United States v. Kenneth Eugene Haddock
956 F.2d 1534 (1992)
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Rule of Law:
General jury instructions defining "willfulness" and "intent to injure or defraud" are insufficient to adequately convey a defendant's good faith defense to charges of misapplication of bank funds under 18 U.S.C. § 656, and the failure to give a specific good faith instruction constitutes reversible error if evidence exists for a reasonable jury to believe the defense. For sentencing under U.S. Sentencing Guideline § 2F1.1 (fraud), the "loss" amount should be determined based on actual, intended, or probable loss, not merely the amount of loans obtained through fraudulent conduct.
Facts:
- Kenneth Haddock was chairman and CEO of the Bank of White City and the Bank of Herington, owning 55% of their holding company, Herington Bancshares, and was also president and sole shareholder of his own company, First Finance, Inc., established in 1986 to acquire loans.
- In April 1987, Haddock arranged for the Bank of Herington to purchase another bank, agreeing that Herington Bancshares would inject $960,892; Haddock then caused Herington Bancshares to issue a check for this amount knowing its account had a $350,000 shortfall, providing Herington Bancshares interest-free use of the funds for twelve days until he deposited sufficient funds.
- Haddock secured $250,000 from the Bank of White City as a "downpayment on exclusive purchase rights" for the Easton loan package, but used the funds for a personal capital injection into another bank and a personal residence, later repaying the amount.
- Haddock obtained a $711,000 loan for First Finance from Kaw Valley State Bank by making false representations about the use of loan proceeds and by submitting a personal financial statement that omitted a $10,000 debt and a $350,000 open line of credit from First Finance.
- Haddock secured $350,000 from the Bank of White City for exclusive rights to Easton loans, despite having already pledged all of those loans as collateral to Kaw Valley State Bank for a prior loan.
- Haddock misrepresented the cost of the Galena Loan Package to the Bank of White City as $95,766.45, when First Finance actually paid $70,766.45, causing the bank to pay an additional $25,000 which Haddock falsely attributed to a "servicing fee."
- During an FDIC investigation in May 1988, Haddock altered First Finance's checkbook by changing deposits and eliminating substantial overdrafts to conceal financial irregularities from examiners.
Procedural Posture:
- A jury returned a verdict finding Kenneth E. Haddock guilty on two counts of misapplication of bank funds (18 U.S.C. § 656), six counts of bank fraud (18 U.S.C. § 1344), one count of false statement to a federally insured bank (18 U.S.C. § 1014), and one count of making false statements to the FDIC (18 U.S.C. § 1007).
- The jury verdict was returned on December 10, 1990.
- On December 13, 1990, Haddock filed a timely motion for a new trial under Federal Rule of Criminal Procedure 33 in the federal district court.
- On February 7, 1991, the district court entered an order denying Haddock’s initial motion for a new trial.
- On February 11, 1991, Haddock, through new counsel, filed a motion for leave to supplement his motion for new trial and to extend the time for filing his motion for new trial.
- On February 19, 1991, Haddock filed a separate motion for a judgment of acquittal, or, in the alternative, to arrest judgment and for a new trial, asserting additional grounds including an Ex Post Facto Clause violation and ineffective assistance of counsel.
- The district court denied Haddock's motions filed on February 11 and February 19, concluding it lacked jurisdiction to grant them as they were untimely under Rule 33.
- Kenneth E. Haddock, as the defendant-appellant, appealed his convictions and the denial of his motions to the United States Court of Appeals for the Tenth Circuit.
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Issue:
1. Does a district court's failure to provide a specific "good faith" instruction to the jury for charges of misapplication of bank funds under 18 U.S.C. § 656 constitute reversible error when general instructions on "willfulness" and "intent to injure or defraud" were provided, and there is sufficient evidence for a reasonable jury to believe the good faith defense? 2. Did the district court err in calculating "loss" for sentencing under U.S. Sentencing Guideline § 2F1.1 (fraud) by assuming the loss was the total amount of loans obtained through fraudulent conduct, rather than assessing actual, intended, or probable loss?
Opinions:
Majority - Tacha, Circuit Judge
1. Yes, the district court erred by failing to provide a specific good faith instruction for the misapplication of bank funds counts (Counts 1 and 8), and this error requires a new trial on those counts because the general instructions on "willfulness" and "intent to injure or defraud" were insufficient to convey Haddock's defense, and there was sufficient evidence for a jury to potentially believe his good faith. The court held that, in the Tenth Circuit, general instructions on willfulness and intent are insufficient to fully and clearly convey a good faith defense, citing United States v. Mann, United States v. Harting, and United States v. Hopkins. A defendant is entitled to an instruction on any recognized defense for which there is sufficient evidence. Haddock provided testimony regarding reliance on a bank officer for account funds (Count 1) and an agreement with the bank on fund usage (Count 8), which a reasonable jury could believe. Therefore, the convictions on Counts 1 and 8 were reversed and remanded for a new trial. 2. Yes, the district court erred in calculating the amount of "loss" for sentencing under U.S. Sentencing Guideline § 2F1.1 (fraud). The court, relying on its recent decision in United States v. Smith, held that "loss" for fraud offenses under § 2F1.1 must be determined by the greater of actual or intended loss, not simply the total amount of loans involved in the fraudulent conduct. The district court had mistakenly assumed the entire loan amounts were losses without determining actual, intended, or probable loss. Consequently, Haddock's sentence was reversed and remanded for resentencing on Counts 2-7, 9, and 10. Regarding other issues, the court affirmed that the indictment for altering the checkbook (Count 10) did not fail to state an offense under the pre-amendment version of 18 U.S.C. § 1007, and therefore did not violate the Ex Post Facto Clause, finding that the alterations constituted a "statement" under the statute. The court also affirmed the district court's dismissal of Haddock's untimely second motion for a new trial, holding that ineffective assistance of counsel claims are not "newly discovered evidence" under Federal Rule of Criminal Procedure 33 if the facts were within the defendant’s knowledge at the time of trial. Additionally, the court affirmed convictions on Counts 2-7, 9, and 10, finding sufficient evidence, no fatal variance between indictment and proof, and no abuse of discretion in excluding photocopied documents due to authenticity concerns.
Analysis:
This case significantly clarifies the requirements for jury instructions regarding affirmative defenses in federal criminal cases, particularly within the Tenth Circuit, by mandating specific good faith instructions for charges like misapplication of bank funds. This prevents the defense from being obscured by general intent language and ensures defendants can fully present their theory of the case. Furthermore, the decision provides crucial guidance on the interpretation and application of the U.S. Sentencing Guidelines' "loss" calculation in fraud cases, shifting the focus from the gross amount of fraudulently obtained funds to a more nuanced assessment of actual, intended, or probable loss. This refinement impacts the severity of sentences in financial crimes and promotes more equitable application of sentencing guidelines, influencing how prosecutors present cases and how defense attorneys strategize both at trial and during sentencing.
