Source: https://openjurist.org/67/f3d/225
Timestamp: 2019-04-25 21:59:58+00:00

Document:
Argued and Submitted March 9, 1995.
Norman Sepenuk and Douglas A. Stringer, Portland, Oregon, for defendant-appellant.
Kent S. Robinson, Assistant United States Attorney, Portland, Oregon, for plaintiff-appellee.
Before: HALL, O'SCANNLAIN, and RYMER, Circuit Judges.
Larry Joseph Lewis appeals his jury conviction on twelve counts of bank fraud under 18 U.S.C. Sec. 1344 and two counts of wire fraud under 18 U.S.C. Sec. 1343. This appeal requires us to resolve a statutory construction issue of first impression--whether a state chartered, non-federally insured branch of a foreign bank is subject to the bank fraud statute. We also consider Lewis' challenge to jury instructions defining "intent to defraud" under the bank and wire fraud statutes. We have jurisdiction over this timely appeal pursuant to 28 U.S.C. Sec. 1291, and we reverse.
In August, 1984 twenty-seven-year-old Larry Lewis became manager of the Portland, Oregon branch of the Hong Kong and Shanghai Bank ("HKSB"), a title he would hold until his resignation in June, 1988. Lewis, whose previous position at HKSB was limited to supervising tellers and assisting in import/export loans, had no prior experience in granting loans or in managing a bank. With his promotion came the weighty task of improving the revenues of the singularly unprofitable Portland branch.
Shortly after becoming branch manager, Lewis made a large authorized loan to Financial Reserve Group ("FRG"). He soon learned that the principals of FRG were the targets of a criminal grand jury investigation, and concluded that it was unlikely that FRG's debt would ever be repaid. Rather than reporting the bad debt to his superiors, which would have caused the branch to reflect a loss in his first full year as manager, Lewis agreed to make an unauthorized loan to Gary Diers, an FRG principal who had been exonerated in the criminal investigation. Diers agreed to use part of the $1.8 million1 loan to pay off the FRG debt. This allowed the Portland branch to carry a profit on its books in 1985. With the remaining portion of the loan, Diers acquired a substantial amount of real estate for a development project he wished to pursue. Over the next year, Lewis made further unauthorized loans to Diers, bringing Diers' total debt to $3.6 million.
In 1987, Diers incorporated his real estate development project under the name of Thiel Creek Development Company ("Thiel Creek"). Lewis made an unauthorized $6.3 million secured loan (bank fraud Count I) to Thiel Creek, the proceeds of which were used to pay the principal and interest on the $3.6 million Diers loan and to purchase additional property for Thiel Creek's development project. At this point, it was becoming clear to Lewis that the amount necessary to fund the development project substantially exceeded Diers' projections. Because he was "in too far" to turn back, Lewis made four additional secured loans to Thiel Creek in the amount of $1.6 million (bank fraud Counts II through V) in the hope that continued funding would increase the bank's chances of recouping its money.
Counts 8 through 12 of the indictment arose out of unauthorized lines of credit and loans that Lewis was instrumental in obtaining for Pacific Corridor International, Inc. ("PCI"), a wood products broker, as well as overdrafts permitted and concealed by him.2 Count 8 alleged that Lewis made various false statements in a line of credit application, including underreporting PCI's bank debt, designed to induce his superiors to double PCI's line of credit. After gaining approval to increase PCI's credit limit, Lewis permitted PCI to progressively overdraw its line of credit until the company's checking account reflected an overdraft of more than $4.5 million over its authorized limit. To conceal the overdraft, Lewis made an unauthorized transfer of $5 million from a bank suspense account into PCI's checking account (Count 9). Count 10 alleged that Lewis made false statements in connection with an application submitted on behalf of PCI for a $3.4 million short term loan. Counts 11 and 12 were based on Lewis' deposit of a $5 million insufficient funds check from PCI, and the creation of computer data entries concerning the deposit which were later communicated by wire to HKSB's regional office in New York.
The remaining bank and wire fraud counts against Lewis related to unauthorized lines of credit and loans granted to Western Line Corporation ("WLC"), a wood products manufacturer. Lewis was charged with obtaining two unauthorized lines of credit for WLC by making false statements on a credit application, including underreporting WLC's bank debt and falsely representing that WLC would soon obtain a capital infusion, a portion of which would be posted as collateral. Although HKSB's approval of the loan was expressly conditioned on the capital infusion and the posting of collateral, Lewis removed these conditions from the loan documents. When one of the lines of credit came due, Lewis faxed a request to HKSB's regional office in New York for an extension of the due date, which was approved. The fax substantially underreported WLC's existing debt to the bank, and failed to disclose the fact that the collateral and capital infusion had never been received.
Based on the "comprehensive federal regulations [applicable to HKSB] through the International Banking Act of 1978," the district court held that HKSB operates under the laws of the United States. United States v. Lewis, 838 F.Supp. 474, 477 (D.Or.1993). We review questions of statutory construction and questions of federal subject matter jurisdiction de novo. United States v. Bailey, 41 F.3d 413, 416 (9th Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 2563, 132 L.Ed.2d 815 (1995); Hellon & Assoc., Inc. v. Phoenix Resort Corp., 958 F.2d 295, 297 (9th Cir.1992). We disagree with the district court's conclusion that HKSB was operating under the laws of the United States within the meaning of Sec. 1344(b)(5), and we therefore hold that Lewis' conviction on the bank fraud charges must be reversed and his sentence vacated.
Canons of statutory construction dictate that if the language of a statute is clear, we look no further than that language in determining the statute's meaning. See Sullivan v. Stroop, 496 U.S. 478, 482, 110 S.Ct. 2499, 2502-03, 110 L.Ed.2d 438 (1990); United States v. Ron Pair Enter., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290 (1989). Particular phrases must be construed in light of the overall purpose and structure of the whole statutory scheme. Dole v. United Steelworkers of America, 494 U.S. 26, 35, 110 S.Ct. 929, 934, 108 L.Ed.2d 23 (1990). A court looks to legislative history only if the statute is unclear. Blum v. Stenson, 465 U.S. 886, 896, 104 S.Ct. 1541, 1547-48, 79 L.Ed.2d 891 (1984).
Based upon the "plain language" of the statute, each party offers its own reading of Sec. 1344(b)(5), neither of which is persuasive. Lewis offers an exceedingly narrow interpretation of the bank fraud statute, contending that a bank is only "operating under the laws of the United States" if it has a federal charter. Because neither HKSB nor its Portland branch possesses a federal charter, Lewis argues, he could not be prosecuted for bank fraud. This argument, however, violates the elementary principle of statutory construction that "a statute must, if possible, be construed in such fashion that every word has some operative effect." United States v. Nordic Village, Inc., 503 U.S. 30, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992). See also Boise Cascade Corp. v. U.S.E.P.A., 942 F.2d 1427, 1432 (9th Cir.1991) (statutes must be interpreted "as a whole, giving effect to each word and making every effort not to interpret a provision in a manner that renders other provisions of the same statute ... superfluous.") Contrary to Lewis' argument, Sec. 1344(b) does not define a "federally chartered" bank simply as any bank that has a federal charter. Instead, Sec. 1344(b) has five separate subsections, all of which are included in the definition of "federally chartered or insured financial institution."6 Sections 1344(b)(1) through (3) describe institutions whose deposits are insured by various federal agencies. Section 1344(b)(4) explicitly refers to federal home loan banks or members of the federal home loan bank system. Section 1344(b)(5) applies to banks which, like HKSB and its Portland branch, have no federal insurance and are not members of the federal home loan bank system. That subsection defines a "federally chartered" bank not, as Lewis argues, simply as a bank that has a federal charter, but as one that is "operating under the laws of the United States." We cannot accept Lewis' "plain language" interpretation because to do so would read the "operating under the laws of the United States" language out of the statute.
In attempting to shed light on the disputed statutory language, the government reasserts the argument accepted by the district court that the phrase "operating under," read in its ordinary sense, means any bank that is subject to regulation and control by federal regulatory bodies. We cannot accept the government's "plain language" argument because it leads to a sharply anomalous result. Even purely domestic banks that have no federal deposit insurance and are not members of the Federal Reserve System would "operate under the laws of the United States" under the government's expansive reading because such banks are subject to a certain amount of federal statutory and regulatory control.7 Both parties' plain language arguments thus fail. To resolve the ambiguity inherent in the "operating under" language, we must therefore examine the relevant legislative history.
Before the enactment of Sec. 1344 as part of the Comprehensive Crime Control Act of 1984, no federal provision specifically criminalized bank fraud. Section 1344 was Congress' response to the government's increasing inability to reach crimes against financial institutions under other criminal banking provisions, such as the false statement statute, 18 U.S.C. Sec. 1014, and the mail and wire fraud statutes, 18 U.S.C. Secs. 1341 and 1343, due to the Supreme Court's increasingly narrow construction of those provisions. S.Rep. 98-225, 98th Cong., 1st Sess. 377 (1984), reprinted in 1984 U.S.C.C.A.N. 3517, 3517-18.
The International Banking Act of 1978 ("IBA"), 12 U.S.C. Secs. 3101-3108 (1988), as it existed during the relevant time period of 1987 and 1988, and its legislative history provide further support for a narrow reading of Sec. 1344(b)(5).9 The IBA, which is the principal federal law governing foreign bank operations, was enacted to eliminate various "competitive advantages" foreign banks operating in this country enjoyed over federally and state chartered domestic banks. S.Rep. 95-1073, 95th Cong., 1st Sess. 6 (1978), reprinted in 1978 U.S.C.C.A.N. 1421, 1422, 1426. Specifically, unlike their domestic counterparts, branches of foreign banks, because not subject to the strictures of the McFadden Act and Bank Holding Company Act, were permitted the unfair advantage of establishing full service banking facilities capable of accepting deposits in more than one state. Id. at 1427-28.
To establish competitive equality between foreign and domestic banks, the IBA limits the domestic deposit-taking activities of a foreign bank to its designated "home" state, 12 U.S.C. Sec. 3103(a) (1988), thus "provid[ing] foreign banks with 'national treatment' under which 'foreign enterprises ... are treated as competitive equals with their domestic counterparts.' " Conference of State Bank Supervisors v. Conover, 715 F.2d 604, 606 (D.C.Cir.1983) (quoting 1978 U.S.C.C.A.N. 1421, 1422), cert. denied 466 U.S. 927, 104 S.Ct. 1708, 80 L.Ed.2d 181 (1984). Until the enactment of the IBA, foreign banks operating branches in the United States did so only under state authority. 1978 U.S.C.C.A.N. 1421, 1426. Under the IBA, a branch of a foreign bank must choose between state or federal treatment and can expect, thereafter, to be subject to the same restrictions as a similarly situated domestic bank. See 12 U.S.C. Sec. 3102(a) (1988) (subject to approval of the Comptroller of the Currency, a foreign bank may establish a federal branch in any state in which it is not operating a branch under state law, and in which the establishment of such branch is not prohibited by state law); see also 1978 U.S.C.C.A.N. 1421, 1426 (discussing "State-Federal option").
Because HKSB elected an Oregon state charter for its Portland branch, that branch was a "state branch," defined under the IBA as "a branch of a foreign bank established and operating under the laws of any State." 12 U.S.C. Sec. 3101(12) (1988) (emphasis added). By contrast, the IBA defines a "federal branch" as one "established and operating under section 3102." 12 U.S.C. Sec. 3101(6) (1988). Section 3102 provides, in turn, that a federal branch of a foreign bank is "subject to such rules, regulations, and orders as the Comptroller [of the Currency] considers appropriate," and that such a branch will, with certain exceptions, receive "the same rights and privileges as a national bank at the same location" under the National Bank Act. 18 U.S.C. Sec. 3102(b) (1988).
In order to ensure adequate supervision of foreign bank operations within the present Federal-State regulatory framework, the bill provides that the Comptroller, the FDIC, and the States will have primary examining authority over such operations within their jurisdiction. The committee amended the House bill to provide the Federal Reserve Board with residual examining authority over all banking operations of foreign banks.... Thus, Federal branches and agencies will be subject to examination by the Comptroller, federally insured State branches will be examined by the State agencies and by the FDIC, and non-federally insured State branches ... will be examined by the appropriate State authorities or, if not so examined, by the Federal Reserve.
The legislation gives the Federal Reserve residual examination and supervisory authority over the domestic operations of foreign banks.... Branches ... of foreign banks principally fall within the regulatory purview of State authorities.
1978 U.S.C.C.A.N. 1421, 1433, 1445 (emphasis added).
We cannot agree with the district court's view that the federal regulations applicable through the IBA are "significant," 838 F.Supp. at 477, enough to cause the Portland branch to fall within the bank fraud statute's definition of a "federally chartered" bank. The plain language of the IBA's text, which distinguishes between state and federal branches of foreign banks, and the IBA's legislative history, make clear that a state branch is "organized and operating under the laws of a state" even though it is subject to the Federal Reserve's secondary regulatory authority and other federal regulation under the IBA.10 We hold that HKSB's Portland branch was not "operating under the laws of the United States" within the meaning of Sec. 1344(b)(5), and that the district court therefore erred in denying Lewis' motion to dismiss the bank fraud charges for lack of jurisdiction.11 By extension, we hold also that the district court misstated an element of the crime of bank fraud when it erroneously instructed the jury that a bank is "operating under the laws of the United States" if it is "subject to regulation, examination and supervision by the Federal Government" including regulation by the Federal Reserve.
For the foregoing reasons, Lewis' conviction on the bank fraud counts is reversed.
Lewis next argues that the district court's instruction on "intent to defraud," an element essential to both the bank and wire fraud counts, was erroneous. Where, as here, an appellant claims that the trial court misstated the elements of a statutory crime, we conduct a de novo review. United States v. Perez, 989 F.2d 1111, 1114 (9th Cir.1993).
In order to establish the third element of the crime of bank [and wire] fraud, it is necessary for the Government to prove that defendant Lewis acted with the intent to defraud.
Lewis argues that the district court erred by giving an incorrect and confusing definition of "intent to defraud" by equating that element with mere deceit and thereby shifting the jury's focus from an intent to harm. He contends that the "intent to defraud" instruction was further diluted by referring to lending decisions "which could cause a loss to the Bank," in that every lending decision is one that could cause a loss, and that the court's error was exacerbated by its refusal to give his own proposed instruction taken from United States v. Cloud, 872 F.2d 846 (9th Cir.1989). We express no opinion on these arguments, as we conclude that the instruction that was given impermissibly allowed the jury to find the requisite intent to defraud based on depriving the bank of a right to make sound lending decisions. For this reason, we must reverse Lewis' conviction on the wire fraud counts.
The district court's intent instruction is closely analogous to the one we approved in United States v. Green, 745 F.2d 1205 (9th Cir.), cert. denied, 474 U.S. 925, 106 S.Ct. 259, 88 L.Ed.2d 266 (1985). There the jury was instructed, essentially, that intent to defraud was proven if the defendant intended to deprive his victim of its right to make an informed business decision. Id. at 1209. In the present case, the jury was invited to convict on a finding that Lewis, by deceiving HKSB into making risky loans, intended to deprive it of its right to make an informed lending decision. We must decide whether the specific intent instruction presented the jury with a legally inadequate theory. See United States v. Barona, 56 F.3d 1087, 1097 (9th Cir.1995) (where jury is presented with legally insufficient theory, as opposed to factually insufficient theory, conviction must be vacated).
Prior to the Supreme Court's decision in McNally v. United States, several courts of appeals had held that "schemes to defraud include those designed to deprive individuals, the people, or the government of intangible rights, such as the right to have public officials perform their duties honestly." McNally v. United States, 483 U.S. 350, 358, 107 S.Ct. 2875, 2881, 97 L.Ed.2d 292 (1987), overruled by statute, 18 U.S.C. Sec. 1346 (1988). McNally read the mail fraud statute12 as "limited in scope to the protection of property rights."13 Id. at 360, 107 S.Ct. at 2882-83. According to McNally, "the words 'to defraud' ... 'usually signify the deprivation of something of value by trick, deceit, chicane or overreaching.' " Id. at 358, 107 S.Ct. at 2881 (quoting Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S.Ct. 511, 512, 68 L.Ed. 968 (1924)).
As a general matter, we have approved instructions defining "intent to defraud" as "the specific intent to deceive, ordinarily for the purpose of either causing some financial loss to another or bringing about some financial gain to one's self." United States v. Simas, 937 F.2d 459, 462-63 (9th Cir.1991) (emphasis in original).14 More recently, we have recognized that the right to make an informed business decision is not the kind of intangible right protected under the wire fraud statute. See United States v. Bruchhausen, 977 F.2d 464, 469 (9th Cir.1992) (Fernandez, J., concurring) ("I ... agree that the right of manufacturers to make decisions based on truthful information is far too ethereal to be a property right for the purposes of the wire fraud statute."). Because the challenged instruction focused on whether Lewis deprived HKSB of its intangible right to make an informed lending decision, we conclude that the instruction violated McNally. This error alone requires reversal. See Barona, 56 F.3d at 1097. "Jurors are not generally equipped to determine whether a particular theory of conviction submitted to them is contrary to law--whether, for example, the action in question ... fails to come within the statutory definition of the crime." Id. When jurors "have been left the option of relying upon a legally inadequate theory, there is no reason to think that their own intelligence and expertise will save them from that error." Id.
The government argues that the challenged instruction is acceptable when read in conjunction with two other instructions because, so read, the jury was adequately apprised that Lewis must have intended to deprive the bank of its property or money. The district court instructed that Lewis could be convicted of bank and wire fraud either (1) upon a showing that he knowingly carried out a scheme to defraud HKSB or (2) that he schemed to obtain HKSB's money or credits by means of false pretenses, representations or promises. The court defined a "scheme to defraud" as "a plan to affect the property rights of the bank by dishonest means, [which] usually involves depriving the bank of something of value by trick or deceit." "A scheme to obtain money or credit by false pretenses, representations or promises" was defined as "a plan to deprive the bank of its money or credit by making false statements or representations. The false statements must be important enough to the plan that they would reasonably influence the bank to part with money or property."
shall be fined not more than $10,000, or imprisoned not more than five years, or both.
(5) a bank ... or other banking or financial institution organized or operating under the laws of the United States.
18 U.S.C. Sec. 1344 (1988).
(5) a bank, banking association, land bank, intermediate credit bank, bank for cooperatives, production credit association, land bank association, mortgage association, trust company, savings bank, or other banking or financial institution organized or operating under the laws of the United States.

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