940 F. 2d 1536 - United States v. Knox

Nos. 90-30282, 90-30298.

United States Court of Appeals, Ninth Circuit.

Before EUGENE A. WRIGHT and O'SCANNLAIN, Circuit Judges,and MACBRIDE,* District Judge.

MEMORANDUM**

Harry Knox and Ann Neavill were convicted in a joint trial before a jury of misapplying bank funds in violation of 18 U.S.C. Sec. 656. Neavill was also convicted of making false entries in bank records in violation of 18 U.S.C. Sec. 1005. Knox and Neavill appeal their convictions on the basis of insufficient evidence, improper evidentiary rulings by the district court and improper denial by the district court of motions to sever and motions for a mistrial.

We affirm their convictions on all counts except for Harry Knox's convictions on counts 29-35. We vacate Harry Knox's sentence and remand for new sentencing consistent with this disposition.

The denial of a motion for severance is reviewed for abuse of discretion. U.S. v. Unruh, 855 F.2d 1363 (9th Cir.), cert. denied, 109 S.Ct. 513 (1987). The factors to be weighed include judicial economy on the one hand and prejudice to the defendant on the other. Id. at 1374.

Knox argues he was prejudiced because, but for joinder with his codefendant sister, Ann Neavill, the jury would have absolved him of responsibility of all the joint counts. To prevail on this argument, a defendant "must show that he would call the codefendant at a severed trial, that the codefendant would, in fact, testify and that the testimony would be favorable to the moving defendant." U.S. v. Seifert, 648 F.2d 557, 563 (9th Cir.1980). Knox failed to demonstrate prejudice: he presented no evidence that his codefendant sister, Ann Neavill, would have been called as a witness in a separate trial, that she would have testified or that her testimony would have been favorable.

Knox also argues that the jury failed to compartmentalize the evidence as to him and Neavill. "The best evidence of a jury's ability to compartmentalize evidence is its failure to convict all defendants on all counts." Unruh, 855 F.2d at 1374; United States v. Kaplan, 554 F2d 958, 967 (9th Cir.), cert. denied, 434 U.S. 956 (1977). The jury acquitted Neavill on Count 24. This indicates that the jury understood its responsibilities and carefully followed the court's instruction. There was no abuse of discretion in the trial court's denial of defendant's motion to sever.1

The denial of a motion for mistrial is reviewed for abuse of discretion. United States v. Segal, 852 F.2d 1152, 1155 (9th Cir.1988). At the end of the government's case, the trial court judge granted defendants' Rule 29 motion and dismissed Count I of the indictment, the conspiracy count. Knox and Neavill argue that the evidence presented on the dismissed conspiracy count impermissibly prejudiced them. Neavill claims prejudice due to substantial testimony concerning the overt acts contained in the conspiracy indictment and a large number of exhibits concerning the alleged overt acts. Knox claims prejudice as well. However, Knox argues that the evidence concerning the conspiracy charge was insubstantial. He argues that the government's inclusion of the conspiracy charge borders on bad faith because, one assumes, the government only alleged the conspiracy in order to bring to the jury's attention a multitude of overt acts.2

Dismissal of the conspiracy count does not, as a matter of law, invalidate the substantive count convictions. Schaeffer v. United States, 362 U.S. 511, 516 (1960). This court has reviewed the entire trial transcript. There was a considerable amount of testimony concerning the overt acts alleged in the conspiracy count. However, the more significant overt acts were duplicated in the individual substantive counts. This court finds no abuse of discretion in the trial court's denial of the motion for a mistrial given that the trial court instructed the jury that Count 1 was no longer before them and the exhibits concerning the overt acts of count one were never presented to the jury for their consideration.

Ann Neavill asserts that the trial court committed reversible error by restricting cross examination of Mary Robertson to preclude questions concerning a purported severe depression during a time relevant to the offenses charged.

Evidentiary rulings are reviewable for an abuse of discretion. United States v. Catabran, 836 F.2d 453 (9th Cir.1988). The issue of Ms. Robertson's medication and the possible effects of mixing alcohol and anti-depressant medication was sufficiently raised on cross examination. This court finds no abuse of discretion in the trial court's ruling that the offer of proof by defendant concerning a deeper inquiry into Robertson's diagnosis did not justify further inquiry.

Neavill also argues that the court committed reversible error in admitting an exhibit replicating portions of the indictment. It is within the trial court's discretion to give the jury a copy of the indictment. United States v. Petersen, 548 F.2d 279, 280 (9th Cir.1977). The government argues that these summary charts were merely large replicas of the indictment.

Although perhaps the better practice is to instruct the jury as to what use it should make of the summary charts3, this court does not perceive an abuse of discretion in the trial court's admission of the summary charts.

Both defendants challenge their convictions on grounds of insufficient evidence. Viewing the evidence in the light most favorable to the prosecution, we must determine whether "any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." ______ v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2781 (1979) (emphasis in original).

To support a conviction under Sec. 656, the government must prove beyond a reasonable doubt that the defendant (1) was an officer or director of the Idaho State Bank who (2) willfully misapplied bank funds or credits by using them in a way that deprived the bank of its right to make its own decision as to how the funds or credits were to be used; and, in doing so, (3) acted with the intent to injure or defraud the bank.

The cashier testified that the procedure used by the bank when effecting payment of Harry Knox's American Express bills was that the bill would be delivered to Knox who would review the bill and note any personal items. The bill would then be presented to the cashier along with Knox's check for the personal items. The cashier would pay the remainder. The jury could reasonably infer from the fact that the American Express bill containing numerous charges for personal clothing was presented to the cashier without any indication of personal items and without an accompanying check that Harry Knox knowingly caused the misapplication of bank funds to pay for personal items. Jurors may infer intent from circumstantial evidence. United States v. Kaplan, 554 F.2d 958, 964 (9th Cir.) (per curiam), cert. denied, 434 U.S. 956 (1977). Likewise, a reasonable jury could have concluded that the amount of personal clothing purchases reflected on the American Express statement and paid by the bank approximated the $1,952.00 charged in the indictment.

Harry Knox charged the Idaho State Bank (ISB) the cost of mounting his personal fishing and hunting trophies. Knox argues that the bank received the benefit of displaying the trophies in exchange for the payment of mounting costs. He claims that the decision to pay the cost of mounting these trophies was a business decision. However, a rational jury could conclude that by charging the bank for these taxidermy expenses Knox took advantage of his confidential relationship with the bank in making decisions which deprived the bank of its right to determine how funds were to be used.

The jury convicted Knox of misapplication of bank funds for charging ISB for a personal fishing trip to Alaska. Knox claims the trip was a legitimate business trip taken to inspect a fishing lodge financed by an ISB loan. However, a reasonable jury could conclude that since the loan was fully secured by property located in Idaho and since there was no documentation supporting Knox's trip as a field inspection trip, the trip was a personal, not a business, trip.

Knox contends that the evidence was insufficient to support his conviction on Count 7 for misapplication of bank funds to pay approximately $3,000 for clothing purchased for Knox's personal wardrobe. Knox claims there is no evidence that he intended to defraud or injure the bank because he did not personally approve the payment. His sister, Ann Neavill, approved the payment. The jury could reasonably infer the requisite intent to defraud from Knox's statements to his part-time secretary that he deserved a new wardrobe and from his attempt to mislead the bank examiners by characterizing the clothing payment as a gift from the employees.

Harry Knox claims that the evidence is insufficient to support a conviction under Count 8 because there is nothing in the record to indicate that Knox knew ISB had paid for two personal hunting trips to Canada. From Knox's statements to the bank examiners that he had repeatedly requested information regarding these bills, the jury could conclude that Knox knew the bank had paid for these personal trips.

Harry Knox claims the evidence is too weak to support his conviction under Count 9. He claims specifically that George Jones, the cashier, is mistaken in his testimony that Knox instructed him to prepare checks on a weekly basis for Knox's wife, Pam, to use to pay housecleaning expenses. "[I]t is the exclusive function of the jury to determine the credibility of witnesses, resolve evidentiary conflicts, and draw reasonable inferences from proven facts." United States v. Nelson, 419 F.2d 1237, 1241 (9th Cir.1969). This panel may not usurp the juror's role in assessing the witness' credibility or the weight to be given to each witness' testimony. Our review is only to determine if the evidence was sufficient to support a conviction. The evidence is sufficient for a rational jury to conclude that Harry Knox instructed the cashier to prepare the weekly housecleaning checks, thereby misapplying bank funds.

Harry Knox claims that there is insufficient evidence to prove that he had anything to do with the $60,000 in unauthorized bonuses paid to him in 1985, 1986 and 1987. Knox is mistaken. There is sufficient evidence on which a rational jury could convict Knox of these counts. Although Knox claims there is no evidence that he even knew that bonuses were paid, the government presented evidence that the bonus payment was reflected on Knox's pay stub each year. The government also demonstrated that without the additional influx of money paid for bonuses, Knox's bank balance would have been inadequate to cover checks drawn on his account. Further, in reference to the bonuses, Knox told the examiners that the bonuses were paid because of excessive work the recipients were doing for the bank. Thus, a reasonable jury could conclude that Knox knew the payments were made.

Second, Knox argues that there was no evidence that Knox knew the payment of bonuses to be inappropriate. The jury heard evidence that Harry Knox was head of the executive committee; that the executive committee had the authority to approve bonuses (or at least make recommendations to the board of directors); that the minutes of the executive committee do not indicate authorization of bonuses; and that Jim Kevan, also a member of the executive committee, did not recall any motion with regard to approval of bonuses after 1984. The jury also heard evidence that when the bank examiner sought the executive committee minutes Harry Knox erroneously informed him that there were no executive committee minutes. From this evidence the jury could reasonably infer an intent to defraud.

The government asserts on appeal that Harry Knox was in fact convicted of aiding and abetting Ann Neavill in the commission of these counts. The elements that the government must prove on an aiding and abetting theory are different from the elements the government must prove when the defendant is charged with being a principal who committed the substantive offense. U.S. v. Gaskins, 849 F.2d 454, 459 (9th Cir.1988).4 The jury was not instructed on an aiding and abetting theory, therefore, the jury could not have convicted on this theory. However, the evidence is sufficient for the jury to convict on the theory that was presented at trial. Conviction on these counts is affirmed.

Harry Knox correctly argues that the evidence is insufficient as to these counts. The court has searched the record in vain for evidence from which a rational jury could conclude beyond a reasonable doubt that Harry Knox acted as a principal in the commission of these offenses. The evidence indicates that Harry Knox shared an ownership interest in HWK & Associates, the entity which owned the condominium. At one time Knox handled HWK's business but in 1984, Ann Neavill took over management of the condominium finances. It was generally known that by asking Ann Neavill, Harry Knox or Pam Knox, friends of the family could use the condominium if it was available. There was no evidence that Harry Knox submitted a claim charging the bank for the condominium or that he knew at the time that the bank was being charged. The only evidence which contemporaneously ties Knox to these offenses is that Harry Knox's wife, Pam, gave the key to Dan Fairman, a personal friend, whose stay at the condominium Ann Neavill later charged to the bank. The only other link between the condominium payments and Harry Knox is that in discussions with the bank examiners Knox later joined his sister in claiming that the individuals whose lodgings were charged to the bank were bank customers or employees.

Probably because of the scarcity of evidence linking Harry Knox to the bank's payments to HWK & Associates, the government does not argue on appeal that the evidence was sufficient to convict Knox as a principal. Instead the government claims Knox was convicted of aiding and abetting Ann Neavill in the commission of this crime.

18 U.S.C. Sec. 2(a) provides that "[w]hoever commits an offense against the United States or aids and abets, counsels, commands, induces or procures its commission, is punishable as a principal." It is well settled that " 'all indictments for substantive offenses must be read as if the alternative provided by 18 U.S.C. Sec. 2 were embodied in the indictment.' " U.S. v. Gaskins, 849 F.2d 454, 459 (9th Cir.1988) quoting United States v. Megna, 450 F.2d 511, 512 (5th Cir.1971). However, the elements necessary to convict a defendant on an aiding and abetting theory are different from the elements necessary to convict on the theory that the individual was the principal. Id. While there may be sufficient evidence in the record to support a conviction on an aiding and abetting theory, this theory was not presented to the jury. An appellate court may not affirm a conviction on a legal or factual theory that was not presented to the jury. McCormick v. United States, 111 S.Ct. 1807, 1815 n. 8 (1991).

The Harry Knox convictions under counts 29 to 35 are hereby reversed.

Ann Neavill also challenges her convictions on the ground that the evidence is insufficient to support the jury's finding. Neavill essentially makes the same argument for a number of counts. These counts will be reviewed together.

As to counts 10 (travel advances used to cover overdrawn checking account), 11 and 12 (housecleaning), 13 and 17 (dry cleaning), 15 and 25 (childcare), 16 (horse care and feeding), 18 and 19 (groceries), 22 (travel voucher), 23 (donation to horse association) and 29-35 (condominium), Neavill contends that to survive a sufficiency of the evidence challenge, the government must have produced evidence that each expense was not bank related. Neavill is mistaken. To succeed on Neavill's theory, the government would need to show, for example, that a tablecloth dry cleaned at bank expense had been used at Neavill's house for a dinner party which had no bank connection. This is a greater burden than the law requires. The government did not need to prove a negative, i.e. the expense was not bank related. It was enough that the government presented evidence that the expenses were personal in nature, that documentation of the business nature of these expenses was lacking, that Neavill had not sought or received any approval for these personal expenses and that, in many instances, Neavill mischaracterized these expenses so as to conceal their personal nature. From the evidence presented the jury could reasonably have concluded that the expenses were not bank related.

Neavill also argues that the panel should reverse these counts because there is some evidence in the record to show that these expenses were, in fact, bank related. By convicting Neavill, the jury has demonstrated that it has already rejected Neavill's contention that these were bank expenses. This panel may not invade the province of the jury in order to reweigh evidence. United States v. Nelson, 419 F.2d 1237, 1241 (9th Cir.1969).

Neavill also claimed the evidence was insufficient to convict her on Count 14 (vinyl floor purchased and installed). The government presented the evidence sufficient to convict Neavill. Neavill selected the vinyl and requested the vendor to bill the bank. She also provided a telephone number for the vendor to call to verify the expenditure.

As to count 18, Neavill argues that there is no basis for the jury to conclude that she misapplied the sum of $631.90 in personal grocery bills. The jury could reasonably determine from the evidence presented that this amount represents personal expenses charged by Neavill family members to the bank's charge account even though Ann Neavill herself did not sign for them.

As to Count 20 (Idaho Power), the evidence included testimony that Neavill's electric bills were sent directly to Neavill's residence. A reasonable jury could conclude that the only way these bills could have been paid by the bank would be for Neavill to bring them to work and submit them for processing. In addition, when Idaho Power threatened to cut off service to Neavill's residence, Neavill instructed her secretary to use bank funds to pay Neavill's personal utility bill. The evidence is sufficient to support conviction on this count.

As to count 21 (Delta Airlines check), Neavill argues that the evidence does not demonstrate that she took a trip on Delta Airlines. The evidence is sufficient to convict. The jury heard evidence that Neavill requested a bank check payable to Delta Airlines, that the check was exchanged for an airline ticket, that the ticket was to Salt Lake City, that the Intermountain Quarter Horse Association was at that time meeting in Salt Lake City and that Neavill told the bank examiner that she had charged the bank for the trip to Salt Lake City because, by working late, she missed her ride.

Counts 26, 27 and 28 involved bonuses paid to Neavill and Knox in December of 1985, 1986 and 1987. The evidence was sufficient to show that Ann Neavill misapplied bank funds by causing bonuses to be paid to herself and her brother Harry Knox. The Board of Directors did not approve or have knowledge of these bonuses. Even if the executive committee could have approved bonuses, Jim Kevan, the third member of the executive committee was not privy to any discussions concerning a bonus.

Neavill argues that the board acquiesced in these bonuses. The jury was instructed that the board of directors could approve by acquiescence. By convicting Neavill, the jury made a factual finding that the board did not acquiesce. It is not appropriate for this panel to reweigh the evidence. United States v. Nelson, 419 F.2d 1237, 1241 (9th Cir.1969).

As to counts 29-35, the condominium counts, Neavill argues that her conviction must fall because she did not personally use the condominium. The jury did not have to determine that Ann Neavill personally stayed at the condominium and then charged the stay to the bank. The jury was instructed that misapplication of bank funds could be for her own benefit or for the use and benefit of another.

Finally, the jury convicted Neavill of two counts of violating 18 U.S.C. Sec. 1005 and Sec. 2 for using bank funds to cover overdrafts in both her own and her husband Dennis' bank account. The evidence is sufficient to support this conviction. The evidence indicates that bank examiners drew Neavill's attention to her overdraft status and strongly suggested she take action to clear the overdraft. Neavill responded by instructing her secretary to issue two checks to cover these overdrafts, $5,000 to her account and $3,000 to her husband's. Neavill caused these checks to be listed as travel miscellaneous. When the bank examiners asked for an explanation of these expenses, Neavill claimed the $3,000 was an error. She was unable to document the $5,000. From this a reasonable jury could determine that Ann Neavill willfully caused a false entry to be placed in bank records with knowledge of its falsity and with the intent to deceive the bank examiners.

We affirm on all counts except for Harry Knox's convictions on counts 29-35. In light of our reversal on these counts and the concomitant danger that Knox may serve an excessive sentence if not released forthwith, we hereby reconsider and grant Knox's motion for release from custody pending a final resolution of this matter. The district court is hereby ordered to release Knox as soon as is practicable and subject to whatever bail conditions it deems appropriate pending resentencing. The mandate shall issue forthwith.

AFFIRMED in part, REVERSED AND REMANDED in part.