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United States v. Docherty

decided: October 31, 1972.

UNITED STATES OF AMERICA, APPELLEE,
v.
ROBERT H. DOCHERTY, APPELLANT



Friendly, Chief Judge, and Lumbard and Feinberg, Circuit Judges. Lumbard, Circuit Judge (dissenting).

Author: Friendly

FRIENDLY, Chief Judge:

In this prosecution of a 35-year old lawyer, the Government has sought to press to the verge the section of the federal criminal code, 18 U.S.C. § 656, prohibiting the theft, embezzlement or misapplication of bank funds by a bank officer or employee. Admittedly, the defendant, a borrower from a Buffalo, N. Y. bank, neither obtained nor sought any personal gain. Moreover, so far as concerns the transactions in which he participated, or of which he knew, he is bound and, so far as the record shows, is able, to make the bank whole. Our problem is whether the Government has gone only to the verge or beyond it.

There is no real dispute over the facts: The defendant, Robert Docherty, met Edward Evans in 1956 while both were students at the University of Buffalo. They became, and remained, close personal friends. After graduation, Evans went into the service of Manufacturers & Traders Trust Company of Buffalo (M & T), where, by 1968, he had risen to the post of assistant vice president in charge of the personal loan section of the bank's Installment Loan Department. Docherty entered and completed law school, and was admitted to practice. In 1962 Docherty had begun borrowing from M & T for tuition and other purposes. The loans, concededly legitimate, were arranged through Evans. Later Docherty and his law partner secured a joint loan of $7,000 from M & T. Each of these loans was repaid prior to Docherty's indictment. The procedure, followed also with respect to the loans that formed the subject of the indictment, was for him to sign an application and a note, with the amount of the latter and the summary sheet*fn1 temporarily left blank pending the bank's computation of prepaid interest and other charges. Evans would write "See Ed Evans" or its equivalent on the summary sheet, which was an indication to the collection department that Evans should be notified if any default occurred. All this was standard procedure.

Docherty's troubles began with a luncheon discussion in October 1965, when Evans told Docherty that he needed money to buy some stock and requested that Docherty borrow $2,000 and reloan it to him. When Docherty asked why Evans didn't borrow the money himself, Evans answered that bank policy prohibited his borrowing from his own bank. Docherty countered with a query why Evans didn't borrow from another bank; Evans replied that the bank frowned upon this also. Docherty filled out the note and application. He did not fill out the blank in the application with respect to the purpose of the loan, a course that was not uncommon. Evans told him there was no need to complete the credit statement or furnish other information since M & T had Docherty's financial statements in connection with his personal loans. The bank made the loan; Docherty picked up the $2,000 check, cashed it, and gave Evans the proceeds. He also turned over to Evans the "coupon book" which reminded the borrower of the dates and amounts of installment loan payments.

The process was repeated in February 1966. When Docherty asked what had happened about the first loan, Evans said it had been paid. Except for some increases in amount, substantially the same facts recurred in June 1966, in May, August and September 1967, and in February and April 1968. Evans' stories to Docherty were that he wanted to buy stock, to pay off earlier loans or, on one occasion, to invest in a gas station. With respect to the substantive counts based on these transactions, the jury either acquitted (as to the 1965 and 1966 loans) or disagreed.

In July 1968 Evans asked Docherty to take out a loan of $4800. When Docherty protested that the amount was too high, Evans answered that he had decided not to buy stock but would instead use the proceeds to repay a prior loan. Docherty deposited the bank's $4800 check in his own account, drew a check in the same amount to M & T, and gave it to Evans. Evans turned it over to M & T in payment of the earlier loan, and Ourser, a vice president of the bank, advised Docherty that the loan had been repaid. On September 4, 1968, Docherty made another $3,000 loan; the proceeds went to Evans. On October 29 he signed a blank note at Evans' request; Evans filled it in for $6,292.44. Of the $5,000 in net proceeds, $2,000 were used to pay off the September loan, and a $3,000 bank check was deposited by Evans, without Docherty's endorsement, to the account of Larry's Petro Service, which he was also manipulating, without Docherty's knowledge. The final transaction occurred late in 1968 or early in 1969, when Docherty, assuming that all earlier loans had been paid by Evans, signed another blank application and note. The bank issued a check for $4800 payable to "R. Docherty." Evans forged Docherty's endorsement and cashed the check at a Las Vegas hotel. When signing this last note, Docherty had demanded that Evans render an accounting before he would endorse any more checks; doubtless this led to the forgery. The jury convicted on the four substantive counts relating to these notes.

Late in 1968 Docherty had received his first "late payment" notice from the bank. Thinking this related to one of the loans he had made for his own account, he instructed his secretary to make the payment. When she informed him that the notice did not relate to any of his personal loans, he telephoned Evans, who said that the bank had made an error and instructed that the notice should be sent on to him. Ultimately, it was discovered that Evans had been manipulating the accounts of six or seven other friends and making payment of the old loans with the proceeds of new ones; his total embezzlements were in the neighborhood of $300,000.

It will be convenient to deal first with the conspiracy count, on which the jury also convicted. This charged a conspiracy to violate not only 18 U.S.C. § 656 but also § 1005. The relevant provision of § 1005 condemns:

Whoever makes any false entry in any book, report, or statement of such bank with intent to injure or defraud such bank . . . or to deceive any officer of such bank, or the Comptroller of the Currency, or the Federal Deposit Insurance Corporation, or any agent or examiner appointed to examine the affairs of such bank, or the Board of Governors of the Federal Reserve System . . . .

We fail to see what "false entry" Docherty participated in making. The loans were recorded as his liabilities, and they are. Contrast Hargreaves v. United States, 75 F.2d 68, 72 (9 Cir. 1935), where a bank officer had caused sham notes to be recorded. Neither was there sufficient evidence that Docherty made any false statements of his purpose for the loans. In only one instance did he make any statement of purpose. This was with regard to the June 1966 loan, where he filled in the word "personal" in the space on the loan application appearing after the phrase "Proceeds of Loan to be used for." In light of the principles applicable in the construction of criminal statutes, see Bell v. United States, 349 U.S. 81, 75 S. Ct. 620, 99 L. Ed. 905 (1955), we would not consider this description of a loan made as an accommodation to a friend to be a "false entry"; a statement that he intended to use the loan to buy a car or for office expenses would stand quite differently. The conviction on the conspiracy count thus cannot survive unless there was sufficient evidence to show the violation of § 656 charged in it and in the four substantive counts on which Docherty was convicted as an aider and abettor.*fn2

A violation of 18 U.S.C. § 656 requires, so far as here relevant, a situation where a bank officer, director, agent or employee "embezzles, abstracts, purloins or willfully misapplies any of the moneys, funds or credits of such bank . . . ." When a defendant is charged simply as an aider or abettor, submission to the jury is warranted only if there is enough evidence to show that he knew of such activity of the principal and desired to forward it. 18 U.S.C. § 2; United States v. Peoni, 100 F.2d 401, 402 (2 Cir. 1938); United States v. Turnipseed, 272 F.2d 106, 107 (7 Cir. 1959). Our summary alone demonstrates the insufficiency of the evidence under our recent decision in United States v. Taylor, 464 F.2d 240 (2 Cir. 1972) or, for that matter under the previous rule in this circuit, to show knowledge on Docherty's part that Evans intended to embezzle, abstract or purloin moneys, funds or credits of M & T. The validity of his conviction must therefore rest on holding that his admitted knowledge that the proceeds of the loans were going into Evans' hands in violation of the bank's internal rules*fn3 constituted guilty knowledge of wilful misapplication.

The words "willfully misapply" first appeared in the Act of June 3, 1864, ch. 106, § 55, 13 Stat. 116, which, in addition, required proof of intent "to injure or defraud the [banking] association or any other company or body politic or corporate, or any individual person, or to deceive any [bank] officer . . ., or any agent appointed to examine the affairs of [the bank] . . . ." The Act of April 6, 1869, ch. 11, 16 Stat. 7, added an aiding or abetting offense.

The phrase "willfully misapply" has proved troublesome from the outset. In United States v. Britton, 107 U.S. 655, 669, 2 S. Ct. 512, 524, 27 L. Ed. 520 (1883), the Supreme Court, answering certified questions with respect ...


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