United States v. James Larry Dobbs

63 F.3d 391

• Court: Court of Appeals for the Fifth Circuit
• Decided: October 11, 1995
• Docket: 94-40606
• Status: Published

Opinions

STEWART, Circuit Judge:

James L. Dobbs appeals his convictions for fraudulently disposing of the collateral of the Farmers Home Administration (FmHA), bank fraud, and money laundering. For the following reasons, his convictions for money laundering are reversed and his remaining convictions are affirmed.

BACKGROUND

James Larry Dobbs was a long-time cattle farmer and rancher in Honey Grove, Texas. He was a regular customer of the Farmers & Merchants Bank (F & M) of Ladonia, Texas, where he borrowed money to carry on his farming and ranching operations. Beginning in 1985, Dobbs also began borrowing money from FmHA. He developed a good and substantial loan history with both FmHA and F & M.

On January 5, 1989, Dobbs borrowed $175,000 from FmHA to start a cow-calf operation¹, with the first of seven annual installments due January 1, 1990. Under his agreement with FmHA, Dobbs would purchase approximately 330 cows and some bulls, in order to produce calves for resale. FmHA paid off Dobbs’ outstanding bank loans to F & M except for one equipment loan, and immediately advanced him $16,000 for operating expenses. After FmHA refinanced the F & M loan, Dobbs agreed not to obtain any other bank loans to purchase additional cows. Due to the possibility of confusing collateral, FmHA does not like for farmers to have cattle mortgaged to local lenders.

In 1989, Dobbs’ entire cattle herd was quarantined by the state after certain cattle tested positive for brucellosis.² On November 16, 1988, Dobbs advised his County Supervisor for the FmHA that he had sold all of his cattle for slaughter without authority and did not have enough money from the proceeds to pay both FmHA and F & M. FmHA agreed to give Dobbs a new loan and schedule payments over seven years if he applied the proceeds from his unauthorized sale to his outstanding FmHA loan. Dobbs agreed.

In 1991, despite promises to the contrary, Dobbs borrowed approximately $101,000 from F & M in five separate notes to buy approximately 190 head of cattle. Dobbs signed a security agreement in which he agreed not to sell any collateral without prior written consent. In addition to its dealings with Larry Dobbs, F & M made loans to Dobbs’ children to buy another 120 head of cattle. Although the loans were made in the children’s name, the bank knew that Dobbs would manage the cattle bought in his children’s names.

In April 1992, the FmHA sent Dobbs a letter informing him of a collateral inspection. Dobbs responded by informing the FmHA that he had sold all of the cattle forming the basis of the FmHA’s collateral. Although he brought in receipts for the cattle he did not repay the outstanding balance of approximately $182,000. In July 1992, F & M bank also tried to inspect its collateral. Dobbs responded by informing the bank that he had sold all of its collateral and had used all of the proceeds for operating expenses. Dobbs owed approximately $85,000 to F & M.

After a criminal referral by the FmHA, Dobbs was indicted on one count of disposing of FmHA collateral in violation of 18 U.S.C. § 658, two counts of bank fraud in violation of 18 U.S.C. § 1344 and eight counts of money laundering in violation of 18 U.S.C. § 1956(a)(1). After a jury trial, he was convicted on one count of disposing of FmHA property, two counts of bank fraud, and two counts of money laundering. He was sentenced to forty-eight months of imprisonment and ordered to pay a special assessment of $250. He was also ordered to pay restitution of $181,8444.03 to the U.S. Department of Agriculture and $89,325.62 to F & M. Dobbs appeals his convictions.

DISCUSSION

I. FRAUDULENT DISPOSING OF FmHA COLLATERAL CONVICTION

Dobbs contends that there is insufficient evidence in the record to convict him of fraudulent disposing of property mortgaged to the FmHA. It is the jury’s “unique role” to judge the credibility and evaluate the demeanor of witnesses and to decide how much weight should be given to their testimony. United States v. Higdon, 832 F.2d 312, 315 (5th Cir.1987), cert. denied, 484 U.S. 1075, 108 S.Ct. 1051, 98 L.Ed.2d 1013 (1988). Our resulting narrow standard of review for sufficiency of the evidence challenges “gives full play to the responsibility of the trier of fact fairly to resolve conflicts in the testimony, to weigh the evidence, and to draw reasonable inferences from basic facts to ultimate facts.” Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979).

A sufficiency of the evidence challenge fails if a rational trier of fact could have found that the Government proved the essential elements of the crime charged beyond a reasonable doubt. United States v. Webster, 960 F.2d 1301, 1307-08 (5th Cir.), cert. denied, — U.S. —, 113 S.Ct. 355, 121 L.Ed.2d 269 (1992). Toward that end, “[w]e must view the evidence in the light most favorable to the verdict, accepting all credibility choices and reasonable inferences made by the jury.” United States v. Carrasco, 830 F.2d 41, 43 (5th Cir.1987) (footnote omitted). Moreover, “[i]t is not necessary that the evidence exclude every reasonable hypothesis of innocence or be wholly inconsistent with every conclusion except that of guilt.... A jury is free to choose among reasonable constructions of the evidence.” United States v. Bell, 678 F.2d 547, 549 (5th Cir.1982), aff'd, 462 U.S. 356, 103 S.Ct. 2398, 76 L.Ed.2d 638 (1983). Finally, “our review remains the same whether the evidence is direct or circumstantial.” United States v. Cardenas, 9 F.3d 1139, 1156 (5th Cir.1993), cert. denied, — U.S. —, 114 S.Ct. 2150, 128 L.Ed.2d 876 (1994).

In order to obtain a conviction under 18 U.S.C. § 658, the government must prove three things: first, that Dobbs knowingly and wilfully disposed of, or converted to his own use, the property described in the indictment; second, that the property disposed of was mortgaged to the Farmer’s Home Administration; and third, that Dobbs acted with intent to defraud the FmHA. United States v. Garth, 773 F.2d 1469, 1477 (5th Cir.1985), cert. denied, 476 U.S. 1140, 106 S.Ct. 2246, 90 L.Ed.2d 693 (1986).

At trial, Robert Love, who was county supervisor for the FmHA, testified that Dobbs had agreed in writing to obtain the FmHA’s permission before selling any cattle. He also stated that selling the entire herd in a cow-calf operation was a significant event because without the base herd no income could be produced for loan repayment. Marvin McPherson, who was the assistant county supervisor, also testified that Dobbs had signed loan agreements in which he had agreed to inform the FmHA of any sale of collateral. He also testified that he never gave Dobbs permission to sell any of the FmHA’s collateral. McPherson also showed an exhibit where Dobbs had gotten permission from the FmHA to sell cattle in the past.

Kay Dodson, who was the county clerk, testified that if Dobbs had permission from the FmHA to sell cattle there would have been a form 1962-1 in his loan file, detailing how much cattle he could sell. She also testified that there was no form 1962-1 in his file for the period covering January of 1991 to August of 1992. David Dumon, who became County Supervisor in 1992 after Love, admitted that Dobbs could have gotten the FmHA’s permission to sell some cattle to pay essential family expenses or ranch operating expenses had such a request been made. However, such a request was not made to his knowledge. John Mayberry, district director of the FmHA, stated that the basic policy of the government on obtaining the permission to sell collateral has been the same since at least 1971.

Dorothy Gibbs, owner of Bonham Livestock testified that Dobbs sold almost 200 head of cattle at her sales barn. She testified that in one instance, she made out a check to Dobbs and the FmHA and he be1 came very upset. He cajoled her into writing a new cheek to him alone. Toni Gould, an agent of the Inspector General Office of the Department of Agriculture, testified that based on a conservative estimate, Dobbs sold 1086 head of cattle between January of 1991 and August of 1992. According to his loan documents, he was supposed to have only a maximum of 667 head of cattle. He also testified that Dobbs was buying and selling cattle as if he was gambling to make a short term profit.

Larry Dobbs testified that he thought that he had the permission of the FmHA to sell the cattle. He stated that he had gotten McPherson’s permission to sell the cattle. He also testified that McPherson had given him a blank 1962-1 form and he had filled out the form and' sent it to the FmHA.

Upon careful review of the record, we conclude that there is sufficient evidence in the record from which a rational trier of fact could find that Dobbs acted with intent to defraud the FmHA. There was evidence that Dobbs had been informed of the reporting requirement, that he was aware of it, and that he had complied with the reporting requirement in the past. At least once, Dobbs actively sought to exclude the FmHA as a payee on checks issued in connection with these sales. Dobbs also waited until the FmHA was about to make a collateral inspection before informing it that he had sold the cattle. From this evidence, a rational trier of fact could infer that Dobbs wanted to deceive the FmHA as to the condition of its security (the cattle) in order to convert the value of the security to his own use.

Dobbs argues emphatically that the FmHA had given him the right to sell the cattle and that the government should be estopped from arguing that it had not authorized the sale of cattle. As noted above, various FmHA officials denied that they gave Dobbs permission to sell the mortgaged cattle. Adopting Dobbs’ contention would require us to make a credibility determination between him and the FmHA officials. Because the record amply supports the jury’s construction of the evidence, we reject Dobbs’ claim.

II. BANK FRAUD CONVICTIONS

Dobbs contends that there was insufficient evidence to convict him in Counts 2 and 3 of devising a scheme to defraud the Honey Grove Branch of Farmer’s and Merchants Bank (F & M) of bank fraud. In order for the government to convict Dobbs of bank fraud, it must prove that Dobbs knowingly executed or attempted to execute “a scheme or artifice to defraud a federally chartered or insured financial institution.” 18 U.S.C. § 1344(1). Dobbs argues that there is insufficient evidence in the record to prove that he had the intent to defraud.

The term “scheme to defraud” is not readily defined, see United States v. Goldblatt, 813 F.2d 619, 624 (3rd Cir.1987), but it includes any false or fraudulent pretenses or representations intended to deceive others in order to obtain something of value, such as money, from the institution to be deceived. United States v. Lemons, 941 F.2d 309, 314-15 (5th Cir.1991); United States v. Church, 888 F.2d 20, 23 (5th Cir.1989). The requisite intent to defraud is established if the defendant acted knowingly and with the specific intent to deceive, ordinarily for the purpose of causing some financial loss to another or bringing about some financial gain to himself. United States v. Gunter, 876 F.2d 1113, 1120 (5th Cir.), cert. denied, 493 U.S. 871, 110 S.Ct. 198, 107 L.Ed.2d 152 (1989); United States v. St. Gelais, 952 F.2d 90, 96 (5th Cir.), cert. denied, — U.S. —, 113 S.Ct. 439, 121 L.Ed.2d 358 (1992) (wire fraud).

In count two of the indictment, the government alleged that between June 1991 and August 1992, Dobbs committed bank fraud by selling the cattle securing the F & M’s loans without F & M’s knowledge or authority. Dobbs argues that, by custom, he did not need the F & M’s permission to sell the cattle. Over a twenty-year period, Dobbs had obtained numerous loans and apparently sold cattle without first notifying the bank of his intent to do so. He argues that because he did not need the bank’s permission to sell the cattle, there was insufficient evidence to prove that he had the requisite intent to defraud. We disagree.

At trial, Alvin Fields, who was the president of the Farmer’s and Merchants Bank, testified that Dobbs only told him that he had sold the bank’s collateral cattle when F & M was about to inspect the collateral. He also testified that Dobbs told him that he didn’t have any of the money from the cattle sales because he had used the money to pay operational expenses. Fields admitted that, despite written agreements to the contrary, F & M had never insisted that Dobbs obtain the bank’s permission to sell the cattle which served as collateral. He did, however, testify that his arrangement with Dobbs was that when he did sell cattle he would pay off F & M’s loans with the proceeds.

Toni Gould testified that Dobbs had been buying and selling cattle continuously from January of 1991 until August of 1992, as if he was gambling. She also testified that Dobbs had sold large portions of the bank’s cattle at sales barns outside of the Honey Grove area. Robert Love testified, at trial, that Dobbs had agreed, in writing in 1990, not to incur debt from anyone other than the FmHA.

We find that a reasonable jury could conclude from this evidence that Dobbs committed bank fraud by selling the cattle which secured the bank’s loan to Dobbs. The FmHA’s prohibition on the incurrence of other debt made Dobbs’ actions in securing more debt suspect. The jury could conclude from the testimony of Fields and Gould that, in selling the cattle, Dobbs was diverting funds that properly belonged to bank into his own ranch operation. By selling the cattle outside the Honey Grove area, Dobbs sought to conceal his actions from the bank. Dobbs placed the bank at risk that its loans would not be repaid in order that he might use the proceeds as a personal stream of income. In fact, the bank lost approximately $89,000 as a result of Dobbs’ unauthorized cattle sales. These actions permit the inference of intent to defraud. Intent to defraud is established if the defendant acted with the intent to deceive in order to cause financial loss to another or bring about financial gain to himself. Gunter, 876 F.2d at 1120. In this case, Dobbs acted with intent to deceive in order to bring about financial gain to himself at someone else’s risk.

In count three of the indictment, the government alleges that Dobbs committed bank fraud by selling cattle which he knew was security for F & M loans to his children, Clint, Ashley, and Melanie Dobbs. Dobbs again makes the same argument that: because he was not required to seek the bank’s permission to sell the cattle in the past, there is insufficient evidence from which the jury could find that he had the intent to defraud. Again, we disagree.

In addition to his testimony regarding count two, Alvin Fields testified that he personally made loans in 1991 to Dobbs’ adult children to buy approximately 120 head of cattle. The purpose of the loans was to fund the children’s college expenses. He said that each child came to the bank and signed for the loans and that the bank looked to them for repayment. Fields stated that he knew that Dobbs would be managing the cattle. He testified that in October of 1992, he inspected the children’s collateral and found only 112 head of cattle and each of those appeared to have been recently purchased. He also discovered that even the replacement cattle had been sold to pay ranch operational expenses. The failure to use the cattle sale proceeds to pay off the children’s debt left the bank facing a loss of approximately $40,-000.³

A part of Clint Dobbs’ grand jury testimony was also read to the jury. In it, Clint Dobbs testified that, in one instance when his father sold some of his cattle in Oklahoma City, Oklahoma, he thought that his father was going to use the proceeds to pay off his bank note. He later found out that Dobbs had kept the money. Clint Dobbs’ father later testified that he used the cattle proceeds to pay ranch and family expenses.

A reasonable jury could find from the evidence presented at trial that Dobbs committed bank fraud by selling his children’s collateral cattle. As with his own cattle, Dobbs surreptitiously used money from the sale of the children’s cattle to pay for ranch and family expenses. As we stated above, Dobbs’ diversions put the bank at risk of loss in return for his own financial gain. From these actions, a reasonable juror could find that Dobbs had the requisite intent to defraud.

III. MONEY LAUNDERING CONVICTIONS

Dobbs contends that there is insufficient evidence in the record to convict him of money laundering. Under the money laundering statute, 18 U.S.C. § 1956:

Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity—

(B) knowing that the transaction is designed in whole or in part—

(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; ...

shall be sentenced to a fine ... or imprisonment for not more than twenty years, or both, [emphasis ours].

The government must prove that the specific transactions in question were designed, at least in part to launder money. United States in Garcia-Emanuel, 14 F.3d 1469, 1474 (10th Cir.1994). It is necessary to show a desire to create the appearance of legitimate wealth or otherwise to conceal the nature of funds so that it might enter the economy as legitimate funds. United States v. Dimeck, 24 F.3d 1239, 1245 (10th Cir.1994). The purpose of the money laundering statute is to reach commercial transactions intended (at least in part) to disguisé the relationship of the item purchased with the person providing the proceeds and that the proceeds used to make the purchase were obtained from illegal activities. United States v. Sanders, 929 F.2d 1466, 1472 (10th Cir.), cert. denied, 502 U.S. 846, 112 S.Ct. 143, 116 L.Ed.2d 109 (1991).

One of the money laundering counts charges that Dobbs deposited approximately $4500 of the cattle sale proceeds into his wife’s bank account. The Dobbses had decided to use the account as their main operational account. The money was used to pay the ordinary expenses of the ranch and household. The other money laundering count charges that Dobbs converted a cattle sale check for approximately $37,000 into a cashiers check for $37,000 and then converted the cashiers cheek into four separate cashier’s checks. These smaller cashiers checks were then used to pay for ranch and family expenses. The government concedes that Dobbs’ records reflected use of the funds to pay ranch and family expenses. These transactions were open and notorious — at least as much as the typical bank transactions can be. Dobbs also did not use any third parties to make purchases or otherwise hide his identity when making the transactions.

In United States v. Sanders, 929 F.2d 1466 (10th Cir.), cert. denied, 502 U.S. 846, 112 S.Ct. 143, 116 L.Ed.2d 109 (1991), the defendant had been convicted of money laundering for purchasing two cars. On the first car purchase, the defendant and her husband paid a $500 cash deposit when ordering the car. When the ear was delivered, Sanders paid $3535 in cash and $10,000 by credit union bank draft. On the second car purchase, the defendant traded an old Lincoln for a new one with $11,400 in cash for the trade-in difference. The defendant had the salesman put the car in her daughter’s name and signed the daughter’s name to the purchase agreement. The cars were conspicuously used by the defendant and her husband making the association of the vehicles with the Sanderses obvious to law enforcement.

The court held that the very purpose of the statute was to reach commercial transactions intended at least in part to disguise the relationship of the item purchased with the person providing the illegally obtained proceeds. Id. at 1472;. see also, United States v. Gonzalez-Rodriguez, 966 F.2d 918, 925 (5th Cir.1992) (citing this holding in Sanders with approval). The court found that the fact the defendant and her husband were present at the car purchases and were readily identified by the respective sales person plus the fact that the cars were used in a conspicuous manner provided an insufficient basis to support a conviction for money laundering. Sanders, 929 F.2d at 1472-73. Similarly in this case where the use of the money was not disguised and the purchases were for family expenses and business expenses is not disputed, there is also insufficient evidence to support the money laundering conviction.

The government argues that evidence in the record showing that Dobbs did not disclose these transactions to the bank or to his bankruptcy attorney provides a reasonable basis for the jury to find that the transactions were designed to conceal the origins of the funds. We disagree. This evidence in the record only provides a basis for showing that the defendant was engaged in some type of fraud. There is no link between this evidence of fraud and these specific transactions, Garcia-Emanuel, 14 F.3d at 1474, or that the transactions were done to disguise the relationship between Dobbs and the proceeds. Sanders, 929 F.2d at 472.⁴ As stated by the Tenth Circuit in Garcia-Emanuel, “[mjerely engaging in a transaction with money whose nature has been concealed through other means is not in itself a crime.” 14 F.3d at 1474.

IV. EVIDENTIARY CHALLENGE

Dobbs contends that the district court erred in admitting into evidence summaries of the loans to Dobbs’ children. These summaries showed that the bank had suffered a $40,000 loss. Dobbs argues that these summaries were incomplete because $31,000 had been paid to the bank as a settlement of the debt and the settlement was not reflected in the summary. Under Fed.R.Evid. 403, evidence may be excluded from trial if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading to the jury. The district court’s decision to admit evidence is reviewed for an abuse of discretion. Williams v. Chevron, U.S.A., Inc., 875 F.2d 501, 504 (5th Cir.1989).

We find no merit in this contention. The district court allowed the admission of the loan summaries into evidence specifying that they were only accurate as to June 22, 1992. Pursuant to Fed.R.Evid. 1006, the contents of voluminous financial documents may be presented in the form of a summary. With the limitation imposed upon the exhibit by the district court, the loan summaries were neither inaccurate or incomplete. We find no abuse in the district court’s discretion in admitting the loan summaries.

V. CHALLENGE TO THE DISTRICT COURT’S CONDUCT

Dobbs contends that the district court participated in trial during the examination of his witnesses as to be a partisan for the government. In determining whether a district court overstepped the bounds of acceptable judicial conduct, the Court must view the proceedings as a whole. United States v. Williams, 809 F.2d 1072, 1089 (5th Cir.), cert. denied, 484 U.S. 896, 108 S.Ct. 228, 98 L.Ed.2d 187 (1987).

We have examined the portions of the record referred to by the defendant and the record in its entirety. A careful reading of the record reveals that the district court took an active role during the trial often interjecting comments and questions on both sides of the case. A federal district court may comment on the evidence, question witnesses, bring out facts not yet adduced, and maintain the pace of the trial by interrupting or setting time limits on counsel. United States v. Wallace, 32 F.3d 921, 928 (5th Cir.1994). In this case, the questions and comments made by the court served to clarify confusing lines of questions and contentions offered by both counsels and witnesses. We find no merit in this contention.

CONCLUSION

For the foregoing reasons, we REVERSE both of Dobbs’ convictions for money laundering. Dobbs’ convictions for bank fraud and for fraudulently disposing of FmHA collateral are AFFIRMED.

1 . The advantage of a cow-calf operation is that a fanner produces new calves, as opposed to merely fattening up the cows he has and reselling them after a year under the Stocker operation.

2 . Brucellosis is commonly referred to in the cattle industry as "Bangs.” Presence of this disease can have a devastating impact on a cattle operation.

3 . The children's debt to the bank was later settled by a relative of the Dobbs.

4 . Because we have reversed the money laundering convictions, we do not address the other challenges made to the convictions.