United States v. Parsons

• Court: Court of Appeals for the First Circuit
• Decided: April 17, 1998
• Docket: 97-1522
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 97-1522



                    UNITED STATES OF AMERICA,



                            Appellee,



                                v.



                         JOHN R. PARSONS,



                      Defendant, Appellant.

                       ____________________



           APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



         [Hon. Nathaniel M. Gorton, U.S. District Judge]



                       ____________________



                              Before



                       Selya, Circuit Judge,



                  Aldrich, Senior Circuit Judge,



                    and Boudin, Circuit Judge.



                       ____________________



     Michael A. Collora with whom Michael B. Galvin and Dwyer &

Collora, LLP were on brief for appellant.

     Pamela Merchant, Senior Trial Attorney, Criminal Division,

Department of Justice, with whom Donald K. Stern, United States

Attorney, and Mark D. Seltzer, Director, New England Bank Fraud

Task Force, were on brief for the United States.


April 16, 1998


BOUDIN, Circuit Judge.  John R. Parsons was convicted of

one count of conspiracy to commit bank fraud, 18 U.S.C.  371,

1344, and 13 counts of bank fraud, 18 U.S.C.  1344, and now

appeals from his conviction and sentence.  We set forth a brief

summary of the underlying events.  Since Parsons challenges the

sufficiency of the evidence, we describe the facts in the light

most favorable to the verdict.  United States v. Bergodere, 40 F.3d

512, 518 (1st Cir. 1994), cert. denied, 514 U.S. 1055 (1995).

  In spring 1987, Parsons and Robert Hakala agreed to build

an office building on a lot they owned on the Leominster/Lancaster

town line in Massachusetts.  Parsons planned to handle financial

and leasing matters; Hakala, who ran Hakala Construction Corp., was

slated to do the construction.  In May 1987, Parsons and Hakala

formed Quest Realty Trust as a vehicle to hold the land and own the

planned building.

  Financing was sought from First Service Bank for Savings,

a federally insured bank in Leominster headed by Clary William

Wester.  Between May and September 1987, Quest Realty received

interim short-term loans from First Service so that it could

acquire the land and undertake the initial steps, pending a full-

scale construction loan.  In August 1987, Hakala sold his interest

in Quest Realty to Parsons but continued as the builder.

  On September 30, 1987, the bank agreed to make a full-

scale loan to Quest Realty, now fully controlled by Parsons, for

$4.8 million.  Some of this money was disbursed at once; but most

was held back and payments were made over the succeeding months. 

These subsequent payments were partly based upon "requisitions"

from Hakala attesting that work had been done and were partly ad

hoc payments directed by Wester.  In the government's view, the

September 30th loan was procured by Parsons through fraud, and much

of the money was diverted by Parsons to improper uses.

  In February 1996, a grand jury charged Parsons with the

single count of conspiracy and the 13 counts of bank fraud already

mentioned; there were other counts in the indictment, but they were

later dismissed and so are irrelevant here.  Wester, an alleged co-

conspirator in count 1, pled guilty in October 1996 to a conspiracy

charge substantially identical to the conspiracy charged here.  He

had earlier been convicted of unrelated frauds in connection with

his operation of First Service.  United States v. Wester, 90 F.3d

592 (1st Cir. 1996).  Parsons was tried in a two-week jury trial in

November 1996.

  At trial the government sought to prove two different

schemes.  The first scheme (counts 1-8), in which Wester was

supposedly a participant, involved the alleged diversion by Parsons

of seven specific amounts, totaling about $1.4 million, from the

bank's loan reserved for Quest Realty's use in constructing the

building.  According to the government, the diversions occurred so

that Parsons could make either personal expenditures (e.g.,

purchase of a Florida condo) or other investments not authorized by

the loan documents (e.g., in a different development project not

approved by the bank).

  In the second alleged scheme (counts 9-14), the

government sought to show that Parsons, acting alone, had diverted

six additional sums, totaling just over $272,000.  The government

charged that after the bank had paid money over to Quest Realty to

satisfy Hakala's requisitions, Parsons had in six cases short-

changed Hakala and withheld the balance in Quest Realty for his own

benefit.  This, said the government, was contrary to the commitment

in the loan agreement that the bank's money would be paid out by

Quest Realty in accordance with the requisitions.

  On November 14, 1996, the jury convicted Parsons on all

14 counts.  In March 1997, Parsons was sentenced to 37 months'

imprisonment, fined $70,000 and ordered to pay restitution in the

amount of the diversions (just over $1.6 million).  Parsons's

appeal followed, challenging the sufficiency of the evidence on 10

of the 14 counts.  Parsons also alleged several trial errors and

attacked his sentence.  

  On this appeal, Parsons's sufficiency-of-the-evidence

claims are not backed by detailed analysis of the record evidence

on individual counts.  Instead, after some limited background on

each count in the fact section of his brief, Parsons's argument on

the alleged insufficiency of the evidence consists--in total--of

two pages on counts 2-8 and one page on counts 9-10.  Effectively,

this amounts to a few sentences each for nine different, very

complex transactions.  Parsons's approach frustrates any detailed

examination by us and largely forecloses his claims.  U.S.

Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 595-97 (1st

Cir. 1993).

  Nevertheless, there are several themes in Parsons's

argument, primarily addressed to counts 2-8, that we will address

briefly. The first theme is Parsons's claim--seemingly accurate--

that there was very little direct evidence of a conspiracy between

Parsons and Wester to defraud the bank.  Wester approved certain of

the payments charged in the indictment as diversions to Parsons,

but the government did not have solid evidence as to any benefit to

Wester, promised or received.  Needless to say, this gap in proof

makes it less likely that Wester conspired.

  But the government did prove that Parsons and Wester had

an ongoing relationship embracing many loans; both had various

ventures outside the bank; and there was some admittedly vague

evidence of business associations between them extrinsic to the

bank.  Since Wester did approve improper diversions and Parsons

took the money, it was not irrational for a jury--given the

relationship between them--to infer that they had agreed to the

diversions.  The jury was not required to draw the inference but

was entitled to do so.  Glasser v. United States, 315 U.S. 60, 80

(1942).

  A second related theme in Parsons's argument is that as

to those diversions known to Wester, Wester's "approval" of them

insulates Parsons, since Wester was in charge of the bank.  The

"permission" of a co-conspirator is not much of a defense.  SeeUnited States v. Sheahan, 31 F.3d 595, 600 (8th Cir. 1994). 

Further, the diversions were not debatable expenditures but

patently contrary to the Parsons's obligations under the loan. 

Lastly, Parsons's own attempts to conceal his misconduct make

nonsense of any suggestion that he believed that Wester had somehow

modified Parsons's obligations to the bank.

  The third and fourth themes in Parsons's argument are

that Parsons was unaware of his obligations under the loan

documents he signed and that any diversions to other uses were

inadvertent.  These are improbable claims, in light of Parsons's

numerous diversions, their size, and his various efforts to conceal

his behavior and to shift blame to others (e.g., his accountant). 

In any event, these evidentiary arguments are not seriously

developed through discussions of the evidence, and need not be

pursued further, U.S. Healthcare, 986 F.2d at 595-97, with one

exception.

  Only with respect to count 9 does Parsons's brief offer

anything close to a significant attack on the evidence.  Count 9

charged that Parsons diverted $50,000 from a May 1987 loan to Quest

Realty intended to reimburse Hakala Corp. for construction expenses

incurred, and that in papers connected to the September 30th

construction loan, Parsons represented that all money previously

distributed by the bank had gone to pay construction expenses.  One

element of Parsons's argument is that Hakala was in charge of the

Quest Realty checkbook in May 1987 and therefore necessarily

approved the diversion.  This is no answer because Parsons

benefitted from the diversion and later represented to the bank

that the money had been used properly.

  Parsons's strongest point is his argument that $25,000 of

the $50,000 allegedly diverted was indeed paid by Hakala to Parsons

out of the Quest account, but for construction plans and an

architectural model.  Whether this $25,000 was within the

conditions of the loan was the subject of conflicting evidence and

inferences at the trial.  After studying the record, we think that

the evidence was barely sufficient as to this $25,000.  The

conviction on Count 9 is supported, in any event, by the diversion

of the other $25,000, for which no adequate explanation has been

provided.

  Parsons makes a different evidentiary attack on his count

10 conviction.  Here, we are given a total of three sentences

addressing different claims of error, without citation to the

record.  To the extent possible, we have considered the arguments

on the merits and find them unpersuasive.  It is worth noting that

neither of the convictions on counts 9 or 10 appear to affect the

sentence of imprisonment, although they do add $50 each in special

assessments.  U.S.S.G.  2F1.1, 5E4.3 (1987).

    Parsons's counsel are competent lawyers and possibly

intended their short and sporadic attacks on the sufficiency of the

evidence merely to awaken some disquiet in the court, perhaps as a

backdrop for technical claims of error that are more elaborately

developed.  This may be sound strategy.  But future litigants

should understand that underdeveloped or unsupported attacks on the

government's evidence in a complex case are almost hopeless.  It is

counsel's job on appeal to mine the record and prove the alleged

error, not to offer suggestive hints and leave the rest of the work

to a busy court.  United States v. Zannino, 895 F.2d 1, 17 (1st

Cir. 1990).

  Parsons's next argument, after his challenge to the

sufficiency of the evidence, attacks the district judge's decision

to exclude proffered testimony.  On the last day of trial, the

defense called Richard Clark, an attorney who had worked for both

Parsons and First Service.  Clark had helped Parsons purchase a

Florida condominium for Parsons's personal use, using funds from

First Service.  The government charged in count 8 that the funds

were diverted from the Quest Realty construction loans.

  According to a proffer, Clark would have testified, if

allowed to do so, (first) that Wester had told Clark that the funds

for the condo were coming from a line of credit at the bank

available to Parsons, and (second) that Clark had then so advised

Parsons.  The government objected that this was hearsay, that it

was intended as backdoor proof of the alleged line of credit, and

that Parsons had conspicuously failed to call Wester to confirm the

alleged line of credit.  The district court heard argument, took a

proffer, and then excluded the testimony in question, although

Clark was allowed to testify on other aspects of the condo

purchase.

  In the calm of appellate review, it is clear to us that

Clark's second statement--what he said to Parsons--was not hearsay

if offered only to show Parsons's belief that the money came from

a line of credit apart from the construction loan.  Fed. R. Evid.

801(C).  (Clark's first statement--what Wester told Clark--would

still be hearsay as to the existence of a line of credit and would

not itself show Parsons's state of mind).  And Parsons did say to

the district court several times that he was offering the evidence

to show Parsons's state of mind.

  No doubt the government believed that Parsons was trying

through the back door to show that he had a separate line of

credit.  But the normal answer to that concern is a limiting

instruction, United States v. Bartelho, 129 F.3d 663, 668-69 (1st

Cir. 1997), unless it can be shown that the benefit of the

testimony is substantially outweighed by the risk of jury

confusion.  Fed. R. Evid. 403.  The latter claim would itself be a

stretch and, in any case, was not made at trial.

  The government's last ditch argument is that if error,

the exclusion was harmless.  Here we agree.  At first blush, the

excluded testimony, although brief, appears highly relevant.  But

a moment's reflection suggests that it would not have been very

persuasive as to Parsons's state of mind, unless the jury also

believed that Parsons in fact had a line of credit or good reason

to believe he did--independent of Clark's statement.  Substantial

lines of credit do not materialize out of thin air:  there had to

be some groundwork laid to secure such credit.

  Parsons did offer evidence that he had other loans from

the bank.  But we have examined what is cited in the record; and

the evidence that Parsons had an outstanding line of credit, in a

large amount, at the time of the diversion, is almost invisible. 

It is not surprising that the jury was unimpressed.  Parsons chose

not to testify and did not call Wester, thus depriving himself of

the two witnesses best situated to say that such a line of credit

existed and was used for the loan.

  As to Clark, he was far from a reliable witness for the

defense on account of other links with Parsons that tended to make

Clark's testimony suspect.  In addition, Parsons's accountant

testified that when he later asked Parsons about the use of Quest

Realty loan proceeds for the condo purchase, Parsons made no

mention of any line of credit but provided a quite different

explanation for use of the loan funds.  All said and done, we deem

the exclusion error, but harmless.

  We turn next to two claims of error based upon refusals

to give jury instructions sought by Parsons.  The first refused

instruction was meant to follow after an instruction by the court

advising that the complicity of bank insiders and their knowledge

of a fraud is not a defense to bank fraud and does not absolve the

defendant.  Parsons does not object to this statement but to the

refusal to append to it the following:

  On the other hand, the mere fact that a First

  Service Bank officer or employee granted or

  facilitated loans does not, in and of itself,

  constitute bank fraud.  If you find that First

  Service Bank officers or employees approved of

  the defendant's use of the proceeds in

  question without acting fraudulently, you may

  consider their approval in determining whether

  or not the defendant defrauded First Service

  Bank.

  

  Except for confusing innuendo ("facilitate," "in and of

itself"), the first sentence in the rejected instruction is a

pointless banality:  making loans is what banks do.  The second

sentence is misleading: a non-fraudulent approval by a bank officer

or employee could easily be based on inadequate disclosure by

Parsons.  Despite  the "may consider" qualification, the language

tended to equate approval with exculpation, was misleading, and was

properly refused.

  Parsons's second refused instruction stated, in relevant

part, that in assessing Parsons's state of mind the jury could

consider "whether Mr. Parsons ultimately paid the contractor for

the work performed on the building."  The instruction was

apparently aimed at Parsons's belated payment--after Hakala had

discovered the scheme--of loan proceeds due to Hakala for work on

the building but withheld and diverted by Parsons.  It is enough of

an answer to say that the district court properly charged the jury

on intent to defraud; and for obvious reasons the court is not

required to frame an instruction for each piece of evidence that

one side or the other would like to have emphasized.  United Statesv. Camuti, 78 F.3d 738, 744 (1st Cir. 1996).

  Finally, Parsons says that the district court erred in

calculating his prison sentence and in ordering restitution; the

arguments involve a common premise--that Parsons should have been

given credit for a settlement that he reached with the FDIC as

receiver for First Service.  We begin with the sentencing issue,

first describing the district court's calculation of the offense

level that determined the sentencing range.

  Parsons was sentenced under section 2F1.1 of the 1987

edition of the guidelines covering crimes of fraud.  It provides

a base offense level of 6 with additional levels added (pursuant to

a table) to reflect the amount of "loss" inflicted by the crime. 

In this case, the probation officer reported that the loss to First

Service was a figure just over $3.2 million, reflecting Quest

Realty's unpaid loan balance less the amount recovered on the sale

of collateral.

     Favoring Parsons, the district court instead chose to use

$1.6 million as the "loss," reflecting the amounts that Parsons had

unlawfully diverted from the Quest Realty loan.  Where justified,

this is expressly permitted by the guidelines:  "The offender's

gross gain from committing the fraud is an alternative minimum

estimate of the loss."  U.S.S.G.  2F1.1, commentary.  At

sentencing, Parsons accepted this lesser figure as a starting point

but then asked for a further reduction on grounds of his settlement

with the FDIC.

     The district court refused the further reduction and

instead added to the base level the additional 9 levels that the

table prescribes for a $1.6 million loss.  The court added 2 more

levels for more than minimal planning and 2 more for obstruction of

justice, adjustments not here challenged.  U.S.S.G. 

2F1.1(b)(2)(A), 3C1.1.  This produced a total offense level of 19,

and Parsons was sentenced within the resulting range to 37 months'

imprisonment, as well as to a fine and restitution.

     On appeal, Parsons argues that the district court had to

use loss rather than gain and that loss to the bank was zero

because it settled its claims with Parsons.  The settlement was

reached in a civil suit between Parsons and the FDIC as receiver

for the bank.  Parsons agreed to transfer the deed on the Quest

building to the FDIC, and each side gave up its own claims--the

bank for all balances due on the Quest Realty loan as well as other

loans made by First Service to Parsons (in all, exceeding $8

million) and Parsons for the bank's breach of its lease (made

between Wester and Parsons) on the new building constructed for

Quest Realty.   

     Parsons's argument begins with an application note

describing "loss" for a fraudulently obtained loan as "the amount

of the loan not repaid at the time the offense is discovered,

reduced by the amount the lending institution has recovered (or can

expect to recover) from any assets pledged to secure the loan." 

The application note was added in 1991, application note 7(b),

added by Amend. 393, U.S.S.G. App. C, at 211 (1997), but may

arguably be considered as clarification.  He refers also to cases

implementing this formula, including a few precedents saying that

gain should not be used if loss is zero.  United States v.

Chatterji, 46 F.3d 1336, 1342 (4th Cir. 1995); United States v.

Anderson, 45 F.3d 217, 221 (7th Cir. 1995).

     Loss is a proxy for the seriousness of the offense.  A

loss of zero is presumptively wrong in this case, since it does not

even remotely approximate Parsons's wrongdoing.  Further parsing of

the application-note formula Parsons quotes is unnecessary, because

the fraud guideline commentary has always provided that where the

intended loss is greater than the actual loss, the intended loss is

to be used.  U.S.S.G.  2F1.1.  On its face, Parsons's initial

diversion of $1.6 million in loan proceeds to personal use is an

intended loss.

     And given that $1.6 million was intentionally diverted,

the later settlement does not reduce Parsons's culpability.  It was

made well after the fraud was known to persons like Hakala who

could report it.  Nor does it help Parsons that the FDIC knew

little about the criminal behavior when it made the settlement; a

defrauder cannot purchase a shorter term by a belated return of the

proceeds when the fraud is in the course of unraveling.  United

States v. Bennett, 37 F.3d 687, 695 (1st Cir. 1994).  In short, the

guideline range was properly computed.

     A related but more difficult question concerns

restitution.  The district court ordered Parsons to make

restitution to the government of the same $1.6 million that the

court had used as the loss for sentencing purposes.  18 U.S.C. 

3663 permits restitution to compensate a victim for losses. 

Parsons disputes the order on two different grounds:  that it is

precluded by the FDIC's civil settlement with Parsons, and that

there is no adequate proof of any loss.

     Restitution is not generally appropriate when it would

represent double recovery by the victim.  United States v. Manzer,

69 F.3d 222, 230 (8th Cir. 1995).  However, the burden of

establishing this double payment is on the defendant.  United

States v. Mmahat, 106 F.3d 89, 98 (5th Cir.), cert. denied, 118 S.

Ct. 136 (1997).  In some cases, the nature of a settlement might

show that the victim had been compensated for the loss.  Here,

however, we have no reason to conclude that the settlement

compensated the bank for the $1.6 million loss reflecting the funds

diverted from the Quest loan.  

     It is true that on one side of the equation, the bank's

professed loss of all outstanding bank loans involving Parsons,

less realized collateral, arguably had to encompass the smaller

amount actually diverted.  But the $1.45 million that the FDIC

realized from the sale of the Quest building left unpaid $3.2

million in loans on the Quest project and about $4 million in loans

on other projects.  What the FDIC received, over and above the

building, was Parsons's surrender of his own claim for $10 million

for the bank's failure to honor the lease with Quest Realty. 

     The FDIC accepted the settlement based on this $10

million claim (and it was only a claim) in ignorance of the fact

that Wester and Parsons, the co-signers of the lease, were criminal

co-conspirators in defrauding the bank.  The settlement may have

been wise based on what the FDIC then knew.  But a sentencing

court, with greater knowledge of what Parsons's lease claim was

worth, did not have to treat Parsons's surrender of the claim as

meaningful compensation that would make restitution a double

recovery.

     True, the FDIC itself had no legal claim against Parsons

after the settlement, since the FDIC gave him a general release. 

But this court has already held that a release by the victim does

not preclude or cap restitution of losses as part of criminal

sentencing in a case where there is no double recovery.  United

States v. Savoie, 985 F.2d 612, 619 (1st Cir. 1993).  In United

States v. Coleman, 997 F.2d 1101, 1106-07 (1993), the Fifth Circuit

took a contrary position and treated a settlement as a bar to a

restitution award, but our own view has support in United States v.

Cloud, 872 F.2d 846, 853-54 (9th Cir. 1989), and United States v.

Vetter, 895 F.2d 456, 459 (8th Cir. 1990).

     Parsons's alternative objection is more interesting.  He

says that the diversion of loan proceeds to personal use was not

the cause in fact of any loss to the bank.  His theory is that his

diversion to his own use was primarily of loan funds intended for

the contractor, the contractor was later paid off by Parsons and

completed the building, and therefore the loan collateral (i.e.,

the building) was unimpaired.

     However, Parsons did not merely divert funds after the

master loan; his fraud lay also in misrepresentations to secure the

loan.  And very large losses to the bank--well in excess of $1.6

million--followed from a loan that likely would not have been made

if Parsons had told the truth about diversions of funds from the

smaller interim loans by the bank.  Contrary to Parsons's position,

the link is not too attenuated to permit restitution.  See United

States v. Vaknin, 112 F.3d 579, 586-90 (1st Cir. 1997).

     The use of the $1.6 million figure was almost certainly

generous to Parsons.  At the same time, using funds actually

diverted avoided various problems (e.g., Judge Gorton's equitable

concern about later declines in property values and thus of the

collateral) that would have attended use of the much larger loss

figure proposed by the government.  We think that the trial judge

used common sense in making what is, in a complex set of

transactions and possibilities, as much a judgment call as an

exercise in mathematics.  

     Affirmed.