Opinion ID: 659334
Heading Depth: 1
Heading Rank: 2

Heading: Facts Pertinent to the Section 1014 Charges Against Williams

Text: 10 In the course of arranging the bank loans, Charles prepared three form resolutions, a standard component of a loan application. Eugene then presented these forms to Williams who signed them. By signing both of the loan applications and, accordingly, attesting to the veracity of the information contained there, Williams allegedly made two statements that formed the basis for his convictions. First, the forms listed him as the treasurer, secretary, and certifying officer of Southern Coffee. Second, the resolutions stated that approval for the loans had been given at a meeting of the board of directors of Southern Coffee. 11 The government contended that Williams had never been elected to those positions or served in those capacities and, similarly, that the board of directors had not formally approved the resolution. The jury agreed and convicted Williams of making false statements to a federally insured bank.III. Materiality Under Section 1014 12 It is illegal under 18 U.S.C. Sec. 1014 to make a false, material statement to a federally insured banking institution. To sustain a conviction under this statute, the government must prove that: (1) the defendant made a false statement to a financial institution; (2) the defendant knew the statement was false when he made it; (3) he made it for the purpose of influencing the financial institution's action; and (4) the statement was false as to a material fact. 6 13 The defendant challenges that the statements were false, that he knew they were false, and that they were material. He concedes that the statements were made to influence the bank's decision on Eugene and Charles's loan application. 7 We need not address whether the statements were false or whether Williams knew of their falsity for we hold that the statements were not material. As a result, the government failed to meet its burden and we must vacate Williams's convictions under Sec. 1014. 14 Statutes imposing criminal penalties for making false statements long have required materiality as an essential element. 8 Section 1014 is no exception: the government must prove that the false statement matters. 15 Statutes like section 1014 and section 1001 (the statute that makes it illegal to make a false statement to a government department or agency) are highly penal and, thus, require that the materiality element be taken seriously. In United States v. Beer 9 , we emphasized that the severe penalties flowing from a conviction for making a false statement require the government to make a reasonable showing of the potential effects of the statement. 10 In the present case, the government failed to do so. 16 Materiality is a legal determination made by the district court and, accordingly, is subject to complete review by this Court. 11 A challenge to the district court's finding of materiality is not a challenge to the sufficiency of the evidence even though it is a product of a factual evidentiary showing. 12 In other words, our review seeks to determine whether the district court's finding of materiality was erroneous as a matter of law. 13 17 A false statement is material if it is shown to be capable of influencing a decision of the institution to which it was made. 14 Moreover, the statements must be analyzed in the particular context in which they were made. 15 In the context of the present matter, our inquiry is limited to whether the statements at issue--the loan application forms listing Williams as secretary and treasurer and attesting that the board of directors formally approved the loan--were capable of influencing the bank's decision to loan the Sykes brothers money. We hold that these statements were not capable of influencing the bank's decision one way or the other and, as such, fail to meet the materiality requirement. 18 The United States urges that we adopt the broadest possible definition of materiality, relying on the Lueben case for the proposition: [I]f these statements were immaterial, why were they required by the lending institution in each of the transactions? 16 This dictum was intended as a rhetorical guidepost, not a bright line rule. Otherwise, the law of materiality would change every time that a bank printed up a new loan application form. We need not resort to these short-hand approaches, however, for the standard we are to apply is clear: If Williams's statements were capable of influencing the bank's decision, they are material. 19 The government marshalled evidence showing that the banks would not have made the loans if they had known that these statements were false. In actuality, the bank officers merely testified that they would not have approved the loans if they had discovered that the applicant had lied. That does not make the lies themselves material, however. This is a crucial distinction. Aided by hindsight, the banks undoubtedly would not have made these loans. Any bank would be understandably reluctant to lend money to a corporation when its officers lie on the loan application. In sum, the government's evidence demonstrates only that the banks maintain a policy that warns against loaning money to entities which do not tell the truth; it is no way probative of the materiality of these particular statements. 20 Williams, in contrast, urges that we limit the parameters of materiality by looking to the purpose of the loan application. He argues that the fact that a board of directors meeting may not have taken place or that Williams was not actually secretary or treasurer did not matter to the bank in its evaluation of the loan application. He asserts instead that the only material fact elicited by the forms was that Charles, as sole director and shareholder of Southern Coffee, had authorized his brother Eugene to act for and bind the corporation when dealing with the banks. Williams presented evidence that the purpose of a corporate resolution in this context is to identify the person who has the power to bind the corporation. As to these loans, that person was primarily Eugene and, secondarily, Charles. Hence, Williams argues, he was but an unnecessary (and immaterial) bystander. 21 We agree that an examination of the purpose of the loan forms is appropriate when defining the boundaries of materiality. The loan application includes standard forms used to verify the identity of those persons legally authorized to sign corporate checks and indorse instruments payable to the corporation. Moreover, the forms identify the persons capable of borrowing money from the bank in the corporations's name or of paying notes to the bank. The Executive Vice-Presidents of both the People's Bank and Merchant's Bank testified: 22 That the purpose of the Corporate Resolution was to establish which persons had authority to legally bind Southern Coffee Company and which persons had authority to withdraw funds on behalf of Southern Coffee Company. 17 23 The forms clearly identify those people as Eugene Sykes, the president, and C.T. (Charles) Sykes, the agent. In the light of this purpose, the fact that Williams was or was not secretary and treasurer or the question of whether the board met is of no consequence. 24 When we look to the purpose of the bank forms, we are asking whether reliance on the false statements would have changed the outcome. In the Beer case, for example, we held that the defendant's failure to include a loan to which he was accommodated on an FDIC form was immaterial. 18 We explained that one way of determining whether the statements were capable of influencing a bank's decision is to extrapolate from the facts and ask, If the bank had relied on the defendant's statements, would it have made any difference? Similarly, the Weinstock court held that inaccurate information about the name of an organization on particular dates was not material for, if relied on, it would not have influenced any decision made by the agency to which it was directed. 19 25 From that point of view, the cases upon which the government relies are distinguishable. This is not a case like Lueben, where the defendant lied about his income to make his financial position look more attractive to the bank. 20 Nor is it like Puente, where the defendant lied about his previous felony conviction in an effort to whitewash his past. 21 In those circumstances, it is clear why a bank or federal institution, armed with the truth, would have arrived at a different decision on a pending application. 26 Section 1014 was not designed to convict on a technicality. More is required. Williams merely signed the resolutions based upon the representations of Eugene and Charles. Williams's signature reflected Charles's designation of a secretary and treasurer, if only for the purposes of procuring the loan money. 22 The banks wanted to know who was responsible for these loans. Eugene and Charles were; Williams was not. We hold that Williams's statements were not material and, accordingly, we vacate his convictions under Sec. 1014. 23