Opinion ID: 804482
Heading Depth: 2
Heading Rank: 1

Heading: Counts One through Three

Text: In order for Johns to have been convicted of counts one through three in his indictment, the jury needed to find that he made materially false and fraudulent representations to the Ten Hoves’ Chapter 13 trustee. See 18 U.S.C. §§ 2, 152(8), 157(3), and 1519. Johns argues that the representation he made to the trustee—that the No. 11-3299 13 Ten Hoves’ home was encumbered by a $30,000 mort- gage—was unquestionably true, and thus there is insufficient evidence to convict Johns on counts one through three. In the alternative, Johns argues that the jury instructions in his case were faulty. More specifically, he argues that the jury, rather than the judge, should have decided whether a valid mortgage existed between the Ten Hoves and Fledderman, and that, accordingly, the jury should have been presented with instructions informing it of Wisconsin’s law on mortgages and contracts. We now turn to these arguments.
The first district court action that Johns challenges is the denial of his motion for judgment of acquittal, in which he argued that there was not sufficient evidence to convict him on Counts one through three. While we review de novo a denial of a motion for judgment of acquittal, United States v. Boender, 649 F.3d 650, 654 (7th Cir. 2011), this standard of review is slightly deceiving. A review of a motion for acquittal is in essence the same as a review of the sufficiency of the evidence. “We evaluate the evidence in the light most favorable to the government, and if ‘any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt,’ the judge committed no error in denying the motion for acquittal and we will affirm the conviction.” United States v. Douglas, 874 F.2d 1145, 1155 (7th Cir. 1989) (quoting Jackson v. Virginia, 443 U.S. 307, 319 (1979)) abrogated on other grounds by United States v. Durrive, 902 F.2d 1221 (7th Cir. 1990). 14 No. 11-3299 The question we must answer is whether the mortgage document established a genuine mortgage securing a $30,000 obligation; if it did not, then Johns made a materially false representation to the Chapter 13 Trustee, and his argument to the contrary fails. In support of the existence of a mortgage, Johns cites Wisconsin case law explaining that a mortgage does not need separate consideration in order to be valid, and that only the underlying obligation must involve the exchange of consideration. See, e.g., Mitchell Bank v. Schanke, 676 N.W.2d 849, 859-60 (Wis. 2004). Thus, the fact that Fledderman never actually loaned the Ten Hoves money or interacted with them in any way does not invalidate the mortgage that was allegedly executed by the Ten Hoves since, he argues, the mortgage document secured the enforceable underlying obligation that the Ten Hoves had to Banks. Johns further contends that the mortgage document at issue is valid under the statute of frauds, but that, in any event, the Ten Hoves’ performance of the agreement they had with Banks makes that contract valid, regardless of whether the statute of frauds would have made it voidable. The district court rejected Johns’ arguments concerning the sufficiency of the evidence on Counts one through three, ruling that regardless of whether the mortgage was facially valid, the evidence clearly showed that there was no actual mortgage as a matter of law. The district court did not explain why no genuine mortgage existed in this case, but in defending the court’s decision, the government argues that there was no underlying obligation between Banks and the Ten Hoves at all, at least with respect to the $30,000 of equity that was to be rinsed back No. 11-3299 15 to Banks upon closing. With no underlying obligation, the government contends, there obviously could not be a mortgage securing that obligation. In support of this contention, the government points out several facts about the sale of the Ten Hoves’ home. The government explains that the Ten Hoves only dealt with Johns before closing and that they were unaware of what they were signing when they executed the mortgage document. The government further argues that the mortgage document did not satisfy the statute of frauds. These points, they argue, prove that there was no obligation between the Ten Hoves and Banks, other than the deal for Banks to purchase their home for $120,000. The government does not cite any case law in reaching this conclusion. We do not doubt that the points made in Johns’ brief regarding the legal requirements for a valid mortgage are accurate. He is correct in stating that, under both Wisconsin law and contract law generally, a mortgage does not need separate consideration to be enforceable, since it is not a contract, but rather secures a contractual obligation. See Restatement of Property: Mortgages, § 1.2, comment. A mortgage is only enforceable, however, to the extent that the underlying obligation is enforceable,2 id.; “[u]nless it secures an obligation, a mortgage is a nullity.” Restatement of Property: Mortgages, § 1.1, comment (a); see also Mitchell Bank, 676 N.W.2d at 859 (quoting Doyon & Rayne Lumber Co., 220 N.W. 181, 182 (1928)) (“Where there is no debt—no relation of debtor and creditor-there can be no mortgage.”). Thus, if 2 There are some exceptions to this rule, but they are irrelevant to this case. 16 No. 11-3299 the government’s attack on the underlying $30,000 obligation that allegedly existed between Ten Hoves and Banks is successful, the mortgage would have nothing to secure, and would therefore not exist. Several of the government’s arguments against the existence of a $30,000 obligation to Banks, however, miss the mark. For instance, the fact that the Ten Hoves only dealt with Johns up until the closing, where they finally met Banks, is irrelevant; parties to a contract deal through agents all of the time. See, e.g., United States v. Ramirez, 574 F.3d 869, 875-76 (7th Cir. 2009). Further, the Ten Hoves’ failure to read or fully understand the mortgage document, without more, does not negate the existence of an agreement. See Raasch v. City of Milwaukee, 750 N.W.2d 492, 498 (Wis. Ct. App. 2008) (quoting Rent-A-Center, Inc. v. Hall, 510 N.W.2d 789, 792 n.5 (Wis. Ct. App. 1993)) (“It is the ‘firmly fixed’ law in this state that, absent fraud, a person may not avoid the clear terms of a signed contract by claiming that he or she did not read or understand the contract.”); Hughes v. United Van Lines, Inc., 829 F.2d 1407, 1417 (7th Cir. 1987) (“One who signs a contract in the absence of fraud or deceit cannot avoid it on the grounds that he did not read it or that he took someone else’s word as to what it contained.”).3 As for the government’s statute of frauds argument, it may or may not be meritorious, but the district court found, and we agree, that the mortgage did 3 It may be that there was fraud or deceit at play regarding Johns’ efforts to get the Ten Hoves to sign the mortgage document, but the government does not argue that the Ten Hoves were the victims of fraud with regard to this specific document, as opposed to a general fraudulent scheme. No. 11-3299 17 not exist even if it was facially acceptable, and thus we need not consider this issue. First, assuming that there was a valid obligation for the Ten Hoves to pay Banks $30,000 at closing, there is no evidence connecting that obligation owed to Banks with the alleged mortgage security held by Fledderman. The mortgage document signed by the Ten Hoves states, in pertinent part: Arthur E. Ten Hove and Bobbie J. Ten Hove . . . mortgages to Stephanie Fledderman (“Mortgagee”, whether one or more) to secure payment of Thirty-thousand and No/100 Dollars ($30,000) evidenced by a not [sic] or notes bearing on even date executed by Arthur E. Ten Hove and Bobbie J. Ten Hove . . . to Mortgagee, and any extension and renewals of the note or notes, and the payment of all other sums, with interest, advanced to protect the security of this Mortgage, the following property . . . . Banks’ name is conspicuously absent from that language (as well as the rest of the document). The document clearly contemplates an obligation to pay Fledderman $30,000, secured by a m ortgage on the Ten Hoves’ house, with absolutely no connection to Banks. Since the evidence is also clear that the Ten Hoves were oblivious to Fledderman’s involvement in this transaction, a connection between the obligation to Banks and the secured obligation to Fledderman cannot be substantiated through parol evidence. Thus, the mortgage document did not secure the obligation owed to Banks by the Ten Hoves. 18 No. 11-3299 Johns’ representation regarding a $30,000 encumbrance on the Ten Hoves’ home could still have been true, however, if the mortgage document secured an obligation of $30,000 to Fledderman herself. As illustrated above, the mortgage document clearly contemplates the existence of an obligation from the Ten Hoves to Fledderman. Yet there is no evidence that Fledderman and the Ten Hoves ever met, so any underlying agreement and obligation that would serve to validate the existence of a mortgage would need to exist within the confines of the mortgage document itself, not through some outside agreement. The document does state that the Ten Hoves agree to pay Fledderman $30,000, but there are two problems that prevent this statement from establishing an actual contract between the Ten Hoves and Fledderman. First, Fledderman never signed the agreement, nor is there any evidence that she was aware of a mortgage agreement between herself and the Ten Hoves. Thus, there could not have been a meeting of the minds between the alleged parties to the contract, and no underlying contract was formed. See Household Utilities, Inc. v. Andrews Co., Inc., 236 N.W.2d 663, 669 (Wis. 1976) (explaining that a contract cannot exist without a “meeting of the minds,” and that “[t]here is no meeting of the minds where the parties do not intend to contract”). Even if Fledderman was party to an underlying agreement, however, the agreement would fail due to lack of consideration. Under the terms of the mortgage document, the Ten Hoves owe Fledderman $30,000, which is secured by a mortgage on the Ten Hoves’ house, but Fledderman owes nothing in return. Thus, the underlying No. 11-3299 19 agreement that would be secured by the alleged mortgage would lack consideration, the obligation would be unenforceable, First Wisconsin Nat. Bank of Milwaukee v. Oby, 188 N.W. 2d 454, 459 (Wis. 1971); Cawley v. Kelley, 19 N.W. 65, 66 (Wis. 1884), and the mortgage would be a “nullity,” Restatement of Property: Mortgages, § 1.1, comment; see also Mitchell Bank, 676 N.W.2d at 859. Johns has a response to this. He argues that the Fledderman mortgage is not a stand-alone mortgage/contract, but rather a part of an “overall agreement.” The consideration for that agreement, he claims, is obvious: the Ten Hoves receive the ability to avoid the black mark of foreclosure, sell their home, and get out of their bankruptcy proceedings, and in exchange they must sell their home, execute a mortgage in favor of Fledderman, and pay that mortgage off at the closing of the sale of their home. This seems to be a legitimate agreement that could be enforceable, putting aside any potential problems arising from the fact that the beneficiary of the mortgage is not the obligee of the underlying obligation. The problem is that the Ten Hoves did not agree to it. Such an agreement is not codified in the mortgage document, and the evidence was more than sufficient for a jury to find that the Ten Hoves were oblivious to Johns and Banks’ scheme, and that they were unaware that they were providing a mortgage to Fledderman to, in effect, secure their obligation to Banks. There was therefore no meeting of the minds, and thus no enforceable “overall agreement” approved by the Ten Hoves and secured by the mortgage document. See Household Utilities, Inc., 236 N.W.2d at 669. 20 No. 11-3299 Johns could argue that Wisconsin courts “give effect to the parties’ intent to contract if such intent is discernible from their conduct,” Herder Hallmark Consultants, Inc. v. Reginier Consulting Group, Inc., 685 N.W.2d 564, 566 (Wis. 2004), but given that the Ten Hoves did not even know that a second mortgage was involved in the deal, we cannot discern an intent to include such a mortgage from the Ten Hoves’ sale of their house or rinsing of their equity. Johns could also argue that he was simply mistaken about Wisconsin mortgage law, and thus did not knowingly make a false representation to the Chapter 13 Trustee. In his brief, how- ever, Johns states that “[c]ounts one through three of the indictment rise and fall on whether at the time Johns reported the mortgage to the bankruptcy trustee the Ten Hoves’ home was encumbered by a thirty thousand dollar mortgage,” apparently conceding any possible argument based on scienter. These arguments have therefore been waived for failure to present them this Court on appeal. United States v. Powell, 576 F.3d 482, 497 n.6 (7th Cir. 2009). We therefore conclude that, as a matter of law, there was no $30,000 encumbrance on the Ten Hoves home at the time it was sold, regardless of whether there was an enforceable obligation from the Ten Hoves to Banks. Thus, Johns’ representation to the Trustee to the contrary was a materially false statement, and his convictions on counts one through three must stand. No. 11-3299 21
Johns next argues that even if we do not find that, as a matter of law, a legitimate mortgage securing a $30,000 obligation on the Ten Hoves’ home existed at the time of its sale, it should still be up to the jury to determine whether such an obligation and security existed. If this is true, he argues, then the jury was not equipped to make such a determination, since the court refused to allow his proposed jury instructions explaining contract law and mortgage law in Wisconsin. Since we hold today that, as a matter of law, no mortgage existed, no reasonable jury could find otherwise. Thus, submission of jury instructions including Wisconsin mortgage law were not necessary and, in any event, no prejudice could have resulted from their exclusion. See United States v. Quintero, 618 F.3d 746, 753 (7th Cir. 2010) (“[W]e will reverse [based on jury instructions] only if the instructions, when viewed in their entirety, so misguided the jury that they led to appellant’s prejudice.”).