Opinion ID: 354019
Heading Depth: 2
Heading Rank: 2

Heading: The Federal Nature of the Funds

Text: 35 Gent and Tate argue that the evidence was not sufficient to support their convictions on count one for conspiracy because the government failed to prove that the FISL and NDSL funds were government property. Both also argue that the district court erroneously failed to submit this issue to the jury. Tate also urges these points of error regarding his substantive convictions on counts two through seven. Title 18, United States Code, Section 641 makes it a federal offense to embezzle, steal, purloin or knowingly convert any . . . money, or thing of value of the United States or any department or agency thereof . . .. 12 Thus, the characterization of the funds becomes critical. 36 Over proper and timely objection by appellants, the district court charged, on counts two through seven, that a specific portion of the monies used in the National Defense Direct Student Loan Program are monies belonging to the United States. The district court reasoned that the law speaks for itself and . . . it's just a question of applying the law to the instruments and the law. The defendants argued that it was a question of fact as to whether or not there is (sic) any regulations or laws stating that these funds are federal moneys. 13 Although both Tate and Gent objected to the district court's instruction as given, neither offered any legal argument that the monies were not federal, nor did they offer any substitute at the charge conference. 37 As a general proposition, when the question of ownership of property depends upon the construction or existence of a statute, it is a matter of law for the court's determination. United States v. Lanni, 466 F.2d 1102, 1110 (3d Cir. 1972); Terry v. United States, 131 F.2d 40, 44 (8th Cir. 1942); Thompson v. United States, 256 F. 616, 619-20 (2d Cir.), cert. denied, 249 U.S. 617, 39 S.Ct. 391, 63 L.Ed. 804 (1919). On the other hand, it is an essential element of a violation of 18 U.S.C.A. § 641 that the government suffer some actual property loss. See United States v. Collins,464 F.2d 1163, 1165 (9th Cir. 1972). 38 Although there appears to be a conflict whether a district court may properly instruct that the funds actually embezzled were of a federal character, 14 we need not reach that issue for several reasons. The foremost reason is that this case simply does not present the issue. 39 The district court charged that (a) portion of the monies used in the National Defense/Direct Student Loan Program are monies belonging to the United States. (emphasis supplied) However, the district court further instructed the jury that an essential element . . . . required to be proved beyond a reasonable doubt in order to establish the offense charged . . . (is) (t)hat the monies in question or any portion thereof . . . were monies belonging to the United States. (emphasis supplied) The district court made a clear distinction between the federal character of the monies generally involved in the National Defense/Direct Student Loan Program and the specific monies which were allegedly misdirected. Thus, the question of whether the specific monies that were misdirected were possessed of sufficient indicia of federal ownership to satisfy that element of the offense was left for the jury. If it is a question of fact, as appellants maintain, the fact finder decided it. If it is a question of law, the evidence supports the jury's conclusion that the misdirected monies were federal monies and the error, if any, is harmless. 15 40 The district court's characterization of the NDSL funds comports with the applicable law. The decisions that have sustained findings of a sufficient federal interest in the property at issue have generally involved instances in which the government had either title to, possession of, or control over the tangible object involved. United States v. Miller, supra (United States' check); United States v. Caverly, 408 F.2d 1313 (3d Cir.), cert. denied, 396 U.S. 866, 90 S.Ct. 144, 24 L.Ed.2d 119 (1969) (books); Fowler v. United States, 273 F. 15 (9th Cir. 1921) (railroad cargo); Kambiertz v. United States, 262 F. 378 (2d Cir. 1919) (railroad cargo); Thompson v. United States, supra (bags of sugar); United States v. Echevarria, 262 F.Supp. 373 (D.P.R.1967) (nuclear research center). See also United States v. Morris, 541 F.2d 153 (6th Cir. 1976); United States v. Collins, supra; Lubin v. United States, 313 F.2d 419 (9th Cir. 1963); Clark v. United States, 258 F. 437 (3d Cir. 1919); United States v. Crawford, 52 F.Supp. 843 (E.D.Pa.1943). However, the critical factor in determining the sufficiency of the federal interest in intangible interests, such as are involved here, is the basic philosophy of ownership reflected in relevant statutes and regulations. See generally United States v. Farrell,418 F.Supp. 308 (M.D.Pa.1976). The key factor involved in this determination of federal interest is the supervision and control contemplated and manifested on the part of the government. Cf. United States v. Moore, 427 F.2d 38 (5th Cir.), cert. denied, 400 U.S. 965, 91 S.Ct. 367, 27 L.Ed.2d 384 (1970); Arbuckle v. United States, 146 F.2d 657 (D.C.Cir. 1944); Lowe v. United States, 141 F.2d 1005 (5th Cir. 1944). 41 The statutes involved here manifest an underlying congressional intent that the Office of Education should maintain regulatory control of funds to which federal capital contributions are made. 16 The Commissioner of Education has broad authority under the statutes and regulations to determine the allocations to institutions, to reallocate funds, to approve student loans, and to control the use of the federal funds. The federal interest in the government's capital contributions to the loan funds is specifically established and preserved by the provision for termination of the program on a date certain and the requirement that the proportionate share of the balance in the special fund be returned to the government. 20 U.S.C.A. § 1087ff. Here the ultimate federal supervision and control are virtually complete. See 20 U.S.C.A. §§ 421-429; 1087aa-1087ff; 45 C.F.R. §§ 144.1-144.15 (1976). See generally H.R.Rep.No.2157, 85th Cong., 2d Sess., reprinted in (1958) U.S.Code Cong. & Admin.News, p. 4731; H.R.Rep.No.1145, 87th Cong., 1st Sess., reprinted in (1961) U.S.Code Cong. & Admin.News, p. 3350; Sen.Rep.No.673, 89th Cong., 1st Sess., reprinted in (1965) U.S.Code Cong. & Admin.News, p. 4027; Sen.Rep.No.1677, 89th Cong., 2d Sess., reprinted in (1966) U.S.Code Cong. & Admin.News, p. 3927; Sen.Rep.No.882, 94th Cong., 2d Sess., reprinted in (1976) U.S.Code Cong. & Admin.News, p. 4713. 42 The challenged instruction, in effect, merely paraphrased20 U.S.C.A. §§ 1087aa(c), 1087cc. 17 It is significant that there was no instruction pertaining to the federal character of FISL funds and that the instruction regarding the NDSL program characterized as federal only the funds in that program. The district court did not characterize any of the student loan payments that came into the illegal possession of the defendants. Rather, the district court clearly instructed the jury that the federal character of the misdirected funds was an essential element of the embezzlement offense which the government was required to prove beyond a reasonable doubt. The two instructions were derived from the applicable statutes and were distinctly emphasized. Thus, the guilt determinative issue of fund characterization was properly decided by the jury. 18 43 We also agree with the government's assertion that there was sufficient evidence to support the jury's verdict with respect to the federalness of the funds that were embezzled. 19 The evidence showed that, at any given time, approximately seventy-five percent of any NDSL account consisted of federal funds. These accounts were required to be maintained in a manner designed to ensure that the federal contribution would remain ascertainable to facilitate the interim and final accountings to the government. The evidence of the federalness of the converted funds distinguishes this case from the situation presented in United States v. Owens, 536 F.2d 340 (10th Cir. 1976). Gent's and Tate's reliance on Owens is misplaced. In Owens the United States Court of Appeals for the Tenth Circuit held that the evidence was insufficient to establish that the money embezzled from a municipal urban renewal authority was federal money. The government contended that the authority's funds were imbued with a sufficient federal character since federal grants were added to its coffers. The defendants contended that the grant money was no longer money . . . of the United States when it passed to the agency. The court, avoiding any decision on the proper construction of the term money . . . of the United States, held that there was insufficient evidence to show that the specific money actually embezzled had a federal character. The court concluded that the record was also inadequate to establish that money received from private loans and assumedly guaranteed by the United States Government constituted federal funds because the money never belonged to the United States and the ultimate responsibility for repayment rested with the municipal agency. The critical facts in Owens are wholly inapposite to the facts of the instant case. Here most of the funds were initially federal monies and it is statutorily contemplated that the ultimate repayment will be to the federal government. 20 Here the monies have a federal origin and a federal end, and during their outstanding circulation they are subject to extensive federal controls. This is not the situation in which the federal monies are intended as an outright grant. See Wheeler v. Barrera, 417 U.S. 402, 94 S.Ct. 2274, 41 L.Ed.2d 159 (1974); United States v. Farrell, 418 F.Supp. 308 (M.D.Pa.1976); 20 U.S.C.A. §§ 241a-241h. In this case the jury was correct in concluding that these funds retained their federalness. See Arbuckle v. United States, supra; Loewe v. United States, 135 F.2d 622 (9th Cir. 1943); United States v. Echevarria, supra. 44 We find it unnecessary to decide the question whether funds loaned to students under the FISL program are federal funds prior to the time they are in default and the government has advanced payment under its guarantee. This record is replete with proof that Gent and Tate prevented the remission to client schools of the NDSL monies collected by CRCAP. These client schools included the educational institutions specifically named in counts two through seven. Count one charged a conspiracy. Counts two through seven involved only NDSL funds, not FISL funds. Thus, the convictions under counts two through seven may be sustained on that basis. The argument that the conspiracy convictions must be reversed for failure to prove a loss to the government on the FISL funds is thrice fatally flawed. First, as has been previously, noted, it was not necessary for the government to prove every element of every substantive offense which was an object of this multi-objective conspiracy. The conspiracy convictions are sustained on other bases and the government need not have shown a loss to the government on the FISL program. Second, the government's obligation to indemnify FISL lenders did not always remain purely executory, as appellants argue. Rather, the State of Louisiana had a contrary experience. A Louisiana state agency participated in a federal reinsurance program in which the federal government advanced eighty percent of the principal of a guaranteed student loan upon the notification of delinquency. The state agency itself then attempted to collect the loan and retained CRCAP for that purpose. The agreement between Louisiana and the federal government contemplated that if, and when, the collection efforts on the defaulted loans were successful the state agency would remit eighty percent of the funds to the federal government. This evidence established an actual loss to the federal government of the funds which CRCAP failed to remit. Third, and finally, both Gent and Tate overlook, or improperly discount, the evidence pertaining to the anticipated passage of legislation to enable H.E.W. to contract directly with private collection agencies for the collection of FISL funds. There was evidence of the appellants' ambition, desire and preliminary overtures to obtain such a contract in the event that the proposals became law. The fact that this object could not be achieved during the actual lifetime of the conspiracy did not preclude their conviction for conspiring to convert government funds. United States v. Winter, 509 F.2d 975, 982 (5th Cir.), cert. denied sub. nom., Parks v. United States, 423 U.S. 825, 96 S.Ct. 39, 46 L.Ed.2d 41 (1975). Thus, we hold that there was ample support in the evidence regarding the NDSL funds for the convictions of Gent and Tate for conspiracy under count one, and for Tate's conviction on the substantive charges under counts two through seven.