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United States v. Nash

filed: February 6, 1996.


Appeal from the United States District Court for the Central District of California. D.C. No. CR-91-0609-LEW. Laughlin E. Waters, District Judge, Presiding. This Opinion Substituted on Grant of Rehearing for Withdrawn Opinion of August 24,.

Before: Betty B. Fletcher, William C. Canby, Jr., and Cynthia Holcomb Hall, Circuit Judges. Partial Concurrence and Partial Dissent by Judge Hall.

Per Curiam:

Joseph V. Nash was charged in a fifteen-count superseding indictment with fraudulently obtaining over $5 million in loans from three different banks. He was eventually convicted of ten counts of submitting false documents to a lending institution insured by the Federal Deposit Insurance Corporation (FDIC) in violation of 18 U.S.C. § 1014, and five counts of bank fraud in violation of 18 U.S.C. § 1344. Nash now appeals his convictions. We reverse.


Nash was charged in a fifteen-count superseding indictment. Counts 1 through 4 charged Nash with submitting false tax returns to Liberty National Bank in violation of 18 U.S.C. § 1014. Nash's partnership, Nash & Company, applied to Liberty National for a $250,000 line of credit and a $250,000 loan, each of which Nash offered to guarantee personally. As part of the application process, Nash submitted his personal income tax returns for 1985 and 1986. The indictment alleged that these returns "greatly overstated [Nash's] income for [those] years" and that, relying in part on the contents of these documents, Liberty National granted Nash & Company the loan and the line of credit. Nash also submitted these allegedly false tax returns to First Pacific Bank to obtain a $200,000 unsecured personal loan. This conduct formed the basis of counts 5 and 6, also charging Nash with violating 18 U.S.C. § 1014.

Counts 7 through 9 charged Nash with a scheme that began in 1985. Nash was the president and owner of First Professional Realty Company of America, Inc. In January 1985, he obtained for First Professional a $250,000 loan from Union Bank. First Professional held a promissory note from another business called TAG Properties (TAG). As of January 1985, the note obligated TAG to make three payments to First Professional of $450,000 each. To obtain the loan, Nash represented to Union Bank that First Professional would repay the loan with the future installments on this note. Union Bank, in an effort to ensure its right to receive the proceeds, requested that Nash give the TAG promissory note to it for safekeeping. Nash gave Union Bank a document which he incorrectly represented as the TAG note.

When Nash was later unable to repay the loan, he sought and received three extensions from Union Bank. The extensions that he received in December 1986 and June 1987 were granted in reliance upon Nash's representation that Union Bank would receive the remaining amount due when TAG made its December 16, 1987 payment to First Professional. What Union Bank did not know, however, was that TAG had paid the note in full on or about January 20, 1986. It was alleged that Nash was aware of this final payment when he sought the extension. These activities form the basis of the bank fraud charged in Count 7 of the indictment. Counts 8 and 9 charged Nash with giving false statements to the bank, consisting of the December 1986 and June 1987 misrepresentations.

Nash received one other loan during this period. In September 1986, Nash applied to Great Western Bank for a $4,360,000 loan secured by an office building he owned in Beverly Hills. He represented to Great Western that the property was fully leased and would generate enough rent to repay the loan. In support of this claim, Nash submitted two seemingly genuine lease agreements. One lease showed Revel Travel as leasing the first floor of the Beverly Hills property for $20,340 per month. In reality, Revel Travel was paying only $10,500 per month. The other lease stated that McMurtry & Bell, an insurance company, was leasing the entire second floor of the Beverly Hills property for $20,093 per month until February 1, 1988. In reality, the insurance company was leasing on a month-to-month basis and paid only $2,000 per month. Nash obtained the loan from Great Western and in return assigned to Great Western the lease proceeds from the Beverly Hills property. This conduct gave rise to counts 10 through 15 of the indictment. Counts 10 through 13 each charged Nash with bank fraud based on the loan application, the security agreement between Nash and Great Western, the promissory note between Nash and Great Western, and the assignment of leases between Nash and Great Western. Counts 14 and 15 charged Nash with violations of 18 U.S.C. § 1014 based on the submission of the inaccurate Revel and McMurtry leases.

Nash was convicted on all fifteen counts of the superseding indictment.

II. 18 U.S.C. § 1014 CONVICTIONS

Nash claims the district court erred when it instructed the jury that income and asset statements are material under 18 U.S.C. § 1014.

The government responds to Nash's claim by asserting that materiality is not an element of a § 1014 violation. Section 1014 provides:

whoever knowingly makes any false statement or report . . . for the purpose of influencing in any way the action of . . . any institution the accounts of which are insured by the Federal Deposit Insurance Corporation, . . . upon any application . . . or loan, or any change or extension of any of the same, . . . shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

18 U.S.C. § 1014. Although the statute does not expressly require the false statements to be material, we have previously stated that materiality is an element of the offense. United States v. Hutchison, 22 F.3d 846, 851 (9th Cir. 1993) (violation of § 1014 requires proof that defendant "made a knowing, false, material statement to the bank for the purpose of influencing its action") (emphasis added); Theron v. United States Marshal, 832 F.2d 492, 496-97 (9th Cir. 1987) (essential elements of § 1014 violation include knowingly making a "false statement as to a material fact," where a fact is material if it "has the capacity to influence the lending institution"), cert. denied, 486 U.S. 1059, 100 L. Ed. 2d 930, 108 S. Ct. 2830 (1988). Our circuit is not alone in taking this position. See, e.g., United States v. Holland, 992 F.2d 687, 690 (7th Cir. 1993) ("although the statute does not specifically state that materiality is to be considered, . . . materiality ...

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