Opinion ID: 366306
Heading Depth: 2
Heading Rank: 2

Heading: Sufficiency of the Proof; Jury Instructions

Text: 76 Defendant contends that the manner in which he operated his bank account could not have constituted a misapplication of bank funds in violation of § 656, so that the proof on this essential element was insufficient to support his conviction. He relies here essentially on two theories that the district court rejected in various rulings. The first, in general, points to defendant's financial ability at all times to cover all his undebited checks held in cash items. The second would find authorization for the Code 3-cash items practice in nonaction by the bank's directors despite knowledge on their part of its existence. 77 Specifically, on the first theory, Duncan relies on evidence that at all times he had sufficient funds in the bank to cover his Code 3 checks held in cash items. He points first to the fact that only rarely was his checking account itself insufficient to cover them, I. e., in a state of technical overdraft. 17 Next he points to evidence that throughout the critical period he had access to other accounts in the bank and other sums immediately available for application to his checking account. 18 These latter sources in conjunction with his checking account, he contends, provided such absolute security to the bank that his practice, rightly understood, amounted to no more than a bookkeeping technique, and precluded as a matter of law any jury finding of misapplication within the statute's meaning. The district judge declined so to interpret the significance of this evidence in allowing the case to go to the jury and in declining to reject its verdict. We agree with this assessment. 78 As earlier noted, ultimate financial loss to the bank is not required for, nor will subsequent restitution exonerate from, a finding of statutory misapplication. The gist of this critical element of the offense is the withdrawal of funds, however temporarily, from the possession, control, or use of the bank. Id. Whatever the evidence might have shown of Duncan's ability and intention to provide ultimate security against actual loss to the bank, it also showed unmistakably that the challenged practice gave him non-interest bearing, unsecured loans in whatever amount he chose to write checks. It also removed from the various procedures designed to permit responsible ongoing auditing of the bank's financial condition any sums that he chose to deflect from immediate debiting to his account. That his checking account was not continuously in a state of even technical over-draft and that he was amply solvent during this period does not avoid the fact that from the bank's standpoint the funds represented by the undebited cash items checks were at a variety of risks turning completely on Duncan's inclinations and whim so long as they were concealed from normal monitoring procedures. This constituted misapplication of funds within the meaning of the statute. See United States v. Caldwell, 544 F.2d at 696-97; Cf. Benchwick v. United States, 297 F.2d 330 (9th Cir. 1961) (closely analogous practice; aiding and abetting). 79 Defendant also contends that no conversion could have occurred because the method in which he operated his account was authorized. The position of the trial court was that evidence of authorization was relevant to the issue of defendant's intent to defraud, but not on the question whether a conversion occurred. The jury was so instructed and defendant's requested instruction to the contrary was refused. 19 We believe this was a proper assessment of the relevance of this evidence. 80 Such a construction of the relevance of evidence of authorization is mandated by the purpose of § 656. As we recently stated, that purpose is to protect the assets of the Federal Deposit Insurance Corporation and of banks having a federal relationship. United States v. Arthur, 544 F.2d 730, 736 (4th Cir. 1976). 81 Defendant contends that since the Bank's board of directors knew how he operated his account, their acquiescence constituted sufficient authorization to preclude the occurrence of the conversion. Initially, we note that the evidence is far from consistent in respect of the directors' knowledge about defendant's checking account. It seems fairly certain that they had no idea how long defendant's checks were held in cash items and that the accumulated checks so held frequently exceeded in face value the balance in the account. In any event, even assuming the facts to be as defendant contends on this point, the directors' non-action here could not be held to preclude the existence of a conversion. While it is at least conceivable that under some circumstances a formally adopted resolution of a board of directors would carry with it sufficient procedural safeguards to protect the interest of the bank and of the Federal Deposit Insurance Corporation, a question we do not decide today, authorization by informal acquiescence certainly does not. If it did, a bank official would be able to use bank funds for his own benefit and continue to do so as long as the directors did nothing about it. Individual directors, concerned about full-time positions in other areas of commerce, might never direct full attention to the official's conduct. The official, if he had sufficient power, could stifle any attempt to bring the matter to the attention of the board. 20 In short, the purpose of § 656 would be sorely frustrated by the allowance of such a defense. 82 Defendant relies on United States v. Klock, 210 F.2d 217 (2d Cir. 1954) (Frank, J.), for the proposition that authorization precludes conversion. The opinion is ambiguous whether the authorization evidence, refused totally by the trial court, was relevant on the intent issue or on the conversion issue. To the extent the opinion can be read to make such evidence relevant on the issue of conversion, we decline to follow it, at least in circumstances such as are presented by this appeal. We note that Klock has been read to hold such evidence relevant only on the issue of intent. See United States v. Riley, 550 F.2d 233, 236-37 (5th Cir. 1977). The evidence was submitted here under proper instructions on the issue of defendant's intent to injure or defraud the bank, and was rejected by the jury. 83 Defendant objects to a jury instruction which he asserts instructed on theories not in evidence and gave a directed verdict on the issue of conversion by adopting the Government's theory. The instruction read as follows: 84 A misapplication is an unauthorized, unjustifiable, or wrongful use of bank's moneys, funds, credits, assets, or securities. A misapplication may be accomplished by various means, such as by the making of a loan which is insufficiently secured, or by the making of a loan to a fictitious borrower, or by the making of a loan where there is no intention to repay or where the maker is insolvent, or by allowing the use of checks or debits to accounts backed by insufficient funds which act is consistently done or concealed, or by the writing of checks by one knowing at the time that such checks will be and are paid out of the bank's funds and not from one's personal account. 85 Clearly, the instruction does give examples of conduct which, if done with the requisite intent, could constitute a misapplication, but for which there is no evidentiary support in the record. While we recognize a danger of prejudice inherent in illustrative instructions of this type and take this occasion to caution extreme care in their use, we do not believe that in total context the instruction actually given here constituted reversible error. Fairly appraised, we think its obvious intention, to give mere hypothetical examples illustrative of the statutory meaning of a term frequently used nontechnically, must have been manifest to the jury. Other portions of the instructions carefully required the jury to find from the evidence the occurrence of each element of the offense beyond a reasonable doubt. Considered in context, we cannot conclude that the challenged instructions could have misled the jury to believe that it could find misapplication on the basis of any of these hypothetical examples not supported in the evidence. 86 Defendant next argues that there was insufficient evidence for the jury to conclude that he acted with intent to defraud the bank. We disagree, and summarize here the most salient evidence supporting the verdict on this element. North Carolina law prohibits a bank from making a loan to an officer or employee without a signed resolution adopted by a majority of the board of directors. While loans to an individual officer aggregating less than $2,500 need not be secured, beyond that amount good collateral or other ample security or endorsement is required. In no event can an officer be loaned more than $45,000. N.C.Gen.Stat. § 53-91. An employee overdraft policy, adopted in 1974 and which Duncan conceded on the stand applied to him, provided that any employee who had three overdrafts within a twelve-month period would be discharged. 21 Defendant never had an overdraft because only normal activity accounts, Code 1, were examined for purposes of the overdraft policy. His was the only Code 3 account and thus the only one to avoid that policy. The purpose of both the state law and the bank policy was to protect the bank from the financial maneuvering of its employees. 87 When the bank auditors came to examine Northwestern, the cash items clerk would call Duncan's secretary and his account would be cleared that day. When the auditors examined the cash items list, defendant's name therefore never appeared. In fact, the full extent of the manner in which defendant operated his account never appeared even on the cash items list. In the beginning of the period covered by the misapplication indictment, the cumulative balance of each customer's checks that were being held in cash items was entered on the cash items list. Later, when the clerk changed the procedure and began listing items separately so that the length of time each was so held could be determined, Duncan's checks were still aggregated and entered as a lump sum. Thus, even if a bank employee had looked at the cash items list out of concern over the manner Duncan did his checking, the length of time the bank had relinquished control over its funds, and the full extent of the risk to which it was exposed, could not have been determined. 88 In short, the jury, with state law, the bank policy, and these practices in evidence before it, could have concluded that Duncan's checking account was deliberately designed to evade all routine inquiries into its operation. While a concerted examination of the account's operation would have revealed the full magnitude of the practice, the jury could further have concluded that Duncan would personally have thwarted such an examination. The Steffey incident, referred to previously, would have supported such a conclusion. 22 From the deliberate evasions of the safeguards created by both the bank itself and the state of North Carolina, the jury could conclude that Duncan acted with the intent to accomplish the very results sought to be avoided by those safeguards, so that he acted with intent to injure or defraud the bank. 89 Pointing again to the evidence that he always had sufficient funds in the bank to cover the checks held in cash items, Duncan argues that since this conclusively showed that the bank could not possibly have suffered a loss by reason of his checking account practice, it also conclusively negates the necessary element in the Government's case of intent on his part to injure or defraud the bank. He further argues that bank officials and employees as well as the Government officials charged with monitoring the activities of the bank knew how he conducted his checking account and that this lack of secrecy precluded a valid finding of intent to defraud or injure. These contentions go to inferences to be drawn by the finder of fact on evidence which in this, as in most, cases would support conflicting findings on the elusive issue of intent. The arguments were undoubtedly made with vigor and clarity to the jury by able counsel for defendant. There was evidence considered in the light most favorable to the Government to support the jury's finding against the defendant on this as well as the other issues submitted. See United States v. Caldwell, 544 F.2d at 696-97; United States v. Scheper, 520 F.2d 1355, 1358 (4th Cir. 1975).