IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 92-2828

_____________________

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

TOM SCHULTZ and JAMES CHAPLIN,

Defendants-Appellants.

_________________________________________________________________

Appeals from the United States District Court

for the Southern District of Texas

_________________________________________________________________

(March 10, 1994)

Before JOHNSON, GARWOOD, and JOLLY, Circuit Judges. 

JOHNSON, Circuit Judge:

Defendants James Chaplin and Tom Schultz were charged in a

seventeen-count indictment with criminal acts surrounding a bank

fraud scheme. Although a jury found each man guilty of the

charged offenses, the Government failed to proffer sufficient

evidence of federal jurisdiction. We therefore reverse.

I. Facts and Procedural History

Defendants Chaplin and Schultz were charged along with a

third man, Kenneth E. "Jason" Lothamer, with executing a scheme

to defraud and submit false statements to Texas Commerce BankSugar Land ("TCB-Sugar Land" or "the bank") in violation of 18

U.S.C. §§ 2, 371, 1014, 1344. Lothamer was the director,

president, and sole shareholder of Construction International,
 

1Track pans are fiberglass containers which are placed on

railroad tracks to catch chemical substances which are wasted

during the loading and unloading of railroad cars.

2

Limited of Texas ("CIL"), a company which provided environmental

products to chemical companies, railroad companies, and

hospitals. On October 1, 1987, Defendant Chaplin joined CIL to

manage the hospital hazardous waste division of the company and

to become CIL's chief financial officer ("CFO"). As CFO, Chaplin

assisted Lothamer in obtaining loans from TCB-Sugar Land. 

According to Chaplin, Lothamer would provide information to

Chaplin, who compiled that information for presentation to the

bank. Based upon that information, TCB-Sugar Land extended to

CIL a line of credit which aggregated to approximately

$5,000,000.00. 

Because the bank required collateral worth twice the amount

of each loan, Lothamer would furnish the bank with invoices

representing debts owed to CIL by various companies. Several of

those invoices listed Dow Chemical Company and Rock Wool

Insulation Company as owing CIL millions of dollars for thousands

of feet of track pans.1 Those invoices were completely

fabricated by Lothamer. On the Dow Chemical invoices, he

represented that the contact person was Barbara Nelson and listed

her Dow Chemical telephone number. In actuality, that telephone

number was a CIL number, and Lothamer instructed his secretary,

Susan Pickford, to answer that telephone line as Barbara Nelson

and to verify the Dow Chemical invoices in question. The other

CIL employees were instructed never to answer that particular
 

218 U.S.C § 2.

 

318 U.S.C. § 371.

3

line. Lothamer allegedly set up a similar system with Defendant

Schultz. Schultz owned fifty percent of Rock Wool Insulation

Company. That company, located in a Chicago, Illinois, suburb,

installed fiberglass insulation. It did not purchase or install

track pans. However, bank officials were able to verify the Rock

Wool invoices for the purchase of track pans by calling Defendant

Schultz on his "private line." That line was actually Schultz's

home telephone number.

This scheme unravelled in June of 1989, when the Sugar Land

bank president could not reach Schultz to verify an invoice. The

president, Lewis Garvin, therefore obtained Rock Wool's office

number by calling information. Upon calling Rock Wool, Mr.

Garvin learned for the first time that Rock Wool had not ever

purchased track pans from CIL and, in fact, did not use track

pans at all. After failing in its attempts to obtain valid

invoices or the repayment for the latest loan——worth

approximately $1,000,000.00——TCB-Sugar Land involved the FBI. On

April 20, 1992, the Government filed a second superseding

indictment against Lothamer, Schultz, and Chaplin, charging them

with aiding and abetting,2 conspiracy,3 making false statements
 

418 U.S.C. § 1014.

 

518 U.S.C. § 1344. Congress amended this provision in the

Financial Institutions Reform, Recovery, and Enforcement Act of

1989 ("FIRREA"). FIRREA replaced the § 1344 requirement that the

fraud be committed against a "federally chartered or insured

financial institution" with the requirement that the fraud be

committed against a "financial institution." While upon first

impression this change might be construed as deleting the

requirement that the bank be insured by the FDIC, upon closer

review, we are convinced that that requirement is still viable. 

Among other things, 18 U.S.C. § 20 defines "financial

institution" as "an insured depository institution" and refers

readers to 12 U.S.C. § 1813(c)(2). Section 1813(c)(2) defines

"insured depository institution" as any bank or savings

association whose deposits are insured by the FDIC. 

The superseding indictment in this case alleged that TCBSugar Land's deposits were insured by the FDIC, so no other

definition of financial institution is relevant here. Indeed,

the Government failed to prove that any other definition was

applicable in this case.

 

6Counsel for Mr. Schultz also moved for acquittal, but on

other grounds. 

4

to an FDIC insured bank,4 and bank fraud against an FDIC insured

bank.5 

Lothamer pled guilty just prior to his trial. Chaplin and

Schultz received a joint jury trial. After the Government

rested, Mr. Chaplin's counsel moved for acquittal, contending

that the Government had not proved that TCB-Sugar Land was

insured by the FDIC.6 The Government had produced an FDIC

insurance certificate not for TCB-Sugar Land, but for TCBNational Association. Counsel for the Government argued that

bank officials had testified that the Sugar Land bank fell under

the charter of TCB-National Association. The district court,

accepting the Assistant U.S. Attorney's representations, denied

Chaplin's motion. The jury found Chaplin and Schultz 
5

guilty, as charged, and the district court sentenced Chaplin to

thirty-seven months' imprisonment on counts one and two and a

concurrent twenty-four month prison term on the remaining counts. 

The court sentenced Schultz to twenty-seven months' imprisonment

on counts one and two and a concurrent twenty-four month prison

term on his remaining counts. Both men were held jointly and

severally liable for restitution to Texas Commerce Bank in the

amount of $1,003,076.85. Raising several points of error,

Defendants Chaplin and Schultz appeal.

II. Discussion

Each of the crimes for which the defendants have been

convicted requires the Government to prove, inter alia, that TCBSugar Land was insured by the FDIC. As this Court has repeatedly

and consistently stated, proof of FDIC insurance is not only an

essential element of the bank fraud and false statement crimes,

but it is also essential for the establishment of federal

jurisdiction. United States v. Slovacek, 867 F.2d 842, 845 (5th

Cir.), cert. denied, 490 U.S. 1094 (1989); United States v.

Trice, 823 F.2d 80, 86 (5th Cir. 1987). Criminal defendants may

therefore claim that the Government insufficiently proved the

jurisdictional element post-verdict. Trice, 823 F.2d at 87. 

That Defendant Schultz failed to move for acquittal due to the

insufficiency of the evidence of the jurisdiction issue is

therefore of no moment. He did not waive the alleged

jurisdictional error, and the applicable standard of review as to

Schultz does not escalate to plain error. The insufficiency of
6

the evidence standard is applicable to both Schultz and Chaplin. 

That standard, though more lenient than the plain error standard,

is still quite formidable. The Court must review all of the

admissible evidence and the reasonable inferences which flow

therefrom in a light most favorable to the verdict to determine

whether a reasonable trier of fact could find that that evidence

established guilt beyond a reasonable doubt. Trice, 823 F.2d at

86; United States v. Maner, 611 F.2d 107, 108-09 (5th Cir. 1980).

Here, the Government claims that the FDIC certificate of

insurance for TCB-National Association, along with the testimony

of two TCB-Sugar Land bank presidents and a TCB-Houston loan

management vice-president sufficiently established that TCB-Sugar

Land was insured by the FDIC. A review of that evidence follows.

Lanny Brenner, president and chief executive officer of TCBSugar Land from 1983 until February 1, 1988, testified that Texas

Commerce Banks were grouped into six bank clusters. Although he

did not list each of the banks which belonged to his cluster, Mr.

Brenner testified that TCB-Stafford was the largest bank in the

cluster and that he, along with the presidents of the other four

smaller banks, answered to the president and CEO of TCB-Stafford. 

Mr. Brenner also stated that loans had to be approved by the Loan

and Discount Committee, which was composed of the presidents of

the six banks in his cluster. 

After Mr. Brenner left TCB-Sugar Land, Lewis Garvin became

president of the bank. The Government introduced into evidence

reports addressed to the Loan and Discount Committee in which Mr.
7

Garvin requested approval of loans to CIL. Several of the

reports also requested that "TCB-Houston, Stafford Branch" or

"TCB-Houston" participate in portions of the loans. 

Additionally, Mr. Garvin testified that after he became concerned

about the bank's loans to CIL, he contacted the "Loan Management

Department at the bank." He specifically talked with Mark

Harris, John Kaszynski, and Cheryl Pace. Mr. Garvin neither

explained the structure of the Loan Management Department nor

identified "the bank" in which the department was located. He

intimated, however, that he was subordinate to that department. 

Cheryl Pace, vice-president of the Loan Management

Department, testified that that department operated out of the

downtown location of TCB-Houston. Ms. Pace testified that she

began working for Texas Commerce Bank in 1980 and transferred to

TCB-Houston in May 1987, "when branching became effective in

Texas." Ms. Pace confirmed that the chairman of TCB-Sugar Land

was subordinate to the chairman of TCB-Stafford, who, according

to Ms. Pace, was in charge of five banks in the southwest area. 

Ms. Pace also mentioned the "branch manager" of TCB-Sugar Land

and intimated that all TCB banks were part of the same

organization. 

The Government argues that this evidence, coupled with TCBNational Association's FDIC insurance certificate, sufficiently

established that TCB-Sugar Land was a branch of TCB-National

Association and was covered by TCB-National Association's FDIC
 

7The Government also contends that one TCB-Sugar Land check,

which contained an FDIC symbol and stated that deposits up to

$100,000 were insured, proves beyond a reasonable doubt that the

bank was insured by the FDIC. We reject that contention. An

FDIC logo on a check no more proves beyond a reasonable doubt

that the bank in question has FDIC insurance than a National

Basketball Association logo on a jacket proves that its wearer is

a professional basketball player. 

Even if this Court were inclined to hold that an FDIC logo

on a check sufficiently proves that a bank has FDIC

insurance——and it is not so inclined——that holding would not

benefit the Government here. The Government introduced more than

1200 checks, numerous credit and deposit slips, and various other

TCB-Sugar Land documents into evidence. Only one check, amidst

this voluminous record, contained the FDIC symbol. Were we to

adopt the Government's reasoning, we would be more inclined to

rule that the absence of the FDIC symbol on the other

multitudinous documents in this case raises the inference that

TCB-Sugar Land was not insured, instead of ruling to the

contrary. 

 

8The Government did not elicit any testimony about TCBNational Association, let alone prove that TCB-National

Association and TCB-Houston are one and the same. 

8

insurance policy.7 Although we agree that the Government proved

that TCB-Sugar Land was, in some way, related to TCB-Stafford,

TCB-Houston, and to a larger, but nebulous, Texas Commerce Bank

organization,8 we find that the Government failed to prove that

TCB-Sugar Land was insured by the FDIC——whether under TCBNational Association's policy or otherwise. 

The FDIC insurance certificate and accompanying documents

introduced into evidence conclusively refute the Government's

contention that TCB-Sugar Land was a branch insured by TCBNational Association's insurance policy. Those documents

specifically set forth the history of TCB-National Association. 

The Assistant Executive Secretary of the FDIC certified in

writing that TCB-National Association was initially designated
 

9Federal statute and regulations require banks to notify the

FDIC of changes in their control. They further require the FDIC

to approve any such changes. 12 U.S.C. § 1817(j); 12 C.F.R. §

303.4 (1993). The Change in Bank Control Act became effective in

1964——six years before TCB-National Association assumed that name

and 14 years before branch banking was allowed in Texas. See 12

U.S.C. § 1817 (Historical and Statutory Notes) (stating that

subsection (j), the bank control notification section, was added

in 1964). Additionally, FDIC records must affirmatively reflect

bank control changes and the FDIC approval thereof. See 12

C.F.R. § 309.4(d)(2)(i) (providing that after the FDIC accepts a

notice of a bank's change in control, records of the acceptance

of the change, as well as information about the change, become

available for public inspection).

9

"The National Bank of Commerce of Houston" and became a member of

the FDIC on January 1, 1934. On January 17, 1964, The National

Bank of Commerce of Houston consolidated with the Texas National

Bank of Houston. The bank then became "Texas National Bank of

Commerce of Houston." Finally, on January 20, 1970, the Texas

National Bank of Commerce of Houston changed its corporate title

to "Texas Commerce Bank National Association." FDIC documents

support each of the Assistant Executive Secretary's statements. 

Important for our purposes, the final FDIC document, dated

January 30, 1970, specifically states that Texas Commerce Bank

National Association operates no branches. The FDIC insurance

certificate is also dated January 30, 1970. The Government

introduced no document which reflected that TCB-National

Association had added branches subsequent to January 30, 1970, or

updated its bank control status after that date. Absent such

documentation, this Court will not assume that TCB-National

Association operated any branches in contravention to its FDIC

records.9
 

10Until 1988, national banks only operated branches citywide or county-wide. Texas v. Clarke, 690 F. Supp. 573, 575

(W.D. Tex. 1988).

10

Indeed, at the time that the 1970 FDIC certificate was

issued——and none has apparently been issued since that

time——branch banking was illegal in Texas. The Texas

Constitution specifically provided that corporate bodies with

banking and discounting privileges "shall not be authorized to

engage in business at more than one place, which shall be

designated in its charter." TEX. CONST. art. XVI, § 16, amended

Aug. 23, 1937, Nov. 4, 1980; Nov. 6, 1984; Nov. 4, 1986. Under

the McFadden Act, national banks could operate branches only to

the extent that state banks could operate. 12 U.S.C. § 36(c). 

Because state banks were prohibited from engaging in branch

banking, national banks were likewise prohibited.

While Ms. Pace, one of the Government's witnesses, testified

that branch banking became effective in Texas in May of 1987, she

no doubt was referring to a constitutional amendment passed by

Texas voters in November 1986, which allowed branch banking in

the city or county of the bank's domicile.10 See TEX. CONST. art.

XVI, § 16(e). Because TCB-Sugar Land is located in Sugar Land,

Fort Bend County, and TCB-National Association is located in

Houston, Harris County, TCB-Sugar Land could not have operated as

a branch of TCB-National Association in May of 1987.

The Government points out that a federal district court

ruled that national banks could begin branch banking in June of

1988. Texas v. Clarke, 690 F. Supp. 573 (W.D. Tex. 1988). The
11

Government is absolutely correct. However, it did not introduce

one shred of evidence which showed that TCB-Sugar Land became a

branch of TCB-National Association subsequent to that decision. 

In fact, no witness even mentioned the name "TCB-National

Association," let alone connected TCB-Sugar Land with that

organization. Further, even if the Government had proved that

the Sugar Land bank was a branch of the National Association

bank, such evidence would have been insufficient to prove that

TCB-Sugar Land was insured under TCB-National Association's FDIC

insurance policy. See 12 U.S.C. § 1817(j) (requiring

notification of changes in bank control and acceptance by the

FDIC of such changes); 12 C.F.R. § 303.4 (1993) (same). 

The Government introduced the testimony of two TCB-Sugar

Land bank presidents. If those officials had possessed personal

knowledge of the bank's insurance status, their testimony that

TCB-Sugar Land was insured by the FDIC during the periods in

question, if unchallenged, would have sufficiently proven the

jurisdiction issue in the case sub judice. United States v.

Slovacek, 867 F.2d 842 (5th Cir.), cert. denied, 490 U.S. 1094

(1989); United States v. Rangel, 728 F.2d 675 (5th Cir.), cert.

denied, 467 U.S. 1230 (1984). For reasons unbeknownst to this

Court, the Government chose not to elicit such testimony. The

testimony and evidence the Government did proffer——that TCBNational Association was insured by the FDIC——are patently

insufficient to prove that TCB-Sugar Land was so insured, even

though the two banks may have been related. The Government
 

11This Court has often warned that insufficient attention to

the jurisdiction element might become the Government's nemesis. 

See, e.g., United States v. Harrill, 877 F.2d 341, 344 (5th Cir.

1989) ("[W]e again caution the prosecution about the proof of the

jurisdictional element required in these cases. There must be

adequate proof that the accounts of the financial institution

were insured at the time of the offense by the appropriate

federal agency."); Slovacek, 867 F.2d at 846 ("There are numerous

indications in our prior decisions that prosecutors appear to be

indifferent to the fact that we have held that the jurisdictional

requirement . . . is an essential element of the offense. 

Indeed, in some of these cases one searches in vain for any

careful and intelligent effort to prove this element. We are

aware that the offices of United States Attorneys frequently have

a high turnover in personnel and limited resources. 

Nevertheless, we do not believe that this problem cannot be

solved, especially when lack of sufficient proof of this element

now compels reversal and dismissal of the indictment, not just

remand for a new trial with better evidence." (internal quotation

marks deleted)); United States v. Platenburg, 657 F.2d 797, 799

(5th Cir. 1981) ("Despite the fact that FDIC insured status is an

express requirement of the applicable statutes, an essential part

of a valid indictment, and an indispensible (sic) item of proof

of an offense, prosecutors have been extremely lax in the

treatment accorded this element. . . . [I]n Maner we moved from

cautionary statements to a clarion call that the day would come

when our reluctance to reverse on the issue of FDIC proof would

be overcome . . . . The day has come; the line from sufficiency

to insufficiency has been crossed.); United States v. Brown, 616

F.2d 844, 849 (5th Cir. 1980) ("We have difficulty comprehending

why the Government repeatedly fails to prove this element more

carefully since the Government's burden is so simple and

straightforward." (quoting Maner, 611 F.2d at 112)); Maner, 611

F.2d at 112 ("[T]his [failure to carefully prove the jurisdiction

element] is a nationwide plague infecting United States Attorneys

throughout the land. Hopefully the Attorney General will sense

and remedy this national deficiency by directions pointing out

the simple ways to prove this simple but indispensable fact.").

12

therefore failed to establish federal jurisdiction and prove each

prima facie element of the charges lodged against Defendants

Chaplin and Schultz. 

This Court has continually cautioned the Government that its

failure to adequately prove the jurisdiction element might one

day require the reversal of bank fraud convictions.11 Maner, 611
 

12The Seventh and Ninth Circuits have likewise reversed

convictions due to the Government's failure to prove that

financial institutions were federally insured. United States v.

James, 987 F.2d 648 (9th Cir. 1993); United States v. Shively,

715 F.2d 260 (7th Cir. 1983), cert. denied, 465 U.S. 1007 (1984).

13

F.2d at 112. That day came in United States v. Platenburg, 657

F.2d 797 (5th Cir. 1981), in United States v. Trevino, 720 F.2d

395 (5th Cir. 1983), and it has likewise come today.12 

III. Conclusion

For the above stated reasons, this Court REVERSES and

REMANDS with instructions that the district court dismiss the

charges against both defendants. See Burks v. United States, 437

U.S. 1, 18 (1978) (holding that indictments must be dismissed

when the Government fails to prove its case during trial).