United States v. John R. Adamson, III

judgment of the district court is va- cated and the cause remanded to allow fur-

ther with proceedings opin- consistent this

ion.

VACATED and REMANDED. Roney Judges, Circuit Fay, Hatchett,

James Hill Judges, C. in part. dissented America, UNITED STATES

Plaintiff-Appellee, ADAMSON, III,

John R.

Defendant-Appellant.

No. 80-7284. Appeals, States Court

Fifth Circuit.*

BUnit

March * 9(1) Former Fifth Circuit Section of Public Law 96-452 —October ANDERSON, III,

R. LANIER Judge: Adamson, III,

The John R. appellant, three others were indicted under 18 U.S. 1014,3 1005,2 656,1 (West and 24 C.A. §§ 1976) several in connection with loans made by the Bank and Trust Augusta First Com- trial, appellant pany. After a of willful misapplica- convicted of one count tion bank in violation of one funds books, count of in the making entry a false reports in and statements bank viola- tion of 1005 and and three counts of §§ knowingly making false statements to the bank for purpose influencing loan applications in violation and 2. §§ A panel of this court affirmed the convic- Puetz, Martin Federal C. Asst. Public De- tions under 656 and but reversed §§ fender, Ga., for Augusta, Adamson. United States conviction under Adamson, (5th Cir.1982). Jr., Moore, Atty., William T. U.S. Melissa granted, Rehearing en banc was and the Mundell, Kramer, S. W. Frederick Asst. Savannah, Ga., panel opinion Upon vacated. F.2d 660. Attys., plaintiff-ap- U.S. pellee. rehearing, appellant argue did not that the

panel erred when it held that the evidence was sufficient to convictions on support three knowingly making counts for false bank for pur- statements to the GODBOLD, Before Chief Judge, RO- pose of action оn NEY, influencing appli- its loan TJOFLAT, HILL, FAY, VANCE, cations; KRAVITCH, JOHNSON, Part IV of the accordingly, panel HENDERSON, HATCHETT, ANDERSON, CLARK, opinion, convictions, sustaining the § Circuit Judges. is Similarly, appellant reinstated. did not ' provides pertinent part: pertinent 1. 18 provides part: U.S.C.A. in 3. 18 U.S.C.A. in Whoever, officer, director, being agent an knowingly any Whoever makes false state- employee any or ... Federal Reserve report, purpose ment for the or ... of influ- Bank, bank, member national bank or in- encing any way any in the action of ... bank, willfully misapplies any sured ... deposits are of which insured moneys, or funds credits of such bank Deposit Corporation Federal Insurance ... ..., $5,000 shall be fined more than or upon advance, discount, any application, ... imprisoned years, than not more five or commitment, loan, any change or or or ex- both.... same, any tension of ... shall be fined $5,000 imprisoned or not more than not more provides pertinent part: 2. 18 U.S.C.A. § 1005 years, than two or both. any entry any Whoever makes false book, report, or statement such bank with provides pertinent part: 18 U.S.C.A. 2§ bank, any defraud such or or (a) against Whoever commits an offense company, body politic corporate, other or or aids, abets, counsels, the United States or any person, any individual or to deceive offi- commands, procures its commis- induces bank, Comptroller cer of such or the sion, punishable principal. as Currency, Deposit or the Federal Insurance (b) willfully causes an Whoever act to Corporation, any agent ap- or examiner directly performed by done which if him or pointed examine affairs of such against another offense would be an Unit- or the Board of Governors of the Federal punishable principal. ed as a System— Reserve $5,000 Shall be fined not more than imprisoned years, not more than five or both. argue guarantors. permitted panel rejected that the erred when it evidence a find- appellant’s ing by corporation argument court district inactive and unable to financially repay the certain improperly admitted a cease and Further, loan. the defendants admitted evidence; desist order into accordingly, that no expected corporation one Part V of the panel opinion is reinstat- loan; rather, the repay the loan was made ed. strength on the of the net worth of the The presented issues the en banc loan, actual beneficiaries of Hester and court relate to the of the propriety jury trial, government’s Holley. theory At instructions under 656 and 1005. We §§ of appellant the case was that Adamson conclude jury improp- that the instructions authorized a sham loan to a nominal corpo- erly rea lowered the standard under mens borrower in to conceal an illegal rate order 656 to mere Consequent- § “recklessness.” and potentially unsafe concentration of ly, we appellant’s reverse conviction on the single bank loans to a debtor. The evidence willful count misapplication under § justified a the loan finding that would have we conclude the error did aggregate violated the legal lending bank’s charge taint jury respect to if it unsecured loan limits had been 1005, and affirm appellant’s therefore we § The directly made evidence also Holley. entry conviction on that false count. permitted finding a that the loan was struc- tured in way a which made detection diffi- I. POSTURE PACTS AND OF cult and which tended deceive the bank THE ISSUES and the bank examiners about the true This a case arises out series of events jury appellant state of affairs. The found which contributed to failure of the First guilty misapplication of willful of bank Augusta Augusta, Bank Georgia. State (§ 656) entry funds and a false in the The bank was insured Federal De- (§ 1005) bank’s records connection with posit Corporation. During Insurance this loan. indictment, times covеred appellant 656, With respect appellant contends Adamson president was the and a director instructions erroneously lending bank. He also served as a requisite defined the mental state that the officer and was a member the bank’s to commit accused must have in order will- Loan and Investment Two of Committee. funds. In misapplication partic- ful of bank co-defendants,

Adamson’s Glenn Bertrand ular, appellant objects charge Holley, Hester and R. Eugene also were that: convicted both the 656 count and the A reckless of the interest of 1005 count. was a major Hester stock- the bank is the of the intent to holder of the a member of the bank’s injure or bank. defraud the committee, the attorney executive for close'friend, the bank. Holley, a business charge I element of you that the crimi- Hester, associate and law partner was nal for necessary conviction for a major a also borrower from bank. Hes- of bank funds is Holley ter and but appealed, ap- both showing not fulfilled by a mere indis- peals subsequently upon were dismissed mo- cretion on the part or foolhardiness for voluntary tions dismissal. bank officer. His must amount conduct to reckless of the bank’s inter- The two presented counts to the en banc ests ... court involve a loan ap- substantial which

pellant Adamson authorized which os-

tensibly Summit, Inc., was made to Island employed The word “willful” is also corporation wholly either owned by or un- ground characterize without thing done der control of lawful, Hester. actual bene- or conduct believing it ficiaries of the were loan co-defendants whether disregard, marked a reckless signed Hester and Holley, right who the note as or not one has the to so act. VIII, 23-24. REA FOR 656 Appeal, Record on Vol. II. MENS If the mens rea for is knowl- Background A. as a edge, if the instructions whole panel opinion, in the explained As equate either recklessness with 654-56, previous Fifth knowledge, or substitute recklessness for Welliver, United States Montana, 442 Sandstrom v. U.S. then held that a defendant’s (1979), compels L.Ed.2d disregard for the interests the conclusion is erroneous. charge satisfy bank was sufficient dissenting government Neither the nor 656. If the rule as stated requirement judges dispute this. found error Sandstrom correct, then the instant Welliver charge requisite in a under which the charge permitted finding guilt there merely presumed. rea Here a mens rea of would based on recklessness presumption; more than a actu- brought We this case en not be erroneous. ally equated the lesser recklessness mens holding banc Welliver’s 656 to reconsider § higher knowledge. rea with the mens rea of Supreme is inconsistent with because it the interpretation predecessor Court’s of the the appellant, To resolve issues raised statute, it is the because inconsistent with we first must appropriate determine the the of position taken other circuit courts (Part II). mens rea for a 656 conviction § appeal, other Fifth cases because we jury Then must decide whether the in- rule, on of cast some doubt the and because as a erroneously permitted structions whole requirement the mens rea inconsistent jury the apply lower recklessness mens statute, the related § (Part standard to III). rea the 656 count § Finally, although the instructions re- jury B. The Predecessor Statute garding the 1005 count did not include a § rea, reference to the recklessness we 656 12 predecessor The was U.S.C. § appellant’s must address argument (Rev.Stat.' 5209), that the lan- 592 utilized § § 656, instructions jury guage on which immedi- the of the substantially same as that § preceded 1005, ately Court,6 those on carried Supreme over The the current statute.5 § charge (Part Circuit,7 and tainted the IV). 1005 Fifth and other held § circuits8 had primary gravamen 5. The difference is the omission in the offense amount” and “the of the design language current statute of “with the evil the the mis- consists in with which or defraud.” added); courts almost аpplication made____”) (emphasis uniformly judicially imposed have Britton, the element 193, 199, v. United States 108 2 U.S. defraud, noting the 526, 531, (1883) (The 27 defend- S.Ct. L.Ed. 701 legislative history indicates 656 was § “might be ant’s conduct an act of maladminis- change meaning intended to substance part might tration of the It defendant. See, e.g., preexisting United States law. neglect duty, show of official indifference Docherty, 989, (2nd Cir.1972); v. 468 F.2d 994 trust, interests association or breach Mann, 259, United States v. (5th 517 F.2d 267 subject and the defendant to the severest cen- States, Cir.1975); Williamson v. United 332 office; sure to removal from call it a but to 123, (5th Cir.1964); see also F.2d 134 n. 16 misapplication by moneys him of the criminal States, 1361, Hernandez v. United 608 F.2d be to and funds association would Beran, (10th Cir.1979); United States v. 1364 highly penal stretch words of this statute denied, 1316, (8th 546 F.2d 1321 cert. beyond limits.”). reasonable all 916, 1330, 430 U.S. 97 S.Ct. 51 L.Ed.2d 595 States, (1977); 155, Ramirez v. United 318 F.2d States, 561, (5th v. United 562 Pearce 192 F. (9th Cir.1963); but see United States v. 157-58 Cir.1911) (“[T]he only necessary to be Twiford, 1339, (10th Cir.1979); 600 F.2d 1343 proved plaintiff did the in error was Riebold, 697, F.2d purposely designedly.”). complained acts (10th Cir.1977). States, 813, States, 584, 8. Johnson 592, 6. Evans v. United U.S. Cir.1938) (Error 934, 938, (1894) to omit instruction L.Ed. (“The criminality really upon depends ques- find the bank officer “had must defendant was, finan tion whether discount, of ... named borrowers] there time of the [the note.”); purpose part infirmity deliberate on the or of the cial weakness States, Morrissey v. United defendant to defraud thе bank of 67 F.2d that knowledge or purpose was the was a Gens director. After Gens reached mens rea for the predecessor statute. The his loan limit with the he arranged legislative eight additional loans history of 656 makes it clear to other borrow- ers, who then proceeds that no turned the loan over change of or meaning substance Among to Gens. named borrowers on intended. The Reviser’s Note to 18 eight loans were partner Gens’ business original U.S.C.A. 656 asserts: “The sec- and two attorneys legal who did substantial tion, containing words, more than 500 work for Gens. Another loan was made to verbose, diffuse, redundant, complicat- a neighbor and close friend of Gens who ed .... revised section without sign alone, was asked to part note changing any way meaning or sub- because Gens had borrowed up to his limit existing law, clarifies, stance of condenses, despite proceeds fact that the were provisions combines related largely re- joint to be used for a investment for the written in style.” matters of (Emphasis friend and the three defendants. The First added.) See also Williamson v. United Circuit reversed the 656 convictions of 123,133 (5th Cir.1964) n. 15 defendants, the three in part because the (“The statute, 18 U.S.C.A. is a reco- permitted instructions erroneously dification of former 12 U.S.C.A. 592.... finding guilty if the jury found no mоre Therefore, the old cases under 12 U.S.C.A. than that granted defendants loans to 592 are pertinent.”). generally See Unit- knowing named debtors proceeds Klock, ed States v. 100 F.Supp. 232-233 would be turned over to Gens. Noting that (N.D.N.Y.1951), grounds, rev’d on other 210 a bank official innocently and properly (2d Cir.1954) (general review of could make loans to a financially capable legislative history of 656 with respect § party, though even the officer may know to the “intent require- defraud” that the named borrower plans to turn ment). around proceeds and lend the to a third party, the court held that more is required C. The Positions of Other Circuit Courts before there is a violation of 656. The § of Appeal court held that there could be criminal re- The Fifth Circuit’s rule permitting a con- sponsibility in three (1) situations: where viction under 656 based on a reckless the bank official knows that the named disregard of a bank’s interest stands alone. debtor is wholly either fictitious or unaware Cases in ‍​‌​​‌​​‌‌‌​​‌‌​‌‌‌​‌‌‌​‌‌‌​​​​​‌​​‌​​​​​​‌‌‌‌‌​‌‍the other circuits uniformly state used; being (2) his name is where the knowledge mens rea stan- banker knows that the named debtor is dard for financially incapable repaying of the loan One of leading cases in the area is the proceeds whose are being passed on to a First Circuit’s in decision third party; (3) and where the banker as- Gens, (1st Cir.1974). There the debtor, sures the named regardless of his defendant, Gens, helped two other defend- capabilities, financial the bank would ants, Carleton, Porter and gain control of a look repayment to the party third Massachusetts bank. Porter and Carleton who actually proceeds. receives In oth- were bank, officers and directors words, er knowing participa- there must be (9th Cir.1933), cert. denied 293 U.S. officer, which he was then the chief executive (1934) (Instruction 79 L.Ed. 666 equat reprehensible altogether lacking were most ing reckless act to willful one not reposed error because in faithfulness in trust them jury

modified “to the effect that was not the stockholders of the bank and merits presume as a matter of gross law to an severest condemnation .... But malad to defraud duty from mere recklessness ministration and breach inexcusable ”). Prettyman See also .... v. United part management its in officers of a (6th Cir.1910) (“The 180 F. conduct national however disastrous such con Littich, cashier, recklessly paying stockholders, punish over duct be to its are not drafts, Prettyman, presi they and that of provisions the vice able unless come within the dent, insisting upon accepting Statutes.”) (em excessive section 5209 of the Revised added). company phasis accommodations for the woolen

tion in facto to had but both clearly a loan which de the third violated indi party to would be unwilling knowledge whom the bank was the required cated that to make a formal loan. See 493 F.2d at Judge Friendly mental state. wrote that 221-22. per- The instructions Gens aiding “to a conviction for support guilty merely mitted a finding upon abetting misapplication,’ in a ‘wilful jury’s the defendant finding that bankers alleged aider or abettor must have knowl proceeds knew that the loan would be edge the officer intended effect Holding turned over that criminal to Gens. added). (emphasis at 993 conversion.” Id. responsibility requires under also Although Judge Lumbard dissented because knowledge that the named borrowers were he defendant had the believed financially incapable repaying the loan or necessary support mental state knowing in a participation deceptive conviction, agreed he scheme, Thus, the court reversed.9 the proper Judge Lumbard standard.. us, respect to the rea issue before mens wrote that be convicted under section “[t]o Gens opinion establishes First Circuit must have known that [the defendant] position knowing requiring participation as was effecting a conver [the officer] arrangemеnt. in a deceptive sion of Id. at (emphasis bank funds.” considering Similarly, appel when an added). grand jury lant’s claim that a was not suffi The held Third Circuit has ciently the meaning informed about of “wil knowledge is the appropriate rea for fully misapplied” returning before an in 656. In similar a fact situation to that in dictment, the Circuit held that the Second Gens, approvingly quoted the Third Circuit “judge charged that correctly misapplica the three of criminal examples responsibili- tion occurs when an officer of a bank know ty set out in Gens and then held: ingly lends money to fictitious borrower appellants contend that the trial or causes the loan to be made to his own court’s were instructions erroneous be- benefit, his concealing interest from the cause to charge the court failed Fortunato, bank.” United that it must that Fredenburgh find [the Cir.1968) (2nd (emphasis supplied), bank knew that those named as officer] denied, rt. 394 U.S. 89 S.Ct.

ce debtors lacked the or intent to ability (1969). 22 L.Ed.2d 463 Subsequently, We repay agree. the loans. in Docherty, United v. F.2d 989 (2d Cir.1972), Gallagher, two Second Circuit United judges States v. vigorously (3rd added).10 whether the Cir.1978) (emphasis debated defendant one, respect except 9. With to all the loans had reversed the conviction of a bank officer the court also the held that evidence was insuf- who had authorized loans to named dеbtors but party. ficient because knew intended a the named borrowers were fi- the funds were for third nancially capable recognize judge The did Third Circuit had found that the trial and their obli- gation repay jury respect erred when With he failed instruct the that the loan. to the know that neighbor, loan the officer had to the named debtors friend and the court re- because, ability repay. (In though manded for a lacked the tion, or intent to addi- new trial even clearly implicitly approved portion financially capable, the friend the court that was the permit misap- finding of the evidence would either a instruction which stated that the of a true plication knowingly finding loan to “done a a had to be and with friend or that the defend- knowingly 1046). Id. participated ants a deceptive intent to defraud bank.” in a Krepps, scheme, i.e., Subsequently, purported in the Third held that loan to the knowledge that need friend the bank officer not have was a de loan to facto Gens and that the ability repay. that lacks the friend was not named debtor or in- to be called repay when the bank officer himself is tent to Krepps, Thus, 10. beneficiary (3d 605 F.2d 101 the intended of the funds. Krepps Cir.1979), quotes language markedly from a several cases deals with different fact Krepps obviously suggests which reckless that of a defendant situation: may support knowledge participating bank’s interest be sufficient he a had was in a However, deceptive scheme, Id. at 104. conviction. the court had no and occa- Krepps primary focus of on a different sion to 656 conviction issue. consider whether text, Gallagher As States v. noted could be based on recklessness mens rea Arthur, the scheme knowledge required In United States v. 544 F.2d 730 for (4th Cir.1976), also indi- the Fourth Circuit conviction, stating: required cated that knowledge was the issue in the The crucial case would seem mental state for a 656 violation. The appellant to be whether knew that jury court district had instructed the was paying the cashier his checks out of injure “intent to or bank exists defraud the funds hiding the bank’s and the checks know- you if find that the defendant acted he had such away. If of his ingly the natural result over a course of years continued to en- were defraud the actions [sic] course so gage in a of conduct which bank, even have though may this been the funds of the misapplied bank and ap- his motive.” Id. at 736. The court the expected collaboration required peals found that the latter of the portion successful, of the to make it we cashier “directed, was erroneоus because it think the was sufficient evidence to take than permitted, finding rather of the the jury.... the case to fact intent ‘as the natural result of his ” actions.’ Id. at 737. the court (emphasis added). 253 F.2d at 15 The court implicitly approved that of the in- portion articulated the expressly role struction which required to find recklessness, pointing out that the defend- knowingly. defendant acted Id.11 ant’s conduct can be reckless the basis for an inference of intent to or defraud: law

The in accord. Sixth Circuit is Logsdon In v. United F.2d 12 by Intent be shown circumstantial (6th Cir.1958), Logsdon the defendant evidence, cases, criminal aiding, inducing co- abetting tried usually evidence available. A Barrett, acting defendant as cashier of the interests of the to willfully misapply funds. Bank, as shown evidence in this period The evidence showed that over case, finding to warrant a was sufficient Logsdon years personal wrote checks on his an intent $500,000. or business accounts for over Bank. defraud the paid were checks the co-defendant cash- added).12 (emphasis Id. ier, but were hidden and never away charged to the Circuit’s regarding defendant’s account. The The Seventh decisions recognized court the defendant’s mental state for a 656 con Krepps Thus, knowledge. than United States rather does not 12. A rеcent Sixth Circuit Gallagher. fact, Krepps Franklin, doubt on cast In F.2d 241 contains quotes approves expressly court from and language suggesting Gallagher holding. 605 F.2d at 105-06. Con- a reckless defraud “includes sequently, we However, believe that Third Circuit the Id. at 244. bank.” interests the knowingly require cases that the defendant Cooper, the court cites United States v. 577 participate deceptive in a scheme in order to be Cir.1978), approved (6th a F.2d 1079 “ convicted under § 656. charge státing knowingly that ‘acts done with disregard a for the reckless interests of the adequacy It is 11. true that the may justify finding of intent to defraud including ” the recklessness was not standard injure’ will “a reckless because squarely Arthur. considered the in court support injure,” an inference of intent id. to decision, an earlier Fourth Circuit added), v. and United States (emphasis 1083 States, v. (4th Johnson United 813 95 F.2d cert, Wilson, (5th Cir.1974), de- 715 500 F.2d Cir.1938), provides further evidence nom., States, White v. United nied sub 420 U.S. knowledge required sup- is the mental state to 1403, 977, (1975), 95 43 L.Ed.2d 658 S.Ct. port a conviction for of bank States, Logsdon v. United which relied on the case, prede- funds. In that decided the under Thus, case discussed in the text. Sixth Circuit 656, to cessor Fourth Circuit reversed the ambiguous despite language in United defendant’s conviction because was not “[i]t Franklin, Logsdon is States v. we believe that to left to find from the wheth- evidence good in still and that the mens rеa standard law knowledge er or not the defendant had [the knowledge, is with reckless the Sixth Circuit named financial weakness or of the borrower’s] merely being “sufficient to warrant infirmity (emphasis Id. at 818 of the note.” added). 960 own, are, surrounding prob

viction like our somewhat facts and circum- stances; early i.e., lematical. Seventh Circuit evidence. It Several circumstantial approved jury decisions instructions which good takes sense and only common con- to government “spe establish science under the facts recited above to cific “that by proving intent” defendant reach a inference that permissible Larson knowingly which the law forbids did an act misapplied deliberately the Elkhorn purposely intending to violate the law. personal Bank’s funds to further his in- Such intent determined from all the terest. facts and surrounding circumstances (emphasis added). Thus, Id. although we ” Johnson, case .... States v. 447 United acknowledge that the Larson court’s use of 31, Cir.1971) F.2d 34 (7th (emphasis n. 3 language is recklessness somewhat added). Mullins, States v. See United loose, we decision think that the is best read 883, (7th Cir.), denied, 355 F.2d cert. 384 holding as can properly recklessness 942, 1465, 16 U.S. L.Ed.2d permissible serve as the for a infer- basis (1966). However, in the most recent case ence of deliberate intent. directly mental involving ‍​‌​​‌​​‌‌‌​​‌‌​‌‌‌​‌‌‌​‌‌‌​​​​​‌​​‌​​​​​​‌‌‌‌‌​‌‍require state It is true that a later Seventh Circuit 656, Larson, ment for United States v. decision, McAnally, United v. Cir.1978), (7th F.2d 664 the court stated (7th Cir.1981), suggests F.2d 1119-20 disregard by a bank offi “[a] equated dicta that Larson recklessness cial of his bank’s interest is sufficient with intent or defraud for requisite establish the intent to defraud.” purposes. However, goes McAnally on to Id. at support 667. The cases cited in that, held, note so even if Larson this statement indicate do not that reckless requires only not intent or de is actually to intent fraud, requires misapplica but also defraud, confirm simply but the trier tion, “a term that in itself connotes criminal permitted fact to infer intent to de wrongdoing.” Consequently, Id. at fraud from a bank official’s recklessness.13 even if McAnally proper dicta is the Further, court itself appears Larson Larson, interpretation Seventh Cir have made this critical distinction later higher cuit requires still mens rea for a opinion when it elaborated on the con 656 conviction than mere recklessness. cept intent, stating:

The question Eighth intent also has one’s not meas- concluded ured by reading recklessness, of his psychic knowledge, but is the mind re- Mann, finding (5th states v. ... of an defraud the 517 F.2d 7n. Logsdon Bank.” directly v. 253 F.2d at does not address the intent Stevison, Only issue. (7th 1972), language suggesting Cir. has support 13. The court five cases to cited disregаrd equals that reckless intent to defraud. quoted statement text. Three of those rejected appellant’s In that the court con- clearly cases indicate that is the tention insufficient there was evidence to rea standard but that a establish The court defraud. conclud- jury can infer such from recklessness. ed that infer could “that the essential Killian, See United States v. disregard’ element of intent or ‘reckless 1976) (“Deliberate misapplica- 1159-60 Cir. Id. at 145. The proven.” Bank’s interest suffices____ tion of bank funds term [T]he Giragosian Stevison quoted Unit- then court ‘willful’ means the actor knows and States, 166, ed (1st Cir.1965), 349 F.2d 168-69 doing”); intends what he is United States v. clearly placed proper which recklessness its Kaczmarek, 1031, (7th Cir.1974) 490 1035 F.2d role, holding justify that recklessness can an (“the supports strongly jury’s evidence con- injure inference of intent or defraud. More- to respect clusion with to unlawful intent to over, clearly Stevison court indicated that or defraud of because Kaczmarek’s obvious misapplication specific intent crime. for the interests of [the Thus, 471 we F.2d at 145. believe that the best bank]”); Giragosian States, v. United 349 F.2d Stevison, reading 166, of like the other cases cited (1st 1965) (defendant may 168 Cir. act with Larson, merely indicates that intent to de- justify such a reckless “as to a find- ing fraud be from recklessness. defrаud”). of can inferred an Anoth- authority court, er the Larson cited United

961 quired Snyder approved mens rea under 656. In v. never instructions which included § States, (8th Cir.1971), United 448 716 Moreover, F.2d a recklessness standard. an ear- Eighth the defendants’ Circuit reversed opinion, lier Ninth Circuit Benchwick v. convictions aiding abetting for and em- States, (9th Cir.1961), United 297 F.2d 330 bezzlement misapplication and of bank knowledge proper indicated is the that funds because there was “no evidence that 656, mens rea standard under and proper- §' either knew or must have [the defendants] pointed (or out ly knowledge “specific that known that the bank’s funds were being defraud”) intent could be. in- to receiving embezzled that were they and ferred from a reckless proceeds.” at Id. 719. The court concluded bank’s at 333 5. text interest. Id. n. See might that defendants’ “conduct be after 14 note infra. perhaps viewed as naive and reckless but it Finally, Tenth Circuit also has held (em- does not appear to be criminal.” Id. knowledge that is the mens rea stan phasis added). dard for 656. In United v. Cooper, States Dreitzler, In United v. States 577 F.2d denied, (10th Cir.1972), 464 648 cert. F.2d (9th Cir.1978), 539 ap- the Ninth Circuit 901, 409 93 34 L.Ed.2d 688 U.S. proved jury instructions on definition of (1973), the Tenth Circuit held that “[t]he “ “willfully” in 656 which stated that ‘an offense an ‘misapplication of occurs when act is done willfully voluntarily if done officer of a bank knowingly mоney lends to intentionally that it a fictitious borrower or causes loan against (emphasis the law.’” Id. at 549 benefit, be concealing made his own his added). Another recent Ninth Circuit deci- ” interest from the bank.’ Id. at 651 (quot sion, Beattie, United 1327 Fortunato, ing supra) (em United States v. (9th Cir.1979), approved an indictment for a phasis added). also Laws v. See United 656 violation alleged which that the “de- States, (10th Cir.1933) F.2d 870 (holding, 66 ‘with injure’ fendant intent to defraud and statute, under predecessor that in the bank wilfully misap- ‘did and knowingly tent misap is an element of the offense of ply or to be misapplied caused of monies’ plication funds). of bank the bank in that said defendant did cause a acknowledge We that several circuit specified loan to be made the bank to a specified discussing court the mental re- ‘knowing individual cases state in- [such quired contain was not the under 656 loose references beneficiary actual dividual] ” (emphasis added). loan.’ Id. at 1329 recklessness.14 in most of Admittedly, the Ninth Circuit did those the issue on appeal not have cases suffi- evidence, to decide whether a ciency lower mens rea stan- courts have not might support dard always distinguish conviction in careful to been test cases, either these sufficiency but that court for determining has of the evi- e.g., Schoenhut, See ly States v. properly jus- referred recklessness as (3rd Cir.1978). The Schoenhut court tifying intent). F.2d an inference See also proof Krepps, (3d Cir.1979) (discussed held that “in the knew absence of he 605 F.2d 101 practices being supra); the false and fraudulent com- in note 10 the Fifth Circuit cases dis- infra; Annot., mitted ... the evidence is insufficient.” Id. at cussed in Part II.D. 51 A.L.R. (emphasis added). However, opinion (1981) (listing Fed. cases which “ex- places press contains dicta in two which indicate that the view that sustain a conviction for might Id. recklessness be sufficient. funds under U.S.C.A. Significantly, government the recklessness dicta immediate- 656 the must de- show ly may follows a statement be in- fendant intended or defraud the Thomas, ferred. See also United States v. showing of conduct in reckless disre- (3rd Cir.1979) (recklessness gard F.2d interest is sufficient to meet the bank’s language immediately requirement;” follows statement cases this cited addition Weiiiver, supra, may inferred); United States v. Stevi- include Gira- son, States, gosian supra, Cir.1972) (authority clearly v. United Giragosian language be inferred requisite cited recklessness holds 166, (1st sufficiency v. United recklessness, 349 F.2d Cir. from most 1965); however, express- note). the First Circuit case cited in this the evidence cases proper dence from the instructions to be mere from the jury circumstance given Where is at jury. sufficiency intеnt). could determine real issue, finding a that an accused acted reck- summary, In we believe that a careful lessly may enough to sustain a reading of the cases from other circuits verdict, jury may properly because a infer a rule that the appropriate reveals uniform the requisite proper intent. This use of knowledge. rea for 656 is mens standard inference recklessness as an of intent Eighth explicitly rejected The has See, expressly recognized many cases. First, The the lower recklessness standard. 1079, e.g., Cooper, v. 577 F.2d United States adopted and Ninth Circuits have Sixth (6th Cir.1978) (“Acts knowingly done rea, knowledge proper express- as the disregard with a reckless the interests ly placing proper recklessness in its role as may justify finding of the bank a of intent evidence from which intent be in- injure bank”) (emphasis defraud or Second, Third, ferred.15 The Fourth and added); Larson, United v. 581 F.2d States Tenth Circuits have all either stated or 664, (7th Cir.1978) (following the state- held, discussion, without ment that reckless is sufficient to Further, the proper mens rea standard. defraud, establish intent to the court notes although imprecise language occasionally intent is not measured by psychic a confusion, has generally recog- led courts mind, reading of the defendant’s but rather nize that the role of rеcklessness is by circumstances, the surrounding facts and that it may justify an inference of intent to misapplica- concludes that deliberate injure or reading defraud. Such tion permissible was a inference under the government’s case law is buttressed there); Kaczmarek, facts which, surveying brief in this case after 1031, (7th Cir.1974) (evidence cases, number states: supports jury’s conclusion with respect It is nowhere suggested that “reckless- defraud, unlawful intent be- ness” is the any standard of intent under cause of defendant’s obvious reckless disre- Rather, element of 656. “reckless dis- gard for bank); the interests of the Girago- regard” always has been used ... to de- States, sian 166,168 v. United (1st 349 F.2d activity scribe the kind of the jury must Cir.1965) (defendant must have acted with find from the facts before considering such a reckless of the bank’s in- whether to make the permissible infer- terests as to justify finding ence that such activity demonstrated an defraud); Benchwick v. United or defraud the bank. States, 330, (9th 297 F.2d Cir.1961) 333 n. 5 (pointing out that while Thus, Brief of Appellee necessary for a 656 conviction may not be government’s admission, own the Fifth Cir- conclusively presumed from a reckless dis- rule, cuit’s as stated the outline of cases regard interests, of the bank’s “specific in- Welliver, leading up to is inconsistent with tent, fact, any like other may be inferred the case law of the оther circuits. More- from all the ”); relevant circumstances .... over, below, as discussed numerous other Logsdon States, v. United 253 F.2d 15 Fifth Circuit cases cast doubt considerable (6th Cir.1958) (“A upon the rule. Bank, interests of the as shown D. Previous Fifth Circuit Cases. evidence in this was sufficient to war- rant finding by jury of an intent Welliver Court cited two former decisions, or defraud Bank.”) Fifth Circuit (emphasis United States v. added); Morrissey States, Wilson, (5th v. United 500 F.2d 715 cert. Cir.1933) (under nom., predecessor denied sub White v. United statute, the regarded court recklessness as a 420 U.S. L.Ed.2d Larson, reading supra. of su- accompanying Our as well. See text note 13 pra, places category the Seventh Circuit in this (1975), Reynolds, and United v. States In United v. Reynolds, supra, States (5th Cir.1978), Welliver, F.2d 242 support its hold second case appellant cited in ing that satisfy challenged recklessness is sufficient to ground his conviction on the requirement intent of 656. Unit there See was insufficient evidence of in- Welliver, ed States v. 601 F.2d at Both tent and willfulness under 656. In re- of the cited cases the following jecting contain appellant’s argument, court language: disregard quoted of the in first the statement from United “[RJeckless is, terest of a bank the purpose Wilson, supra, for of v. regarding States reckless- misapplication,’ ‘willful equivalent of being ness of intent equivalent to de- defraud.” Although fraud. court went on to understandable, evolution of the rule is thus state: “Such was the conduct of defendant we now believe that a above, careful examination Reynolds described and the of the issues and authorities discussed entitled infer intent from these facts.” Reynolds Wilson and reveals that we erred added). Id. at 245 (emphasis Like numer- when we held in Welliver that a jury involving ous other cases the sufficiency of charged properly evidence, recklessness is the Reynolds contains what we equivalent of intent regard or defraud. now as loose language regarding recklessness; we believe that the case is Wilson, In United States v. supra, holding best read as merely that reckless appellant sought to overturn his conviction justifies an inference of intent to ground on the that the term mis- “willfully defraud. applied” in unconstitutionally vague. rejected The court argument, Although this the evolution of the rule in the noting that courts had adequately Wilson-Reynolds-Welliver defined rep line of cases which, the term cover actions “not while resents an understandable translation of by covered the technical terms ‘embezzle- proper inferring recklessness as a basis for ” ment’ or ‘abstraction’ are im- “obviously recklessness as the intent, unjustified and amount to the use we now view that translation as bank funds which amount to than more error. Numerous other Fifth Circuit deci mere judgment bad suggest, maladministration.” holding, sions albeit without Id. at 720. The court then made the state- is the rea for ment on See, which Welliver relied: “Recent e.g., 656 conviction.16 United States cases Farrell, have held 816, that reckless v. (5th Cir.1980) 609 F.2d is, the interest of a purpose (reaffirming the rule that “the intent misapplication,’ ‘willful the equivalent proven by defraud bank ‘is or defraud.” Id. Clearly, showing a act knowing, voluntary by the that statement impor- ”); was dictum. More Southers, defendant’ tantly, the cases (5th Cir.1978) cited for that proposition 583 F.2d (stating Logsdon States, were v. “[tjhis United has adopted rule (6th Cir.1958), Giragosian requisite v. United that the intent is proven show (1st 349 F.2d ing knowing, voluntary neither act the defend Tidwell, which held that ant”); recklessness was the United equivalent of willfulness or (5th Cir.1977) to de- (required intent for Rather, fraud. both cases state properly 656 violation exists if a person “acts denied, can an infer- justify knowingly”), cert. 435 U.S. ence of intent. (1978); 55 L.Ed.2d 538 rejected Nevertheless, The decisions cited the text all erwise entitled. believe we defendants, cases, contentions raised and the the dicta these which seem to con- language suggesting require knowledge, provide use of mens rea strue 656 to fur- knowledge might merely imply that the defend- ther evidence that rule as stated in the prevail given strong ants were not entitled to Welliver line even if does on a of cases not rest the benefit of a more favorable mental state foundation in this circuit. requirement they than that to which oth- were

964 a Killian, 1156, (5th reversing the recent cases

States v. 1160 One Cir.1976) (noting the term ‘willful’ was v. “that 1005 conviction United States § means the actor knows and in only Welliver, the same decision which supra, Further, as noted doing”). tends what he is standard for 656 permitted a recklessness § above, required the the Fifth Circuit circuit. The court re- violations in this government purpose prove to 1005 conviction because the versed the § misappli a defendant of order to convict disre- judge charged had “reckless trial predecessor cation of bank funds under the of intent to gard” equivalent was the Pearce v. United 192 to 656. See § under 1005. The court stated defraud § 561, Cir.1912) (where (5th F. 562 1005, to Fifth pertains § [the “[a]s funds, “the of bank has never held ‘recklessness’ Circuit] to be was that necessary proved intent re- satisfy sufficient complained did the acts [defendant] nor do we think it should be.” quirement, purposely designedly”). The court went on to note 601 F.2d at 210. judge in his instructions “[wjhen a trial Companion E. Mens Rea for 1005 § ‘recklessness’, no more is necessari- refers to II.B., supra, prede- As in Part noted care- negligence, than such mere ly implied (Rev. cessor to U.S.C. § § lessness, or inadvertence as thoughtlessness, 1948, 5209). Congress separated In Stat. equivalent as the regarded could not be 334, 592 into three distinct sections: a § § Id. wrong.” an intentional provision seldom-invoked which deals with Similarly, McAnally, in United v. States the issuance and circulation of Federal Re- Seventh Notes; 656; 1005, serve and which § § 1005 conviction be- Circuit reversed § false in bank records and deals with entries instructed the cause the trial court had wrongful obligations. issuance of bank offi- by reckless “[a] Note 656 in- accompanying The Reviser’s § cial of his bank’s interest is sufficient dicates that the reason for the division of requisite establish the to defraud.” separate sections was that into § “[t]he The court held that “the false- Id. at 1118. section, original containing more than 500 one of intent and not of entry offense is verbose, words, diffuse, redundant, carelessness,” persuasively id. addition, complicated.” In the notes accom- policy reasons influ- explained strong panying 656 and 1005 both state that § encing its decision. The court stated: change revision was not intended to “meaning existing or substance” of law. at least a hundred ‍​‌​​‌​​‌‌‌​​‌‌​‌‌‌​‌‌‌​‌‌‌​​​​​‌​​‌​​​​​​‌‌‌‌‌​‌‍thou- There must be country, many sand bank officers in this background suggests This historical them, inex- McAnally, young like the mens rea standard for 656 should be of small and unso- perienced employees consistent with the standard for the crime banks. These officers make phisticated of making false entries under 1005. Both in the aggregate in the millions of entries offenses from predecessor derive the same every day; of their banks no doubt books statute, require government and both inaccurate; entries are many of those prove that the defendant had “intent the inaccuracies are many proba- Thus, or defraud” the bank.17 we gross. it bly negligence, due to some of significant believe it is that none of the Congress do not think meant to ex- We circuit appeals courts of have held that a employees felony of these bank pose all of the interest of a bank heavy prosecutions; danger is the proper mens rea standard for Moreover, prescribed in section 1005 would penalties two circuit have recently courts overdeter, costs viv- resulting reversed social convictions under 1005 because by in a different context permitted guilty idly instructions ver- described dict upon finding Supreme based of recklessness. Court United States supra. 17. See note 5 Co., defraud. Gypsum amply sup- U.S. Our conclusion ported interpreting prede- 98 S.Ct. the cases [2875-76] 440— cessors (1978), great. holdings L.Ed.2d 854 would be too of cases

. circuits, from other Fifth Cirсuit cases Id. other culminating than the line of cases We policy believe that the considerations Welliver, by the mens rea stan- prompted McAnally the Welliver and dard of the companion § courts to hold that recklessness is not suffi- sound policy Accordingly, considerations. satisfy cient to the intent specific require- we of portion overrule that United ment apply 1005 also to 656. For § § Welliver, (5th Cir.1979),18 601 F.2d 203 example, employees the same bank who which held that the rea stan- make might entries in bank books which dard for disregard 656 was a reckless § result entry a false also make loans the interests of the bank. might a misapplication. constitute case, In either we not believe do that Con- III. THE 656 JURY INSTRUCTIONS § gress intended that bank employees en- Having knowledge determined that is the gaged transactions, in routine such as mak- proper mens rea for standard we § ing loans, book making entries or should be charge must decide whether the this case exposed to felony prosecutions they unless erroneously permitted the to jury apply the Thus, act knowingly. we believe that the lower recklessness standard to the element rules which have developed courts for misapplication with intent to de 1005, establishing knowledge as prop- the charge equate fraud. If the did reck jury er mens rea and requiring standard that the disregard required less with the higher jury equate instructions do not recklessness standard of knowledge, Sandstrom v. Mon defraud, with injure also should tana, 510, 99 442 U.S. 61 L.Ed.2d applied 656. (1979), appellant’s mandates a reversal of 656 conviction. F. 656 Prong Conclusion: of United Appellant exception jury took to the in- States v. Welliver Overruled. structions, they asserting improperly that above, For the reasons discussed equated recklessness with the requisite we conclude appropriate that the mens rea mens rea element of the crime. Appellant standard for knowledge. 656 is In order pointed specifically following charge: to the to convict a for willfully defendant misap A disregard reckless the interest of the plying funds with intent or de bank is the of intent fraud a the government prove must or defraud the bank. that knowingly defendant participated VIII at Appeal, Record on Vol. deceptive or fraudulent transaction. trier of fact infer judges argue19 The dissenting intent, i.e., knowledge, from the defendant’s the instructions as a fairly considered whole disregard reckless true, interest of the and accurately state law. It is bank; however, jury course, instructions should jury charge judged not that a must be equate However, recklessness with intent to as a looking whole. to the entire subsequent 18. A language appears Fifth Circuit certain in Salinas to follow Salinas, Welliver, actually States v. F.2d 319 the court found that the de- or, least, appears Welliver, stating fendants acted with at follow jury they properly infer that requisite could acted defendants “had the to violate Nevertheless, knowledge. with to the acted, minimum, extent they section 656 since at with lowering that Salinas follows Welliver in disregard reckless the interests mens rea 656 to standard for reckless disre- bank.” Id. at 327. the court notes gard, today. we also overrule Salinas “must defendants have known that their actions ... would have ‘a natural tenden- argument govern- 19. This made was not ” cy (emphasis added). the bank.’ Id. panel argument ment in brief or before the oral reasonably The court then states “[a] nor was it made en banc court. The minded could so conclude from de- [the government’s position brief took Thus, testimony....” Id. fendants’] while equate did reckless with charge only problem in this and with to fail to do compounds charged case. The as judge trial fol- that is to requires, say, what the law lows: purpose, an evil motive or a bad whether

I charge you that element of criminal the law. disobey for conviction for a will- necessary Id. ful bank funds is not We whether three corrеct need not decide fulfilled by showing a mere of indiscre- the three statements will cure incorrect tion or part foolhardiness statements,20 it is inescapable because bank officer. His conduct must amount reasonably have thought could bank’s inter- that, while to deceive or a an intent bad ests or outright abstraction of funds. suffice, it purpose would also would be suf- Appeal, Record on VIII at 23 (emphasis Vol. words, ficient In to find recklessness. other added). paragraphs Two later the trial proper charges simply were not incon- judge defined “willful” in terms of the rather, charges; sistent with the improper highest standard, i.e., purpose, mens rea but the improper charges were made in addition in the very next sentence stated that reck- to or equivalent proper charges. lessness meaning: was an additional instance, jury In one instruction ex- The word “willful” is also employed to pressly states that recklessness is an addi- thing characterize done ground a without tional meaning. proper charge, The third lawful, for believing it is or conduct above, quoted is followed the next sen- disregard, marked a reckless whether improper tence with charge, the third also or not the right one has so to act. quoted above. Together, they read as fol- Record on Vol. VIII Appeal, (em- at 23-24 lows phasis added). foregoing quotations I obviously charge you thing constitute clear and that a is done unequivocal willfully instructions jury voluntarily that need find if it is done and only purposefully to satisfy recklessness in order the mens rea and specific with a intent to fail to do standard of the crime. requires, say, what the law that is to with an purpose, evil motive or a bad whether might argued It be the follow to disobey or the law. The ing passages three from the jury charge employed word “willful” is to also charac- properly jury informed the higher a thing ground terize a without done mens rea than recklessness was required: lawful, it or believing is conduct marked “[Ijntent to defraud” means to act with by a reckless whether disregard, or not intent to deceive cheat. one right has the so act. Id. at 19. added).21 Id. at 23-24 (emphasis To act with intent defraud means to act willfully specific with a intent to Similarly, in another instance the proper deceive or cheat. charge is immediately by language followed Id. at 20-21. further defining quality of the required

I charge intent, a you thing including is done tainted willfully language if it is voluntarily done and purposefully equating recklessness with intent: defraud, merely permit- giving but error in another that is inconsistent with jury it.”) ted the such intent infer from the de- government’s fendant’s recklessness. The con- Arguably “proper” charge, reading tention there is a fourth cannot withstand judge’s “willfully” the term definition of instructions. appeared jury which the end of entire toward charge. Appeal, 20. See Perez v. United Record on Vol. VIII at 34. Cir.1961) (“It charge is also fundamental to our also not inconsistent jurisprudence above-quoted improper that instructions to the with the must definition other, be expressly consistent with each not mislead- “willful” stated as an addi- ing jurors, nothing The fact tional definition. There was in the omitted] [citation “proper” charge negate express that one is correct does instruction not cure the or cure the To act with to defraud with ly specific means to deceive or act willfully and with a intent to cheat,” which we above noted was the deceive or cheat. “proper” charge preceding equivalency The Welliver court held that language. The requirement in- defendant error charge constituted reversible because tended to injure may or defraud the bank improperly equated it recklessness with the act, shown an unlawful voluntarily requisite mens rea.22 done, the tendency natural of which have been to is not bank. It error, If Welliver is reversible charge however, necessary, injury that actual charge the instant is. The in- fortiori the bank be shown. only structions Welliver included A reckless disregard of the interest charge equating recklessness intent to is the defraud, whereas the instant or defraud the bank. charge included not verba- tim, other two but included the tainted at added). Id. 20-21 (emphasis i.e., quoted above, charges charging that the Considering the instructions as a element criminal intent for willful mis- whole, we have doubt no that a reasonable application disregard, amounts to reckless juror thought could have reck- mere VIII Appeal, Record Vol. lessness was to satisfy sufficient the ele- giving the additional definition word ment of with intent as conduct “willful” marked reckless dis- to defraud. Moreover, regard. Id. at “prop- 23-24. the Our supported by conclusion is the 1005 § charges er” in Welliver were more forceful holding Welliver, of United States v. 601 case, in primarily than those the instant (5th Cir.1979), 203 separate F.2d dis- charge the did because Welliver not contain holding holding tinct from Welliver’s 656 § here, indication, the explicit as that reck- today. which we overrule 1005 hold- § was an meaning lessness additional for the ing which we now refer reversed a terms.23 rea If those more forceful 1005 conviction jury charge based § “proper” charges in were Welliver insuffi- containing some of the same language as cient cure the single charge, tainted then the instant instructions. The paragraph the less “proper” charges fortiori forceful the instant charge equates reckless- here cure the same tainted equiva- cannot defraud, with ness the charge lency plus the two additional immediately preceding paragraph, and the charges which articulate the expressly erro- immediately following paragraph were tak- neous recklessness for the standard element en verbatim from Welliver. See 601 misapplication. 209 n. 13. The Welliver charge contained stating jurors the sentence act We that conclude reasonable could “[t]o with intent to defraud means to act have interpreted, likely willful- and indeed most did provision quoted above recklessness was mon both § 1005 and In fact the § meaning. Moreover, portions charge an additional ap- fourth this relevant in Welliver “proper” charge pages ten plied came con- after the both sections. The Welliver court re- i.e., charge, clusion of the 656 only § after versed 1005 conviction because it § charge, charge § § § proper held recklessness mens rea charge. jury The fact that the had the written We overrule Welliver’s 656 hold- § § during instructions their in the deliberations today. ing adopt dissenting In order to

jury possibility jury room increases the that the case, judges’ reading in of the instructions this portion charge referred to that deal- we also would have to overrule the Welliver ing provision with § and not ten reading jury court’s instructions in that pages later. case on 1005 count. § reversing 22. The Welliver court a convic- Transcript 23. See Volume V of the Trial tion under 18 § U.S.C. but the relevant Welliver, supra, which con- portions charge i.e., jury tains the entire instructions that case. elements, or defraud com- are any inkling the instructions in this case to of the erroneous recklessness interpret,24 establish the erroneous recklessness mens language. We conclude that § willful mis- rea standard for the element of charge clearly so articulated the application with intent to or defraud. that we mens rea standard of conviction on the Accordingly, appellant’s no taint spillover are satisfied there was 656 count be reversed. must § improper 656 charge. from the § IV. THE 1005 JURY INSTRUCTIONS § conviction on the Accordingly, appellant’s Although appellant acknowledges 1005 count is affirmed. § the trial court did not include the improper charge in its instruc recklessness V. CONCLUSION argues tions on he nevertheless § equation of recklessness with intent to Appellant’s conviction on the 656 count § preceding or defraud in the instruc is reversed. His conviction on the § spilled tions on over and tainted the § count and his conviction on the three After charge. carefully reviewing § 1014 counts are affirmed. instructions, ap we conclude PART, AFFIRMED IN IN REVERSED pellant’s argument has no merit. PART, AND REMANDED. There demarcation between was a clear the court’s and the

charge. quoting FAY, After and indi- Judges, statute RONEY Circuit cating which defendants were indicted on HATCHETT, whom C. HILL and JAMES counts, which of the new 1005 the trial Judges, join dissenting in part: court set forth the essential elements of the respectfully Most we dissent as to the 1005 offense as follows: of the 18 reversal U.S.C.A. 656 conviction First: That knowingly Defendant appendix for two reasons. In an we have entry concerning made a false a mate- set forth all of the statements made by rial fact in a book or record of an Judge instructing Alaimo in as to bank, as charged; insured the intent that it had to find to convict the Second: That the Defendant made such Reading defendant. as a instruction entry willfully, of its whole, we believe the jury was not misled falsity and with the intent of defraud- required, as to mens rea even under the ing deceiving person named in technical, highly analysis semantic of the the indictment. opinion. Although Court’s the district Record on Appeаl, (em- Vol. VIII at 25-26 disregard” court used the words “reckless phasis added). charged The court also disregard and stated that “a reckless of the jury: equivalent interest of the bank is the charge I you that the crime of making bank,” intent or defraud the read false entries by an officer of a bank with whole, as a we think the instruction ade- pursuant defraud to this statute stan- quately conveyed high includes any entry on the books of the proof dard of of intent and the bank which is intentionally rep- made to proper options available to the in this exist, resent what is not true or does not case. with the intent either to deceive the bank’s officers or to defraud the bank. Second, it seems to us that with all that is Id. at 26. opinion, said in the Court’s there is a level

The of reckless that translates immut- jury instructions were clear concise, and did not themselves ably precise espoused contain into Welliver, apparent judge (5th Cir.1979), It is the trial intended to 601 F.2d 203 interpretation. communicate this This intent held that had recklessness was part above, judge surprising. on the of the trial is not mens rea for noted crucial As February portions charge The instant trial occurred in six in this case track verba- charge. language months after the decision in of the Welliver tim the majority, with which we have no substan- holds рroperly appro- Court quarrel. tial 18 U.S.C.A. 656 deals with a priate rea knowledge. By law a very special limited group people. By its ‍​‌​​‌​​‌‌‌​​‌‌​‌‌‌​‌‌‌​‌‌‌​​​​​‌​​‌​​​​​​‌‌‌‌‌​‌‍bank officer know applicable must stat- very terms this section deals with offi- utes, regulations controlling rules and cers, directors, agents employees of cov- operations. (or bank’s If such an officer ered banks. These individuals have an af- statute) official covered makes a firmative duty protect the funds and loan with the level of placed assets in their care. those rules and the interests of the bank as As by Judge stated Morgan in United defined in the instructions in this he Wilson, States v. 500 F.2d at 720: has acted in a knowingly manner contem- It should be remembered above all else plated by Congress to fall within ambit that this statute preserve was enacted to knowing and willful the FDIC from loss and preserve the bank’s funds or credit. protect the assets of having banks a fed- This is not mere recklessness or mere eral relationship. disregard. Tying together, the two words Keeping legislative mind, history in coupled strong with the instructions we have no difficulty understanding how required, properly conveyed to the and why the Fifth Circuit arrived jury the level knowing and willful con- point where “a reckless required. duct It seems to that Welliver us interest of the bank is the correctly decidеd and that the panel or defraud the bank.” The opinion in equally this matter was correct. en banc court is changing now the law of When we get a case with a of “mere Circuit, our so that these words cannot be recklessness,” defined as little more than instruction, used in a no matter what negligence, might then be the time for the other words are also used. It is a subtle here, decision in this case. But the instruc- change, however, that opinion our will correct, tion was at best at worst contained probably make no difference in the outcome incorrect words that were harmless when of any trial and would have made no differ- context, read in and the jury’s verdict of ence in this one. If applied prospectively, guilty should be affirmed. not, we would not even dissent. We should however, reverse a conviction on such a We concur in the affirming Court’s the 18 technicality. U.S.C.A. 1005 conviction. As we read the opinion, Court’s it will be proper for judges trial a jury instruct APPENDIX the effect determining that in whether the defendant of a guilty misapplica- Portions of district court’s charge: funds, tion of bank may (or not) it may 1, 8, 5, 7, 14, 15, 16, Counts 17 and 18 infer such from a disregard reckless allege a violation of Title 18 of the United interest, bank’s if such existed. Then on Code, concerning Section 656 misap- appeаl in determining the sufficiency of the plication of bank funds. evidence and whether the government has established the necessary injure or ^{[*] [*] [*]} defraud the a showing of conduct There are three essential elements which amounting to a disregard reckless proved beyond must be a reasonable doubt bank’s interest will meet requirement. this proscribed by to establish the offense the The distinction between instructing law: that reckless equivalent is the First: That the an officer defendant was the requisite mens rea instructing and it employee or of the bank described in that the requisite may mens rea be inferred indictment; the from evidence of reckless is so tenuous as to be more the bank an insured meaningful in the Second: That bank; classroom than the courtroom. and the requirement

“The defendant or the bank defendant, injure intended to defraud being an offi- Third: That act, volun- shown an unlawful may be willful- employee, knowingly cer and or done, tendency the natural tarily belong- or ly misapplied funds credits injure to the bank. may have been or entrusted to its care. ing to the bank however, * * * necessary, It that actual injury to the bank be shown. To a bank’s or “misapply” money proper- “A of the interest of ty taking willful conversion or aby means a of intent to the bank is employee money prоperty of such or injure the bank. or defraud benefit, to and or the use his own use and to that a may “It be reasonable infer another, whether benefit of or not such intends the natural and person ordinarily has been money property entrusted to his probable consequence knowing of his care, and with intent to defraud the bank. but is not jury may acts. Now, to act with “intent to defraud” the ac- draw the inference and find that means to act with intent to deceive or consequences cused intended all cheat, ordinarily for the purpose causing standing which one in like circumstances bringing financial loss to someone else or rea- possessing and like should gain about a financial to one’s self. sonably expected any have to result from misapply To “means more than irregu- an intentional act or conscious omission. lar or negligent (or Any use of a bank’s funds such inference drawn is entitled to bank).” determining funds be considered entrusted It means whether or not has taking unlawful or conversion of mo- Government nies, funds, proved beyond a reasonable doubt that (or or credits of the bank en- possessed requisite the defendant bank) trusted a bank officer or benefit, criminal intent.” employee for his own or for the use if welfare would defraud nonetheless a violation of this fare of the bank. necessary of bank 16, 17, fully or defraud the bank. A desire With made benefit of some other wrongful in the regard funds, or defraud is not inconsistent with effect is or with bank. the ultimate success and wel- misapplication hope H< I to Counts ultimately all charging misapplication or belief that the bank’s ^[*] you person, ^[*] be to 3, 5, 7, 14, that an intent statute, promoted, funds, done will- if even funds. not look to it to rower who was assurances were event, you defendant extended credit to a named bor- of the loan to plication for the benefit of borrower or defraud the bank is a violation of this ticular statute. lender, I I further obligated defendant of charge you both, charge you would be authorized to ^[*] repay financially repay repay with intent given ^[*] if that a willful to it that loan, loan, you loan, able at the time ^[*] knew that find that a then in that and that no the bank of bank misap- acquit par- it

I charge you regard further charge you you I if find that 1, 3, 5, 7, 14, 15, 16, 17, and-18, Counts all capable named is both financially borrower charging misapplication of funds under this repaying the loan and that the named statute, or words “intent de- it fully borrower understands that is his appear loan, fraud” as an essential element a loan responsibility repay such each of these To counts the indictment. prop- cannot —absent other circumstances — аct with dummy to defraud means to act erly be characterized as a sham or willfully specific transaction, and with a to de- knew even if bank officials pay ceive or cheat. would the named borrower forbids; to say, is with bad purpose In this party. disobey a third either or the law. proceeds over to simply situation, has the bank official par- financially capable a loan

granted what bank official

ty, precisely which is

may do. of criminal charge you

I that the element for a willful necessary for conviction is bank funds not fulfilled misapplication of JOHNSON, Russell T. or fool- showing a mere of indiscretion Plaintiff-Appellant, part on the of the bank officer. hardiness gard tion, abstraction of funds. His conduct must I charge you maladministration, bank’s interests ^[*] that a amount to reckless disre- ^[*] thing is In short, misapplica- ^[*] done is the crime. or willfully outright DEPARTMENT OF TERNAL REVENUE Defendant-Appellee. No. 81-1501. TREASURY, SERVICE, IN- if it done voluntarily purposefully Court of Appeals, and with a intent to fail to ‍​‌​​‌​​‌‌‌​​‌‌​‌‌‌​‌‌‌​‌‌‌​​​​​‌​​‌​​​​​​‌‌‌‌‌​‌‍do what Fifth Circuit. requires, say, the law that is to with an evil March or a purpose, disobey motive bad whether to or the law. The word “willful” employed a thing to characterize done lawful, ground

without it is believing

conduct marked disregard, right

whether not one has the so act.

Bad loans made in good faith do not ^{[*] [*]} st*

constitute criminal misapplication of funds

or monies. When a loan is made in the

honest exercise of an discretion, official good faith and fraud, without for the actual

or supposed advantage there is no criminal responsibility on part officer, although the transaction

be injudicious and unsafe and though even the transaction results in a loss damage

to the bank. The statute does not punish

mere acts of maladministration or negligent

or careless use of bank funds.

The word “knowingly,” ^{[*] [*]} as ^[*] term has

been used from time to time in in- these

structions, means that act was done

voluntarily and be- intentionally and not

cause of mistake or accident. word “willfully,” as term has

been used from time time in in- these

structions, means that the act was commit-

ted voluntarily spe- purposely,

cific intent something do the law

Case Details

Case Name: United States v. John R. Adamson, III

Court Name: Court of Appeals for the Fifth Circuit

Date Published: Mar 10, 1983

Citation: 700 F.2d 953

Docket Number: 80-7284

Court Abbreviation: 5th Cir.