Opinion
CRIMINAL ACTION NO. 20-65
2022-01-14
UNITED STATES of America v. Ashton J. RYAN Jr., William J. Burnell, Robert Calloway, Frank J. Adolph, Fred V. Beebe
Matthew Richard Payne, Sharan E. Lieberman, Jeffrey Ryan McLaren, K. Paige O'Hale, Kevin G. Boitmann, Nicholas Dupuy Moses, Rachal Cox Cassagne, Assistant U.S. Attorneys, DOJ-USAO, New Orleans, LA, for United States of America. Edward J. Castaing, Jr., Peter E. Castaing, Crull, Castaing & Lilly, New Orleans, LA, Deborah A. Pearce, New Orleans, LA, for Ashton J. Ryan, Jr. Brian J. Capitelli, Ralph Capitelli, Tyffani A. Lauve, Capitelli & Wicker, New Orleans, LA, for William J. Burnell. Michael William Magner, Alexander Breckinridge, Edward H. Bergin, Thomas C. Wicker, IV, Avery Bryce Pardee, Michael Joseph O'Brien, Jones Walker LLP, New Orleans, LA, Michelle S. Stratton, Dane C. Ball, Pro Hac Vice, Smyser Kaplan and Veselka, LLP, Houston, TX, Daniel J. Martin, Pro Hac Vice, Jones Walker LLP, Birmingham, AL, for Robert Calloway. David Ichiro Courcelle, Scott C. Stansbury, Law Office of David I. Courcelle, LLC, Metairie, LA, for Frank J. Adolph. Sara A. Johnson, Sara A. Johnson, Attorney at Law, New Orleans, LA, Ethan Atticus Balogh, Pro Hac Vice, Balogh & Co., APC, San Francisco, CA, for Fred V. Beebe.
Matthew Richard Payne, Sharan E. Lieberman, Jeffrey Ryan McLaren, K. Paige O'Hale, Kevin G. Boitmann, Nicholas Dupuy Moses, Rachal Cox Cassagne, Assistant U.S. Attorneys, DOJ-USAO, New Orleans, LA, for United States of America.
Edward J. Castaing, Jr., Peter E. Castaing, Crull, Castaing & Lilly, New Orleans, LA, Deborah A. Pearce, New Orleans, LA, for Ashton J. Ryan, Jr.
Brian J. Capitelli, Ralph Capitelli, Tyffani A. Lauve, Capitelli & Wicker, New Orleans, LA, for William J. Burnell.
Michael William Magner, Alexander Breckinridge, Edward H. Bergin, Thomas C. Wicker, IV, Avery Bryce Pardee, Michael Joseph O'Brien, Jones Walker LLP, New Orleans, LA, Michelle S. Stratton, Dane C. Ball, Pro Hac Vice, Smyser Kaplan and Veselka, LLP, Houston, TX, Daniel J. Martin, Pro Hac Vice, Jones Walker LLP, Birmingham, AL, for Robert Calloway.
David Ichiro Courcelle, Scott C. Stansbury, Law Office of David I. Courcelle, LLC, Metairie, LA, for Frank J. Adolph.
Sara A. Johnson, Sara A. Johnson, Attorney at Law, New Orleans, LA, Ethan Atticus Balogh, Pro Hac Vice, Balogh & Co., APC, San Francisco, CA, for Fred V. Beebe.
SECTION "L"(4)
ORDER AND REASONS
ELDON E. FALLON, UNITED STATES DISTRICT JUDGE
Before the Court are three motions to dismiss the Second Superseding Indictment ("the Indictment") filed by several Defendants. R. Docs. 430-32. First, Defendant Robert Calloway has filed a "Motion to Dismiss the Second Superseding Indictment in Part." R. Doc. 430. Adopting this motion are co-Defendants William Burnell, R. Doc. 447, and Ashton Ryan, R. Doc. 450. Second, Defendant William Burnell has filed a "Motion to Consolidate and Dismiss Counts as Multiplicitous." R. Doc. 431. Also joining this motion are co-Defendants Robert Calloway, R. Doc. 448, and Fred Beebe, R. Doc. 455. Last, Ryan has submitted a "Motion to Dismiss Counts Based on Multiplicity and Other Grounds." R. Doc. 432. Calloway adopts this motion as his own. R. Doc. 448. The government has filed a single consolidated response opposing each of the three motions. R. Doc. 462. Defendants filed memoranda in reply. R. Doc. 468, 470, 472. Considering the briefs and oral arguments of counsel, the record, and the applicable law, the Court now issues this Order and Reasons.
Although multiple Defendants have joined in the pending motions, for simplicity, this Order and Reasons refers only to the individual Defendant who filed a particular motion when discussing that pleading.
I. BACKGROUND
This case arises from alleged fraudulent bank activity at First NBC Bank ("the Bank"), the failure of which cost the FDIC's deposit insurance fund approximately $996.9 million. On August 5, 2021, a 49-count Second Superseding Indictment was entered charging Defendants with conspiracy to commit bank fraud, bank fraud, and false entries in bank records. R. Doc. 318. In relevant part, the operative Indictment alleges that Defendants participated in a scheme to defraud the Bank and enrich themselves by lying on loan documents about the purposes of the loans, borrowers’ creditworthiness, the risk of loss the borrowers’ loans posed to the Bank, and the sources of repayment for the loans. R. Doc. 318. at 7.
II. PRESENT MOTIONS
Defendant Burnell's motion seeks to consolidate and dismiss counts in the Second Superseding Indictment as multiplicitous. R. Doc. 431. Burnell notes that the operative Indictment charges multiple counts of bank fraud for each of several loan relationships. He argues this is impermissible because each borrowing relationship concerns only a single alleged "scheme and artifice." Thus, according to Burnell, only a single count of bank fraud may be charged for each loan relationship. Burnell asserts that charging him in this way—isolating related loan packages with an individual borrower that together form part of a single, ongoing banking relationship in order to charge distinct counts of bank fraud—is multiplicitous and violates the Double Jeopardy Clause of the Fifth Amendment because it exposes him to the possibility of being sentenced multiple times for a single violation of the bank fraud statute. Id. ; R. Doc. 431-1 at 11. Burnell argues that the Court should consolidate the multiplicitous counts and dismiss any excess counts. Id. at 1-2.
In his motion, Defendant Ashton Ryan, like Burnell, argues that counts in the Second Superseding Indictment are multiplicitous in violation of the Double Jeopardy Clause and severely prejudice his right to a fair trial by "creat[ing] an exaggerated impression of criminality." R. Doc. 432 at 1. In the alternative, Ryan "moves the Court to require the government to elect one, from among the many, multiplicitous counts." R. Doc. 432 at 1.
Next, Defendant Calloway's motion argues that nearly all of the counts in the Indictment charging him with the offense of making False Entries in Bank Records in violation of 18 U.S.C. § 1005 —namely, counts 41, 43, 44, 47, and 48—must be dismissed. R. Doc. 430. First, Calloway contends that the government fails to state an offense where it charges non-factual, subjective statements of opinion as constituting "false entries" in bank records. R. Doc. 430-1 at 1. Second, Calloway contends that the challenged counts are duplicitous because they each charge two separate offenses: a false entry made by an affirmative misstatement and a false entry due to a material omission. Because duplicity raises serious concerns about jury unanimity, Calloway argues the false entries counts should be dismissed, or, alternatively, asks the Court to require the government to elect which theory—false entry due to an actual misstatement or due to a material omission—it will pursue as to each challenged false entry count.
In opposition, the government contends that the bank fraud count in the Second Superseding Indictment are not multiplicitous; that the false entries and material omissions charges are proper; and that any potential duplicity and unanimity issues can be cured by a jury instruction and therefore do not require dismissal. R. Doc. 462. Defendants each submitted memoranda in reply. R. Docs. 468, 470, 472.
III. LAW & ANALYSIS
A. Motions to Dismiss Based on Defendants’ Multiplicity Argument
Defendants Burnell and Ryan argue that a number of the bank fraud and false entries counts in the Second Superseding Indictment are multiplicitous and therefore must be dismissed. R. Doc. 431-32. "An indictment that charges a single offense in more than one count is multiplicitous." United States v. Hord , 6 F.3d 276, 280 (5th Cir. 1993). "The primary danger created by such an indictment is that the defendant may receive more than one sentence for a single offense, in violation of the double jeopardy clause." An additional risk attending multiplicity is that "an adverse psychological effect on the jury may result from the suggestion that several crimes have been committed." United States v. Smith , 591 F.2d 1105, 1108 (5th Cir. 1979). "The crux of any argument that convictions are multiplicitous is, of course, what constitutes the offense charged." Hord , 6 F.3d at 280.
The Court first discusses the multiplicity challenges to the bank fraud counts before addressing the false entries counts.
1. Bank Fraud Counts Under 18 U.S.C. § 1344.
Defendants challenge as multiplicitous the substantive counts of bank fraud under 18 U.S.C. § 1344. That provision makes it a crime to "knowingly execute[ ], or attempt[ ] to execute, a scheme or artifice ... to defraud a financial institution." 18 U.S.C. § 1344. "[T]he bank fraud statute imposes punishment only for each execution of the scheme." United States v. Lemons , 941 F.2d 309, 318 (5th Cir. 1991) ; see also United States v. Harris , 79 F.3d 223, 232 (2d Cir. 1996) ("The circuits that have addressed multiplicity in the context of bank fraud consistently have held that the bank fraud statute punishes each execution of a fraudulent scheme rather than each act in furtherance of such a scheme." emphasis added). Importantly, "a single scheme can be executed a number of times, and a defendant may be charged in separate counts for each ‘execution’ of the scheme to defraud." United States v. De La Mata , 266 F.3d 1275, 1287 (11th Cir. 2001) ; see also Hord , 6 F.3d at 282 ("[A] single scheme, if executed more than once, may support multiple convictions."). Thus, the multiplicity question in a bank fraud cause "is what constitutes ‘an execution of the scheme.’ " Lemons , 941 F.2d at 317 n.5.
Determining whether acts constitute separate executions of a scheme or are merely acts in furtherance of a scheme is a fact-dependent inquiry. United States v. Gallant , 537 F.3d 1202, 1226 (10th Cir. 2008). Courts consider multiple factors, including "the ultimate goal of the scheme, the nature of the scheme, the benefits intended, the interdependence of the acts, and the number of parties involved." De La Mata , 266 F.3d at 1288. Additionally, courts ask whether the acts "were chronologically and substantively independent from the overall scheme." Harris , 79 F.3d at 232. Other considerations are "the number of banks, the number of transactions, and the number of movements of money involved in the scheme." United States v. Brandon , 17 F.3d 409, 422 (1st Cir. 1994). The Fifth Circuit has specifically looked to whether the acts were so "integrally related" that "one could not have succeeded without the other." United States v. Heath , 970 F.2d 1397, 1402 (5th Cir. 1992).
"Each time an identifiable sum of money is obtained by a specific fraudulent transaction, there is likely to be a separate execution of the scheme to defraud." Gallant , 537 F.3d 1202 (quoting Brandon , 17 F.3d at 422 ). Thus, "each count of the Indictment involving a draw upon a line of credit would constitute a separate execution of the scheme and would be punishable as a separate crime." United States v. Burger , 964 F.2d 1065, 1074 (10th Cir. 1992). A defendant's "intent ... to use the money for a single purpose does not necessarily mean that every transaction pursuant to which he acquired the money was all part of a unitary scheme, executed only once." United States v. Wall , 37 F.3d 1443, 1447 (10th Cir. 1994). In particular, "two transactions may have a common purpose but constitute separate executions of a scheme where each involves a new and independent obligation to be truthful." United States v. Molinaro , 11 F.3d 853, 861 (9th Cir. 1993).
Two Fifth Circuit decisions are instructive in determining whether the counts in an indictment charge multiple executions of a scheme to commit bank fraud or merely multiple acts in furtherance of a single execution. First, in United States v. Heath , the Fifth Circuit held that two bank fraud counts were multiplicitous when the scheme involved defrauding one bank with two interdependent loans. Id. In that case, "defendants were attempting to sell a parcel of land in Florida which was rapidly decreasing in value. The defendants falsely represented the value of the land and thereby were able to convince a bank to lend ten million dollars to a buyer." United States v. Longfellow , 43 F.3d 318, 323 (7th Cir. 1994) (discussing Heath , 970 F.2d at 1402 ). However, as part of the deal, the defendants had to arrange for the bank to fund the purchase of some of the buyer's property in Arizona to enable him to pay the interest on the loan for the Florida property. Id. "The loans were made relatively contemporaneously," and "[t]he scheme involved the intent to defraud only one bank." United States v. Wilson , No. 06-CR-0094, 2006 WL 1939981, at *3 (E.D. Wis. July 11, 2006). Thus, "[a]lthough there were two separate loans," potentially subjecting the bank to greater financial risk than a scheme involving a single loan, the Fifth Circuit "held that the two loans were ‘integrally related’ because they were planned together, the Arizona loan was a prerequisite to the ultimate goal of selling the Florida property, and ‘one would not have succeeded without the other.’ " Id. (quoting Heath , 970 F.2d at 1402 ).
Second, in United States v. Lemons , 941 F.2d 309 (5th Cir. 1991), Lemons, the defendant and "president of a savings and loan institution, arranged for the institution to make a large loan to the buyer of real estate." United States v. Ford , No. 12-cr-927, 2013 WL 5878261, at *3 (N.D. Ill. 2013) (citing Lemons , 941 F.2d at 318 ). "Lemons then arranged to receive a portion of an ‘assignment fee’ paid to a broker who had helped negotiate the loan." Id. "To prevent the discovery of his receipt of these funds, the defendant arranged to receive the money from the broker himself in a series of transactions over a six-month period." Id. "The goal of that scheme, the court concluded, was for the defendant to receive an assignment fee; though the fee was divided up and distributed in separate transactions, all were part of ‘one performance, one completion, one execution of [a] scheme.’ " Id. (quoting Lemons , 941 F.2d at 318 ). Consequently, the court vacated several convictions as multiplicitous.
Courts have found Lemons and Heath applicable where, for example, the acts charged in the indictment were "planned or contemplated together," with "[e]ach part of th[e] scheme ... carefully crafted and performed in a particular sequence in order to divert a single payment to" defendant. United States v. Colton , 231 F.3d 890, 910 (4th Cir. 2000) (citing Lemons , 941 F.2d at 318 ; Heath , 970 F.2d at 1402 ). Similarly, the First Circuit relied on Lemons and Heath in United States v. Lilly , 983 F.2d 300, 303 (1st Cir. 1992). There, the defendant sought to purchase a condominium complex. To accomplish this plan, "he pre-sold the individual condominiums, falsifying documents and loan applications in the process, and then assigned the sales agreements to the bank as security for a loan to purchase the complex." United States v. Longfellow , 43 F.3d 318, 323 (7th Cir. 1994) (discussing Lilly , 983 F.2d at 303 ). As the First Circuit summarized: the defendant "assigned to a single bank a single package of documents that consistently misstated a single material fact in order to obtain a single loan, the proceeds of which funded a single real estate purchase." 983 F.2d 300, 303 (1st Cir. 1992). Under these facts, the First Circuit held that only a single execution of a scheme occurred. See id. ; see also United States v. Charles , 626 F. Appx 691, 693 (9th Cir. 2015) (holding counts were multiplicitous where defendant was charged with bank fraud for each individual withdrawal from multiple lines of credit because "[e]ach withdrawal depended on the fraudulently obtained lines of credit for its existence; did not involve a new and independent obligation to be truthful; and did not create a new and independent risk for the banks" (internal quotation marks omitted)).
By contrast, courts have distinguished Lemons and Heath and upheld bank fraud charges where the indictment alleged multiple fraudulent loan transactions that were not closely interrelated chronologically and substantively. In United States v. Crawford , for instance, the Fifth Circuit rejected the defendant's multiplicity argument because, "[r]ather than payment of one kickback distributed over a period of time, as in Lemons , this case involved the execution of eleven different loans, each punishable as a separate and distinct act." No. 93-11094 1994 WL 24964, at *4, 15 F.3d 181 (5th Cir. 1994) (unpublished). And in United States v. Brandon , the Ninth Circuit rejected a defendant's argument that bank fraud charges were multiplicitous where the bank "approved each loan separately based on each individual application and each loan corresponded to an individual piece of property." Brandon , 17 F.3d at 423. The Ninth Circuit distinguished Heath because, unlike in that case cases, Brandon did not involve loans that were so "integrally related" that one "could not have succeeded without;" in other words, unlike in Heath , the loans at issue were not best understood as constituting "one integrated real estate transaction." Id. ; see also United States v. Hord , 6 F.3d 276, 282 (5th Cir. 1993) ("On the facts in this case, the scheme was executed with the deposit of each bogus check, because that was the event that triggered possible instant credit being given to the account and therefore available to Hord.... Unlike the situations in Heath and Lemons , the deposits were not integrally related to one another , such that none could have succeeded without the others. Proof of Hord's intent to defraud [the bank] with each fraudulent deposit does not require proof of any of the other deposits.").
In United States v. Harris , a district court rejected a defendant's multiplicity argument where the defendant was charged with misrepresenting the net worth of his corporation in an effort to obtain a loan and six separate extensions of that original loan. 805 F. Supp. 166, 175 (S.D.N.Y. 1992). At the end of each loan period, the "borrower[ ] had to ask and the lenders had to agree" to renew the corporation's access to credit. Id. These extensions "destroy[ed]" any analogy to Lemons, id. , because each request for a loan imposed a "new obligation to be truthful regarding their corporation's net worth." Molinaro , 11 F.3d at 860 n.16 (discussing Harris , 805 F. Supp. at 175 ).
Similarly, in United States v. Longfellow , a bank president caused the bank to make a series of loans to borrowers in order to facilitate the purchase of property he personally owned. 43 F.3d at 319, 324. The bank president did not record the transactions, left title to the properties in his name rather than transferring it to the bank as collateral for the loans, and made false statements on documents related to the loans. Id. at 319. One borrower refinanced a loan. The indictment charged the arrangement of the fraudulent loans and the refinancing of a loan as one count of bank fraud. Following his conviction, the bank president contested his bank fraud conviction in a two-part argument. First, he argued that each loan was a separate execution of a fraudulent scheme and that fraud related to the original loans was barred by the statute of limitations. Id. at 322. Second, he contended that the refinancing of a loan—the sole remaining fraudulent act, according to his argument—did not constitute an execution of a scheme under the bank fraud statute. Rather, the defendant argued that the refinancing was a "continuation of a prior transaction and execution," that is, a continuation of the original loan to the borrower. Id. at 322.
The Seventh Circuit began its analysis by observing that the bank president "executed the scheme a number of times when he arranged loans from the [bank], received the loan proceeds as payment for the property and failed to transfer title." Id. at 324. Turning to whether the refinancing of the loan constituted a separate execution of the scheme, the court acknowledged that it "face[d] the problem that the refinancing was related to the loan made" to a borrower, "but, on the other hand, the refinancing ... created a new, independent risk for the" bank. Several additional factors led the court to determine that the refinancing was a separate execution of a fraudulent scheme.
To begin, the court noted that the refinancing "involved the granting a new loan to the borrower" because it added to the principal upon which interest had to be paid. Id. Refinancing also prevented the loan from appearing on the bank's delinquent loan file, "ensuring that both the new and old risks were hidden from the" bank's board. Id. Further, the court found it "persuasive" that the original loan and the refinancing "were not originally planned or contemplated together." Id. "The refinancing was entered into much later, when circumstances changed, in order to ‘rescue’ the original loan." Id. at 324-25. Thus, even though the "two loans [we]re related" and the same bank and borrowers were involved, the original loan and the refinancing constituted separate executions. In short, the refinancing was not part of a "single, integrally related act, closely planned and carried out in connection with the" original loan. Id. at 325. Significantly, the "troublesome fact" that the bank president did not receive any additional monies as a result of the refinancing did not prevent the refinancing from qualifying as a separate execution given the broad construction the bank fraud statute is accorded. Id.
Turning to the allegations in the present case, each count of bank fraud in the Indictment concerns a distinct loan package or disbursement of funds from the Bank to borrowers. Each loan package imposed a "new obligation" on Defendants to be truthful, Molinaro , 11 F.3d at 860 n.16, and "created a new, independent risk for the" Bank. Longfellow , 43 F.3d at 324 ; see also Harris , 805 F. Supp. at 175 ; see also Gallant , 537 F.3d 1202 ("Each time an identifiable sum of money is obtained by a specific fraudulent transaction, there is likely to be a separate execution of the scheme to defraud." (quoting Brandon , 17 F.3d at 422 )). Bank officer Defendants’ alleged approval of each new loan package ensured that borrowers did not appear on the latest month-end overdraft and past-due reports, hiding "both the new and old risks" from the Bank's board. Longfellow , 43 F.3d at 324.
Burnell and Ryan are correct that the "[o]lder loan packages provided the base for the newer packages, leading to substantial overlap regarding the content of the loan packages, the supporting documentation, and the alleged false statements and material omission giving rise to bank fraud." R. Doc. 431-1 at 4, 15-19; see also R. Doc. 432-1 at 12-17. But there are also key differences between each loan, including varying maturity dates. Importantly, "[p]roof of [each Defendants’] intent to defraud [the Bank] with each fraudulent [loan] does not require proof of any of the other [loans]." Hord , 6 F.3d at 282 ; see also United States v. McMath , No. CR 413-003, 2013 WL 5799004, at *10 (S.D. Ga. Oct. 16, 2013) ("[A]n original loan requires proof of one set of facts, and a renewal requires proof of some additional facts (the act of renewing the loan, and thus identifying the new default time cliff, the second set of signatures, pledges of collateral, etc.). It thus cannot be said that in proving one count the government also proves another count, since an additional fact or set of facts must be shown to prove the additional count.").
Moreover, even though the pertinent loan packages to each borrower are related, this does not mean that they were interdependent. To the contrary, the first allegedly fraudulent loan made to each borrower did not hinge on the borrower later receiving subsequent fraudulent loans. See Brandon , 17 F.3d at 423. And each subsequent loan allegedly was only made because "circumstances changed" that required a new loan in order "to ‘rescue’ the original loan," or, at least, to hide the borrower's true financial circumstances from the Board and external auditors. Longfellow , 43 F.3d at 324-25. Thus, in contrast to Lemons , where the defendant attempted to hide a single kickback by receiving it in installments, see 941 F.2d at 318, the loans made by the Bank to each borrower here "were not ... planned or contemplated together," Longfellow , 43 F.3d at 324 ; Colton , 231 F.3d at 910, but instead were allegedly made at different times and on an ad hoc basis. See Lemons , 941 F.2d at 318.
Furthermore, unlike in Heath , where the two loans were transacted relatively contemporaneously, the loan packages at issue here lack temporal proximity as they were allegedly made over a period of years. See 970 F.2d at 1402 ; R. Doc. 318. Consequently, this case is readily distinguishable from Heath , the sole authority cited by Defendants holding that multiple loans may comprise only a single execution of a fraudulent scheme. See 970 F.2d at 1402. Last, even though the operative Indictment does not allege that Bank officer Defendants like Calloway received any direct benefit or proceeds from fraud perpetrated on the Bank, this does not preclude the Bank officers’ alleged actions from constituting multiple executions of bank fraud. See Longfellow , 43 F.3d at 325.
In short, considering all of the relevant factors, the fraudulent activities alleged in the Indictment in connection with loans made by the Bank to various borrowers are not part of a "single, integrally related act, closely planned and carried out in connection with" one another. Longfellow , 43 F.3d at 325. Rather, each of the bank fraud counts Defendants challenge as multiplicitous alleges a separate execution of the bank fraud statute.
2. False Entries Counts Under 18 U.S.C. § 1005
Defendant Ryan argues that the false entries counts pertaining to the loan relationships with two borrowers—Kenneth Charity and Gary Gibbs—are multiplicitous and that only a single false entries count properly may be charged regarding each of these loan relationships. R. Doc. 432-1 at 17-19.
Title 18, United States Code, § 1005 makes it unlawful to make "any false entry in any book, report, or statement of such bank ... with intent to injure or defraud such bank ... or any other company, body politic or corporate, or any individual person, or to deceive any officer of such bank, company, branch, agency, or organization, or the Comptroller of the Currency, or the Federal Deposit Insurance Corporation, or any agent or examiner appointed to examine the affairs of such bank[.]" A conviction under this provision requires proof beyond a reasonable doubt of the following elements: (1) a false entry was made on the book, report, or statement of a bank; (2) the defendant "made the entry or caused it to be made;" (3) the defendant "knew the entry was false when he made it;" and (4) the defendant "intended that the entry injure or deceive the bank officers." United States v. Campbell , 64 F.3d 967, 974 (5th Cir. 1995) (citing United States v. Jackson , 621 F.2d 216, 219 (5th Cir. 1980) ).
As discussed, an indictment is multiplicitous when it "charges a single offense in more than one count." Hord , 6 F.3d at 280. "An offense is separate and distinct"—that is, not multiplicitous of another count—"when conviction under one count requires proof of an additional fact that the other count does not require." United States v. Guzman , 781 F.2d 428, 432 (5th Cir. 1986). The Fifth Circuit has explained that, in the context of false statements under § 1005, "[w]here false statements are made in distinct and separate documents requiring different proof as to each statement, the filing of each false document constitutes a crime, and each filing may be alleged in a separate count of the indictment." Id.
Again, Ryan argues that the counts pertaining to loans to Bank borrower Charity (counts 38-40) are multiplicitous. R. Doc. 432-1 at 18. These counts each allege that, on March 30, 2021, Ryan, acting with the intent to deceive the Bank's Board, auditors, and examiners, placed a false and fraudulent "Change in Terms Authorization" form in the books and records of the Bank. R. Doc. 318 at 32. Each count concerns a separate loan to Charity. R. Doc. 318 at 32. Ryan contends these counts are multiplicitous because they each allege that he made the same misrepresentation in a Change in Terms Authorization form. R. Doc. 432-1 at 18. But even though the nature of the alleged misrepresentation is the same, proving each count will involve separate Change in Terms Authorization forms filed in distinct loan files. See Guzman , 781 F.2d at 432. Thus, the proof required for each count is different, and Ryan's multiplicity argument regarding the Charity loans fails.
Next, Ryan maintains that the false entries counts relating to the Gibbs loan relationship (counts 41, 43, 44, 47, and 48) are multiplicitous. These counts charge that Ryan, along with Burnell and Calloway, allegedly placed a fraudulent "Criticized Asset Action Plan" pertaining to Gibbs in the books and records of the Bank on different dates over the course of multiple years. R. Doc. 318 at 32-33. The dates of the alleged false entries are: September 2014 (Count 41), March 2015 (Count 43), September 2015 (Count 44), January 2016 (Count 47), and March 2016 (Count 48). Because each count concerns Defendants allegedly making the same misrepresentation in the Criticized Asset Action Plan relating to Gibbs—namely, that Defendants allegedly falsely stated that "all loans are performing as agreed" and omitted the material fact that Gibbs was only able to make payments on his existing loans by obtaining new loans form the Bank—Ryan argues the counts are multiplicitous. R. Doc. 432-1 at 19. This argument has the same defect as Ryan's multiplicity challenge to the counts relating to the Charity loan relationship. Although the substance of the alleged misrepresentation in the Criticized Asset Action Plan is the same, each count concerns a unique Criticized Asset Action Plan that was entered into the records of the Bank on different dates. In other words, each count involves distinct acts of alleged fraud and therefore requires distinct proof. See Guzman , 781 F.2d at 432. Accordingly, the Court rejects Ryan's multiplicity challenge to the counts involving the Gibbs loan relationship.
3. Prejudicial Influence on Jury Caused by Reading of Lengthy Indictment
The Court acknowledges the potential "adverse psychological effect" on the jury that may result from the reading of a lengthy indictment in their presence. See Smith , 591 F.2 at 1108. The sheer number of counts—here, 49 in total—may lead jurors to think that Defendants must be guilty of something. Accord United States v. Polizzi , 257 F.R.D. 33, 37 (E.D.N.Y. 2009) ("[O]nce the impression of enhanced criminal activity ‘is conveyed to the jury, the risk increases that the jury will be diverted from a careful analysis of the conduct at issue,’ and will reach a compromise verdict or assume the defendant is guilty. ") (quoting United States v. Johnson , 130 F.3d 1420, 1426 (10th Cir. 1997) ). But this "shock value," as Defendants put it, R. Doc. 431-1 at 12, can be cured, or at least mitigated, by prohibiting the government from reading the operative Indictment in its entirety during voir dire and instead permitting the prosecution only to summarize the charges against each Defendant. See United States v. Smith , No. 95-40083, 1996 WL 706827, at *4 (D. Kan. Oct. 31, 1996) ("The court has utilized [summaries] in other cases involving lengthy indictments and found the procedure beneficial to the court, the jury, and the parties."). The Court reserves ruling at this time whether it will authorize the indictment to be read in full during voir dire.
* * *
For these reasons, the challenged counts of the second superseding indictment are not multiplicitous and therefore will not be dismissed on that basis. B. Calloway's Motion to Dismiss
Ryan also makes a second multiplicity argument. He contends that the bank fraud counts against him "describe the same alleged criminal conduct" as that constituting the false entries counts again him for violations of 18 U.S.C. § 1005. R. Doc. 432-1 at 5-6. But as Ryan acknowledges, this argument is foreclosed by controlling Fifth Circuit precedent. See United States v. Henderson , 19 F.3d 917, 926 (5th Cir. 1994) (holding that bank fraud counts under 18 U.S.C. § 1344 and false entries charges under § 1005 require different proof and therefore rejecting the argument that counts under these provisions are multiplicitous).
The Court next examines Calloway's motion to dismiss, which argues that five of the false entries counts in the Indictment pertaining to the loan relationship with borrower Gary Gibbs—specifically, counts 41, 43, 44, 47, and 48—must be dismissed. R. Doc. 430. First, Calloway argues that these counts erroneously charge subjective, non-factual statements of opinion as "false entries" under 18 U.S.C. § 1005 when that provision is limited to false statements of fact. Second, he contends these counts are improperly duplicative because they "allege[ ] false entries and material omissions within the same counts." R. Doc. 9-11. R. Doc. 430-1 at 1, 5-11. The Court considers these arguments in turn.
1. Whether Counts 41, 43, 44, 47, 48 Improperly Charge Subjective Statements as Constituting False Entries under 18 U.S.C. § 1005
"[A]n entry cannot be ‘false’ within the meaning of the [false entry] statute when it correctly reflects the transaction and was so intended." United States v. Hughes , 726 F.2d 170, 172 (5th Cir. 1984) (internal quotation marks omitted). On the other hand, the statute can be violated "where the entry on the books, though accurate, was known to be fraudulent." United States v. Cordell , 912 F.2d 769, 773 n.8 (5th Cir. 1990) (citing United States v. Darby , 289 U.S. 224, 226, 53 S.Ct. 573, 77 L.Ed. 1137 (1933) ). Both parties agree that the statute applies solely to statements of fact, not opinions. R. Doc. 430-1 at 4-8; Oral Argument Hr'g Tr. at 21; see also United States v. Harra , 985 F.3d 196, 212 (3d Cir. 2021) (discussing an analogous provision, 18 U.S.C. § 1001, and concluding that "[t]he Government must show not merely that a defendant subjectively intended to lie, but also that the statement in question was objectively false.").
Calloway argues that the alleged false entries are not statements of fact because they "do not constitute records of numerical transactions, ledger entries, or other objectively verifiable data entries in bank records." R. Doc. 430-1 at 7. He specifically challenges statements listed in the portions of the Bill of Particulars that correspond to the challenged counts as being subjective estimations rather than objective statements of fact. R. Doc. 430-1 at 7. But in this case, the Bill of Particulars includes allegedly false statements and material omissions within loan packages that are additional to the single alleged affirmative false statement and single alleged material omission listed in the Indictment. And the jury will only decide whether Defendants are guilty of making the false statement and material omission alleged in the Indictment. Thus, it is immaterial whether the alleged false statements and omissions included in the Bill of Particulars that are additional to those in the Indictment are subjective instead of objective.
As Calloway states in his memorandum in support of his motion:
[T]he alleged "false" entries are subjective estimations about the borrower (e.g. , "Gibbs has numerous projects on-going and new projects in the pipeline that will generate additional collateral sources and cash flows"); the borrower's creditworthiness (e.g. , "Rating Recommendation – Maintain Acceptable Watch"); the risk associated with the loan; and estimates of future repayment from prospective sources (e.g. , "Additional development projects and new development fee prospects are ongoing"). This is the stuff of opinion, not objectively verifiable fact.
R. Doc. 430-1 at 7.
Compare, e.g. , R. Doc. 266-2 at 121 (Bill of Particulars) (listing under Count 32 the following as affirmative false statements: (1) Collateral Shortfall: "none"; (2) "The Affordable Housing loans were renewed in and began amoritization in 2011, and all equipment and installment loans are amortizing and performing monthly in accordance with their terms."; (3) "Consolidation loans of previous working capital advances have been consolidated and have been placed on amoritization, and all loans are performing as agreed."; (4) "The loans are performing as agreed."; (5) "Stable - Additional development projects and new development fee prospects are ongoing including projects in for hotels in Arkansas and Alabama, along with further development of the wireless internet project in Arkansas."; (6) Rating Recommendation: "Maintain Acceptable Watch-5."; (7) "Improve / Rehab - As a developer, Gibbs has numerous projects on-going and new projects in the pipeline that will generate additional collateral sources and cash flows (development fees)."; (8) "Aid in obtaining payout of Chapel Place through the HUD financing and continue monitoring the NMTC projects for compliance while monitoring other developments for fee payouts that can further reduce our debt.", with R. Doc. 318 at 32 (listing under Count 43 the following false statement: "falsely stating that "all loans are performing as agreed").
The Bill of Particulars was intended to assist the Defendants by requiring the government to identify the specific statements within the loan packages that the government alleges are false as well as any material omissions in those documents and records. Even though the government identified statements and omissions in the Bill of Particulars that it believes are false beyond those included in the Indictment, only those statements and omissions contained in the Indictment are pertinent with regard to Calloway's motion, which challenges the sufficiency of the Indictment. The Court therefore declines Calloway's request that it sift through the Bill of Particulars to determine whether each alleged false statement listed therein may constitute a false statement under § 1005.
With regard to the Indictment itself, the counts Calloway challenges all contain the same alleged false statement: that Defendants Ryan, Burnell, and Calloway placed a Criticized Asset Action Plan pertaining to borrower Gibbs in the books and records of the Bank that "falsely stat[ed] all loans are performing as agreed." R. Doc. 318 at 32-33. The government asserts that this statement is objectively false because, even though "Gibbs's loan documents stated that he would use the loans for certain business purposes (often for ‘working capital’) and that the loans would be repaid with revenues from Gibbs's business projects and Gibbs's own cash flows," Defendants "knew, proceeds from Gibbs's ‘working capital’ loans were often used to make payments on Gibbs's old loans." R. Doc. 462 at 14-15.
Calloway points out that the statement allegedly contained in Gibbs's loan documents that the purpose of the loans to Gibbs was for "working capital" is not charged as a false entry in the Indictment (or in the Bill of Particulars). R. Doc. 472 at 2. Although Calloway is correct, this has no bearing on the pertinent inquiry, which is whether the statement that is charged as constituting a false entry—that the "loans are performing as agreed"—is a statement of fact or opinion. On that score, Calloway argues the statement is non-factual because it is not a representation about content that is objectively provable. R. Doc. 427 at 2-3. That is not correct. The truth or falsity of the statement the "loans are performing as agreed" is capable of being proven through objective means. Proving its falsity will require that there existed an original agreement or understanding as to how the loans would perform and proof that the loans were not, in actuality, performing at the agreed-upon levels. In order to satisfy § 1005, the proof must be in the form of objective measures or benchmarks regarding the loans’ performance. Subjective statements regarding beliefs—as opposed to objective evidence—about the loans’ performance will not do. Whether the government can sufficiently prove its claim through objective evidence remains to be seen. But for purposes of the motion to dismiss, the false entries counts alleged in the Indictment can be proven by objective evidence, and Calloway's argument to the contrary are unavailing.
2. Calloway's Argument that Counts 41, 43, 44, 47, 48 are Duplicitous
"A duplicitous indictment is one that alleges two or more distinct and separate offenses in a single count." United States v. Caldwell , 302 F.3d 399, 407 (5th Cir. 2002) (internal quotation marks omitted). Such indictments are generally barred. See id. This ban "is premised on four primary concerns: first, the indictment may fail to give a defendant adequate notice of the nature of the charges against him; second, it may subject the defendant to prejudicial evidentiary rulings; third, it may result in an inadequate trial record to protect against subsequent prosecution for the same offense; and fourth, such indictment may present a risk that the jury may have convicted the defendant by a nonunanimous verdict." United States v. McCafferty , No. 1:10CR387, 2011 WL 933771, at *7 (N.D. Ohio Mar. 16, 2011) (citing United States v. Kakos , 483 F.3d 441, 443 (6th Cir. 2007) ) ("[T]he primary concern is that a defendant may be deprived of his right to a unanimous verdict."); see also United States v. Garcia , 400 F.3d 816, 819 (9th Cir. 2005) ("One vice of duplicity is that a jury may find a defendant guilty on a count without having reached a unanimous verdict on the commission of a particular offense." (internal quotation marks omitted)). "[I]n determining whether an indictment is duplicitous, the inquiry is whether the indictment can be read to charge only one violation in each count." Caldwell , 302 F.3d at 407. (internal quotation marks omitted).
"Proof of an actual misstatement" under 18 U.S.C. § 1005 "does not require proof of its materiality. The government is only required to prove materiality ... when it seeks to convict a defendant pursuant to § 1005 for an omission of information." United States v. Harvard , 103 F.3d 412, 418–19 (5th Cir. 1997). For offenses under § 1005, then, only an omission carries a materiality element, whereas an affirmative false entry does not.
Counts 41, 43, 44, 47, 48 of the Indictment charge Defendants with making both an affirmative false entry and a material omission. Given the additional element that omission carries as compared to an affirmative false entry, Calloway contends that these counts are duplicitous. R. Doc. 430-1 at 9. He argues this presents a risk of a jury returning a defective, nonunanimous verdict on each false entry count because it will not be known whether the jury convicted based on a material omission or an affirmative false entry. R. Doc. 430-1 at 10.
The government acknowledges that the false entries counts could "theoretically" be duplicitous. R. Doc. 462 at 17. But it maintains that, in this case, the duplicity concern is inapplicable because the alleged affirmative false statement and material omission are "two sides of the same lie": "[b]oth the false statement Gibbs's loans were ‘performing as agreed’ and the material omission regarding Gibbs's ability to repay his loans charge the defendants with the same deceit." R. Doc. 462 at 16-17. But this argument ignores what is clear: the false entries counts based on material omissions demand proof beyond a reasonable doubt of an element that is not required in order to prove the false entry offense by means of a false statements. Thus, the challenged counts are indeed duplicitous. But duplicity does not require their dismissal.
The government also observes that "[c]ourts have found it appropriate to charge multiple false statements in a single count where the statements were all made in the same event or on the same document." R. Doc. 462 at 16-17 (quoting United States v. Craigue , No. 19-CR-142-LM, 565 F.Supp.3d 267, 270–71 (D.N.H. May 14, 2021) (collecting cases)). But the authority cited appears to involve only false entries counts charging either affirmative false statements or material omissions, not both. See, e.g., United States v. Schmeltz , 667 F.3d 685, 686-88 (6th Cir. 2011) (count alleging that defendant falsified a document in three respects was not duplicitous); United States v. Sahley , 526 F.2d 913, 918 (5th Cir. 1976) (concluding that "making three false assertions ... on but a single document" constituted one offense); United States v. McCafferty , No. 1:10CR387, 2011 WL 933771, at *9 (N.D. Ohio Mar. 16, 2011) (rejecting duplicity challenge where allegedly false statements contained in the count "were made in the course of a single interview over a short period of time"). Thus, the duplicity concerns present here were not present in those cases.
At least two potential and mutually exclusive avenues exist to cure the harm of duplicitous counts. The first is for the Court to give a unanimity-of-theory jury instruction—a charge to the jury "requiring unanimity on one or the other of the acts charged within a count that otherwise appear to constitute separate offenses." United States v. Trammell , 133 F.3d 1343, 1354–55 (10th Cir. 1998). This is the approach the government favors, R. Doc. 462 at 17-20, and, at times, the Fifth Circuit has endorsed it. See United States v. Miller , 520 F.3d 504, 513 (5th Cir. 2008) ("Assuming that the indictment is duplicitous, an assumption that is not without problems, there was no danger of a nonunanimous verdict. ‘The danger of a nonunanimous jury verdict may be avoided by proper jury instructions.’ " (quoting United States v. Fisher , 106 F.3d 622, 633 (5th Cir. 1997) ), abrogated in part on other grounds by Ohler v. United States , 529 U.S. 753, 120 S.Ct. 1851, 146 L.Ed.2d 826 (2000) ); United States v. Mauskar , 557 F.3d 219, 226 (5th Cir. 2009) (assuming arguendo that count was duplicitous and holding that unanimity instruction "was sufficient to guard against a non-unanimous verdict").
The second option, and Calloway's preference, is to order the government to elect which false entries theory it will pursue at trial. R. Doc. 462 at 5. Recently, the Fifth Circuit has observed that this is the better course for curing duplicity. See United States v. Medel-Guadalupe , 987 F.3d 424, 428 (5th Cir. 2021) ("[T]he proper remedy [to a duplicitous count in an indictment] is to require the Government to elect upon which charge contained in the count it will rely.") (quoting United States v. McDermot , No. 93-3603, 58 F.3d 636, 1995 WL 371036, *4 n.6 (5th Cir. June 5, 1995) ).
Notably, in this case, the government asserts that the alleged deceit in each false entries count—that is, both the false statement and the material omission—is contained in the same loan document. Oral Argument Hr'g Tr. at 23. Going further, the government represents that the alleged false statement and material omission in each false entries count refer to the same dishonest conduct. R. Doc. 472 at 18. Thus, in proving one (either a false statement or a material omission), the government proves the other. And if the government cannot prove one, it cannot prove the other. Put another way, according to the government, a jury could not logically render a verdict that finds Defendants guilty under one theory—either a false statement or a material omission—but not guilty under the other; both theories rise or fall together. It therefore makes no practical difference as to which theory the government pursues. So, requiring the government to prosecute only one theory for each challenged false entries count would not prejudice it; based on the government's own argument regarding the inextricable link between the alleged false statements and material omissions in this case, employing the election-of-theory approach and requiring the government to pursue only one false entries theory would not deny it the opportunity to prove up a separate false entries offense. In short, the government is not "losing a shot" to prove its false entries counts. For the same reason, there is no unwarranted windfall to defendants from forcing the government to prosecute only either a false statement or a material misrepresentation, not both.
Implicit in the government's argument regarding the connection between the false statements and material omissions allegations is that, in the proving the elements of a false entries count based on a false statement, the government also proves the elements of a false entries count based on a material omission, including, of course, the materiality element.
In addition to avoiding unfairness to any party, utilizing the election-of-theory method in the instant case has benefits over permitting the government to prosecute each false entries count under both a false statements and material omissions theory and then instructing the jury on unanimity of theory. Chiefly, employing the election-of-theory avoids the real danger of juror confusion that could result if the government were to prosecute each count under both a false statement and material omissions theory. As the government itself avers, the proof supporting each false entries theory is the same, resulting in a nontrivial prospect that jurors may have difficulty disentangling one theory from the other. That concern is compounded by the reality that jurors will already have to follow what the Court anticipates will be lengthy jury instructions in this complex, 49-count case of alleged white-collar fraud involving financial transactions. To alleviate the possibility that additional, special jury instructions on unanimity of theory could cause confusion, the Court believes the most prudent course here is to require the government to choose which theory—an affirmative false statement or a material omissions—it will prosecute with respect to each challenged false entries count.
IV. CONCLUSION
For these reasons,
IT IS ORDERED that the motions to dismiss filed by Defendants Burnell and Ryan, R. Docs. 431-32, are DENIED.
IT IS FURTHER ORDERED that the motion to dismiss filed by Defendant Calloway, R. Doc. 430, is DENIED in part and GRANTED in part. The motion is granted only insofar as the government is ordered to choose which theory—an affirmative false statement or a material omission—it will prosecute at trial and argue to the jury with respect to the following false entries counts: Counts 41, 43, 44, 47, 48. The government must enter into the record notice of the specific theory it will pursue as to the aforementioned counts by January 28, 2022.