United States v. John Stacks , 821 F.3d 1038 ( 2016 )

United States Court of Appeals
For the Eighth Circuit
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No. 15-1028
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United States of America
lllllllllllllllllllll Plaintiff - Appellant
v.
John B. Stacks
lllllllllllllllllllll Defendant - Appellee
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Appeal from United States District Court
for the Eastern District of Arkansas - Little Rock
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Submitted: December 15, 2015
Filed: May 9, 2016
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Before MURPHY, BENTON, and KELLY, Circuit Judges.
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BENTON, Circuit Judge.
After John B. Stacks was convicted of wire fraud, making a false and fraudulent
claim, and making false statements, the district court1 granted a judgment of acquittal
on two counts of making false statements, and a new trial on the remaining counts.
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The Honorable J. Leon Holmes, United States District Judge for the District
of Arkansas.
United States v. Stacks, No. 4:13-347, slip op. (E.D. Ark. Dec. 2, 2014) (ECF No.
102). The government appeals. Having jurisdiction under 18 U.S.C. § 3731, this
court affirms.
I.
On June 7, 2008, after a tornado struck his property near Damascus, Arkansas,
Stacks applied for a disaster loan from the Small Business Administration (SBA).
Stacks is the owner of Mountain Pure, LLC (Mountain Pure), which bottles water for
sale. He owns two other water-bottling facilities: Mountain Pure MS in Mississippi,
and Mountain Pure TX in Texas.
In his disaster-loan application, Stacks certified that “all information in and
submitted with this application is true and correct to the best of my knowledge. All
financial statements submitted with this application fully and accurately present the
financial position of the business.” In an SBA form “Schedule of Liabilities,” Stacks
listed six loans, with a total balance of $24,050,000. In the Schedule’s “Current or
Delinquent?” column, Stacks wrote that each was “current.”
Two weeks after Stacks submitted the application, an SBA field inspector met
Stacks at the Damascus property. Stacks told him that the property was not a
manufacturing site but rather a storage and repair site for the machines, equipment and
tools from all three manufacturing sites. Stacks did not have an itemized list of losses
from the tornado. Days later, the SBA withdrew Stacks’s application from
consideration due to insufficient information.
Months later, Stacks resubmitted the disaster-loan application with a list of
damaged equipment totaling $459,880. The SBA notified Stacks it had reactivated
his application. Tony Bauer, an SBA loan officer, told Stacks that Mountain Pure’s
cash flow would not support additional debt. Stacks said that the Mountain Pure TX
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facility would soon begin operations. Bauer asked Stacks whether Mountain Pure TX
had any contracts with stores, and whether Stacks had revenue projections for
Mountain Pure TX. Stacks replied that Mountain Pure TX had contracts with Dean
Foods and Walmart, and provided revenue projections prepared by a consulting firm.
These projections showed $2.5 million in projected sales for 2008, and $25 million
in projected sales for 2009. Bauer reversed course and recommended that the SBA
loan Stacks $703,300.
The loan was memorialized in a Loan Authorization and Agreement. Stacks
and Mountain Pure were the borrowers; Mountain Pure MS and Mountain Pure TX
were guarantors. In the Agreement, Stacks certified that “all representations in the
borrower’s loan application (including all supplementary submissions) are true,
correct and complete.”
After the SBA disbursed $526,100 of the loan, it requested additional
documentation that Stacks owned the equipment on the itemized list and that it was
at the Damascus facility when the tornado struck. Stacks replied with additional
information. The SBA found it inadequate, and reduced the loan to the $526,100
already disbursed. The SBA continued to request documentation from Stacks, and 21
months later, declared the loan in default for failure to provide documentation, and
demanded the entire balance due immediately.
In a second superseding indictment, the government charged Stacks with
defrauding the SBA by misrepresenting that certain equipment was at the Damascus
site during the tornado, failing to disclose material information about his financial
condition, misrepresenting that his liabilities were current, failing to disclose all
outstanding loans on the Schedule of Liabilities, misrepresenting the status of
Mountain Pure TX’s contract with Walmart, and providing inaccurate revenue
projections for the Mountain Pure TX plant.
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A jury convicted Stacks of three counts of wire fraud, one count of submitting
a false or fraudulent claim, and three counts of making a false statement to a
government agency. Stacks moved for acquittal on all counts, and alternatively for
a new trial. The district court granted acquittal on two counts of making false
statements (with a conditional new trial if the acquittals were reversed), and granted
a new trial for the remaining counts. The government appeals.
II.
This court reviews a district court’s grant of a judgment of acquittal de novo,
applying the same standards as the district court. United States v. White, 794 F.3d
913, 918 (8th Cir. 2015). Under Rule 29, the district court, on the defendant’s motion,
“must enter a judgment of acquittal of any offense for which the evidence is
insufficient to sustain a conviction.” Fed. R. Crim. P. 29(a). “A district court must
consider a motion for judgment of acquittal with very limited latitude and must neither
assess the witnesses’ credibility nor weigh the evidence.” United States v. Johnson,
474 F.3d 1044, 1048 (8th Cir. 2007). A guilty verdict is overturned only if, viewing
the evidence most favorably to the prosecution, no rational trier of fact could have
found the essential elements of the crime beyond a reasonable doubt. United States
v. Sanchez, 789 F.3d 827, 834 (8th Cir. 2015). This court views “the evidence in the
light most favorable to the guilty verdict, and grant[s] all reasonable inferences that
are supported by that evidence.” United States v. Dean, 810 F.3d 521, 527 (8th Cir.
2015).
In counts 7 and 8, Stacks was charged with making two false statements under
18 U.S.C. § 1001(a)(2), which prohibits an individual from “knowingly and willfully
. . . mak[ing] any materially false, fictitious, or fraudulent statement or representation”
to a federal agency. To establish a violation of 18 U.S.C. § 1001, the government
must prove that “(1) the defendant made a statement; (2) the statement was false,
fictitious or fraudulent as the defendant knew; (3) the defendant made the statement
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knowingly and willfully; (4) the statement was within the jurisdiction of a federal
agency; and (5) the statement was material.” United States v. Rice, 449 F.3d 887, 892
(8th Cir. 2006).
A.
Count 7 charges that Stacks falsely represented to the SBA that there had been
no substantial adverse change in his financial condition between June 7, 2008, the date
of his original loan application, and February 11, 2009, the date he signed the Loan
Authorization and Agreement. The government argues that a reasonable jury could
have found that Stacks failed to disclose three adverse changes in his financial
condition: (1) additional loans since his initial application, (2) a $900,000 balance
owed to suppliers, who were threatening to stop shipment, and (3) Metropolitan
Bank’s suggestion that Stacks move his loan to another lender.
As the district court correctly held, Stacks’s statement of no substantial adverse
changes in his financial condition was not false. A statement is “false” if it contains
“factual misrepresentations.” United States v. Blankenship, 382 F.3d 1110, 1132
(11th Cir. 2004). The Agreement documents do not define “substantial adverse
change,” but say, “Adverse changes include, but are not limited to: judgment liens, tax
liens, mechanic’s liens, bankruptcy, financial reverses, arrest or conviction of felony,
etc.” No reasonable juror could find that the adverse changes the government alleges
in Stacks’s financial condition—additional loans, debts owed to suppliers, and the
suggestion to change lenders—are comparable to liens, bankruptcies, or convictions.
Moreover, the government did not introduce evidence of the amount Stacks owed
suppliers at the time of the original application, so evidence of the amount he owed
to suppliers when signing the Agreement in 2009 does not demonstrate a change in
financial condition. No reasonable jury could find that Stacks made a false statement
by affirming no substantial adverse change in his financial condition. The district
court did not err in granting a judgment of acquittal on count 7.
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B.
Count 8 charges that Stacks made a false statement by certifying in the Loan
Authorization and Agreement that his original application was true, correct, and
complete. The district court held that the government had not identified a statement
in the Agreement that was purportedly false, incorrect, or incomplete.
On appeal, the government argues that the district court erred by failing to
consider that the Agreement incorporates Stacks’s statement from the Schedule of
Liabilities that his loans were “current,” not “delinquent.” The Agreement required
Stacks to certify, “All representations in the Borrower’s loan application (including
all supplementary submissions) are true, correct and complete.” As part of his
application, Stacks included the Schedule of Liabilities.
Even if Count 8 encompasses the “current” statement on the Schedule of
Liabilities, judgment of acquittal was warranted. As the district court noted, the
Schedule of Liabilities does not define “current” or “delinquent.” Moreover, the loan
officers—both private and SBA—testified that there is no consistent definition in the
banking industry as to what makes a loan current or delinquent. SBA witnesses
testified that a loan is delinquent if payment is even a day late, but acknowledged a
grace period where (1) no late fees accrued, (2) the loan was not internally reported
as delinquent and (3) the alleged delinquency was not reported to credit agencies. A
private loan officer testified that SBA loans are not considered delinquent until ninety
days past due.
At trial, Stacks proved that he consistently made payments shortly after the due
date, and that the bank never reported the loans as delinquent to any credit agencies.
Without a definition of “current” or “delinquent”, no reasonable jury could find
beyond a reasonable doubt that Stacks willfully and knowingly made a false
statement. The district court did not err in granting acquittal on Count 8.
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III.
The government argues that the district court abused its discretion in granting
a new trial on the remaining counts.
Under Rule 33, the district court “may vacate any judgment and grant a new
trial if the interest of justice so requires.” Fed. R. Crim. P. 33(a). This court reviews
“for abuse of discretion a district court’s decision to grant or deny a new trial on the
ground that the verdict is contrary to the weight of the evidence.” United States v.
Collier, 527 F.3d 695, 701 (8th Cir. 2008). “While the district court’s discretion is
quite broad—it can weigh the evidence, disbelieve witnesses, and grant a new trial
even where there is substantial evidence to sustain the verdict . . . , there are limits to
it.” United States v. Campos, 306 F.3d 577, 579 (8th Cir. 2002). “An abuse of
discretion occurs when a relevant factor that should have been given significant
weight is not considered, when an irrelevant or improper factor is considered and
given significant weight, or when all proper and no improper factors are considered,
but the court in weighing the factors commits a clear error of judgment.” United
States v. Butler, 296 F.3d 721, 723 (8th Cir. 2002).
Motions for new trials based on the weight of the evidence are generally
disfavored. Campos, 306 F.3d at 579. “That being said, the district court has broader
discretion to grant a new trial under Rule 33 than to grant a motion for acquittal under
Rule 29, but it nonetheless must exercise the Rule 33 authority sparingly and with
caution.” Id. “Unless the district court ultimately determines that a miscarriage of
justice will occur, the jury’s verdict must be allowed to stand.” Id. The remedy “is
reserved for exceptional cases in which the evidence preponderates heavily against the
verdict.” United States v. Knight, 800 F.3d 491, 504 (8th Cir. 2015).
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A.
The district court granted a new trial on Stacks’s convictions in Counts 1, 2 and
3 for wire fraud under 18 U.S.C. § 1343. To prove wire fraud, the government must
prove (1) intent to defraud, (2) participation in a scheme to defraud, and (3) the use
of a wire in furtherance of the fraudulent scheme. United States v. Rice, 699 F.3d
1043, 1047 (8th Cir. 2012). “If the defendant is charged with multiple counts, the
government must prove each element with respect to each count.” Id.Counts 1, 2 and 3 allege that Stacks engaged in a scheme to defraud the SBA
by (1) misrepresenting that certain equipment was on the Damascus property during
the tornado, (2) failing to disclose material information about his financial condition,
(3) misrepresenting that his loans were current, (4) failing to disclose loans not listed
on the Schedule of Liabilities, (5) misrepresenting that Mountain Pure TX had a
contract with Walmart to sell water, and (6) providing inaccurate revenue projections
for the Mountain Pure TX plant.
Granting a new trial, the district court issued a thorough, well-reasoned opinion.
The court credited the evidence favoring the guilty verdicts, citing evidence from
which a reasonable jury could convict Stacks. The court ruled that, despite the
evidence of guilt, the verdicts were contrary to the weight of the evidence and that the
extraordinary remedy of a new trial was warranted for several reasons. First, the court
noted that Stacks’s forthrightness about his finances—disclosing more than $24
million in loans, authorizing the SBA to pull his credit reports, and producing
additional financial statements outlining the entire debt structure of the Mountain Pure
entities—negated any inference of intent to defraud the SBA by omitting the
additional loans from the Schedule of Liabilities. Additionally, the court outlined the
weaknesses of the government’s evidence about whether the equipment was at
Damascus during the tornado. The court concluded that the government failed to
prove that Stacks misrepresented having Mountain Pure equipment on the property.
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The district court considered the most damning evidence of Stacks’s
guilt—SBA officer Bauer’s testimony that Stacks explicitly told him that the Schedule
of Liabilities identified the entire debt structure of all three Mountain Pure entities.
The district court found Bauer’s statement not credible for two reasons. First, Stacks
testified about the same conversation, with a better recall of it, as evidenced by
Bauer’s mistaken recollection of Stacks’s name and the name of Mountain Pure’s
customer. Further, the other evidence at trial corroborated Stacks’s account of the
conversation. Stacks testified that during the conversation, he told Bauer that he
would provide additional information about the debt structure of all three Mountain
Pure entities. Shortly after the conversation, the SBA received additional financial
information from Stacks, corroborating his account of the conversation. The district
court did not abuse its discretion in failing to credit Bauer’s testimony about Stacks’s
representations of the debt. See United States v. Aguilera, 625 F.3d 482, 487 (8th Cir.
2010) (“The district court was in a better position to evaluate credibility, and we
decline to second-guess the district court’s assessment.”).
As for the revenue projections for the Mountain Pure TX plant, the district court
noted that the projections were prepared long before Stacks’s application to the SBA,
distancing them from any scheme to defraud the government. Moreover, at the time
of the loan application, Mountain Pure TX was not a borrower or guarantor of the
loan. As the district court emphasized, it was Bauer—not Stacks—who initiated the
conversation about the revenue projections, undermining the inference that Stacks was
intentionally scheming to defraud the SBA.
On appeal, the government argues that the district court improperly discredited
Bauer’s testimony and may only do so if it is physically impossible. The government
cites United States v. McAtee, 481 F.3d 1099, 1105 (8th Cir. 2007), where this court,
reviewing both a judgment of acquittal and a grant of new trial, said “The test for
rejecting evidence as incredible is extraordinarily stringent and is often said to bar
reliance only on testimony asserting facts that are physically impossible.” Id., citing
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United States v. Crenshaw, 359 F.3d 977, 988 (8th Cir. 2004). Those words,
however, were in the context of considering both motions simultaneously, while
Crenshaw pertained only to a Rule 29 motion for judgment of acquittal. Crenshaw,
359 F.3d at 988. Despite that language in McAtee, district courts have long evaluated
witness credibility when considering a motion for a new trial based on the weight of
the evidence. See, e.g., United States v. Lincoln, 630 F.2d 1313, 1319 (8th Cir. 1980)
(“The district court need not view the evidence in the light most favorable to the
verdict; it may weigh the evidence and in so doing evaluate for itself the credibility
of the witnesses.”); United States v. Clayton, 787 F.3d 929, 935 (8th Cir. 2015)
(affirming denial of motion for new trial because witnesses were credible and their
testimony was corroborated by other evidence); United States v. Tamariz-Cazeres,
376 F. App’x 653, 656 (8th Cir. 2010) (same). Discrediting Bauer’s testimony was
not an abuse of discretion.
Despite the government’s protests that the evidence was overwhelming, the
district court acknowledged the evidence supporting the verdicts. The district court
weighed it against the exculpatory evidence before concluding in a thorough, reasoned
manner that a miscarriage of justice may occur if the verdicts were allowed to stand.
It did not abuse its considerable discretion in doing so. See United States v. Devries,
630 F.3d 1130, 1132 (8th Cir. 2011) (“We give great deference to the district court
when it grants a new trial motion on the ground that the verdict is against the weight
of the evidence, and we reverse only upon a strong showing of abuse.”).
B.
The district court granted a new trial on Stacks’s conviction in Count 4 for
making a false and fraudulent claim to the SBA under 18 U.S.C. § 287. To prove a
false claim, the government must prove that (1) Stacks “made and presented” to the
government a claim, (2) “the claim was false, fictitious or fraudulent,” (3) Stacks
knew the claim was false, fictitious or fraudulent, and (4) “the claim was material” to
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the government. United States v. Jirak, 728 F.3d 806, 811 (8th Cir. 2013). The
government alleges that, as detailed, the claim Stacks submitted to the SBA was a part
of a scheme intended to defraud. As explained, the district court did not abuse its
discretion in granting a new trial on the fraud counts. The derivative count of
submitting a fraudulent claim to the SBA suffers from the same infirmities. The
district court did not abuse its discretion in granting a new trial on Count 4.
C.
The district court granted a new trial on Stacks’s conviction in Count 6 for
making a false statement to an agency of the United States government under 18
U.S.C. § 1001(a)(2). To prove a violation under § 1001(a)(2), the government must
prove that (1) Stacks made a statement, (2) the statement was false, fictitious or
fraudulent, as Stacks knew, (3) Stacks made the statement knowing and willfully, (4)
the statement was within the jurisdiction of a federal agency, and (4) the statement
was material. United States v. McKanry, 628 F.3d 1010, 1018 (8th Cir. 2011). Count
6 charges that Stacks caused a document to be sent to the SBA that included false
2008 revenues and false 2009 revenue projections for the Mountain Pure TX plant.
As explained, the district court did not abuse its discretion in determining that the
evidence of the timing and circumstances of the projections considerably undermined
any intent to deceive the SBA. The district court did not abuse its discretion in
granting a new trial in Count 6, charging Stacks with identical conduct.
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The judgment is affirmed.
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