United States v. Bryan Puckett , 933 F.3d 548 ( 2019 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 19a0179p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
UNITED STATES OF AMERICA, ┐
Plaintiff-Appellee, │
│
> Nos. 17-6410/6493
v. │
│
│
AMIR BABAK BANYAN (17-6410); BRYAN PUCKETT │
(17-6493), │
Defendants-Appellants. │
┘
Appeal from the United States District Court
for the Middle District of Tennessee at Nashville.
No. 3:14-cr-00101—Aleta Arthur Trauger, District Judge.
Argued: October 4, 2018
Decided and Filed: August 5, 2019
Before: SILER and KETHLEDGE, Circuit Judges; OLIVER, District Judge.*
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COUNSEL
ARGUED: J. Alex Little, BONE MCALLESTER NORTON PLLC, Nashville, Tennessee, for
Appellant in 17-6410. Stuart A. Berman, LERCH, EARLY, & BREWER, CHTD., Bethesda,
Maryland, for Appellant in 17-6493. Sangita K. Rao, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellee. ON BRIEF: J. Alex Little, BONE MCALLESTER
NORTON PLLC, Nashville, Tennessee, for Appellant in 17-6410. Stuart A. Berman, LERCH,
EARLY, & BREWER, CHTD., Bethesda, Maryland, for Appellant in 17-6493. Elizabeth H.
Danello, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., Byron M. Jones,
UNITED STATES ATTORNEY’S OFFICE, Nashville, Tennessee, for Appellee.
*The Honorable Solomon Oliver, Jr., United States District Judge for the Northern District of Ohio, sitting
by designation.
Nos. 17-6410/6493 United States v. Banyan, et al. Page 2
KETHLEDGE, J., delivered the opinion of the court in which OLIVER, D.J., joined.
OLIVER, D.J. (pp. 9–11), delivered a separate concurring opinion. SILER, J. (pp. 12–13),
delivered a separate dissenting opinion.
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OPINION
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KETHLEDGE, Circuit Judge. In this case the government charged the defendants with
the wrong crimes. Amir Banyan and Bryan Puckett engaged in a scheme in which they
eventually obtained more than $5 million from a pair of mortgage companies by means of
fraudulent mortgage applications. The scheme was revealed about two years after it began. Had
the government charged Banyan and Puckett with mail or wire fraud within the five-year
limitations periods for those offenses, the two likely would have lacked any plausible defense.
But for whatever reason the government blew that deadline and instead later charged Banyan and
Puckett with bank fraud, of which they were both convicted. That offense has a longer
limitations period, but brings the complication that the fraud must be perpetrated against a
bank—which (as a matter of statutory definition) the mortgage companies obviously were not,
because they were not federally insured. Nor did the government make any effort at trial to
prove that the loans were funded by the mortgage companies’ parent corporations, which were
banks. The government now offers various theories to work around these deficiencies, but none
has merit. We therefore reverse the defendants’ convictions.
I.
In January 2006, Puckett was a homebuilder in Nashville; Banyan was a mortgage broker
who had previously worked at SunTrust Mortgage Company. Puckett was overloaded with debt
incurred while building some half-dozen luxury homes that he had not yet sold. With Banyan,
Puckett recruited straw buyers to purchase his unsold homes with loans funded by SunTrust
Mortgage Company and Fifth Third Mortgage Company. For a fee typically in the
neighborhood of $10,000, each buyer submitted to the mortgage company a loan application—in
most cases filled out by Banyan—that overstated the buyer’s income and falsely stated that the
buyer intended to live in the home, among other misrepresentations. None of those
Nos. 17-6410/6493 United States v. Banyan, et al. Page 3
misrepresentations, on the record here, reached the parent corporations of the mortgage
companies, namely SunTrust Bank and Fifth Third Bank, both of which were federally insured.
Nor, on the record here, did either of the parent banks fund any of the loans.
Puckett received the proceeds of the loans, which he told the buyers he would use to
make their mortgage payments for them. Altogether, pursuant to the scheme, Puckett sold eight
homes to straw buyers and received more than $5 million from the mortgage companies.
(Presumably Banyan took a share as well.) By late 2007, however, Puckett could not keep up
with all the payments for the fraudulent loans and his preexisting debt. By the end of 2008, the
mortgage companies had foreclosed on most if not all the homes.
Although the FBI began investigating the scheme in 2009, the government did not indict
Banyan or Puckett until 2014, on various counts of bank fraud in violation of 18 U.S.C. § 1344and conspiracy to commit bank fraud in violation of 18 U.S.C. § 1349. A jury convicted each
defendant of two counts of bank fraud and one count of conspiracy. Although each defendant’s
Guidelines range exceeded five years’ imprisonment, the district court sentenced each defendant
to six months and ordered each released pending appeal. See 18 U.S.C. § 3143(b). This appeal
followed.
II.
Banyan and Puckett challenge the sufficiency of the evidence for their convictions for
bank fraud in violation of 18 U.S.C. § 1344. We must affirm their convictions if, based upon the
evidence admitted at trial, “any rational trier of fact could have found the essential elements of
the crime beyond a reasonable doubt.” Jackson v. Virginia, 443 U.S. 307, 319 (1979).
The issue here is more legal than factual. Section 1344 provides:
Whoever knowingly executes, or attempts to execute, a scheme or artifice—
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets, securities, or other
property owned by, or under the custody or control of, a financial
institution, by means of false or fraudulent pretenses, representations, or
promises
[shall be guilty of a crime].
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As used in these provisions, the term “financial institution” means, as relevant here, a federally
“insured depository institution.” 18 U.S.C. § 20(1). (We shall use the term “bank” as a synonym
for “financial institution.”)
Here, each defendant was convicted under § 1344(1) and § 1344(2). Most of the parties’
arguments concern § 1344(2), so we begin our discussion there. That subsection “requires that a
defendant ‘knowingly execute, or attempt to execute, a scheme or artifice’ with at least two
elements.” Loughrin v. United States, 573 U.S. 351, 355 (2014) (brackets omitted). The first is
that the defendant must “inten[d] to obtain bank property.” Id. (internal quotation marks
omitted). The second is that “the envisioned result—i.e., the obtaining of bank property—[must]
occur ‘by means of false or fraudulent pretenses, representations, or promises.’” Id. at 355-56.
That second element is met when “the defendant’s false statement is the mechanism naturally
inducing a bank (or custodian of bank property) to part with money in its control.” Id. at 363.
The government proved neither element here. The basic problem with the government’s
case is that neither of the mortgage companies from which the defendants obtained funds were
“financial institutions” as defined by § 20, because neither of those companies had deposits that
were federally insured. See 18 U.S.C. § 20(1). That statutory determination is as straightforward
as they come. Yet the government argues that we should regard the mortgage companies as
banks because each of them is a wholly owned subsidiary of a bank. That argument is nearly
frivolous: as the Second Circuit observed in rejecting it, “a ‘financial institution’ [as the term is
used in § 20] is not a loose or colloquial term, but a term of precise [legal] definition that can
lead to grave criminal consequences.” United States v. Bouchard, 828 F.3d 116, 126 (2d Cir.
2016). The Supreme Court has also instructed that “[a] basic tenet of American corporate law is
that the corporation [here, the mortgage companies] and its shareholders [here, the banks] are
distinct entities.” Dole Food Co. v. Patrickson, 538 U.S. 468, 474 (2003). And Congress has
precisely defined the term “financial institution,” as relevant here, to apply to institutions that
hold federally insured deposits—which the defrauded mortgage companies undisputedly did not.
Still the government persists, citing a potpourri of vague legislative history to the effect
that, e.g., “Congress wanted Section 1344 to have a broad scope.” Gov’t Br. at 18. But “we do
not resort to legislative history to cloud a statutory text that is clear.” Ratzlaf v. United States,
Nos. 17-6410/6493 United States v. Banyan, et al. Page 5
510 U.S. 135, 147-48 (1994). Indeed all of the government’s legislative history is irrelevant,
because “[e]xtrinsic materials” like legislative history “have a role in statutory interpretation
only to the extent they shed a reliable light on the enacting Legislature’s understanding of
otherwise ambiguous terms.” Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568
(2005) (emphasis added); see also, e.g., Dep’t of Housing & Urban Dev. v. Rucker, 535 U.S.
125, 132 (2002) (“reference to legislative history is inappropriate when the text of the statute is
unambiguous”); United States v. Gonzales, 520 U.S. 1, 6 (1997) (“Given the straightforward
statutory command, there is no reason to resort to legislative history”). And the government
nowhere identifies the purportedly ambiguous terms—by which, of course, the Supreme Court
means the ambiguous words—that its legislative history purports to clarify. Meanwhile, a year
after the events at issue here, Congress took the trouble to amend § 20 to add “mortgage lending
businesses” (i.e., mortgage companies) to its enumeration of “financial institutions” under that
section. See Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, § 2(a)(3). And
the Supreme Court has repeatedly said that, “‘[w]hen Congress acts to amend a statute, we
presume it intends its amendment to have real and substantial effect.’” Pierce Cty., Wash. v.
Guillen, 537 U.S. 129, 145 (2003) (quoting Stone v. INS, 514 U.S. 386, 397 (1995)). The
government’s argument that the mortgage companies themselves were “financial institutions” as
defined by § 20 at the time of the defendants’ conduct, therefore, is meritless.
That means the government needed to prove, as the first element of § 1344(2), that these
defendants intended to obtain bank property, rather than the property of the mortgage companies
(whose property they actually did obtain). But the government did not prove that. The
government offered no evidence, for example, that either of the parent banks funded the loans at
issue and that the defendants were aware of such funding. That omission distinguishes this case
from United States v. Rabuffo, 716 Fed. App’x 888, 898 (11th Cir. 2017) (unpublished, per
curiam), where the government presented evidence that the defendant was well aware that a bank
“would be handling any draw requests on the loans.” (The Rabuffo opinion asserted—based
upon its reading of the district court’s opinion in this case—that Banyan thought that SunTrust
Bank had funded some of the transactions at issue here, id. at 899; but suffice it to say that the
Eleventh Circuit seriously misconstrued the record in this case—which of course the court did
not have.) See also United States v. Chittenden, 848 F.3d 188, 201 (4th Cir.), vacated on other
Nos. 17-6410/6493 United States v. Banyan, et al. Page 6
grounds, 138 S. Ct. 447 (2017) (bank funded the loans through a line of credit to mortgage
company); United States v. Edelkind, 467 F.3d 791, 797-98 (1st Cir. 2006) (bank approved the
mortgage company’s loans). True, the government did show that Puckett made mortgage
payments with checks made out to “SunTrust Bank” rather than to “SunTrust Mortgage
Company.” But those checks standing alone are not enough for a jury to find beyond a
reasonable doubt that, when the defendants submitted fraudulent loan applications to the
mortgage companies, they actually intended to obtain funding from the banks. On this record,
rather, the checks are a data point connected to nothing. Nor did the government develop any
such argument in its brief on appeal. And otherwise the government did not even try to prove
that the defendants schemed to obtain bank property.
Instead the government argues that, in its view, the parent banks “owned” the funds that
the mortgage companies provided to the defendants, because the banks owned those companies.
But as the Ninth Circuit observed in rejecting the same argument, “[m]ore than a century of
corporate law says otherwise.” United States v. Bennett, 621 F.3d 1131, 1136 (9th Cir. 2010).
Dole Food specifically instructs—again as an elementary principle of corporate law—that “[a]n
individual shareholder, by virtue of his ownership of shares, does not own the corporation’s
assets[.]” 538 U.S. at 475; see also Soc’y for Sav. in City of Cleveland v. Bowers, 349 U.S. 143,
147 (1955) (“stockholders’ interests in a corporation represent a separate property interest from
the corporation’s ownership of its assets”); Rhode Island Hosp. Tr. Co. v. Doughton, 270 U.S.
69, 81 (1926) (“owner of the shares of stock in a company is not the owner of the corporation’s
property”). Thus, “it almost goes without saying that a parent corporation does not own the
assets of its wholly owned subsidiary by virtue of that relationship alone.” Bennett, 621 F.3d at
1136. Hence we too “see no reason to set aside fundamental principles of corporate law in the
context of the federal bank fraud statute, particularly where Congress has provided no indication
that we should do so.” Id. at 1137.
The government similarly argues that the banks had “custody or control of” the mortgage
companies’ funds, 18 U.S.C. § 1344(2), because “the jury could reasonably assume that a parent
company has some ‘duty’ to protect the funds of its wholly owned subsidiary and, moreover, has
the ‘power or authority to guide or manage’ those funds.” Gov’t Br. 28. But the government
Nos. 17-6410/6493 United States v. Banyan, et al. Page 7
offers no authority for the proposition that—as a matter of law—the jury may make those
assumptions, beyond a reasonable doubt no less, in a bank-fraud or any other kind of case. And
at trial the government offered no evidence that the banks here in fact had “some duty” or power
or authority to “guide or manage” the mortgage companies’ funds. Hence this argument too is
meritless.
Finally, as to the first element of § 1344(2), the government likewise argues that “the jury
could reasonably infer . . . that the funds obtained from the mortgage companies belonged to the
parent banks[,]” because any losses incurred by the mortgage companies would “flow directly
up” to the banks. Gov’t Br. at 24. But this argument is merely a rehash of the government’s
argument that we should disregard the separate corporate forms of the mortgage companies and
the parent banks. And the argument otherwise disregards the statutory text that the Supreme
Court so carefully interpreted in Loughrin. That text requires the government to prove the
defendant’s “intent to obtain bank property,” 573 U.S. at 355 (emphasis added), not merely to
diminish its value. Accord Bennett, 621 F.3d at 1138 (holding that the same argument “fail[s] to
appreciate the distinction between the act of misapplying funds belonging to a financial
institution and the act of diminishing the value of a financial institution’s assets”). True, in a
pre-Loughrin case, the D.C. Circuit affirmed a defendant’s bank-fraud conviction on the ground
that “a loss to [the mortgage company] would constitute a loss to [the parent bank].” United
States v. Hall, 613 F.3d 249, 252 (D.C. Cir. 2010). But the court’s brief analysis did not mention
the statutory text—indeed the court did not specify whether it was applying § 1344(1) or,
alternatively, § 1344(2). And in any event Hall’s purely economic reasoning is inconsistent with
the Court’s textual reasoning in Loughrin. In summary, therefore, the government did not prove
that Banyan or Puckett “intend[ed] to obtain bank property” as required by § 1344(2). Loughrin,
573 U.S. at 355.
Nor, more briefly, did the government prove that the defendants sought to obtain bank
property “by means of” a misrepresentation. 18 U.S.C. § 1344(2). That element of § 1344(2)
limits the provision’s scope to “frauds in which a false statement will naturally reach [a federally
insured] bank (or a custodian of the bank’s property).” Loughrin, 573 U.S. at 365 n.8. As shown
above, the mortgage companies were not custodians of the bank’s property, on this record,
Nos. 17-6410/6493 United States v. Banyan, et al. Page 8
because the banks did not fund the subject loans. And the government again presented no
evidence that any of the misrepresentations on the subject loan applications ever reached the ears
of anyone at the parent banks. As to both defendants, therefore, the government failed to prove a
violation of § 1344(2).
The same is true of § 1344(1). That subsection requires the government to prove that a
defendant specifically “intend[ed] to ‘defraud a financial institution[,]’” Loughrin, 573 U.S. at
357 (quoting § 1344(1)), as opposed to a mortgage company. Here, as shown above, the
government did not present proof of any such specific intent, or even try. Instead, on this record,
the scheme’s effect on the value of the banks’ ownership interests in the mortgage companies
was merely “incidental” to the scheme’s goal of defrauding the mortgage companies. Cf.
Loughrin, 563 U.S. at 363. To prove fraud under § 1344(1), in contrast, the government at a
minimum needed to prove that the defendants intended to “cause[] a federally insured bank to
transfer funds under its possession and control.” United States v. Everett, 270 F.3d 986, 991 (6th
Cir. 2001). And again the government provided no proof that the defendants had any intent to
cause a transfer by a bank. Thus, in summary, the government did not prove that either
defendant committed bank fraud in violation of § 1344(1) or (2). Their convictions for bank
fraud therefore cannot stand.
Nor did the government prove that the defendants conspired to defraud a bank in
violation of 18 U.S.C. § 1349. The government’s argument on this charge is derivative of its
arguments as to the sufficiency of the evidence under § 1344, see Gov’t Br. at 36-37, and fails
for the same reasons.
* * *
The district court’s judgments are reversed, and each defendant’s case is remanded with
instructions to enter a judgment of acquittal.
Nos. 17-6410/6493 United States v. Banyan, et al. Page 9
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CONCURRENCE
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OLIVER, District Judge, Concurring. I agree with the majority that the following
arguments made by the Government are clearly not well taken: (1) that the jury could infer that
the banks were defrauded on evidence that the mortgage companies were wholly-owned
subsidiaries of FDIC-insured banks; (2) that the jury could infer that the mortgage companies’
funds were under the custody or control of the parent banks, because the mortgage companies are
wholly-owned subsidiaries; and (3) that the jury could infer that “the funds obtained from the
mortgage companies belonged to the parent banks,” because the subsidiaries’ year-end profits
and losses flowed up to the parent banks. Gov’t Br. at 23-29. The Government’s arguments are
all based, in some sense, on the notion that, because the mortgage companies here were wholly-
owned subsidiaries of FDIC-insured banks, that fact alone is sufficient to support a jury finding
beyond a reasonable doubt that the FDIC-insured banks were defrauded. However, courts have
rejected this notion, concluding that, because banks are distinct corporate entities from their
subsidiaries, and the statute defines “financial institutions” as FDIC-insured banks, the entities
are different for purposes of Section 1344(2). Thus, the mere fact that a mortgage company is
wholly owned by a FDIC-insured parent bank is insufficient to show that the parent owned or
controlled the funds, or any other assets, of its subsidiary. See, e.g., United States v. Bouchard,
828 F.3d 116, 126 (2d Cir. 2016); United States v. Alexander, 679 F.3d 721, 728 (8th Cir. 2012);
United States v. Bennett, 621 F.3d 1131, 1136 (9th Cir. 2010).
Courts have, however, upheld convictions under Section 1344(2) for bank fraud where
the loans originating with a subsidiary mortgage company were shown to have a direct
connection to the assets of the bank itself. United States v. Chittenden, 848 F.3d 188, 201 (4th
Cir.), vacated on other grounds, 138 S. Ct. 447 (2017) (evidence that subsidiary’s “loans were
funded from an existing line of credit with [parent corporation]”); United States v. Irvin,
682 F.3d 1254, 1272–73 (10th Cir. 2012) (sustaining § 1344(2) conviction on evidence that the
“loan proceeds disbursed from [the subsidiary] . . . indisputably came from the credit line
extended to it by [the parent bank]”); United States v. Edelkind, 467 F.3d 791, 798 (1st Cir.
Nos. 17-6410/6493 United States v. Banyan, et al. Page 10
2006) (evidence “that a [bank] (not just its subsidiary) signed off on the loan” before mortgage
company made it); United States v. Walsh, 75 F.3d 1, 9 (1st Cir. 1996) (evidence that subsidiary
was “practically an alter ego” of the financial institution). But I again agree with the majority
that the Government has not shown a connection of the type that courts generally have required
to show bank fraud. The evidence adduced is insufficient to show that Defendants intended to
obtain bank property under § 1344(2). Similarly, the evidence is insufficient to show that they
intended to defraud the banks under § 1344(1). Cf. United States v. Rabuffo, 716 Fed. App’x
888, 895-99 (11th Cir. 2017) (convictions sustained under § 1344(1)).
The Government admits that there was “no explicit testimony that the banks were
funding the loans and that the loans were federally insured[.]” Gov’t Br. at 30. Rather, it points
to Puckett’s ex-wife’s affirmative response to the prosecutor’s leading question (“[a]nd the
money came from the bank[]”) as evidence that the parent bank funded the loans. However, her
single-word answer, “correct,” was given in the context of questioning that made no clear
distinction between the bank and the mortgage company subsidiary, the very matter that needed
to be clarified. The Government also contends that the jury could infer that Defendants knew the
loans came from the parent banks because Defendants had “considerable experience with
mortgage lending” companies. However, there is no evidence in the record to support a finding
that such knowledge would have led them to the conclusion that the lines of credit issued in this
particular case were FDIC insured. Finally, the Government argues that, because Defendant
Puckett made a few checks out to SunTrust Bank, a number of months after commencement of
the loans, the jury could conclude that the loans were financed by a line of credit from the bank
and that Defendants knew this at the inception of the loan.
While it may well be that the banks were defrauded, the Government has not presented
evidence sufficient to prove it. The evidence here falls far short of that which most courts have
found sufficient to constitute fraud on the bank itself, such as evidence that the parent bank itself
was handling draw requests on the loan, that the bank itself signed off on the loan, or that the
loans were funded from an existing line of credit with the bank. I agree with the majority that,
on this record, a reasonable jury could not find beyond a reasonable doubt that the evidence was
Nos. 17-6410/6493 United States v. Banyan, et al. Page 11
sufficient to sustain the convictions of either Defendant for bank fraud or conspiracy to commit
bank fraud, in violation of 18 U.S.C. § 1349.
Nos. 17-6410/6493 United States v. Banyan, et al. Page 12
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DISSENT
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SILER, Circuit Judge, dissenting. As seen from the majority opinion, very few cases
have discussed this dilemma. It would have been easy for the prosecution to have charged the
defendant with mail or wire fraud before the statute of limitations expired, but it was not effected
for some reason. Now, we must decide whether the conduct by defendants amounted to a
violation of the bank fraud statute. I think it did and I would affirm the convictions for the
reasons stated herein.
There is little dispute that the defendants perpetrated a fraud on the mortgage companies
involved. The basic question is whether the wholly-owned subsidiaries (mortgage companies)
are part of the parent banks. The fraud on the mortgage companies is fraud on the banks.
Defendants knew this and conducted their business with the banks directly. For instance, checks
from Puckett to repay some of the debt to SunTrust Mortgage were paid directly to SunTrust
Bank and Puckett’s ex-wife admitted the fraudulently obtained mortgage funds came from the
bank.
When 18 U.S.C. § 1344 was considered for amendment in 2009, to include mortgage
lending businesses under the definition of “financial institutions,” Congress wanted to be certain
that there would be no problems like the ones in this particular case. The majority correctly
indicates that the language was not included without purpose, but I think Congress wanted to
close any potential loophole that might arise. In particular, Congress was concerned with
amending the statute to include the transactions where most of the fraud was occurring, that is,
with independent mortgage companies which were not a subsidiary of a bank already covered
under the Federal Deposit Insurance Corporation.
The majority dismisses the decision in United States v. Hall, 613 F.3d 249, 252 (D.C. Cir.
2010), because it was decided before Loughrin v. United States, 573 U.S. 351, 355 (2014), but I
find no inconsistencies between the two decisions. The language from Hall in particular would
allow this court to uphold the convictions under both subsections of the statute where it states
Nos. 17-6410/6493 United States v. Banyan, et al. Page 13
“being wholly owned by federally insured Guaranty Bank, a loss to GRL would constitute a loss
to Guaranty Bank.” Hall, 613 F.3d at 252. Similarly, in this case, a loss to one of these wholly
owned subsidiaries constitutes a loss to the parent bank corporation. See also United States v.
Chittenden, 848 F.3d 188, 200-01 (4th Cir. 2017) (upholding conviction where subsidiary’s
“loans were funded from an existing line of credit with [parent corporation]”), abrogated on
other grounds and vacated, 138 S. Ct 447 (2017); United States v. Irvin, 682 F.3d 1254, 1272-73
(10th Cir. 2012) (funds were owned by, and in the custody and control of the financial institution
until dispersed via line of credit to the subsidiary mortgage company); United States v. Walsh,
75 F.3d 1, 9 (1st Cir. 1996) (subsidiary was practically an alter ego of the financial institution).
Therefore, I would affirm the convictions of both defendants under the statute involved.