IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 92-2828
_____________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
TOM SCHULTZ and JAMES CHAPLIN,
Defendants-Appellants.
_________________________________________________________________
Appeals from the United States District Court
for the Southern District of Texas
_________________________________________________________________
(March 10, 1994)
Before JOHNSON, GARWOOD, and JOLLY, Circuit Judges.
JOHNSON, Circuit Judge:
Defendants James Chaplin and Tom Schultz were charged in a
seventeen-count indictment with criminal acts surrounding a bank
fraud scheme. Although a jury found each man guilty of the
charged offenses, the Government failed to proffer sufficient
evidence of federal jurisdiction. We therefore reverse.
I. Facts and Procedural History
Defendants Chaplin and Schultz were charged along with a
third man, Kenneth E. "Jason" Lothamer, with executing a scheme
to defraud and submit false statements to Texas Commerce Bank-
Sugar Land ("TCB-Sugar Land" or "the bank") in violation of 18
U.S.C. §§ 2, 371, 1014, 1344. Lothamer was the director,
president, and sole shareholder of Construction International,
Limited of Texas ("CIL"), a company which provided environmental
products to chemical companies, railroad companies, and
hospitals. On October 1, 1987, Defendant Chaplin joined CIL to
manage the hospital hazardous waste division of the company and
to become CIL's chief financial officer ("CFO"). As CFO, Chaplin
assisted Lothamer in obtaining loans from TCB-Sugar Land.
According to Chaplin, Lothamer would provide information to
Chaplin, who compiled that information for presentation to the
bank. Based upon that information, TCB-Sugar Land extended to
CIL a line of credit which aggregated to approximately
$5,000,000.00.
Because the bank required collateral worth twice the amount
of each loan, Lothamer would furnish the bank with invoices
representing debts owed to CIL by various companies. Several of
those invoices listed Dow Chemical Company and Rock Wool
Insulation Company as owing CIL millions of dollars for thousands
of feet of track pans.1 Those invoices were completely
fabricated by Lothamer. On the Dow Chemical invoices, he
represented that the contact person was Barbara Nelson and listed
her Dow Chemical telephone number. In actuality, that telephone
number was a CIL number, and Lothamer instructed his secretary,
Susan Pickford, to answer that telephone line as Barbara Nelson
and to verify the Dow Chemical invoices in question. The other
CIL employees were instructed never to answer that particular
1
Track pans are fiberglass containers which are placed on
railroad tracks to catch chemical substances which are wasted
during the loading and unloading of railroad cars.
2
line. Lothamer allegedly set up a similar system with Defendant
Schultz. Schultz owned fifty percent of Rock Wool Insulation
Company. That company, located in a Chicago, Illinois, suburb,
installed fiberglass insulation. It did not purchase or install
track pans. However, bank officials were able to verify the Rock
Wool invoices for the purchase of track pans by calling Defendant
Schultz on his "private line." That line was actually Schultz's
home telephone number.
This scheme unravelled in June of 1989, when the Sugar Land
bank president could not reach Schultz to verify an invoice. The
president, Lewis Garvin, therefore obtained Rock Wool's office
number by calling information. Upon calling Rock Wool, Mr.
Garvin learned for the first time that Rock Wool had not ever
purchased track pans from CIL and, in fact, did not use track
pans at all. After failing in its attempts to obtain valid
invoices or the repayment for the latest loan——worth
approximately $1,000,000.00——TCB-Sugar Land involved the FBI. On
April 20, 1992, the Government filed a second superseding
indictment against Lothamer, Schultz, and Chaplin, charging them
with aiding and abetting,2 conspiracy,3 making false statements
2
18 U.S.C § 2.
3
18 U.S.C. § 371.
3
to an FDIC insured bank,4 and bank fraud against an FDIC insured
bank.5
Lothamer pled guilty just prior to his trial. Chaplin and
Schultz received a joint jury trial. After the Government
rested, Mr. Chaplin's counsel moved for acquittal, contending
that the Government had not proved that TCB-Sugar Land was
insured by the FDIC.6 The Government had produced an FDIC
insurance certificate not for TCB-Sugar Land, but for TCB-
National Association. Counsel for the Government argued that
bank officials had testified that the Sugar Land bank fell under
the charter of TCB-National Association. The district court,
accepting the Assistant U.S. Attorney's representations, denied
Chaplin's motion. The jury found Chaplin and Schultz
4
18 U.S.C. § 1014.
5
18 U.S.C. § 1344. Congress amended this provision in the
Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"). FIRREA replaced the § 1344 requirement that the
fraud be committed against a "federally chartered or insured
financial institution" with the requirement that the fraud be
committed against a "financial institution." While upon first
impression this change might be construed as deleting the
requirement that the bank be insured by the FDIC, upon closer
review, we are convinced that that requirement is still viable.
Among other things, 18 U.S.C. § 20 defines "financial
institution" as "an insured depository institution" and refers
readers to 12 U.S.C. § 1813(c)(2). Section 1813(c)(2) defines
"insured depository institution" as any bank or savings
association whose deposits are insured by the FDIC.
The superseding indictment in this case alleged that TCB-
Sugar Land's deposits were insured by the FDIC, so no other
definition of financial institution is relevant here. Indeed,
the Government failed to prove that any other definition was
applicable in this case.
6
Counsel for Mr. Schultz also moved for acquittal, but on
other grounds.
4
guilty, as charged, and the district court sentenced Chaplin to
thirty-seven months' imprisonment on counts one and two and a
concurrent twenty-four month prison term on the remaining counts.
The court sentenced Schultz to twenty-seven months' imprisonment
on counts one and two and a concurrent twenty-four month prison
term on his remaining counts. Both men were held jointly and
severally liable for restitution to Texas Commerce Bank in the
amount of $1,003,076.85. Raising several points of error,
Defendants Chaplin and Schultz appeal.
II. Discussion
Each of the crimes for which the defendants have been
convicted requires the Government to prove, inter alia, that TCB-
Sugar Land was insured by the FDIC. As this Court has repeatedly
and consistently stated, proof of FDIC insurance is not only an
essential element of the bank fraud and false statement crimes,
but it is also essential for the establishment of federal
jurisdiction. United States v. Slovacek, 867 F.2d 842, 845 (5th
Cir.), cert. denied, 490 U.S. 1094 (1989); United States v.
Trice, 823 F.2d 80, 86 (5th Cir. 1987). Criminal defendants may
therefore claim that the Government insufficiently proved the
jurisdictional element post-verdict. Trice, 823 F.2d at 87.
That Defendant Schultz failed to move for acquittal due to the
insufficiency of the evidence of the jurisdiction issue is
therefore of no moment. He did not waive the alleged
jurisdictional error, and the applicable standard of review as to
Schultz does not escalate to plain error. The insufficiency of
5
the evidence standard is applicable to both Schultz and Chaplin.
That standard, though more lenient than the plain error standard,
is still quite formidable. The Court must review all of the
admissible evidence and the reasonable inferences which flow
therefrom in a light most favorable to the verdict to determine
whether a reasonable trier of fact could find that that evidence
established guilt beyond a reasonable doubt. Trice, 823 F.2d at
86; United States v. Maner, 611 F.2d 107, 108-09 (5th Cir. 1980).
Here, the Government claims that the FDIC certificate of
insurance for TCB-National Association, along with the testimony
of two TCB-Sugar Land bank presidents and a TCB-Houston loan
management vice-president sufficiently established that TCB-Sugar
Land was insured by the FDIC. A review of that evidence follows.
Lanny Brenner, president and chief executive officer of TCB-
Sugar Land from 1983 until February 1, 1988, testified that Texas
Commerce Banks were grouped into six bank clusters. Although he
did not list each of the banks which belonged to his cluster, Mr.
Brenner testified that TCB-Stafford was the largest bank in the
cluster and that he, along with the presidents of the other four
smaller banks, answered to the president and CEO of TCB-Stafford.
Mr. Brenner also stated that loans had to be approved by the Loan
and Discount Committee, which was composed of the presidents of
the six banks in his cluster.
After Mr. Brenner left TCB-Sugar Land, Lewis Garvin became
president of the bank. The Government introduced into evidence
reports addressed to the Loan and Discount Committee in which Mr.
6
Garvin requested approval of loans to CIL. Several of the
reports also requested that "TCB-Houston, Stafford Branch" or
"TCB-Houston" participate in portions of the loans.
Additionally, Mr. Garvin testified that after he became concerned
about the bank's loans to CIL, he contacted the "Loan Management
Department at the bank." He specifically talked with Mark
Harris, John Kaszynski, and Cheryl Pace. Mr. Garvin neither
explained the structure of the Loan Management Department nor
identified "the bank" in which the department was located. He
intimated, however, that he was subordinate to that department.
Cheryl Pace, vice-president of the Loan Management
Department, testified that that department operated out of the
downtown location of TCB-Houston. Ms. Pace testified that she
began working for Texas Commerce Bank in 1980 and transferred to
TCB-Houston in May 1987, "when branching became effective in
Texas." Ms. Pace confirmed that the chairman of TCB-Sugar Land
was subordinate to the chairman of TCB-Stafford, who, according
to Ms. Pace, was in charge of five banks in the southwest area.
Ms. Pace also mentioned the "branch manager" of TCB-Sugar Land
and intimated that all TCB banks were part of the same
organization.
The Government argues that this evidence, coupled with TCB-
National Association's FDIC insurance certificate, sufficiently
established that TCB-Sugar Land was a branch of TCB-National
Association and was covered by TCB-National Association's FDIC
7
insurance policy.7 Although we agree that the Government proved
that TCB-Sugar Land was, in some way, related to TCB-Stafford,
TCB-Houston, and to a larger, but nebulous, Texas Commerce Bank
organization,8 we find that the Government failed to prove that
TCB-Sugar Land was insured by the FDIC——whether under TCB-
National Association's policy or otherwise.
The FDIC insurance certificate and accompanying documents
introduced into evidence conclusively refute the Government's
contention that TCB-Sugar Land was a branch insured by TCB-
National Association's insurance policy. Those documents
specifically set forth the history of TCB-National Association.
The Assistant Executive Secretary of the FDIC certified in
writing that TCB-National Association was initially designated
7
The Government also contends that one TCB-Sugar Land check,
which contained an FDIC symbol and stated that deposits up to
$100,000 were insured, proves beyond a reasonable doubt that the
bank was insured by the FDIC. We reject that contention. An
FDIC logo on a check no more proves beyond a reasonable doubt
that the bank in question has FDIC insurance than a National
Basketball Association logo on a jacket proves that its wearer is
a professional basketball player.
Even if this Court were inclined to hold that an FDIC logo
on a check sufficiently proves that a bank has FDIC
insurance——and it is not so inclined——that holding would not
benefit the Government here. The Government introduced more than
1200 checks, numerous credit and deposit slips, and various other
TCB-Sugar Land documents into evidence. Only one check, amidst
this voluminous record, contained the FDIC symbol. Were we to
adopt the Government's reasoning, we would be more inclined to
rule that the absence of the FDIC symbol on the other
multitudinous documents in this case raises the inference that
TCB-Sugar Land was not insured, instead of ruling to the
contrary.
8
The Government did not elicit any testimony about TCB-
National Association, let alone prove that TCB-National
Association and TCB-Houston are one and the same.
8
"The National Bank of Commerce of Houston" and became a member of
the FDIC on January 1, 1934. On January 17, 1964, The National
Bank of Commerce of Houston consolidated with the Texas National
Bank of Houston. The bank then became "Texas National Bank of
Commerce of Houston." Finally, on January 20, 1970, the Texas
National Bank of Commerce of Houston changed its corporate title
to "Texas Commerce Bank National Association." FDIC documents
support each of the Assistant Executive Secretary's statements.
Important for our purposes, the final FDIC document, dated
January 30, 1970, specifically states that Texas Commerce Bank
National Association operates no branches. The FDIC insurance
certificate is also dated January 30, 1970. The Government
introduced no document which reflected that TCB-National
Association had added branches subsequent to January 30, 1970, or
updated its bank control status after that date. Absent such
documentation, this Court will not assume that TCB-National
Association operated any branches in contravention to its FDIC
records.9
9
Federal statute and regulations require banks to notify the
FDIC of changes in their control. They further require the FDIC
to approve any such changes. 12 U.S.C. § 1817(j); 12 C.F.R. §
303.4 (1993). The Change in Bank Control Act became effective in
1964——six years before TCB-National Association assumed that name
and 14 years before branch banking was allowed in Texas. See 12
U.S.C. § 1817 (Historical and Statutory Notes) (stating that
subsection (j), the bank control notification section, was added
in 1964). Additionally, FDIC records must affirmatively reflect
bank control changes and the FDIC approval thereof. See 12
C.F.R. § 309.4(d)(2)(i) (providing that after the FDIC accepts a
notice of a bank's change in control, records of the acceptance
of the change, as well as information about the change, become
available for public inspection).
9
Indeed, at the time that the 1970 FDIC certificate was
issued——and none has apparently been issued since that
time——branch banking was illegal in Texas. The Texas
Constitution specifically provided that corporate bodies with
banking and discounting privileges "shall not be authorized to
engage in business at more than one place, which shall be
designated in its charter." TEX. CONST. art. XVI, § 16, amended
Aug. 23, 1937, Nov. 4, 1980; Nov. 6, 1984; Nov. 4, 1986. Under
the McFadden Act, national banks could operate branches only to
the extent that state banks could operate. 12 U.S.C. § 36(c).
Because state banks were prohibited from engaging in branch
banking, national banks were likewise prohibited.
While Ms. Pace, one of the Government's witnesses, testified
that branch banking became effective in Texas in May of 1987, she
no doubt was referring to a constitutional amendment passed by
Texas voters in November 1986, which allowed branch banking in
the city or county of the bank's domicile.10 See TEX. CONST. art.
XVI, § 16(e). Because TCB-Sugar Land is located in Sugar Land,
Fort Bend County, and TCB-National Association is located in
Houston, Harris County, TCB-Sugar Land could not have operated as
a branch of TCB-National Association in May of 1987.
The Government points out that a federal district court
ruled that national banks could begin branch banking in June of
1988. Texas v. Clarke, 690 F. Supp. 573 (W.D. Tex. 1988). The
10
Until 1988, national banks only operated branches city-
wide or county-wide. Texas v. Clarke, 690 F. Supp. 573, 575
(W.D. Tex. 1988).
10
Government is absolutely correct. However, it did not introduce
one shred of evidence which showed that TCB-Sugar Land became a
branch of TCB-National Association subsequent to that decision.
In fact, no witness even mentioned the name "TCB-National
Association," let alone connected TCB-Sugar Land with that
organization. Further, even if the Government had proved that
the Sugar Land bank was a branch of the National Association
bank, such evidence would have been insufficient to prove that
TCB-Sugar Land was insured under TCB-National Association's FDIC
insurance policy. See 12 U.S.C. § 1817(j) (requiring
notification of changes in bank control and acceptance by the
FDIC of such changes); 12 C.F.R. § 303.4 (1993) (same).
The Government introduced the testimony of two TCB-Sugar
Land bank presidents. If those officials had possessed personal
knowledge of the bank's insurance status, their testimony that
TCB-Sugar Land was insured by the FDIC during the periods in
question, if unchallenged, would have sufficiently proven the
jurisdiction issue in the case sub judice. United States v.
Slovacek, 867 F.2d 842 (5th Cir.), cert. denied, 490 U.S. 1094
(1989); United States v. Rangel, 728 F.2d 675 (5th Cir.), cert.
denied, 467 U.S. 1230 (1984). For reasons unbeknownst to this
Court, the Government chose not to elicit such testimony. The
testimony and evidence the Government did proffer——that TCB-
National Association was insured by the FDIC——are patently
insufficient to prove that TCB-Sugar Land was so insured, even
though the two banks may have been related. The Government
11
therefore failed to establish federal jurisdiction and prove each
prima facie element of the charges lodged against Defendants
Chaplin and Schultz.
This Court has continually cautioned the Government that its
failure to adequately prove the jurisdiction element might one
day require the reversal of bank fraud convictions.11 Maner, 611
11
This Court has often warned that insufficient attention to
the jurisdiction element might become the Government's nemesis.
See, e.g., United States v. Harrill, 877 F.2d 341, 344 (5th Cir.
1989) ("[W]e again caution the prosecution about the proof of the
jurisdictional element required in these cases. There must be
adequate proof that the accounts of the financial institution
were insured at the time of the offense by the appropriate
federal agency."); Slovacek, 867 F.2d at 846 ("There are numerous
indications in our prior decisions that prosecutors appear to be
indifferent to the fact that we have held that the jurisdictional
requirement . . . is an essential element of the offense.
Indeed, in some of these cases one searches in vain for any
careful and intelligent effort to prove this element. We are
aware that the offices of United States Attorneys frequently have
a high turnover in personnel and limited resources.
Nevertheless, we do not believe that this problem cannot be
solved, especially when lack of sufficient proof of this element
now compels reversal and dismissal of the indictment, not just
remand for a new trial with better evidence." (internal quotation
marks deleted)); United States v. Platenburg, 657 F.2d 797, 799
(5th Cir. 1981) ("Despite the fact that FDIC insured status is an
express requirement of the applicable statutes, an essential part
of a valid indictment, and an indispensible (sic) item of proof
of an offense, prosecutors have been extremely lax in the
treatment accorded this element. . . . [I]n Maner we moved from
cautionary statements to a clarion call that the day would come
when our reluctance to reverse on the issue of FDIC proof would
be overcome . . . . The day has come; the line from sufficiency
to insufficiency has been crossed.); United States v. Brown, 616
F.2d 844, 849 (5th Cir. 1980) ("We have difficulty comprehending
why the Government repeatedly fails to prove this element more
carefully since the Government's burden is so simple and
straightforward." (quoting Maner, 611 F.2d at 112)); Maner, 611
F.2d at 112 ("[T]his [failure to carefully prove the jurisdiction
element] is a nationwide plague infecting United States Attorneys
throughout the land. Hopefully the Attorney General will sense
and remedy this national deficiency by directions pointing out
the simple ways to prove this simple but indispensable fact.").
12
F.2d at 112. That day came in United States v. Platenburg, 657
F.2d 797 (5th Cir. 1981), in United States v. Trevino, 720 F.2d
395 (5th Cir. 1983), and it has likewise come today.12
III. Conclusion
For the above stated reasons, this Court REVERSES and
REMANDS with instructions that the district court dismiss the
charges against both defendants. See Burks v. United States, 437
U.S. 1, 18 (1978) (holding that indictments must be dismissed
when the Government fails to prove its case during trial).
12
The Seventh and Ninth Circuits have likewise reversed
convictions due to the Government's failure to prove that
financial institutions were federally insured. United States v.
James, 987 F.2d 648 (9th Cir. 1993); United States v. Shively,
715 F.2d 260 (7th Cir. 1983), cert. denied, 465 U.S. 1007 (1984).
13