stay and that would be another problem. So I
couldn't take the risk. Chief Judge Clark did not even consider
New Orleans as a possibility. He has contacted the Chief Judge
of the -- one of the districts in Mississippi and there is an
indication that they would have someone available, but it would
be substantial period of time off. It would be like next year.
I had much better luck with Judge Bunton. Judge Bunton is
willing to try the case. He can clear his docket and he would be
ready to go to trial on September 17th. Candidly, if we stayed
here in Dallas, or we moved to New Orleans, I think we're all
looking at a delay that would be one that approximates that.
Again, even if we stayed here. So September 17 is a firm date
insofar as Judge Bunton is concerned. We discussed different
spots in the Western District. Judge Bunton sits in several
different locations in addition to Midland. He sits on a regular
basis in Austin. He goes to San Antonio, but he doesn't like it
very much, and he goes to El Paso on a regular basis. I agree
with Judge Bunton that El Paso would be the best place for the
case to be tried. Now, the reason for that is that you're going
to find that the publicity problem does not exist to the degree
in El Paso that it does in Austin, or San Antonio, or Dallas or
any other place in the state. He has a courtroom available.
There's no courtroom problem. The travel time is not that much
different from New Orleans insofar as flight time is concerned on
Southwest Airlines. And there are other airlines that go to El
Paso. If you're talking about Mississippi I think you're talking
about a longer travel time, longer flight time than you are to El
Paso. All things considered, I think the proper thing to do is
to transfer the case to El Paso."
18
his later written order transferring venue, Judge Buchmeyer noted
that "[t]he Government announced in open court that it does
intend to file a motion asking that Judge Bunton transfer the
September 16, 1991 trial from El Paso to Midland. The Court
responded that this motion should be presented to Judge Bunton
for his consideration." These statements further suggest that
Judge Buchmeyer had not already ruled that Midland was an
inappropriate venue. We also note that Midland is approximately
300 miles from Dallas, that Judge Bunton went to great lengths
during jury selection to question the jury panel regarding
adverse publicity,14 and that intradistrict transfers have always
been considered matters within the broad discretion of the trial
court.15 For all of these reasons we hold that the intradistrict
transfer, if error at all, does not rise to the level of plain
error.
C. Joinder and Severance Issues
Faulkner complains that there was misjoinder of the
defendants in the indictment and that the district court erred in
not granting his requests for severance. He had filed a motion
to sever under FED. R. CRIM. P. 8(b), and had joined in Toler's
14
The prospective jurors were given a forty-question
juror questionnaire to fill out prior to jury selection. The
questions were designed, among other things, to elicit
information from the prospective jurors regarding their
familiarity with the case and the defendants. The court
conducted a lengthy voir dire, asking many questions regarding
pretrial publicity. Numerous jurors familiar with press stories
were excused.
15
E.g. Dickie, 775 F.2d at 609; Alvarado, 647 F.2d at
539.
19
motion to sever the trial of Blain. He argues that joinder is
improper if based simply on non-criminal relationships between
the defendants, such as friendship, business relationships or
ongoing contact. He specifically complains that several counts
were based on conduct occurring after he retired in October of
1982, and that he was not even charged in seventeen of the counts
that were submitted to the jury.
FED. R. CRIM. P. 8(b) provides:
Two or more defendants may be charged in the same
indictment or information if they are alleged to have
participated in the same act or transaction or in the
same series of acts or transactions constituting an
offense or offenses. Such defendants may be charged in
one or more counts together or separately and all of
the defendants need not be charged in each count.
The propriety of joinder under Rule 8 is determined on the basis
of the allegations in the indictment, which are accepted as true
barring allegations of prosecutorial misconduct. United States
v. Kaufman, 858 F.2d 994, 1003 (5th Cir. 1988); United States v.
Harrelson, 754 F.2d 1153, 1176 (5th Cir.), cert. denied, 474 U.S.
908 (1985). We have held that proper joinder requires that the
offenses charged "must be shown to be part of a single plan or
scheme," and that "[p]roof of such a common scheme is typically
supplied by an overarching conspiracy from which stems each of
the substantive counts." United States v. Lane, 735 F.2d 799,
805 (5th Cir. 1984), rev'd in part on other grounds, 474 U.S. 438(1986). Initial joinder was proper because Count 1 of the
indictment alleges that all defendants were members of the same
conspiracy to defraud savings and loan institutions through the
20
device of fraudulent land loans, and that each defendant played
an important role in this conspiracy. The substantive counts
emanated from the same alleged conspiracy. Hence, under the
letter of Rule 8(b) all defendants were alleged to have
participated in the same series of acts or transactions
constituting the criminal offense in Count 1. The Rule further
makes clear that joinder is not improper because Faulkner and the
other defendants were not all charged in each count.
FED. R. CRIM. P. 14 provides that a court may order a
severance "[i]f it appears that a defendant or the government is
prejudiced by a joinder of offenses or of defendants in an
indictment or information or by such joinder for trial together .
. . ." If joinder is proper in the first instance under Rule 8,
the denial of a motion for severance in reviewable only for an
abuse of discretion. United States v. Holloway, 1 F.3d 307, 310
(5th Cir. 1993). To demonstrate an abuse of discretion, the
defendant "bears the burden of showing specific and compelling
prejudice that resulted in an unfair trial," id. at 311, and such
prejudice must be of a type "against which the trial court was
unable to afford protection." United States v. Pofahl, 990 F.2d
1456, 1483 (5th Cir.), cert. denied, 114 S. Ct. 266 (1993). We
have further noted that "[t]he rule, rather that the exception,
is that persons indicted together should be tried together,
especially in conspiracy cases," and that "the mere presence of a
spillover effect does not ordinarily warrant severance." Id.21
We conclude that Faulkner has not established an abuse of
discretion. While the trial was long, we believe that the jury
was able to follow the evidence and the charge and reach a fair
verdict. We note that each appellant was acquitted on one or
more counts, which supports the inference that the jury
considered separately the evidence as to each defendant and each
count. United States v. Buckhalter, 986 F.2d 875, 877 (5th
Cir.), cert. denied, 114 S. Ct. 203 (1993); United States v.
Arzola-Amaya, 867 F.2d 1504, 1516 (5th Cir.), cert. denied, 493
U.S. 933 (1989). As to Faulkner's contention that he was
unfairly prejudiced by counts relating to events occurring after
his "retirement" in 1982, evidence was presented that his and
Toler's retirement luncheon was a sham. Further, the court
instructed the jury to "consider each offense and the evidence
pertaining to it separately as to each Defendant. The fact that
you might find some or all of the Defendants guilty of one of the
offenses charged should not control your verdict with respect to
any other offense charged against him or any of the other
Defendants." Similar instructions have been held sufficient to
cure any possibility of prejudice. Zafiro v. United States, 113
S. Ct. 933, 939 (1993); Pofahl, 990 F.2d at 1483 & n. 36.
D. Alleged Variance Between Proof and Indictment
Faulkner, Toler and Formann argue that there is a fatal
variance between the single conspiracy alleged in Count 1 of the
indictment and the evidence adduced at trial. Toler further
argues that the jury's verdict confirms such a variance. They
22
argue that the government never proved a single overarching
conspiracy, and that they were prejudiced by being tried on such
a theory. Count 1 of the indictment was brought under 18 U.S.C.
§ 371, and the indictment and jury charge alleged six categories
of illegal acts of the conspiracy.16 All four appellants were
convicted on Count 1, but the jury did not find the same
underlying substantive offenses as to each. The jury found that
Faulkner and Toler conspired to misapply funds, that Blain
conspired to obtain unlawful benefits, and that Formann conspired
to inflate appraisals. Appellants claim that there was never a
single conspiracy, and that the evidence at most showed the
existence of several separate conspiracies. They argue that "the
I-30 corridor cannot in this case legitimately serve to
amalgamate the various and varying theories, objectives, acts,
16
The Count 1 conspiracy count was brought under 18
U.S.C. § 371, which criminalizes conspiracies "to commit any
offense against the United States, or to defraud the United
States . . . ." The defendants were charged with conspiring:
(1) to willfully misapply the monies and funds of the FSLIC
insured institutions with intent to defraud the institutions, in
violation of 18 U.S.C. § 657; (2) to have persons connected with
the FSLIC insured institutions participate, share in and receive
directly and indirectly monies, profit, and benefits through
transactions and loans of the institutions with intent to defraud
the Federal Home Loan Bank Board and the institutions, in
violation of 18 U.S.C. § 1006; (3) to commit wire fraud in
violation of 18 U.S.C. §1343; (4) to willfully overvalue land for
the purpose of influencing the actions of the Bank Board and
insured institutions upon loans, in violation of 18 U.S.C. §
1014; (5) to knowingly transport in interstate commerce money in
excess $5,000, knowing the same to have been taken by fraud, in
violation of 18 U.S.C. § 2314; and (6) to defraud the United
States by hampering, impeding, impairing and obstructing the
functions of the Bank Board in regulating, examining and
supervising the activities of insured institutions, in violation
of 18 U.S.C. § 371.
23
and transactions shown by the evidence into one overall
conspiracy," and that "the evidence does not show the required
unity of purpose or common design and understanding necessary to
establish a single conspiracy." Appellants cite Kotteakos v.
United States, 328 U.S. 750 (1946) and other cases for the
proposition that it is unfair to try a defendant under a theory
of a single conspiracy where none in fact exists, since there is
"the danger of transference of guilt, i.e., the danger that
despite demonstrating his lack of involvement in the conspiracy
described in the indictment, a defendant may be convicted because
of his association with, or conspiracy for unrelated purposes
with, codefendants who were members of the charged conspiracy."
United States v. Hernandez, 962 F.2d 1152, 1159 (5th Cir. 1992).
In reviewing a claim of fatal variance, the court should
reverse only if the evidence at trial in fact varied from what
the indictment alleged, and the variance prejudiced the
defendant's substantial rights. United States v. Bruno, 809 F.2d
1097, 1103 (5th Cir.), cert. denied, 481 U.S. 1057 (1987). The
government contends that this case is an example of a conspiracy
"[w]here the activities of one aspect of the scheme are necessary
or advantageous to the success of another aspect of the scheme or
to the overall success of the venture . . . or where . . . the
nature of the activity is such that knowledge on the part of one
member concerning the existence and function of other members of
the same scheme is necessarily implied due to the overlapping
nature of the various roles of the participants . . . ." United
24
States v. Elam, 678 F.2d 1234, 1246 (5th Cir. 1982). We agree.
The nature of the dealings among the appellants, Sinclair and
others was such that all were integral and important
participants. The scheme required real estate developers
(Faulkner, Toler) to make initial land purchases and submit
overvalued appraisals (Formann, Tannehill) to a savings and loan
(Blain, Jensen) in order to obtain loans for intermediate buyers
(Sinclair, Blain and others). Syndicators (Sinclair and Hughes)
would then sell the properties to other "investors" at a profit,
and all participants in the scheme benefitted. The evidence,
summarized above in the factual background, supports the jury's
finding of a single overarching agreement among appellants and
others to enrich themselves though the device of fraudulent real
estate loans. The jury's finding that all four appellants did
not conspire to commit the same federal offense does not compel a
different conclusion.
This court has found, in other contexts, that but a
single conspiracy exists even though the agreement that
constitutes it has several objectives and aims at the
commission of several offenses. It is for this reason
that the government need prove only that a conspirator
agreed to one of the many objectives charged to hold
him liable for the other objectives of the agreement. .
. . Because one conspiracy may have many illegal
objectives, it will necessarily involve a number of
sub-agreements to commit each of these specified
objectives. Some members may concur in only some of
the many objectives, yet they are liable for all
because there is but one scheme, one enterprise, one
conspiratorial web.
United States v. Rodriguez, 585 F.2d 1234, 1249 (5th Cir. 1978)
(citations omitted), on rehearing en banc, 612 F.2d 906 (5th Cir.
1980), affirmed, 450 U.S. 333 (1981). We conclude that the jury
25
found a single conspiracy. It was instructed that "proof of
several separate conspiracies is not proof of the single
conspiracy charged in the indictment unless one of the several
conspiracies which is proved is the single conspiracy which the
indictment charges" and that "if you should find that a
particular Defendant was a member of some other conspiracy, not
the one charged in the indictment, then you must acquit that
Defendant. In other words, to find a Defendant guilty you must
unanimously find that he was a member of the conspiracy charged
in the indictment and not a member of some other separate
conspiracy." We presume that the jury followed the court's
instructions, Zafiro v. United States, 113 S. Ct. 933, 939
(1993), and therefore do not agree with Toler that the verdict
indicates that the jury found more than one conspiracy.
In considering whether one or multiple conspiracies exist,
"the principal factors are (1) the existence of a common goal,
(2) the nature of the scheme and (3) overlapping of participants
in the various dealings." United States v. Richerson, 833 F.2d
1147, 1153 (5th Cir. 1987). Here, appellants and others shared a
common goal of enriching themselves by profiting from the
leveraged selling and reselling of real estate along I-30.
Compare id. ("the common goal driving all members of the single
conspiracy in this case was their personal gain through the fraud
of Pool Offshore.") The nature of the scheme was such that
different participants played different but important functions
necessary to its success. Compare id. at 1154 ("The nature of
26
this conspiracy was that each member had a different task and
level of involvement . . . . The success of this conspiracy
depended on the continued willingness of each member to perform
his function."). Finally there was considerable overlapping of
participants in the various dealings. While no two transactions
were identical, Faulkner and Toler would typically make the
initial purchase of the real estate and then sell it with the
help of appraisers, bankers and others they knew well or had
personally selected. The same small group of appraisers,
bankers, closers, syndicators and brokers would share in the cash
thrown off from the land flips that followed.
Further, even if the evidence established and the jury found
the existence of separate conspiracies, we find no reversible
error in trying the appellants under an indictment alleging one
conspiracy. The jury plainly found in its verdict on Count 1
that all four appellants participated in a conspiracy, and the
evidence is sufficient to support that verdict.17 A variance
between the offense charged in the indictment and the proof
relied upon at trial constitutes reversible error only if it
affects the substantial rights of the defendant. Bruno, 809 F.2d
17Faulkner and Toler do not argue that the evidence
failed to establish their participation in a conspiracy as
alleged in Count I. Faulkner's brief claims that "several
conspiracies [were] proved by the evidence," and that "the
evidence in this case established multiple conspiracies."
Similarly, Toler's brief states that "the jury made quite clear
that what the government proved was not a single conspiracy as
alleged, but multiple conspiracies with different objects." Only
Formann claims insufficiency of evidence on Count 1 as a separate
grounds for appeal. As explained below, we find the evidence
sufficient as against him on this count.
27
at 1103; United States v. Hernandez, 962 F.2d 1152, 1159 (5th
Cir. 1992), quoted with approval in United States v. Limones, 8
F.3d 1004, 1010 (5th Cir. 1993). We do not find such a variance
here.
We turn to the font of jurisprudence on this subject,
Kotteakos itself, and find it distinguishable. At the outset, we
note that the Supreme Court's decision turned on the particular
circumstances presented to it.18 There, the variance was such
that (1) "[t]he indictment charged a single conspiracy only," 328
U.S. at 772, (2) "[t]he jury could not possibly have found, upon
the evidence, that there was only one conspiracy," id. at 768,
and (3) there was no cautionary instruction given to the jury
regarding the transference of guilt. "In Kotteakos, a single
indictment charged thirty-two defendants with involvement in a
single conspiracy. Although the evidence established as many as
eight separate conspiracies, the judge failed to give a
precautionary jury instruction regarding transference of guilt."
United States v. Guerra-Marez, 928 F.2d 665, 672 (5th Cir.),
cert. denied, 112 S. Ct. 322 (1991). The circumstances here are
18
The Court did not purport to create a bright-line rule
of general application. The Court noted: "There are times when
of necessity, because of the nature and scope of the particular
federation, large numbers of persons taking part must be tried
together or perhaps not at all, at any rate as respects some.
When many conspire, they invite mass trial by their conduct. . .
. Leeway there must be for such cases as the [Berger v. United
States, 295 U.S. 78 (1935)] situation and for others where proof
may not accord with exact specifications in indictments. . . .
The line must be drawn somewhere. Whether or not Berger marks
the limit, for this sort of error and case, we are clear that it
must lie somewhere between that case and this one." Kotteakos,
328 U.S. at 773-74.
28
different. The indictment most assuredly charged a single
conspiracy and makes reference to "the conspiracy." However, as
explained above, this is not a case where the jury could not
possibly have found one conspiracy. Further, in our case the
court gave cautionary instructions on transference of guilt.19
In addition, "[w]e have long held that when the indictment
alleges the conspiracy count as a single conspiracy, but the
`government proves multiple conspiracies and a defendant's
involvement in at least one of them, then clearly there is no
variance affecting that defendant's substantial rights.'" United
States v. Jackson, 978 F.2d 903, 911 (5th Cir. 1992) (quoting
United States v. Richerson, 833 F.2d 1147, 1155 (5th Cir. 1987)),
cert. denied, 113 S. Ct. 2429 (1993). See also Limones, 8 F.3d
at 1010 (quoting Jackson with approval); United States v.
L'Hoste, 609 F.2d 796, 801 (5th Cir.) ("If the Government proves
multiple conspiracies and defendant's involvement in at least one
of them, then clearly there is no variance affecting that
19
The jury was instructed: "The indictment that you will
consider as to these defendants, consists of 58 [sic] separate
counts. Not every Defendant is charged in each count of the
indictment so you must consider each offense and the evidence
pertaining to it separately as to each Defendant. The fact that
you might find some or all of the Defendants guilty or not guilty
on one of the offenses charged should not control your verdict
with respect to any other offense charged against him or any of
the other Defendants."
The jury was also instructed: "However, if you decide that
such a conspiracy [as alleged in Count 1] did exist, you must
then determine who the members were; and, if you should find that
a particular Defendant was a member of some other conspiracy, not
the one charged in the indictment, them you must acquit that
Defendant." In Guerra-Marez, we found that a similar instruction
was one reason for concluding that there was no fatal variance
between indictment and proof. 928 F.2d at 672 & n.7.
29
defendant's substantial rights."), cert. denied, 449 U.S. 833(1980); Jolley v. United States, 232 F.2d 83, 88 (5th Cir. 1956)
("If more that one conspiracy was proved, of at least one of
which the appellant was guilty, it is clear that there was no
variance affecting his substantial rights."), quoted with
approval in United States v. Wayman, 510 F.2d 1020, 1025 (5th
Cir.), cert. denied, 423 U.S. 846 (1975). We do not believe that
our circuit has held this rule to be absolute;20 nor do we
believe that our circuit has delineated any clear-cut exceptions
to this rule. We do believe that doctrine regarding variance
between an indictment alleging a single conspiracy and proof of
separate conspiracies is but one subset of the general concerns
of improper joinder and severance.21 We therefore conclude that
where the indictment alleges a single conspiracy and the evidence
establishes each defendant's participation in at least one
conspiracy a defendant's substantial rights are affected only if
the defendant can establish reversible error under general
principles of joinder and severance. For the reasons explained
in the preceding section of this opinion, we do not conclude that
20
Indeed, such an absolute rule would be hard to
reconcile with Kotteakos itself. There, the Supreme Court
accepted that several separate conspiracies had been proven by
the evidence, 328 U.S. at 752, 755, 758, but nevertheless found
reversible error.
21
See United States v. Sutherland, 656 F.2d 1181, 1190
n.6 (5th Cir. 1981) ("A strong argument can be made that a
variance between a single conspiracy indictment and evidence of
multiple conspiracies should be treated not as a `variance'
problem at all, but rather as a `misjoinder' question under
Federal Rule of Criminal Procedure 8(b)."), cert. denied, 455
U.S. 949 (1982).
30
joinder was improper or that the district court abused its
discretion in denying the motions for severance. Hence, we would
find no reversible error even if we agreed with appellants that
the evidence and jury verdict established the existence of
multiple conspiracies.
E. Denial of Request for Voir Dire Concerning
Mid-Trial Publicity
Toler complains that the district court erred in denying his
request for a voir dire of the jury concerning mid-trial
publicity. On the first day of trial, the district court
admonished the prospective jurors at length on the importance of
avoiding press reports during the trial.22 At the beginning of
22
The court stated at the close of voir dire: "Now, most
important. If you don't remember anything else I say today, do
not discuss anything you have seen or heard in this courtroom
with any member of your family, or with anyone else. In all
likelihood there is going to be an account of it in the daily
newspapers. Do not read that account. Read Hagar instead, it is
a lot better, probably more accurate. Don't read an account of
it. When that portion of the news comes on, turn over to channel
36 if you are on cable, that gives the weather. You watch the
weather instead of hearing a newspaper, I mean a reporter's
account of this trial on the radio. When you go home if you are
listening to the radio, as I normally do on my way back to
Odessa, get a country and western song instead of listening to
the news or if you want that sweet music you can get at 1510 or
1410, depending on whether you are in Midland or Odessa, or on AM
or FM. Don't, really, you are not supposed to read anything
about this."
Earlier in the voir dire the court had explained to the
prospective jurors: "But what we must have in this country are
people that can come from their homes and their businesses and
their loved ones and sit in a jury box day after day and listen
to the testimony and make a decision only on what they see and
hear in this courtroom, not on anything in a newspaper, not on
anything perhaps in a book, not on anything at all but what is
contained within the walls of this courtroom. We need,
everybody, the defendants and the Government, we need to start on
a dry field. I think you can realize that if we don't start on a
dry field, if you have got some pre-conceived idea or notion that
31
the second day of trail, after the jury was selected, the court
again admonished the jury to avoid press reports of the trial.23
Shortly thereafter, out of the jury's presence, counsel for
Faulkner informed the court that he had been told that on the
previous evening a local television newscast had reported that
the first trial had ended in a mistrial caused by jury
tampering.24 None of the attorneys indicated that they had seen
the broadcast, and counsel for Faulkner did not identify who had
informed him of the broadcast. Counsel expressed his deep
concern that such a story would be prejudicial to his client, and
someone is already not guilty or that someone is already guilty,
before this trial is concluded you are going to be called on to
violate your oath under God. The first thing that you are going
to do when you take your seat in this jury box is swear under
your God that you will a true verdict render, according to the
law and according to the evidence. Now, if we don't start on a
dry field insofar as you are concerned, you are going to have to
violate that oath. And I am sure I can speak for everyone that
is involved in this case, from the prosecution through the
defendants, we do not wish to be responsible for you having to
violate your oath under God.
23
The court stated: "During the entire trial, however
long it lasts, you are not to read any account of this in the
newspaper. You are not to listen to anything on the radio about
it. You are not to watch anything on television about it. I
know sometimes they sneak up on you on the radio or on
television, either. But just turn it off in your mind or turn it
off at the set, or whatever it might be. I am sure that if you
were a defendant in this case, you wouldn't want anybody deciding
whether or not you were innocent or guilty based on something
that somebody else had said or someone else had written. Just
don't read it or listen to it or have anything to do with any
news account of it."
24
Faulkner's daughter was indicted and acquitted for jury
tampering after the first trial in Lubbock. The juror in
question had been excused before jury deliberations. Hence, any
report that the hung jury and the mistrial was the result of jury
tampering would be false.
32
asked the court to voir dire the jury to determine whether any
members had heard the broadcast. The court denied this request,
but offered "to tell them what happened at the last trial."
Counsel for Blain suggested that the jury be advised "that there
has been a prior trial and that the trial ended as a result of
the jury's inability to reach a verdict, and specifically address
that fact that you have been told there is news reports that the
trial ended for some other reason and that is not true." Counsel
for Toler then joined in the suggestions of counsel for Faulkner
and Blain. The jury returned and the court advised it:
[T]here was a previous trial. And the reason that we
had to do it again is because the Judge did declare a
mistrial in that case. I have been advised that there
may have been a news account as to the reason for it,
why they had a mistrial before, and the reason simply
was that the Jury was unable to resolve the differences
that they had in the case and could not render a
verdict. That was the only reason.
At the end of the second day of trial, the district court again
admonished the jury not to read or listen to press reports.
On a number of occasions this court has addressed whether
the failure to conduct a jury voir dire concerning mid-trial
publicity constitutes reversible error. Recently, we found that
the failure to conduct such an inquiry was reversible error in
United State v. Aragon, 962 F.2d 439 (5th Cir. 1992). Aragon
offers a thorough analysis of the subject of mid-trial publicity
and our court's treatment of the subject in prior cases, and
accordingly provides a framework for our own analysis.
In Aragon, three defendants were convicted of drug offenses
after a two-day trial in El Paso. On the first morning of the
33
trial, the city's largest newspaper published an article about
one of the defendants on the first page of the metropolitan
section. Among other things the article recounted (1) the
defendant's prior history of drug arrests and convictions, (2)
his alleged boasting of the smuggling of tons of marijuana
through a smuggling pipeline, and (3) his dealings with a
notorious narcotics kingpin. Id. at 441-42. The district court
refused a request by defense counsel to conduct additional voir
dire to determine whether any juror had read or heard of the
article. On appeal this court explained that the denial of such
a request is subject to review for abuse of discretion. Id. at
443. It further explained that voir dire is required if there
could arise "serious questions of possible prejudice." Id. This
question is to be answered by following a two-step inquiry to
determine whether such "serious questions" exist:
First, the district court must look at the nature of
the news material to determine whether the material is
innately prejudicial. Factors such as the timing of
the media coverage, its possible effects on legal
defenses, and the character of the material
disseminated merit consideration. Second, the court
must then discern the probability that the publicity
has in fact reached the jury. At this juncture, the
prominence of the media coverage and the nature,
number, and regularity of warnings against viewing the
coverage become relevant.
Id. at 444. Finally, the court noted that "[e]very claim of
potential jury prejudice must turn upon its own facts. Id. See
also United States v. Herring, 568 F.2d 1099, 1105 (5th Cir.
1978) (stating that "cases involving questions of prejudicial
publicity necessarily tend to turn on their own facts").
34
In our case, we consider the issue a close one, and believe
that the better practice would have been for the trial judge to
conduct the requested voir dire. Considering all of the
circumstances, however, we cannot say that the court abused its
discretion, and find Aragon and other cases finding reversible
error distinguishable for a number of reasons.
First, the instructions given by the court in our case on
the first day of trial, regarding the need to avoid press
reports, were unusually lengthy and emphatic. These
instructions, reprinted at the margin, cannot fairly be
characterized as boilerplate or casual recitations of standard
jury instructions. For example, one admonishment began with the
words "now, most important" and "if you don't remember anything
else I say today . . . ." Another warning ended with the words
"we do not wish to be responsible for you having to violate your
oath to God." See United States v. Arzola-Amaya, 867 F.2d 1504,
1514 (5th Cir.) (finding no reversible error where trial judge
"was very careful and very specific" in giving two cautionary
instructions prior to the introduction of evidence), cert.
denied, 493 U.S. 933 (1989); Aragon, 962 F.2d at 445 (finding
instructions inadequate where they were given "rather quickly and
casually by the court"). Second, the court here gave a specific
statement to the jury regarding the aspect of the broadcast
alleged to be prejudicial, namely the statement in the broadcast
that the earlier trial had ended in a mistrial due to jury
tampering. The court explained that the only reason for the
35
mistrial "simply was that the Jury was unable to resolve the
differences that they had in the case and could not render a
verdict." Such an instruction was in fact suggested by one of
the defense counsel. Our prior cases have not involved a
statement by the court to the jury attempting to rebut directly
the alleged prejudicial statement in the press report.
Third, the jury acquitted all of the defendants on at least
one count, and we have held that such acquittals weigh in favor
of finding no abuse of discretion.25 We do not believe that this
fact standing alone is an important one, but we must agree with
our prior panels that it should inform our analysis. Fourth, the
instructions described above were given four times during the
first two days of trial, and the court on numerous occasions
throughout the trial continued to direct the jury to avoid press
reports. The frequency of such warnings is a factor to consider
in this context. Aragon, 962 F.2d at 444 (noting that number and
regularity of warnings against viewing press coverage is relevant
to the second step of the two-step inquiry); United States v.
Harrelson, 754 F.2d 1153, 1164 (5th Cir.) (finding no reversible
25
Arzola-Amaya, 867 F.2d at 1514 ("The jury's ability to
discern a failure of proof of guilt on some of the alleged crimes
indicates a fair minded consideration of the issues and
reinforces our belief and conclusion that the media coverage did
not lead to the deprivation of appellants['] right to a fair
trial."); United States v. Manzella, 782 F.2d 533, 543 (5th Cir.)
("The jury's ability to discern [defendant's] innocence of some
of the alleged crimes indicates a fair-minded consideration of
the case against him. The not guilty verdicts reinforce our
belief that the media coverage did not lead to the deprivation of
[defendant's] right to an impartial jury."), cert. denied, 476
U.S. 1123 (1986).
36
error where court repeated cautionary instruction regarding
extraneous matter each day of the trial), cert. denied, 474 U.S.
908 (1985).
Fifth, the district court and this court were given very
sketchy details about the content of the broadcast in question.
It is therefore difficult to determine just how potentially
prejudicial the broadcast was. We have sufficient trust in our
bar to presume that the broadcast occurred and that it did
mention the mistrial and alleged jury tampering. However, none
of the trial counsel actually saw the broadcast. Counsel for
Faulkner stated that he had been told by others about the
broadcast, but did not even identify those other persons. A tape
or transcript of the broadcast is not available.26 Defense
counsel did not know for certain which network had broadcast the
story, stating only that "I think it was an ABC affiliate."27 We
cannot tell whether the broadcast stated as an unqualified fact
that jury tampering occurred, or whether it stated that such
tampering had merely been alleged. We cannot know the length of
the story, and whether the alleged jury tampering was the thrust
26
Compare United States V. Williams, 568 F.2d 464, 466
n.2 (5th Cir. 1978) (giving verbatim transcript of mid-trial
television news broadcast); United States v. Attell, 655 F.2d
703, 705 (5th Cir. 1981) (quoting from tape of television news
broadcast included in the record).
27
Compare Aragon, 962 F.2d at 441 (noting that press
report was published in the city's most widely circulated
newspaper).
37
of the story or a minor aside.28 We do not mean to suggest that
appellants waived their right to appeal this point by failing to
provide a copy of the broadcast.29 However, the lack of details
about the broadcast militates in favor of finding no abuse of
discretion. For example, we have no basis for concluding that
the prejudicial impact of the broadcast approached the
prejudicial impact of the newspaper story in Aragon, which
described the defendant's prior drug history and convictions,
detailed his boasts of having imported tons of marijuana, and
linked him to a notorious drug kingpin.
Finally, we believe that the length of the trial is relevant
to determining the prejudicial impact of mid-trial publicity.
Here, the broadcast occurred on the first day of a trial that
lasted approximately seven weeks. The press report in Aragon
came in the middle of a two-day trial. We believe that, given
the length of the trial, the potential prejudicial impact of the
press report in our case was far less that the impact in Aragon.
F. The Deliberate Ignorance Instruction
Toler complains that the district court erred in including
in the jury instructions a deliberate ignorance instruction. The
instruction, given over Toler's objection, stated:
28
Compare Manzella, 782 F.2d at 541 (noting that
prejudicial reference in newspaper article to defendant's prior
conviction "occupied but one short paragraph in a lengthy
article.").
29
Cf. Attell, 655 F.2d at 705-06 (holding that defendant
should be given the benefit of the doubt as to jury's exposure to
news reports where court failed to conduct voir dire).
38
The element of knowledge may be satisfied by inferences
drawn from proof that a defendant deliberately closed
his eyes to what would otherwise have been obvious to
him. A finding beyond reasonable doubt of a conscious
purpose to avoid enlightenment would permit in [sic]
inference of knowledge. Stated another way, a
defendant's knowledge of a fact may be inferred from
willful blindness to the existence of the fact.
It is entirely up to you as to whether you find any
deliberate closing of the eyes, and the inferences to
be drawn from any such evidence. A showing of
negligence or mistake is not sufficient to support a
finding of willfulness or knowledge.
"We review jury instructions to determine `whether the
court's charge as a whole, is a correct statement of the law and
whether it clearly instructs jurors as to the principles of law
applicable to the factual issues confronting them.'" United
States v. Stouffer, 986 F.2d 916, 925 (5th Cir.), (quoting United
States v. August, 835 F.2d 76, 77 (5th Cir. 1987)), cert. denied,
114 S. Ct. 115 (1993). Toler does not contend that the
instruction was an incorrect statement of the law, but claims
that it was not factually supported by the evidence presented.
While we have stated that a deliberate ignorance instruction
"should rarely be given," United States v. Ojebode, 957 F.2d
1218, 1229 (5th Cir. 1992), cert. denied, 113 S. Ct. 1291 (1993),
we have also "consistently upheld such an instruction as long as
sufficient evidence supported its insertion into the charge."
United States v. Daniel, 957 F.2d 162, 169 (5th Cir. 1992).
This court employs a two-part test in determining whether a
deliberate ignorance instruction can be given. "The evidence
must show that: (1) the defendant was subjectively aware of a
high probability of the existence of the illegal conduct; and (2)
39
the defendant purposely contrived to avoid learning of the
illegal conduct." Ojebode, 957 F.2d at 1229. Toler focuses on
the second element of this test. He suggests that a deliberate
ignorance instruction cannot be submitted absent evidence that
the defendant engaged in affirmative acts to avoid knowledge of
wrongdoing, and that no such evidence was presented here. We do
not agree that affirmative acts to avoid knowledge must always be
shown. We have held that in some cases the likelihood of
criminal wrongdoing is so high, and the circumstance surrounding
a defendant's activities and cohorts are so suspicious, that a
failure to conduct further inquiry or inspection can justify the
inclusion of the deliberate ignorance instruction.30
Here, viewing the evidence in the light most favorable to
the government,31 the circumstances of the real estate
30
Stouffer, 986 F.2d at 925 ("Despite knowing that he and
his cohorts were using the DITA funds to pay for pleasure trips,
exorbitant bonuses, and speculative real estate ventures,
Stouffer blindly accepted without further investigation Atchley's
representations that FUTCO's corporate charter authorized all of
the `investments.' Therefore, Stouffer's conduct suggests a
conscious effort to avoid incriminating knowledge."); Daniel, 957
F.2d at 169-70 ("The circumstances in this case were so
overwhelmingly suspicious that the defendants' failure to conduct
further inspection or inquiry suggests a conscious effort to
avoid incriminating knowledge."); United States v. Lara-
Velasquez, 919 F.2d 946, 952 (5th Cir. 1990) ("Courts also have
determined that the circumstances of the defendant's involvement
in the criminal offense may have been so overwhelmingly
suspicious that the defendant's failure to question the
suspicious circumstances establishes the defendant's purposeful
contrivance to avoid guilty knowledge.") (emphasis in original).
31
"In assessing [defendant's] challenge to the deliberate
ignorance instruction, we must, of course, review the
instructions in their totality and the jury's verdict; in so
doing, we must view the evidence in the light most favorable to
the government." United States v. Chen, 913 F.2d 183, 186 (5th
40
transactions were extraordinarily suspicious. By way of example
only, the jury was presented with a wealth of evidence, including
the testimony of four alleged coconspirators (Sinclair, Hutson,
Nelson and Hughes) from which it could conclude that Toler, an
experienced real estate developer and close associate of
Faulkner, was aware of most or all of the following: (1) Faulkner
and Toler reaped enormous profits of tens of millions of dollars
each by selling land along I-30 for a relatively brief two-year
period, (2) the loans which made these profits possible were
never denied and rapidly approved, (3) subsequent loans on the
properties were likewise always or almost always approved, (4)
Faulkner and Toler were always able to dictate the price they
wanted for the properties they sold, and likewise could dictate
who would receive commissions or other payments at closing and in
what amounts, (5) Toler and Faulkner made a loan to Blain that
enabled him to take over Empire, (6) with the help of Faulkner,
Toler and Sinclair, Blain became an intermediate seller of one of
the properties and a received profit of approximately $15
million, (7) Paul Jensen, a young newcomer to Dallas, gained
influence or control over two savings and loans, made over $100
million dollars in loans for Toler/Faulkner projects, and in
short order was living in a multi-million dollar landmark Dallas
mansion, (8) the closer, bankers and appraisers for the I-30 were
lavished with gifts and bonuses, (9) Empire's board members
included Jane Nix, the closer on all of Faulkner's deals, and
Cir. 1990).
41
Brenda Kennedy, a close friend of Faulkner who received millions
of dollars in commissions on the property sales despite a lack of
any apparent effort on her part (10) direct evidence of ownership
of properties by Toler and Faulkner was sometimes concealed in
the chain of title, (11) even when properties were bought and
sold in rapid succession, sometimes on the same day, the
appraisals were always high enough to support the loans, (12)
buyers would not put up any cash for a down payment, and
typically walked away from the closing with cash in their pockets
and a loan large enough to pay all closing costs and future
interest payments for some period of time, (13) sales of
properties by Faulkner and Toler never fell through due to lender
concern about the creditworthiness of a borrower or the value of
the property pledged as collateral, (14) separate accounts were
created at the title company for the benefit of Faulkner and
Toler, and Toler had suggested destroying what sparse records
existed on the accounts, and (15) the area was being overbuilt
and arms-length sales of the condominiums were far from
justifying the level of loans and construction.
This is not to say that Toler was not entitled to present
evidence and receive a lengthy jury instruction32 on his theory
32
Toler and Faulkner requested and received lengthy jury
instructions on their general theory of the case. Toler's
instruction stated in part: "Mr. Toler contends that he made no
misrepresentations to any lending institution or regulatory
authorities; that he did not conspire or agree with anyone else
to do so; and that he had no knowledge that any
misrepresentations would be or were being made . . . . Mr. Toler
submits that he was a businessman dealing at arm's length with
the savings and loans or their representatives, and that . . . he
42
of the case -- that he was unaware of any wrongdoing and was
simply a gifted or lucky businessman who legitimately prospered
during a real estate boom that was not of his making. However,
under these circumstances we find no error in including the
deliberate ignorance instruction.33 The instruction is
appropriate where a defendant claims a lack of guilty knowledge
and the evidence at trial supports an inference of deliberate
was entitled to sell land to those institutions at any price they
were willing to pay, and to benefit from any loans they were
willing to make to borrowers who were buying land from him. Mr.
Toler denies that he participated in or knew of any bribes or
illegitimate payments by Mr. Sinclair or others to any bankers.
He contends that he was unaware of transactions in which Tommy
Nelson and Larry Powell received $2 million from Kitco, or in
which Paul Jensen received a $4 million home or other monies from
selling land to Kitco, or in which Spencer Blain received
$1,400,000 from Mr. Sinclair. . . . Mr. Toler contends that he
and Mr. Faulkner loaned funds to Spencer Blain for the purchase
of Empire shock, in order to relieve Mr. Faulkner of liability on
a $750,000 promissory note at First City Bank secured by the
Empire stock. Mr. Toler also sold the property later known as
Chalet Ridge to Mr. Blain, and assisted Mr. Blain in arranging a
loan . . . for the purpose of buying this land and paying off the
loans for Mr. Toler and Mr. Faulkner on the Empire stock. Mr.
Toler contends that in each of these transactions he acted for
the legitimate business interests of himself and Mr. Faulkner,
and denies that he made any misrepresentations to anyone or
provided any illegitimate benefits to Spencer Blain. Finally,
Mr. Toler admits he was aware that Spencer Blain sold the Chalet
Ridge property to Kitco, Sinclair and Cansler in February 1983
for a large profit, but denies he either arranged that sale or
had anything to do with determining the price paid."
33
Faulkner and Blain adopt all of the arguments raised by
Toler, but make no attempt to brief this fact-specific issue as
it relates to them. See Lara-Velasquez, 919 F.2d at 952("Appellate review of a deliberate ignorance instruction is
necessarily a fact-intensive endeavor."). However, we conclude
that the instruction was appropriately given as to them as well,
employing essentially the same analysis we employ above as to
Toler.
43
indifference. United States v. Cartwright, 6 F.3d 294, 301 (5th
Cir. 1993).
G. Sufficiency of Evidence Points
Appellants challenge the sufficiency of the evidence to
support their convictions. In assessing the sufficiency of the
evidence, we determine whether, viewing the evidence and the
inferences that may be drawn therefrom, a rational jury could
have found the essential elements of the offense beyond a
reasonable doubt. United States v. Pruneda-Gonzalez, 953 F.2d
190, 193 (5th Cir.), cert. denied, 112 S. Ct. 2952 (1992). We
review the evidence, whether direct or circumstantial, and all
reasonable inferences drawn therefrom in the light most favorable
to the verdict. United States v. Salazar, 958 F.2d 1285, 1290-91
(5th Cir.), cert. denied, 113 S. Ct. 185 (1992). "[I]t is not
necessary that the evidence exclude every reasonable hypothesis
of innocence or be wholly inconsistent with every conclusion
except that of guilt, provided that a reasonable trier of fact
could find that the evidence established guilt beyond a
reasonable doubt." United States v. Stephens, 964 F.2d 424, 427
(5th Cir. 1992).
1. Formann
Formann was convicted of conspiracy under Count 1, seventeen
counts of submitting false appraisals under 18 U.S.C. § 1014, two
counts of wire fraud under 18 U.S.C. § 1343, and one count of
misapplying funds of a federally insured institution under 18
44
U.S.C. § 657. He claims insufficient evidence as to all of these
counts.
To establish guilt for conspiracy, the government must prove
beyond a reasonable doubt that two or more people agreed to
pursue an unlawful objective together, that the defendant
voluntarily agreed to join the conspiracy, and that one of the
members of the conspiracy performed an overt act to further the
conspiracy. United States v. Parekh, 926 F.2d 402, 406 (5th Cir.
1991). Each element may be inferred from circumstantial
evidence. United States v. Cardenas, 9 F.3d 1139, 1157 (5th Cir.
1993); United States v. Shivley, 927 F.2d 804, 809 (5th Cir.),
cert. denied, 111 S. Ct. 2806 (1991).
In rendering its verdict on Count 1, the jury found that of
the four defendants only Formann conspired to overvalue land
under § 1014.34 As explained above in the discussion of the
variance issue, the jury's failure to find that the three other
appellants had not conspired with Formann to overvalue land does
not mean that Formann's conspiracy conviction cannot stand.35 We
34
This statute now provides that "[w]hoever knowingly
makes any false statement or report, or willfully overvalues
land, property or security, for the purpose of influencing in any
way the action of . . . any institution the accounts of which are
insured by the [FDIC] . . . shall be fined not more that
$1,000,000 or imprisoned not more that 30 years, or both." 18
U.S.C.A. § 1014 (West Supp. 1993). The version of the statute in
effect at the time of the alleged conduct imposed different
penalties and included reference to the FSLIC. The parties
stipulated that Empire and Bell were insured by the FSLIC.
35
We also note that in United States v. Zuniga-Salinas,
952 F.2d 876, 877 (5th Cir. 1992) (en banc), we held that a
conspiracy conviction need not be set aside even when the sole
alleged coconspirator is acquitted. Prior to that we had held on
45
find sufficient evidence that Formann was part of the overall
conspiracy alleged in Count 1 and that he conspired with Paul
Tannehill, Larry Hutson or others to inflate the appraisals.
Formann was a former examiner for the Federal Home Loan Bank
Board and had at one time served as the managing officer of a
Texas savings and loan institution. The jury could reasonably
infer that he understood the role his appraisals played in the I-
30 loans and land flips. Evidence was presented that Formann had
numerous dealings with Faulkner and Sinclair, and that appraisals
were prepared on the I-30 properties at each stage of the land
flips. "Parties who knowingly participate with core conspirators
to achieve a common goal may be members of an overall conspiracy.
. . . The members of a conspiracy which functions through a
division of labor need not have an awareness of the existence of
the other members, or be privy to the details of each aspect of
the conspiracy." United States v. Richerson, 833 F.2d 1147, 1154
(5th Cir. 1987). Tannehill was Formann's boss during part of
1982 and 1983. He signed appraisals prepared by Formann during
this period. Formann and Tannehill had a joint interest in one
I-30 property and succeeded in reselling it at a profit. The two
numerous occasions that a defendant's conspiracy conviction can
be upheld even if all other alleged coconspirators tried with him
are acquitted, so long as the indictment alleges other named or
unnamed coconspirators and there is sufficient evidence of a
conspiracy involving these other individuals who were not tried
with the defendant. E.g. United States v. Price, 869 F.2d 801,
804 (5th Cir. 1989); United States v. Sheikh, 654 F.2d 1057, 1062
(5th Cir. 1981), cert. denied, 455 U.S. 991 (1982). Here the
indictment alleged known and unknown coconspirators including
Paul Tannehill.
46
received a fixed percentage of each appraisal fee paid. While
working with Tannehill Formann could not sign appraisals since he
was not an MAI appraiser. At one point in 1983 one of
Tannehill's employees suggested that the company cease preparing
appraisals on the I-30 properties because the workload had become
too great. Tannehill's response was, "I know it, Dolly, but I am
in too deep and I can't get out, I have to unload my condos
first." The jury could reasonably infer that they conspired to
inflate appraisals. Formann claims that there was no evidence
that any alleged coconspirator ever asked him to inflate any
requested appraisal. However, "[a] conspiracy agreement may be
tacit," and "[n]o evidence of overt conduct is required." United
States v. Hernandez-Palacios, 838 F.2d 1346, 1348 (5th Cir.
1988). Larry Hutson, another appraiser, testified that there was
no need to tell Toler and Faulkner he was falsifying appraisals,
because "[t]hey knew what the values were." Likewise, he
testified that when Ray Evans of Empire would request an
appraisal, "he would ask me to appraise a particular tract and he
would usually tell me what his loan amount was and I would do
some calculations and come up with an appraisal price to cover
the loan amount . . . . He knew what the sales price was, he
knew what the loan amount was. I mean, I didn't say this is a
false appraisal. He was smart enough to know that."
Formann further claims that the conspiracy count and the
individual substantive counts on which he was convicted for
overvaluing land under § 1014 were not supported by sufficient
47
evidence that land was overvalued and that he intentionally
overvalued land. To prove a violation of § 1014 the government
must show that the defendant knowingly made a false statement as
to a material fact to a financial institution for the purpose of
influencing the financial institution's decision. United States
v. Trice, 823 F.2d 80, 85 (5th Cir. 1987). Intent can be
inferred from the fact that the defendant made statements with
the capacity to influence the institution's decision. United
States v. Stephens, 779 F.2d 232, 237 (5th Cir. 1985). We find
sufficient evidence that Formann intentionally overvalued the
properties in his appraisals.36 The evidence established that
Faulkner and Toler would simply decide what they wanted for their
property, and that appraisals on these initial sales and later
sales were always supported by appraisals valuing the properties
at or above the sales price. When asked how the appraisals were
obtained, Sinclair testified that Faulkner and Toler arranged for
the appraisals, and that most came from Formann. Sinclair
testified that Faulkner originally introduced Sinclair to
Formann, and that Faulkner described Formann as "his appraiser."
Expert witnesses testified that the appraisals were seriously
flawed, inconsistent, and otherwise highly overvalued. Expert
testimony was offered that the appraised land values were so high
36
Toler argues that his convictions for aiding and
abetting Formann's violations of § 1014 should be reversed on
grounds that if the court accepts Formann's insufficiency of
evidence claims on these counts, it should likewise reverse
Toler's aiding and abetting convictions. Since we affirm
Formann's convictions under these counts we reject this argument.
48
that the market would not support condominiums built on them, and
that mere incompetence could not explain the inconsistent
adjustments in the appraisals and nonconformities with appraisal
theory, since they always erred in the same direction -- above
the actual selling price. Other witnesses with knowledge of land
values in the area testified that they did not believe the land
could be worth the appraised values. Sinclair testified that on
one group of appraisals, Formann told him he had been given a
value to reach by Faulkner and Toler. Hughes testified that on
one appraisal Faulkner and Toler were informed that Formann was
not going to reach a value needed for a transaction, and that
Faulkner "had a little talk with Mr. Formann and we received the
appraisal." Larry Hutson testified that although he sometimes
served as a "review appraiser" for Formann, he in fact did no
review at all and would simply sign his name to the appraisals.
At one point Sinclair testified that he did not remember
discussing a particular appraisal with Formann "other than the
fact that we told [Formann] what we had to have per square foot,
and the appraisals were always placed in there higher than the
selling price." On another occasion Sinclair, at Faulkner's
suggestion, paid Formann an up-front bonus of $30,000 to prepare
appraisals on two properties. He received other smaller bonuses
from Sinclair as well. Formann complains that the experts did
not personally prepare appraisals on the various properties. On
these facts, however, we do not agree that the preparation of
such appraisals was essential to the government's proof.
49
Formann also asserts that appraisals on land that has not
yet sold are necessarily mere opinions, cannot be characterized
as "true" or "false," and do not fall within the purview of §
1014. He cites Williams v. United States, 458 U.S. 279 (1982),
which held that an alleged check-kiting scheme did not fall
within §1014. The Court reasoned:
Although petitioner deposited several checks that were
not supported by sufficient funds, that course of
conduct did not involve the making of a "false
statement," for a simple reason: technically speaking,
a check is not a factual assertion at all, and
therefore cannot be characterized as "true" or "false."
. . . Each check did not, in terms, make any
representation as to the state of petitioner's bank
balance.
Id. at 284-85. We find Williams distinguishable. An appraisal,
unlike a check, contains statements as to the fair market value
of property, and § 1014 expressly reaches one "who willfully
overvalues land." In Williams, the Court was faced with a
situation where the statute "does not explicitly reach the
conduct in question . . . ." Id. at 286.
Formann also complains that he was convicted on several
counts relating to appraisals signed by Paul Tannehill. These
appraisals indicated that Formann assisted in their preparation.
Evidence was presented that while Formann worked for Tannehill,
Formann was assigned to do the I-30 appraisals. Tannehill would
sign all of the appraisals Formann worked up, because that was
the practice at that office, and because industry practice was to
have appraisals signed by an MIA appraiser, the MIA designation
indicating membership in the American Institute of Real Estate
50
Appraisals. At the time Formann was not an MIA appraiser. On
all of these counts we note that Formann was indicted under §
1014, but was also indicted under 18 U.S.C. § 2 for aiding and
abetting Tannehill. A defendant may be convicted for aiding and
abetting the commission of a crime if he was "`associated with a
criminal venture, participated in the venture, and sought by his
action to make the venture succeed.'" United States v. Parekh,
926 F.2d 402, 406 (5th Cir. 1991) (quoting United States v.
Holcomb, 797 F.2d 1320, 1328 (5th Cir. 1986)). As to the
appraisals signed by Tannehill, we find sufficient evidence to
support all of the convictions for overvaluing land under § 1014
or for aiding and abetting Tannehill to commit these offenses.
Tannehill's signature on these appraisals may go to the weight of
the evidence, but does not in our view render the evidence
insufficient on these counts.
Count 13 involved an appraisal for a property known as "On
The Point." Neither Formann nor Tannehill signed this appraisal;
however, Tannehill had an ownership interest in this property,
and Formann had an undisclosed profits interest and received one-
third of the profit made on the resale of the property. Larry
Hutson testified that he prepared an overvalued appraisal on this
property at the request of Tannehill. Tannehill explained to him
that another appraiser must sign off on this appraisal since
Tannehill could not appraise property that he owned. Hutson met
with Formann and Tannehill regarding the appraisal, and was told
by Tannehill the dollar figure that was needed in the appraisal.
51
Formann had prepared a preliminary handwritten appraisal report.
Tannehill and Formann supplied Hutson with backup documents as
well to accompany the report. Formann made a profit of
approximately $226,000 when the property sold. We find this
evidence sufficient to uphold Formann's conviction on this count.
Formann claims insufficient evidence to sustain his wire-
fraud convictions under Counts 10 and 48. He recognizes that
under the Pinkerton rule "[a] party to a conspiracy may be held
responsible for a substantive offense committed by a
coconspirator in furtherance of the conspiracy, even if that
party does not participate in or have any knowledge of the
substantive offense," United States v. Garcia, 917 F.2d 1370,
1377 (5th Cir. 1990), but argues that these conviction should be
overturned since his conspiracy conviction cannot stand. We have
concluded, however, that the conspiracy conviction should stand.
Formann also claims insufficient evidence to support his
conviction under Count 12, for aiding and abetting Blain's
misapplication of funds under 18 U.S.C. § 657. Establishing an
offense under § 657 requires the government to prove that (1) the
defendant was an officer, agent or employee of, or connected in
some way with, a federally insured savings and loan association,
(2) he willfully misapplied funds of the association, and (3) he
acted with intent to injure or defraud the association. United
States v. Hopkins, 916 F.2d 207, 215 (5th Cir. 1990). Under this
statute, "one way that the Government may prove willful
misapplication of funds is by showing that a person has
52
deliberately converted bank funds to his own use or to the use of
a third person, or that the person has used funds in violation of
the law." Id. This count concerns a loan made by Blain to
finance the sale of On The Point. We find evidence from which a
rational jury could conclude that (1) Formann had an undisclosed
profits interest in this property, (2) he assisted in the
preparation of a false appraisal on it, (3) Tannehill was unable
to sell condominiums on this project and wanted out of it (4)
Faulkner and Tannehill agreed on a sales price that would assure
Formann and Tannehill each received over $200,000 when the
property sold, (5) Blain had Empire make the loan for the sale,
(6) Faulkner prevailed upon Sinclair, Hughes and Cansler to
purchase seven condominiums each (7) Empire relied on Formann and
Tannehill to supply appraisals, and (8) the sale was just one
more of a series of inflated land sales which furthered the
conspiracy by enriching at least two of the conspirators and
perpetuating the appearance of a land boom where properties were
rapidly selling at ever-increasing prices. We find this evidence
sufficient to support Formann's conviction as a substantive
offense committed in furtherance of the conspiracy, and under a
theory of aiding and abetting.
2. Other Sufficiency Claims
Faulkner claims insufficient evidence to support his
conviction under Count 37, a wire fraud count based on a wire
transfer. The wire transfer for approximately $6.5 million was
from Ozark Service Corporation (Ozark), a subsidiary of First
53
State Building & Loan Association of Mountain Home, Arkansas
(First State), another lender on I-30 projects. Ozark was
similar to Empire's subsidiary, Statewide, in that both invested
directly in the I-30 projects. The offense of wire fraud
requires proof of a scheme to defraud and the use of interstate
wire communications in furtherance of the scheme. United States
v. Shivley, 927 F.2d 804, 813 (5th Cir.), cert. denied, 111 S.
Ct. 2806 (1991). The indictment alleged that the Count 1
conspiracy was the scheme to defraud. As explained above, we
have concluded that the conviction of all appellants on Count 1
should stand. Hence, under general conspiracy law their
"culpability extends to all substantive offenses committed in
furtherance of that conspiracy." United States v. Berkowitz, 662
F.2d 1127, 1140 (5th Cir. 1981). Further, under the wire fraud
statute in particular, "[o]nce membership in a scheme to defraud
is established, a knowing participant is liable for any wire
communication which subsequently takes place or which previously
took place in connection with the scheme." Shivley, 927 F.2d at
813 (quoting United States v. Westbo, 746 F.2d 1022, 1025 (5th
Cir. 1984). We find sufficient evidence that the wire transfer
was in furtherance of the overall conspiracy described in Count
1. Evidence was submitted to support the following scenario.
The wire transfer was connected with two projects known as Bahama
Glen and The Cabanas. Ozark owned an interest in the Cabanas, a
project built on property earlier sold by Faulkner and Toler.
Empire had funded the Ozark purchase. The Cabana units were not
54
selling and Ozark wanted to unload them. Tommy Nelson of First
State agreed to fund the purchase of Bahama Glen in exchange for
Faulkner's and Toler's agreement to help Ozark out of The
Cabanas. Like Blain and Jensen, Nelson was richly rewarded for
serving as a lender on the I-30 properties. On one occasion
Faulkner and Sinclair arranged a complicated land flip whereby
one Sinclair company sold property to Nelson and repurchased it
from him in the course of a single closing, netting Nelson $1
million. Toler found buyers for the Cabanas and arranged for
Empire to finance the sale. The buyers include Sinclair, Kenneth
Cansler, Wailen York, and Ernie Hughes. Ozark earned a
substantial profit on the sale. Ozark then funded the sale of
Bahama Glen. Faulkner and Toler each made $1.4 million on the
sale. Hughes found investors to purchase Bahama Glen. The money
to close the Bahama Glen sale was the subject of the wire
transfer alleged in count 37. We agree with the government that
the jury could conclude that "[t]he entire transaction concocted
by Faulkner, Toler, Blain, and Nelson was designed to enable the
co-conspirators to purchase yet another piece of inflated
property, thereby enriching themselves through the funding of
another loan, and to prevent Nelson's defaulting on the Cabanas,
which might have alerted the bank regulators to the scheme and
frightened off potential future investors."
A similar analysis applies to the remaining insufficiency
claims. Faulkner claims insufficient evidence with respect to
Counts 38 and 43. These counts assert violations of 18 U.S.C. §
551006 by Blain, and aiding and abetting by Faulkner and Toler.
They concern payments Blain received in connection with Empire
loans on projects known as Spring Garden and Cheshire Creek. A
violation of § 1006 may be established by proof that (1) the
defendant was an officer, agent, or employee of a federally
insured savings and loan association, (2) that he knowingly and
willfully participated, shared, or received, directly or
indirectly, benefits through any transaction or loan of the bank,
and (3) that he acted unlawfully and intended to defraud or
deceive the institution or United States. Id. It makes no
difference whether the objective of the fraud was to obtain an
advantage or to cause the principal to suffer a loss. United
States v. Munna, 871 F.2d 515, 517 (5th Cir. 1989), cert. denied,
493 U.S. 1059 (1991). Again, the evidence is sufficient to
establish that Blain violated the statute and that this offense
was in furtherance of the conspiracy. Faulkner discussed with
Sinclair and Blain his interest in purchasing a larger Lear jet
through a land transaction. He indicated that if Blain would
finance the transaction Blain would receive his other Lear jet
and a condominium. Blain loaned Sinclair $1.8 million to
purchase Spring Glen. When the land was resold, Blain received
the condominium, the jet, and approximately $3 million, which was
received through a trustee. Such rich rewards for Blain were in
furtherance of the conspiracy, since Blain controlled Empire and
made all of Empire's loan decisions. Similar evidence was
presented regarding Cheshire Creek. A Toler company contracted
56
to buy the property. Empire loaned approximately $2 million for
the initial purchase of this property. It was subdivided and
resold by Ernie Hughes through a second, much larger loan from
First Savings and Loan Association of Burkburnett. Hughes
testified that the Cheshire Creek transaction was arranged by
Faulkner and Toler as a means of benefitting Blain. Faulkner and
Toler each made over $3 million from the resale. Blain's
daughters received more that $400,000 from the sale. Blain also
directed payments to three other Empire directors intended to
enable them to purchase Blain's stock in Empire and allow him to
retire to Colorado. By it terms § 1006 does not require direct
payment to the defendant, and covers a defendant "who
participates or shares in or receives directly or indirectly"
profits or benefits through any transaction or loan by a savings
and loan. Again, this evidence is sufficient to establish that
Blain violated § 1006, and that this violation was in furtherance
on the conspiracy.
Toler complains of the wire fraud convictions related to
brokered deposits. The indictment alleged 24 counts of wire
fraud for 24 separate occasions where brokered deposits were
wired to Lancaster, Empire and Bell. Six of these counts were
submitted to the jury, the others having been dismissed on the
government's motion. Blain, Toler and Faulkner were all
convicted on all six counts. Evidence was presented that
Faulkner, Blain and Toler were all aware of the use of brokered
deposits and that such deposits were essential to supplying the
57
huge growth in deposits needed by the institutions to fund the I-
30 loans. Evidence was also offered that Faulkner and Toler paid
the broker's fee on some of these deposits, that on occasion
Faulkner would talk to one of the brokers, and on one such
occasion had thanked him "for the money we were sending and keep
up the good job and etc., etc." As to counts 65 and 66, evidence
was offered that the Bell's brokered deposits were used on a
specific Faulkner project known as Faulkner Meadows II, one of
the projects on which inflated appraisals were prepared and which
was otherwise a part of the alleged conspiracy. In interpreting
the similar mail fraud statute, we have held that "when an
individual does an act with the knowledge that the use of the
mails will follow in the ordinary course of business, or when
such use can reasonably be foreseen, even though not actually
intended, then he/she `causes' the mails to be used" under that
statute. United States v. Shaid, 730 F.2d 225, 229 (5th Cir.),
cert. denied, 469 U.S. 844 (1984). See also United States v.
Bruno, 809 F.2d 1097, 1104 (5th Cir.) (cases construing mail
fraud statute apply to wire fraud statute as well), cert. denied,
481 U.S. 1057 (1987). We find the evidence sufficient to affirm
the convictions on these counts.
As to the four other counts, however, no evidence was
offered that the brokered deposits described were actually used
on one of the I-30 projects or were directly linked in any way to
the conspiracy. An essential element of wire fraud is the use of
interstate communications in furtherance of the scheme to
58
defraud. Id. We think the general use of brokered deposits by
Empire and Lancaster to fund the I-30 loans and, for all we know,
other totally unrelated loans, is simply too little evidence to
sustain these convictions. Accordingly, we vacate the
convictions of Blain, Toler, and Faulkner or Counts 52, 53, 60,
and 61.37
H. RICO Points
Blain, Faulkner and Toler were convicted of conspiring to
violate the RICO statute, 18 U.S.C. § 1962(d), as alleged in
Count 88 of the indictment. They raise several challenges to
their RICO conviction and the forfeiture ordered under the
statute. The indictment charged conspiracy to violate § 1962(c).
Faulkner and Toler argue that when a defendant is charged
with conspiracy to violate RICO, the government must prove that
the defendant agreed to personally commit or personally aid or
abet at least two predicate offenses, or actually commit two
predicate acts. See, e.g., United States v. Phillips, 664 F.2d
971, 1039 (5th Cir. 1981) (finding that defendant could be
convicted of conspiring to violate RICO "so long as he committed
or agreed to commit and least two separate crimes in furtherance
of the conspiracy's single objective"), cert. denied, 457 U.S.
1136 (1982). Appellants claim that under this standard there is
insufficient evidence to sustain the RICO convictions, and that
37
We recognize that reversing these convictions are of
very small consolation to these appellants, since the court
imposed sentences under these counts concurrent to other
sentences, and since it imposed fines against Faulkner and Toler
of only $1,000 on these counts.
59
the jury was erroneously instructed that "the government may
establish a defendant's membership in the conspiracy by proof
that he agreed that another would violate § 1962(c) by committing
two acts of racketeering." The government argues that this
circuit has not squarely addressed this issue, and that the
majority of circuits require only that a defendant agree with
other conspirators that two predicate acts will be committed
pursuant to the conspiracy. E.g. United States v. Neapolitan,
791 F.2d 489, 494-500 & n.3 (7th Cir.) (rejecting requirement
that defendant agrees personally to commit two predicate acts,
and concluding that the Fifth Circuit has not "definitively
resolved this issue."), cert. denied, 479 U.S. 939 (1986). We
need not resolve this issue. The jury verdict form asked whether
Blain, Toler and Faulkner were guilty under Count 88, and then
inquired as to which racketeering acts each defendant committed
or agreed to commit. The jury checked off numerous racketeering
acts as to each defendant. It specifically found that each of
the three had committed or agreed to commit wire fraud under
Counts 37, 65 and 66.38 As addressed above, we find sufficient
38
The jury was further instructed that "even though you
may have already addressed two or more of the substantive counts
of the indictment which are charged as separate racketeering acts
in the RICO conspiracy, the proof must show that such
racketeering acts, if committed, were committed pursuant to an
agreement to willfully conduct or participate in the conduct of
the affairs of the enterprise alleged in Count 88 through a
pattern of racketeering activity, in accordance with the
instructions pertaining to Count 88." It was also instructed
that "it is not enough that the alleged conspirators agreed to
commit the acts of racketeering alleged in the indictment,
without more, or that they agreed merely to participate in the
affairs of the same enterprise. Instead, the government must
60
evidence that each violated the wire fraud statute under these
counts.
Faulkner and Toler also claim insufficient evidence to
support the RICO forfeiture verdict under 18 U.S.C. 1963(a)(1),
which provides for forfeiture to the government of "any interest
[defendant] has acquired or maintained in violation of Section
1962." Faulkner and Toler were assessed $40 million and $38
million penalties, respectively. These figures were based on
amounts received by Faulkner and Toler, their companies and
family members. They do not demonstrate any computational errors
in these figures,39 but they argue that they should not be forced
to forfeit amounts that went to their families and companies. We
find sufficient evidence that they "acquired or maintained" the
amount forfeited. The evidence showed that they had control over
the disbursement of the proceeds of the land transactions, and
directed the disbursements from a land sale after it was
deposited in an account of their choosing. See Russello v.
United States, 464 U.S. 16, 21 (1983) ("It undoubtedly was
because Congress did not wish the forfeiture provision of §
1963(a) to be limited by rigid and technical definitions drawn
from other areas of the law that it selected the broad term
prove beyond a reasonable doubt that the alleged conspirators
agreed to conduct the affairs of the enterprise through a
`pattern of racketeering activity' as that term has been defined
elsewhere in these instructions."
39
Counsel for Toler stated at oral argument: "It was a
hot, hot market. Jim toler took advantage of the situation. He
made 38 million dollars in a year and a half. That was not even
disputed. I think we put that evidence in in a chart."
61
`interest' to describe the things that are subject to forfeiture
under the statute. Congress selected this general term
apparently because it was fully consistent with the pattern of
the RICO statute in utilizing terms and concepts of breadth.");
Neapolitan, 791 F.2d at 495 (noting that RICO must be liberally
construed to effectuate its remedial purposes); United States v
BCCI Holdings (Luxembourg), S.A., 795 F. Supp. 477, 480 (D.D.C.
1992) ("In light of the deliberately broad language of § 1963 and
the ambitious purpose of RICO, interpretation of the term
`interest' to include the assets of a racketeering corporation's
alter ego clearly is warranted.").
Appellants also argue that the evidence is insufficient to
show that the proceeds would not have been acquired but for the
defendant's racketeering activity. United States v. Ofchinick,
883 F.2d 1172, 1183 (3d Cir. 1989), cert. denied, 493 U.S. 1034(1990) and other cases impose such a "but for" test. However, we
do not agree with appellants' suggestion that the amounts subject
to forfeiture must be directly linked or traced to the specific
racketeering acts proved. For example, we do not agree with
Faulkner that the brokered deposits made the basis of one
racketeering act found by the jury must be tied to a particular
loan. We agree with the government that the forfeiture should
reflect the scope of the offense. The RICO offense here is not
merely the commission of particular predicate acts, but a
conspiracy to "conduct or participate, directly or indirectly, in
the conduct of" an enterprise. 18 U.S.C. § 1962(c). See United
62
States v. Elliot, 571 F.2d 880, 902 (5th Cir.) ("[T]he object of
RICO conspiracy is to violate a substantive RICO conviction --
here, to conduct or participate in the affairs of an enterprise
through a pattern of racketeering activity -- and not merely to
commit each of the predicate crimes necessary to demonstrate a
pattern of racketeering activity."), cert. denied, 439 U.S. 953(1978). We conclude that sufficient evidence was offered as to
the profits earned by appellants from the overall RICO
conspiracy.40
Appellants also complain that the court improperly
instructed the jury that a violator of RICO "shall, as part of
the penalty, forfeit any interest he has acquired or maintained
in violation of Section 1962." They claim that the instruction
should not have been written in mandatory language, and instead
should have told the jury that it "may" direct a forfeiture.
They cite United States v. Cauble, 706 F.2d 1322, 1348 (5th Cir.
1983), cert. denied, 465 U.S. 1005 (1984), where we stated that a
proper jury instruction should "include language that suggests
that a jury may find an interest or contractual right forfeitable
. . . ." There the court was addressing whether there must be a
40
Compare United States v. Madeoy, 912 F.2d 1486, 1495
(D.C. Cir. 1990) ("The appellants claim that their forfeiture
should be reduced to reflect only the proceeds from the 11
properties that the jury identified on the verdict form.
Contrary to the appellants' assertion, however, the scope of
their RICO enterprise is not necessarily limited to the 11
properties that the jury specifically indicated in its
substantive RICO verdict. The district court correctly
instructed the jury that it could convict the appellants under
RICO without considering whether they committed every predicate
act."), cert. denied, 498 U.S. 1105 (1991).
63
nexus between the defendant's conduct and the property claimed.
The case cannot be read to suggest that forfeiture is a matter
left to the jury's discretion once the elements of forfeiture are
established. Here the instruction properly followed the statute,
which provides that whoever violates "section 1962 . . . shall .
. . forfeit . . . any interest he has acquired or maintained in
violation of section 1962 . . . ." 18 U.S.C. § 1963(a) (emphasis
added).
CONCLUSION
The convictions of Faulkner, Blain and Toler on Counts 52,
53, 60 and 61 are vacated. In all other respects the judgments
of conviction and sentences are affirmed.
64