United States of America, Plaintiff-appellee, v. Richard Dale Owen, Defendant-appellant, 536 F.2d 340 (10th Cir. 1976)

Appellant was convicted on two counts of violating 18 U.S.C. § 641. This statute imposes federal criminal liability on one who "embezzles, steals, purloins, or knowingly converts to his use or the use of another . . . any record, voucher, money, or thing of value of the United States or of any department or agency thereof . . . ." Specifically, appellant was charged with embezzling money held in the checking account of the El Reno, Oklahoma, Urban Renewal Authority (ERURA) which the indictment alleged belonged to the Department of Housing and Urban Development (HUD), an agency of the federal government.

The evidence at trial established that in 1973 appellant was executive director of ERURA and had the responsibility for implementing certain urban renewal projects. In the course of his duties he handled checks made out to individuals as compensation for ERURA taking of their property. Two such checks were involved in this case. One, in the amount of $425, was drawn to the order of a displaced tenant named Edward C. Jones. This check was traced into the bank account of appellant's girlfriend with whom he was living at the time. This transaction occurred in November 1973. In December 1973, an ERURA check for $2,500, payable to the owners of some other property, was deposited in the bank account of a friend of appellant. He kept $500 in payment of a debt and returned $2000 in cash to appellant.

The issue on appeal is whether the money obtained in the above manner was "money . . . of the United States." At trial the government relied on the testimony of a HUD official, Stephen Sid Sedlock, to establish this element of the case. Sedlock's testimony was confusing in many regards,¹  but we can deduce the following essentials from the record.

Sedlock testified ERURA was organized by the city of El Reno and was not an agency of the federal government. He stated it originally was funded by "categorical block grants" made by HUD under a contract with ERURA. This original grant, in the amount of $119,050,²  was made in either August or October 1972.³  Apparently, this was the only federal money placed in ERURA's account prior to the embezzlement. Sedlock characterized this as a start-up grant to get ERURA going. Subsequent operating funds were acquired from other sources, primarily from the sale of ERURA promissory notes in the private money market. According to Sedlock, these notes were "guaranteed" by the United States Government.⁴  ERURA also received money from rent paid by tenants in property acquired by ERURA. Money from all sources was commingled in one account. ERURA was authorized to make expenditures only in accordance with HUD regulations and periodically gave accountings to HUD.

The trial court instructed the jury that ERURA was a "joint adventurer" with HUD and that they were "not to be concerned with the issue of agency" because the court had determined as a matter of law that ERURA was an agent of the federal government and its money was "money . . . of the United States." We hold this instruction was incorrect.

As support for the instruction, the government relies on dictum in United States v. Candella, 487 F.2d 1223, 1226 (2d Cir. 1973), cert. den'd, 415 U.S. 977, 94 S. Ct. 1563, 39 L. Ed. 2d 872, stating urban renewal is a "joint enterprise of the City and Federal Government." We do not believe this case is authority for the government's position. The issue in Candella was whether a false statement made to an urban renewal agency pertained to a "matter within the jurisdiction" of HUD under 18 U.S.C. § 1001.⁵  The defendants had submitted false affidavits in support of an inflated claim for payment from the city's urban renewal agency. The claim was subject to 100 percent reimbursement by HUD. As we read Candella, the court found urban renewal a "joint enterprise" only in the sense of being a cooperative effort having sufficient HUD control and supervision to bring the "matter within the jurisdiction" of HUD for purposes of 18 U.S.C. § 1001. The court did not hold the urban renewal agency was an agency of the federal government.

In different contexts other cases have held similar local agencies are not agencies of the federal government. Gibson & Perin Co. v. City of Cincinnati, 480 F.2d 936 (6th Cir. 1973), cert. den'd, 414 U.S. 1068, 94 S. Ct. 577, 38 L. Ed. 2d 473 (urban renewal agency not a federal agency under the Administrative Procedure Act); Vincent v. United States, 383 F. Supp. 471 (E.D. Ark. 1974); Hughes v. United States, 383 F. Supp. 1071 (S.D. Iowa 1973) (local community action agencies not federal agencies for purposes of Federal Tort Claims Act). Local urban renewal agencies are created by city governments, not the federal government. They are more properly characterized as grantees of federal financial assistance than as federal agencies. Hughes v. United States, supra. See also Harris v. Boreham, 233 F.2d 110 (3d Cir. 1956).

Even though ERURA was not a federal agency, the government contends its money was as a matter of law "money . . . of the United States" because it included grants from the federal treasury. Appellant contends the grant money ceased to be "money . . . of the United States" when it passed to the local agency. He argues 18 U.S.C. § 641 requires that the money belong to the United States under the law of property.⁶  We need not decide whether the grant money was "money . . . of the United States" under § 641 because there is insufficient evidence to warrant a finding that any of the money in ERURA's account at the relevant time was HUD grant money.

On this issue Sedlock, Chief of Mortgage Credit at HUD's Oklahoma City office, testified it was possible that all money in ERURA's account at the time of appellant's embezzlement was received from the private sector. He stated that at some point the original requisition fund of $119,050 was depleted and ERURA functioned entirely on money received from other sources, but he could not say when this occurred. Other statements in his testimony, however, indicate it is likely the money was exhausted before November 1973 when appellant first tapped the till. Sedlock testified the original HUD money was only to keep ERURA going for three or four months until it could achieve private funding. ERURA sold its first notes in December 1972. Sedlock said HUD records indicated ERURA had sufficient funds as of July 1, 1973, to carry it until it could obtain full financing from private lenders. On October 30, 1973 ERURA received $190,000 from note sales. HUD records indicate ERURA expenditures during its first year in excess of the $119,050 which is the only amount Sedlock mentioned as coming directly from HUD.⁷ 

At best the evidence is inconclusive and there is nothing upon which a jury could base a finding beyond a reasonable doubt that appellant obtained federal grant money. As we said in Lewis v. United States, 420 F.2d 1089, 1089-90 (10th Cir. 1970): "In examining the evidence to determine whether it is substantial for purposes under consideration, it must do more than merely raise a suspicion of the existence of the facts sought to be proved . . . . And, conviction cannot be based upon evidence which is consistent with both innocence and guilt."

In an attempt to satisfy this standard, the government argues the money received from private loans guaranteed by the United States Government was "money . . . of the United States." On this issue we are again confronted with a record inadequate to establish the legal relationship involved. Assuming the private loans were in legal contemplation "guaranteed" by the United States Government, the money never belonged to the United States. Even if it had to pay on the guarantees, the ultimate responsibility for payment rested with the local government agency. The "guarantee" arrangement apparently was a device to enable the local government to obtain loans on the credit of the United States and avoid direct federal expenditures.⁸ 

We have concluded the trial court erred in determining as a matter of law that ERURA money taken by appellant was "money . . . of the United States." The government's evidence was insufficient to identify the money as "money . . . of the United States." This failure is fatal to the government's case, and appellant's conviction must be reversed.