United States v. Yates

16 F.4th 256

UNITED STATES of America, Plaintiff-Appellee,

v.Diana YATES, Defendant-Appellant.

United States of America, Plaintiff-Appellee,

v.Dan Heine, Defendant-Appellant.

No. 18-30183

No. 18-30184

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 10, 2020 Seattle, Washington

Filed October 8, 2021

Elizabeth G. Daily (argued), Assistant Federal Public Defender; Stephen R. Sady, Chief Deputy Federal Public Defender; Portland, Oregon; Kendra M. Matthews, Boise Matthews Ewing LLP, Portland, Oregon; for Defendant-Appellant.

David M. Lieberman (argued), Attorney; Brian C. Rabbitt, Acting Assistant Attorney General; Criminal Division, Appellate Section, United States Department of Justice, Washington, D.C.; Clarie M. Fay, Michelle H. Kerin, and Quinn P. Harrington, Assistant United States Attorneys; Amy E. Potter, Criminal Appellate Chief; Billy J. Williams, United States Attorney; United States Attorney's Office, Portland, Oregon; for Plaintiff-Appellee.

Before: Marsha S. Berzon, Eric D. Miller, and Daniel A. Bress, Circuit Judges.

Dissent by Judge Bress

MILLER, Circuit Judge:

Dan Heine and Diana Yates were executives at the Bank of Oswego in Lake Oswego, Oregon. After a 29-day trial, a jury found Heine and Yates guilty of one count of conspiracy to commit bank fraud and 12 counts of making a false bank entry. But as the district court explained at sentencing, unlike "your typical white-collar fraud case ... neither defendant directly tried to line their pockets as a result of their fraud." Indeed, the novelty of some of the government's legal theories led the district court to predict that the case could result in "a really interesting appellate or Supreme Court decision."

We leave that judgment to the reader. On the issues we do need to decide, we agree with the defendants that two of the government's three theories of bank fraud were legally inadequate and that presenting those theories was not harmless. We therefore set aside the conspiracy conviction. Without a conspiracy, the false-entry counts cannot stand because the jury may have based its verdict on those counts on a theory of co-conspirator liability. We separately conclude that the evidence was insufficient to support the jury's guilty verdict on false-entry counts 7–9 and 15. We therefore vacate all of the convictions and remand for further proceedings.

I

Heine founded the Bank of Oswego in 2004. Over the next decade, he served as the bank's president and chief executive officer and as a member of the board of directors. Yates also joined the bank at its founding, serving as its executive vice president and chief financial officer until her resignation in 2012. Over the years, Yates also served as the bank's chief operating officer and chief credit officer. Unlike Heine, Yates was not a member of the board. Both Heine and Yates served on the bank's internal loan committee, which met weekly to discuss the bank's outstanding loans and to decide whether to approve new loans. Particularly large loans required the approval of the board of directors.

As a new bank, the Bank of Oswego was closely scrutinized by the Federal Deposit Insurance Corporation. The FDIC requires banks to submit quarterly "call reports," public documents that include a bank's balance sheet, its income statement, and detailed information about its assets and liabilities. While the bank's controller was responsible for preparing the call reports, Yates had to approve the reports before they were submitted to the FDIC.

In January 2009, the bank hired a vice president of lending, Geoff Walsh. Walsh was a highly productive employee. In a 2011 performance review, Heine described him as a "rock star," adding that his "personality, contacts and intelligence" enabled the bank "to attract and serve many professionals of high net worth and influence in the Portland-metro area." At the same time, Heine noted "growing concern" with Walsh's "apparent breach of internal controls" and his failure to "follow[ ] sound lending policy, procedures and practices." Heine's concern would prove to be well-founded—Walsh's conduct set in motion the chain of events that would eventually lead to the defendants’ convictions.

The bank's troubles began at the end of 2009 when the FDIC reported disappointing results after an on-site examination. Concluding that the bank's overall financial condition was "less than satisfactory," the FDIC identified "emerging weaknesses" in the bank's asset quality and loan portfolio. The agency also criticized the bank's management structure, expressing particular concern over its concentration of responsibilities in Yates. The FDIC warned that "[a] single individual's ability to perform effectively in all of these roles is questionable" and that "[s]uch a concentration of responsibilities in one person ... represents a weakness in the bank's internal control structure." In 2010, the bank entered into a memorandum of understanding with the FDIC to address the agency's concerns. But when the FDIC returned to examine the bank early in 2011, it again found the bank's condition "less than satisfactory," downgrading its management score and concluding that "CFO Diana Yates’ split attention is contributing to risks."

In January 2012, an independent auditor discovered that Walsh had received personal loans from one of his clients, Martin Kehoe. Kehoe was a "hard money lender" who made non-bank loans to individuals at high interest rates. The auditor immediately forwarded her findings to Heine and Yates. Yates contacted Kehoe, who denied that Walsh had ever borrowed money from him. Heine was unconvinced. In his opinion, this was "a major issue" that had to be reported to the board. Yates responded that Heine was overreacting. Kehoe followed up with an email directly to Heine stating that Walsh had not received any loans through Kehoe's business and had never been paid a fee for any customer referrals.

Meanwhile, the FDIC continued to criticize the bank's performance. When the agency completed its 2012 examination, it informed Heine and Yates that it planned to downgrade the bank's management score yet again. According to Chris Shepanek, the chairman of the board of directors, Yates became "extremely upset about the whole situation," was overwhelmed by the bank's problems, and felt that Heine failed to support her in meetings with the FDIC. She resigned shortly thereafter.

After Yates's departure, Heine began reviewing Walsh's emails, forwarding items that concerned him to the board. Eventually, Heine concluded that Walsh was involved in a hard-money lending scheme funded by a $1.7 million loan the bank had issued to Kehoe. Heine fired Walsh four days later.

In July 2013, Walsh was arrested and charged with offenses unrelated to his work at the bank; he eventually pleaded guilty to wire fraud and conspiracy to commit wire fraud. But he also pleaded guilty to one count of conspiracy to make a false bank entry in the course of his work at the bank. Walsh cooperated with the government and provided extensive testimony at Heine and Yates's trial.

In 2017, a grand jury returned a superseding indictment charging Heine and Yates with one count of conspiracy to commit bank fraud, in violation of 18 U.S.C. § 1349, and 18 counts of making a false bank entry, in violation of 18 U.S.C. § 1005. The indictment alleged that Heine and Yates conspired "to conceal the true financial condition of the Bank and to create a better financial picture of the Bank [for] the Board of Directors, shareholders (current and prospective), regulators and the public" by "report[ing] false and misleading information about the performance of loans, conceal[ing] information about the status of foreclosed properties, ma[king] unauthorized transfers of Bank proceeds, and fail[ing] to disclose material facts about loans to Bank insiders to the Board of Directors, shareholders and regulators." The false-entry counts charged Heine and Yates with "conceal[ing] and omitt[ing] from Call Reports and Board of Directors’ Reports material information about loans."

At trial, the government argued that the defendants—facing pressure from the FDIC and economic uncertainty due to the 2008 financial crisis—had conspired to defraud the bank. The government argued that Heine and Yates carried out the conspiracy through three schemes: (1) recruiting a bank employee named Daniel Williams to make an undisclosed straw purchase of a property located on A Avenue using bank funds; (2) arranging for third parties to make payments on delinquent customer loans to bring them current and then omitting those loans as delinquent on the bank's call reports; and (3) incorrectly accounting for two properties after selling them to a customer named Ronald Coleman and approving a loan to reconcile the error without disclosing that purpose to the internal loan committee.

The jury found the defendants guilty of the conspiracy count and 12 of the 18 false-entry counts. The district court sentenced Heine to 24 months of imprisonment and Yates to 18 months of imprisonment.

II

Count 1 of the indictment charged the defendants with violating 18 U.S.C. § 1349, which makes it a crime to "conspire[ ] to commit any offense under this chapter"—here, bank fraud. Bank fraud entails "knowingly execut[ing] ... a scheme or artifice ... to defraud a financial institution." Id. § 1344. A scheme to defraud "must be one to deceive the bank and deprive it of something of value," that is, money or property. Shaw v. United States , ––– U.S. ––––, 137 S. Ct. 462, 469, 196 L.Ed.2d 373 (2016) ; see id. at 466 ; see also Kelly v. United States , ––– U.S. ––––, 140 S. Ct. 1565, 1571–72, 206 L.Ed.2d 882 (2020) ; Neder v. United States , 527 U.S. 1, 20–21, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999) (construing "scheme or artifice to defraud" identically for the mail, wire, and bank fraud statutes). And that property deprivation "must play more than some bit part in a scheme"—the loss to...