The opinion of the court was delivered by: GORBEY
This matter is presently before the court on defendant's motion for judgment of acquittal, arrest of judgment, and a new trial. The defendant was found guilty by a jury on January 12, 1977, on five counts of the above-captioned indictment, which charged him with illegal receipt of a fee by a bank officer, misapplication of bank funds, two counts of making false reports to a bank, and conspiracy. As this was a rather complex trial, a statement of the facts is necessitated.
From sometime in 1972 through August, 1973, defendant, William Schoenhut, was an Assistant Vice President in the Mortgage Department of Central Penn National Bank ("Central Penn") in Philadelphia. From November of 1968 to September of 1973, John Jacobsen was the Vice President of the Mortgage Department at Central Penn and was defendant's immediate supervisor. When Mr. Jacobsen resigned from Central Penn in August of 1973, defendant succeeded him as the Vice President of the Mortgage Department. From at least mid-1972 through the fall of 1974, H. Gerard Heimbecker, David Pierce, Ronald Nirenberg and Philip Inverso were employees and/or officers of the Delaware Valley Mortgage and Realty Corporation ("Delaware Valley") which had its principal office in Philadelphia, with at least one branch office in Wilmington, Delaware.
Delaware Valley is a mortgage broker. Its business consists of buying, selling, and servicing mortgages, and to a lesser extent, providing financing for construction projects. What Delaware Valley does primarily is purchase mortgages through various realtors at a certain rate of interest. Delaware Valley then attempts to resell the mortgages to permanent lenders such as savings and loan associations or banks at lower rates of interest. During the interim period while it holds the mortgages, Delaware Valley needs extensive amounts of capital.
In early 1972, Heimbecker and Inverso, acting on behalf of Delaware Valley, approached Jacobsen and requested that Central Penn grant Delaware Valley a line of credit in the amount of $500,000. This loan was to be in the form of a "mortgage warehouse line". This was granted and was subsequently increased three times to two million dollars. Jacobsen was unable to remember while testifying at trial the exact terms of this extension of credit. No written agreement between Central Penn and Delaware Valley was ever introduced at trial. Whether or not such a written agreement even exists was unknown to the jury and to me. However, many of the witnesses at the trial testified concerning the nature of this "warehouse line". Ronald Nirenberg, who was Assistant Vice President at Delaware Valley from April, 1972 to August, 1974, described a warehousing account as follows:
"A Basically it's like a line of credit. We would get applications for a particular mortgage, the buyer's application from the real estate broker and process it, getting a credit report, commitment and so forth on it, and when we were notified by the real estate broker they were ready to go to settlement, and we had our proper documentation together, we would prepare mortgage papers and we would go to settlement with the title company, and we would draw out a check from a warehousing line payable to such title company or an attorney that represents the title company and they would make disbursement. What we would do then is send a collateral note down to our warehousing bank, Central Penn, to cover that particular settlement check out. And we had a certain line of credit up to a certain amount of money that we could go with our line."
Mr. Jacobsen described mortgage warehousing as:
Mr. Inverso, who was Vice President of Delaware Valley for approximately two and one half years from 1972 to August of 1974, testified that a warehousing or credit line is:
"A A warehousing line, basically it would relate to something similar to a ready money account and an individual would apply to a bank and establish a line of credit of say $1,000 and the bank would supply the individual with checks, and at the individual's convenience, they would use those checks to apply toward the credit that would work the same as a warehouse line, except in Delaware Valley's account, it was relating to mortgages as we used it and it was a credit line in effect."
Sometime in the spring of 1973, David Pierce, who was Manager of the Delaware branch office of Delaware Valley, advised Heimbecker, Inverso and Nirenberg that there was a parcel of land in Smyrna, Delaware, owned by the Karlee Corporation, which he felt might be very suitable for development by Delaware Valley. Delaware Valley had previously purchased raw land such as this with the intention of financing builders who would develop the land (N.T. 1-66). Heimbecker, Inverso and Nirenberg were all officers at Delaware Valley at this time. They decided, along with Pierce, that it might prove very profitable for them to attempt to develop this land on their own. That is, rather than have Delaware Valley purchase the land and develop it or finance builders who would develop it to produce a profit for Delaware Valley, they were going to purchase it themselves and develop it themselves as a side venture. As their plan unfolded they were going to build sixty-seven homes on part of this parcel of land which was known as the "Karlee Tract". It was also their initial intention to attempt to secure financing for this project from Central Penn. They would need financing both to purchase the land and to construct the homes.
Sometime in the spring of 1973, Schoenhut inspected the site and submitted his recommendations and criticisms of the project to Heimbecker. The defendant also met with Pierce and Heimbecker during this period to discuss, among other things, the cost of the project and what periodic draw downs would be needed.
Central Penn never did directly loan the money needed for the project to those involved. Apparently, the reason for this was that Schoenhut turned down the request propounded by Heimbecker because the property in Delaware was too far away from Philadelphia for Central Penn to get involved. The exact reason was not testified to by anyone except Schoenhut. Financing was subsequently obtained from Delaware Valley, using the money on its warehouse line.
In the spring of 1973, the Greenmeadow Holding Company was formed for the purpose of taking title to the stock of the Karlee Corporation. The shareholders of Greenmeadow Holding Company were Heimbecker, Nirenberg, Pierce, Inverso and Schoenhut. The percentage of the shares which was initially allotted to Mr. Schoenhut in relation to the other four men was one of the facts in dispute at the trial. Eventually, at least, he did obtain an equal percentage as was evidenced by the stock certificates themselves which were introduced as government Exhibit 4. Each of the five certificates was dated July 26, 1973, was ostensibly signed by H. Gerard Heimbecker as Secretary of the corporation, and gave each of the five shareholders 22.5 shares.
On the morning of July 19, 1973, a settlement was held in Philadelphia wherein Greenmeadow Holding Company purchased the stock of Karlee Corporation. On that afternoon, Delaware Valley granted a construction loan to the Karlee Corporation in the amount of $1,495,400. All of the documents evidencing this indebtedness to Delaware Valley, including the construction loan agreement, the corporation bond and the mortgage, were signed by Pasquale LiTrenta and Anne Laut on behalf of Karlee. LiTrenta and Laut, however, did not sign their own names. Instead they signed names supplied to them by Nirenberg and Inverso. As Mr. Pierce testified, the reason that none of the shareholders of Greenmeadow signed as officers of Karlee or Greenmeadow was that they did not want the owners of Delaware Valley to realize that some of their officers and employees were involved in the loan from Delaware Valley to Karlee (N.T. 88). Delaware Valley then forwarded copies of these documents and a demand collateral note to Central Penn as part of its security for the warehouse line of credit. These fraudulent papers being sent to Central Penn formed the basis of Count VI of the indictment wherein Mr. Schoenhut is charged with ". . . knowingly and wilfully, and with intent to defraud said bank, made and caused to be made a materially false report, statement and entry into the books of said bank, . . .". All of the witnesses who testified at trial concerning the signing of these documents by LiTrenta and Laut testified that Mr. Schoenhut was not present when these people came to the settlement and signed the documents. They further testified that these people were brought to the settlement by Nirenberg and Inverso.
Subsequent to July, 1973, the owners of Delaware Valley discovered that Nirenberg and Inverso and to a much lesser extent, Heimbecker, had collectively and in some cases individually perpetrated schemes whereby they embezzled in excess of a million dollars from Delaware Valley. One of these schemes involved drawing funds down on the Karlee project to pay for work which was never done. Nirenberg or Inverso would certify that certain work such as water and sewer lines had been done, would certify that they had inspected the work, or had it inspected, and would authorize payment for this work. However, such payments were not sent to the Karlee account known to all the shareholders of Karlee. These payments were sent to a separate account set up by Nirenberg and Inverso. It was not disputed that Schoenhut was completely unaware and completely uninvolved in these embezzlements. What Schoenhut is accused of by the government, although not specifically indicted for, is a failure to inspect the Karlee project prior to payments being made by Delaware Valley to Karlee. Had he inspected, the government suggests, certain funds would not have been able to have been diverted by Nirenberg and Inverso. One of the major issues at trial was what responsibility, if any, did Schoenhut, in his capacity as an officer of Central Penn, have to inspect the Karlee project prior to payments being made for completed work.
In November of 1973, Schoenhut, as a condition of his employment, completed a "conflict of interest questionnaire" for Central Penn. This questionnaire was introduced into evidence as government Exhibit number 26. In this questionnaire, among other things, he stated that he did not have any interest, financial or otherwise, in any company or organization which borrows from or is a customer of Central Penn; he stated that in the past year he did not receive any gifts, discounts, or other benefits, including loans, from anyone who borrows from or is a customer of the company; and he stated that in the past year he has not acquired any stocks, securities or property which were available to him by reason of his employment with Central Penn. It is charged by the government that Schoenhut's receipt of the Greenmeadow stock proves that Schoenhut supplied false answers to this questionnaire. Inverso, Nirenberg and Pierce testified at trial that Mr. Heimbecker told them that Schoenhut was initially to receive ten percent of the stock for his efforts in procuring the loan from Central Penn, and that his interest was increased to twenty percent when he interceded on their behalf to help cover up certain of the aforementioned embezzlements. Mr. Schoenhut testified that Heimbecker gave him twenty percent of the stock at one time, and that he gave it to him gratuitously, possibly because of the many favors Schoenhut had done for Heimbecker in the past. Heimbecker was not called as a witness by either the government or the defense.
It was stipulated at trial that at all times pertinent to the indictment, Central Penn National Bank was insured by the Federal Deposit Insurance Corporation (Government Exhibit # 1). It was further conceded that at all times relevant to the indictment, Schoenhut was an officer of Central Penn National Bank.
For the sake of clarity, I will attempt to discuss each count of the indictment separately. However, at times the arguments for the various counts overlap, in particular with reference to Count IX which is the conspiracy count.
Defendant is charged in Count I as follows:
"On or about July 19, 1973 at Philadelphia, in the Eastern District of Pennsylvania, William F. Schoenhut, Jr., then being an Assistant Vice President at Central Penn National Bank, a bank the deposits of which are insured by the Federal Deposit Insurance Corporation, did knowingly and unlawfully stipulate for, agree to receive and received a fee, commission, gift and thing of value, to wit: shares of stock in Greenmeadow Holding Company, a company which owned all of the stock of Karlee Corporation, for endeavoring to procure and procuring for Karlee Corporation and the stockholders of Greenmeadow Holding Company, through the warehousing account of Delaware Valley Mortgage and Realty Corporation at Central Penn National Bank, a loan and an extension of credit, in the approximate amount of $1,495,400; and said William F. Schoenhut, Jr. was not legally entitled to receive the above fee, commission and thing of value.
In violation of Title 18, United States Code, § 215."
The defendant argues that the language of this Count of the indictment does not charge a crime within the meaning of the subject statute, and alternatively, the record of this case does not support a conviction under this Count of the indictment. 18 U.S.C. § 215 provides as follows:
"§ 215. Receipt of commissions or gifts for procuring loans
Whoever, being an officer, director, employee, agent, or attorney of any bank, the deposits of which are insured by the Federal Deposit Insurance Corporation of a Federal intermediate credit bank, or of a National Agricultural Credit Corporation, except as provided by law, stipulates for or receives or consents or agrees to receive any fee, commission, gift, or thing of value, from any person, firm, or corporation, for procuring or endeavoring to procure for such person, firm, or corporation, or for any other person, firm, or corporation, from any such bank or corporation, any loan or extension or renewal of loan or substitution of security, or the purchase or discount or acceptance of any paper, note, draft, check, or bill of exchange by any such bank or corporation, shall be fined not more than $5,000 or imprisoned not more than one year or both."
Schoenhut is charged with receiving a thing of value, shares of stock in Greenmeadow Holding Company, for endeavoring to procure and procuring for Karlee a $1,495,400 loan and extension of credit through the warehouse account of Delaware Valley. In support of his argument that the indictment does not state an offense under the statute, the defendant cites the case of United States v. Gerken, 182 F. Supp. 738 (D.C.N.Y. 1960), wherein the United States District Court for the Eastern District of New York, in 1960 construed 18 U.S.C. § 220 which was the predecessor of 18 U.S.C. § 215. In that case the defendant was a Vice President of the Security National Bank of Long Island. He was charged with receiving a fee for endeavoring to procure a loan from the Riverhead Savings Bank for a third party, the Huntington Station Realty Corporation. The Security National Bank of Long Island and the Riverhead Savings Bank were not related to each other in any manner. The funds used for the loan given by Riverhead Savings Bank did not come from Security National Bank of Long Island. In dismissing the indictment the court stated:
"On December 31, 1949, of a total of 14,687 operating commercial and mutual savings banks in the United States, 13,628 were institutions whose deposits were insured. U.S. Code Cong. & Adm. News, p. 3766 (1950). The Government would have the court so construe section 220 that an attorney for one insured bank could not receive a fee for procuring a loan for a client by any one of the banking institutions throughout the United States so insured, no matter how remotely situated from his bank client, without becoming a criminal.
The legislative history of 18 U.S.C. § 220 plus the unreasonable and absurd consequences to which the interpretation urged by the Government would lead, satisfy the court that the indictment in the instant case does not allege a crime within the meaning of the statute." Id. at 742.
In arguing against the defendant's motion in arrest of judgment, the government cites UNITED STATES v. BRISTOL, 473 F.2d 439, a 1973 Fifth Circuit decision. In that case the court was concerned with 18 U.S.C. § 213 which provides that a bank examiner may not accept a loan from a bank or any person connected therewith examined by him. The law involved in the BRISTOL case would be applicable in the instant case. In that case the defendant accepted a loan from a company which was controlled by the Chairman of the Board of the Sharpstown State Bank, which bank Bristol had recently examined. The money which the company paid came directly from the Chairman of the Board. In denying Bristol's appeal, the court stated:
"Congress, in passing section 213 and its companion section 212 (which prohibits bank officers from making a section 213 loan), intended to proscribe certain financial transactions which could lead to a bank examiner carrying out his duties with less than total, unbiased objectivity. With the intent of Congress evident from the face of the statute, a construction which would allow a bank officer to circumvent that intent simply by channeling a loan through a controlled shell corporation is untenable. Thus, we hold that the facts alleged in the indictment concerning the mechanics of the loan, if proved, would constitute a violation of 18 U.S.C.A. § 213." Id. at p. 442.
In the instant matter the government argues that Delaware Valley was merely a conduit through which a loan was made from Central Penn to the Karlee Corporation. I do not believe that either of the above cases is controlling in this matter as the relationship between Delaware Valley and Central Penn is somewhere in between the two extremes cited above by the defendant and by the government. Indeed, I find it extremely difficult to make a determination as to whether or not the instant situation is one where the intermediary, Delaware Valley, is merely a conduit, or whether Delaware Valley in fact is the true lender and Central Penn and its employees are sufficiently divorced from the matter so that I might grant defendant's motion in arrest of judgment. I cannot accept defendant's argument that to be guilty of an offense under § 215 he must have procured or endeavored to procure a loan directly from Central Penn. If the loan from Delaware Valley to Karlee had to be approved by Central Penn and the defendant procured or endeavored to procure this approval, I would confirm his conviction under Count I. Even if the explicit approval of Central Penn were not needed and the defendant acted to insure that Central Penn would in no way interfere with the loan from Delaware Valley to Karlee, I would find that Count I stated an offense under § 215. However, the problem arises, as I will explain below, that it was not shown in court, or otherwise, exactly what the relationship was between Central Penn and Delaware Valley. For this reason I will refrain from deciding defendant's motion in arrest of judgment and instead grant defendant's motion for judgment of acquittal as the evidence presented by the government is insufficient to sustain a conviction.
The agreement between Central Penn and Delaware Valley was either never reduced to writing or for some reason neither the government nor the defendant chose to introduce it into evidence. Therefore, I must rely on the testimony of the various witnesses to determine whether or not it was necessary for the Delaware Valley conspirators to enlist the aid and support of the defendant, William Schoenhut, in order to secure the loan from Delaware Valley. Aside from approval of the initial construction loan, the government contends that Schoenhut's complicity was necessary to insure that nobody from Central Penn ever inspected the construction site prior to any funds being drawn down
from the loan to pay for the cost of construction. The reason for this may in part be due to a fear that such an inspection would lead to disclosure of the true principals of Karlee. In August, 1973, Karlee applied for payment of a $90,000 draw down thereby inferring that water and sewer lines were in fact completed as per the construction loan agreement. The officers of Delaware Valley were required to certify that they inspected the site and that this work was in fact done. Of course the officers of Delaware Valley who were required to make this certification and those who applied for the payment on behalf of Karlee were one and the same. As Mr. Nirenberg testified:
"Q You stated on cross examination, I believe, that you yourself and Mr. Inverso and Mr. Heimbecker planned and carried out the transaction that involved the taking out of $90,450 from the Karlee account and the use of at least part of that money for some other purpose, is that correct?
Q Were the three of you directors of Greenmeadow Holding Company?
In an attempt to establish what role Central Penn played in the loan between Delaware Valley and Karlee, I will start with an examination of the testimony of John Jacobsen who was the Vice President in charge of the Mortgage Department when the warehouse line was initially established in 1972 (N.T. 3-71). Mr. Jacobsen testified about Central Penn's policies concerning inspection and payments when Central Penn was the direct lender on a construction loan. He was also asked, as follows, about Central Penn's policy when its borrower granted a construction loan to a third party:
A I don't know that we had a specific written policy on that subject, but it was my feeling."
Mr. Jacobsen then testified extensively about specific inspection procedures when Central Penn was a direct lender. He also testified that Central Penn only gave out construction loans in Southern Pennsylvania and Southern New Jersey. He specifically stated:
"I don't recall any projects being outside of that general geographic area."
Concerning Central Penn's responsibility to inspect when Delaware Valley makes the construction loan, Mr. Jacobsen testified on cross as follows:
"Q Now in a situation of that kind, it is Delaware Valley who would be considered the customer of the bank, is that correct, sir?
A Yes, Delaware Valley was the borrower of the warehousing line.
Q And all relationships as far as borrower and lender were only between Central Penn and Delaware Valley?
Q And as far as the procedures that you have testified to on direct examination, these procedures would normally apply when Central Penn was making a direct loan to somebody in the construction business, isn't that correct, sir?
Q So, when you were talking about inspection procedures for construction drawdowns, that would normally only apply when Central Penn is a direct lender to the party constructing, is that correct, sir?
A If we are talking about a situation, sir, where Central Penn is lending to a borrower who is in fact the builder -- developer, yes, that is true.
Q But normally, where they are dealing with a construction loan built into a warehousing loan, you leave that obligation to the primary lender, I mean, the borrower, isn't that correct?
A I think you would say you would leave it to the primary borrower but I don't feel you would completely ignore the activity within that construction loan and the ...