United States v. Blackburn

UNITED STATES COURT OF APPEALS
for the Fifth Circuit

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No. 93-4069
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UNITED STATES OF AMERICA,

Plaintiff-Appellee,

VERSUS

PHILIP E. BLACKBURN, JR.,

Defendant-Appellant.

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Appeal from the United States District Court
for the Eastern District of Texas
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(December 3, 1993)

Before GOLDBERG, JONES, and DUHÉ, Circuit Judges.

DUHÉ, Circuit Judge:

I. BACKGROUND

Philip Blackburn and Nickolas Lutz worked together in the home

construction business. In August 1989, Blackburn and Lutz met with

officers of First Western National Bank ("FWNB"), a federally

insured financial institution, to discuss construction financing.

Sometime after the meeting, Lutz wrote a letter to FWNB stating

that Lutz Homes, Inc. wished to obtain a loan in the amount of

$285,900 to build a speculative home.1

As part of the loan package, a Lutz Home financial statement

and Lutz's personal financial statement were submitted.

1
A speculative home is a residence built by the contractor
without a buyer and is used to display the product to potential
customers.
Additionally, the bank required a pledge equal to ten percent of

the loan amount. Blackburn deposited $24,906 at FWNB to open a

certificate of deposit ("CD") under the name "Triple B

Construction, Inc" (a corporation owned by Blackburn's family).

Shortly after the closing, a bank officer told Blackburn that the

loan would not be funded until the balance of the CD was raised to

equal ten percent of the loan amount. Accordingly, Blackburn wrote

a Lutz Homes check in the amount of $3,684 to Triple B and

deposited it in the Triple B CD account. The loan was funded in

November 1989.

Lutz and Dennis Dick testified that, one week after closing,

Blackburn reviewed the loan documents, and noticed that Lutz, who

was not authorized to act for Triple B, had signed the pledge of

the Triple B CD. Lutz testified that he did not realize that he

had signed on behalf of Triple B until Blackburn brought it to his

attention. Lutz and Dick further testified that Blackburn told

them that the bank made a mistake and if the loan ever went into

default, he could sue the bank and get his (Triple B's) money back.

Thereafter, Blackburn made every draw against the loan.

Lutz Homes was unable to sell the speculative home, and the

loan went into default. Blackburn signed receipts for the bank's

letters of January 15 and 31, 1991, notifying Lutz Homes that the

CD had been applied against the balance due. On February 1, 1991,

Blackburn went to the bank to get his money back. Blackburn told

the bank officer that he wanted to move the CD to another bank for

a friend. The bank officer explained that he could not get the CD

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back because it had been pledged as collateral and offset against

the loan. Blackburn then filed a civil suit against FWNB to

recover the money.

After Blackburn sought the CD from FWNB, FWNB filed a criminal

referral. When the Federal Bureau of Investigation contacted Lutz,

Lutz went to Blackburn to find out what had happened. According to

Lutz, Blackburn instructed him to tell the investigators that the

money was put up as a compensating balance (cash deposit without a

pledge) not pledged. Lutz also testified that Blackburn told him

that Blackburn would get the money back plus some, which he would

share with Lutz.

Blackburn was indicted on two counts of presenting false

financial statements to a federally insured bank and one count of

bank fraud. At trial, Blackburn claimed that he thought that the

CD was to be used as a compensating balance, he did not give Lutz

permission to pledge the CD, and he did not discover that the CD

had been pledged until February 1, 1991. The jury found Blackburn

guilty of the bank fraud under 18 U.S.C. § 1344, and acquitted him

on the other charges. Blackburn was sentenced to a term of eight

months imprisonment to be followed by three years of supervised

release. The court also ordered restitution in the amount of

$55,169, with Lutz jointly and severally liable for $35,539.

Blackburn makes the following arguments on appeal: (1) there

was insufficient evidence to support his conviction; (2) the

indictment was constructively amended; (3) the indictment omitted

a necessary element of the offense; (4) the government relied on

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perjured testimony; (5) the government failed to timely disclose

material favorable to his defense; (6) the trial court erred by

denying his motion for new trial without an evidentiary hearing;

and (7) his sentence was improperly computed. We affirm on all

issues except for the calculation of restitution.

II. DISCUSSION

A. Sufficiency of the Evidence

Blackburn contends that the evidence was not sufficient to

support a conviction under 18 U.S.C. § 1344(1) or (2).2 The

standard of review for a sufficiency challenge is "whether any

reasonable trier of fact could have found that the evidence

established guilt beyond a reasonable doubt." United States v.

Hernandez-Palacios, 838 F.2d 1346, 1348 (5th Cir. 1988) (citing

Jackson v. Virginia, 443 U.S. 307, 319 (1979)). In making this

determination, we "must consider the evidence in the light most

favorable to the government, giving the government the benefit of

all reasonable inferences and credibility choices. Id. (citing

Glasser v. United States, 315 U.S. 60, 80 (1942)).

2
Section 1344 provides:
Whoever knowingly executes, or attempts to execute, a
scheme or artifice--
(1) to defraud a federally chartered or insured
financial institution; or
(2) to obtain any of the moneys, funds, credits, assets,
securities or other property owned by or under the
custody or control of a federally chartered or insured
financial institution by means of false or fraudulent
pretenses, representations, or promises;
shall be fined not more than $10,000, or imprisoned not more
than five years or both.

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 To convict Blackburn under 18 U.S.C. § 1344(1), the

government had to prove that (1) he executed or attempted to

execute a scheme or artifice to defraud FWNB and (2) that he acted

knowingly. Blackburn's scheme began when he stated that the bank

made a mistake and he could get his money back if the loan went

bad. With knowledge of the defective pledge, Blackburn made every

draw on the loan. Cf. United States v. McBride, 571 F. Supp. 596,

613 (S.D. Tex. 1983) (stating that a party may ratify a contract by

intentionally accepting the benefits under the contract), aff'd

without opinion, 915 F.2d 1569 (5th Cir. 1990). His scheme was

executed when he went to FWNB to withdraw the CD, falsely claiming

that he wanted it for a friend and falsely stating that he had no

knowledge of the pledge. Moreover, Blackburn's intent to defraud

can be inferred from his statement to Lutz and Dick regarding the

bank's mistake and other testimony indicating that he knew that the

CD was supposed to have been pledged but intended that the bank

think it was pledged.

A conviction under the alternative charge of 18 U.S.C §

1344(2) required proof of the same elements as discussed above

except (1) the purpose of the scheme must have been to obtain money

funds, or credits and (2) the means used must have included false

and fraudulent pretenses, representations, and promises. The

purpose of Blackburn's scheme was to obtain the full benefit of the

loan without having to forfeit the amount pledged in the event of

default. Blackburn executed his scheme by falsely claiming that he

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wanted to withdraw the CD for a friend and denying that he had any

knowledge of the pledge.

Blackburn contends that the government did not meet its burden

because it did not prove that he actually pledged the CD. He

argues that Lutz was not authorized to pledge the CD and that he

did not discover that the CD had been pledged until February 1991.

He further states that the government's evidence, at most,

indicated that he became aware of the improper pledge in November

1989 and did not notify the bank. We disagree. First, although

the government alleged that Blackburn physically pledged the CD, it

was not required to prove that a legally binding pledge existed.

The point of Blackburn's scheme was to assert (falsely) that he

never knew a pledge was to be made. Second, the government proved

that Blackburn knew that the CD was supposed to have been pledged

and that he pretended it was pledged so he would have the benefit

of the loan.

Blackburn also argues that he lacked specific intent to

defraud because the CD had been offset prior to his attempt to

redeem it. The fact that the CD had been offset does not require

reversal. Implicit in the indictment and the government's case is

that Blackburn sought the value of the CD and not the paper upon

which it was written.3

3
This case would be different, and criminal liability should not
attach, if the facts showed that Blackburn did not know from the
outset that there was a discrepancy in the loan documents, did not
make false statements to the bank that the CD was intended only as
a compensating balance rather than a pledge, and did not advise
Lutz to mislead FBI investigators. The bank fraud statute cannot
mean that a borrower is criminally at fault whenever he seeks,

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 B. Constructive Amendment of the Indictment

Blackburn's next contention is that the indictment was

constructively amended because the government alleged one set of

facts in the indictment but proved another at trial. The crux of

Blackburn's argument is that the government alleged but failed to

prove that Blackburn pledged the CD. As discussed above, the

evidence was sufficient to support the government's allegations.

C. Sufficiency of the Indictment

Blackburn urges that the indictment was fatally defective

because it did not allege the elements "knowingly" and "executes or

attempts to execute." An indictment does not have to allege the

elements in precise statutory terms. Hagnar v. United States, 285

U.S. 427, 430 (1932). A count should be read in its entirety,

including its use of statutory section numbers. United States v.

Arteaga-Limones, 529 F.2d 1183, 1188, 1200 (5th Cir.), cert.

denied, 429 U.S. 920 (1976). Since the indictment fairly imports

all the elements and includes the statutory section number, we find

that it was not defective.

D. Reliance on Perjured Testimony

Blackburn contends that his conviction must be reversed

because Lutz, a key government witness, gave perjured testimony.

We will not permit a conviction on tainted testimony, but

Blackburn's conviction was not based on tainted testimony. See

Mesarosh v. United States, 352 U.S. 1, 5 (1956). To obtain a

without the use of fraudulent representations, to take advantage of
a bank's negligent loan documentation.

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reversal on the grounds that the government relied on perjured

testimony, the following must be shown: (1) the contested

statements were actually false, (2) the statements were material,

and (3) the prosecution knew that they were false. United States

v. Chagra, 735 F.2d 870, 874 (5th Cir. 1984). Blackburn has not

met his burden on any of the elements.

E. Tender of Material

Blackburn argues that the government violated his due process

rights because it did not tender Lutz's grand jury testimony until

two days before trial and did not tender FBI interview notes until

the sentencing hearing. Blackburn's argument is meritless. Under

the Jencks Act, 18 U.S.C. §3500, the government is not required to

tender a witness's grand jury testimony until the witness has

testified on direct examination. See 18 U.S.C. § 3500(a). In this

case, the trial court ordered the government to turn over all

Jencks Act material the day before a witness was to testify. The

government complied with the court order and the Jencks Act by

delivering all Jencks Act material two days before trial. The

government was not required to tender the FBI interview notes

because they are not discoverable. See United States v. Welch, 810

F.2d 485, 490 (5th Cir.), cert. denied, 484 U.S. 955 (1987).

Furthermore, the court made an in camera review of the notes and

found that there was no exculpatory evidence in them.

F. Denial of Evidentiary Hearing

Blackburn contends that the denial of his motion for a new

trial without an evidentiary hearing was a due process violation.

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A motion for new trial may be ruled on without an evidentiary

hearing, and the decision to hold a hearing rests within the sound

discretion of the trial court. Chagra, 735 F.2d at 873. We find

no indication that the trial court abused its discretion.

G. Sentencing

The remaining issues involve Blackburn's sentence. Blackburn

argues that (1) the court erred by adding five points to his base

level offense; (2) the court should have reduced his base level by

three points because it utilized intended, as opposed to actual,

loss; and (3) the court erred in computing restitution.

1. Five-point increase. Under the Sentencing Guidelines,

bank fraud has a base level of six. See U.S.S.G. § 2F1.1(A).

Offense characteristics are added to the base level depending on

the amount of the loss incurred by the victim. The trial court

added five levels because it determined that the loss was more than

$40,000 but less than $70,000. In making this determination, the

trial court included the intended loss of the CD ($28,590) and

attorney's fees incurred by the bank in defending Blackburn's civil

suit ($20,878).

Blackburn argues that the guidelines do not authorize the

trial court to use intended loss. This argument is without merit.

Section 2F1.1 application note 7 provides, "[I]f an intended loss

that the defendant was attempting to inflict can be determined,

this figure will be used if it is greater than the actual loss."

Because the actual loss is limited to attorney's fees from the

9
civil suit, the court appropriately used the loss intended by

Blackburn.

Blackburn also argues that the court should not have included

the attorney's fees in the loss calculation because the civil suit

was not directly related to the offense charged in the indictment,

the fees were excessive and unreasonable, and the fees included

time spent on matters related to the criminal prosecution. We

disagree. Blackburn's scheme was to get his pledged document back

from the bank in the event that the loan went into default. Filing

a civil suit against the bank was part of that scheme, and

therefore, the attorney's fees were properly included in the loss.

Other than his conclusory assertions, he offers no evidence to

support his allegation that the fees were excessive and

unreasonable. And while the detail of legal fees provided by the

government does include entries relating to the criminal trial,

Blackburn has not proved that these fees were included in the total

used by the court.

2. Three-point reduction. Blackburn's second contention is

that because the trial court utilized the intended loss, rather

than the actual loss, his offense level should have been reduced by

three levels. Section 2F1.1 n.9 provides that "in the case of a

partially completed offense (e.g., an offense involving a completed

theft that is part of a larger, attempted theft), the offense level

is to be determined in accordance with the provisions of § 2X1.1."

In turn, § 2X1.1(b)(1) requires that the base offense level be

reduced by three levels unless the defendant completed all the acts

10
necessary for a successful completion of the substantive offense.

Blackburn's offense, however, was not a partially completed

offense. Although his scheme failed, Blackburn completed all of

the necessary acts when he filed suit against the bank.

3. Restitution. Defendant's final contention is that the

court erred by including the attorney's fees incurred in defending

the civil suit ($20,878) and the bank's total loss on the defaulted

loan ($34,291) in the restitution. "Restitution is limited to

losses caused by the specific conduct underlying the offense of

conviction." United States v. Stouffer, 986 F.2d 916 (5th Cir.

1993) (citing Hughey v. United States, 495 U.S. 411, 414 (1990)).

The attorney's fees were a direct result of Blackburn's offense,

and thus, were properly included. The foreclosure expenses,

however, were not caused by Blackburn's scheme. Rather, the

foreclosure would have occurred regardless of Blackburn's scheme.

These expenses should not have been included in the restitution.

III. CONCLUSION

For the foregoing reasons, we reverse and remand on the issue

of restitution and affirm all other issues.

AFFIRMED in part. REVERSED and REMANDED in part.

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