United States v. Ballard, No. 17-2640 (7th Cir. 2018)

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Justia Opinion Summary

Ballard obtained a $280,000 loan from SBH to construct the Stone Fence residence, then requested another $90,000 to finish the property. There was insufficient equity to cover that amount; SBH lent him $20,000. Ballard obtained construction loans on properties in Bradley. Grant was the SBH loan officer for all three properties. Ballard submitted required Sworn Contractor’s Statements and Owner’s Payment Authorizations to the Kankakee County Title Company (KCTC), identifying the material and labor costs supposedly associated with his work on the Bradley properties. Ballard obtained $188,000 for the Bradley properties, where no work was performed. Ballard used the funds to complete Stone Fence. An SBH employee discovered Ballard’s scheme. Ballard was charged with three counts of bank fraud, 18 U.S.C. 1344. At trial, Ballard admitted that he had misdirected funds; he argued a “good faith” defense that Grant and his supervisors knew and authorized Ballard’s acts and pressured him to complete Stone Fence. Ballard also claimed he did not read or sign the loan documents, implying that someone forged his signature. After Ballard was convicted, his attorney obtained a previously undisclosed audio recording of Grant, made during a prior, unrelated criminal investigation. The Seventh Circuit affirmed the district court in granting a new trial, finding the recording material.

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In the United States Court of Appeals For the Seventh Circuit ____________________ No. 17 2640 UNITED STATES OF AMERICA, Plaintiff Appellant, v. DANIEL BALLARD, Defendant Appellee. ____________________ Appeal from the United States District Court for the Central District of Illinois. No. 15 cr 20022 — James E. Shadid, Judge. ____________________ ARGUED FEBRUARY 15, 2018 — DECIDED MARCH 19, 2018 ____________________ Before BAUER, FLAUM, and MANION, Circuit Judges. FLAUM, Circuit Judge. The government alleges Daniel Bal lard fraudulently obtained construction loans from a bank. After Ballard was convicted on three counts of bank fraud, his attorney obtained a previously undisclosed audio recording of an adverse witness in Ballard’s trial, made during the course of a prior, unrelated criminal investigation. Ballard moved for a new trial as a result of this newly discovered ev 2 No. 17 2640 idence. The district court found certain portions of the record ing favorable and material to Ballard’s defense and granted him a new trial. The United States appeals. We affirm. I. Background Ballard’s alleged fraudulent scheme was as follows: Bal lard obtained a $280,000 construction loan from the State Bank of Herscher (“SBH”) to construct a residence at 3013 Stone Fence Drive in Kankakee, Illinois (“the Stone Fence Prop erty”). After some time, he realized he was “in over his head” and requested an additional $90,000 loan to finish the prop erty. As there was insufficient equity to cover the requested amount, SBH only lent him $20,000. To make up the balance, Ballard sought and obtained construction loans on two other properties in Bradley, Illinois: 411 North Center and 248 North Center (“the North Center Properties”). Joseph Grant was the SBH loan officer for all three properties. To obtain funds under the loans, Ballard was required to submit Sworn Contractor’s Statements and Owner’s Payment Authorizations to the Kankakee County Title Company (“KCTC”). On the forms, Ballard identified the material and labor costs supposedly associated with his work on the North Center Properties. KCTC forwarded the forms to SBH, which then released funds back to KCTC to disburse to Ballard. In total, Ballard obtained approximately $188,000 for the North Center Properties. In reality, however, no work was ac tually performed; instead, Ballard used the funds to complete construction on the Stone Fence Property. On March 21, 2012, an SBH employee discovered Ballard’s scheme. When con No. 17 2640 3 fronted by Charles Riker, the president of SBH, Ballard alleg edly acknowledged that he had misrepresented his work on the North Center Properties. On June 2, 2015, Ballard was charged with three counts of bank fraud in violation of 18 U.S.C. § 1344. At trial, Ballard admitted that he had misdirected funds allocated for the North Center Properties to the Stone Fence Property. How ever, he maintained two separate legal defenses. The first was a “good faith” defense—Ballard asserted that Grant and his supervisors not only knew, but authorized Ballard’s acts and pressured him to complete the Stone Fence Property. Second, Ballard claimed he did not read or sign the supposedly fraud ulent loan documents prior to their submission to KCTC, and implied that someone else forged his signature.1 1 The government sought to exclude Ballard’s good faith defense, ar guing that “[t]he law is pretty clear that a loan officer is not the bank. So that if a loan officer was somehow … complicit in the bank fraud, the vic tim is still the bank. It wouldn t be a defense for the defendant.” That may be true. See United States v. Allender, 62 F.3d 909, 915–916 (7th Cir. 1995). However, the district court denied the government’s motion, noting that Ballard’s theory was not limited solely to Grant but also included his su periors at SBH. The court stated: [A]t some point the bank is its people, right? If everybody in the bank—let s just go crazy here—if everybody in the bank tells Beaumont s client, you go ahead, you can do this, then you can t come back later and argue that the bank is this building and not the people, right? Thus, the district court allowed Ballard to “explore whether this goes up past Mr. Grant under his theory.” The government continues to maintain that the good faith defense is precluded. Since we find the recording is favorable and material to Ballard’s defense that he did not read the loan 4 No. 17 2640 In response, Grant testified that he never told Ballard to use the North Center loan proceeds at the Stone Fence Prop erty or knew that Ballard was doing so. At the conclusion of the trial, a jury convicted Ballard of all three counts. On February 8, 2017, Ballard filed a motion for a new trial. Ballard’s motion centered on a surreptitious audio recording of Grant made during a prior, unrelated federal investigation centering on Scott Fitts (“the Fitts investigation”). Notably, Lawrence Beaumont—Ballard’s attorney here—represented Fitts during those criminal proceedings. In 2007, Fitts ob tained a personal loan from SBH, with Grant serving as his loan officer. Fitts later pleaded guilty to at least one criminal violation related to the loan. Fitts signed a cooperation agree ment as part of his plea, and was later directed to audio record a conversation with Grant. In that approximately one hour re cording, Fitts and Grant discussed various matters relating to Fitts’s alleged misconduct and Grant and SBH’s involvement. Ballard alleged that the day after the jury verdict was an nounced, Fitts called Beaumont and told him about the Grant recording. Based on the contents of the recording, Ballard moved for a new trial, arguing that the government had im properly suppressed evidence capable of impeaching Grant’s credibility. The district court agreed, vacated Ballard’s convic tion, and ordered a new trial. According to the district court, Ballard’s defense that he did not read the loan documents “may have been a much more plausible defense had the Gov ernment turned over the Grant recording prior to trial.” This appeal followed. statements, we need not address whether the good faith defense is plausi ble here. No. 17 2640 5 II. Discussion Under Brady v. Maryland, a defendant can obtain a new trial if he shows that evidence suppressed by the government was favorable and material to either his guilt or punishment. See 373 U.S. 83, 88–89 (1963); see also United States v. Veras, 51 F.3d 1365, 1374 (7th Cir. 1995).2 Whether evidence is favorable and material “is legally simple but factually complex.” Turner v. United States, 137 S. Ct. 1885, 1893 (2017). Indeed, “[w]e must examine the trial record, ‘evaluat[e]’ the withheld evi dence ‘in the context of the entire record,’ and determine in light of that examination whether ‘there is a reasonable prob ability that, had the evidence been disclosed, the result of the proceeding would have been different.’” Id. (second alteration in original) (first quoting United States v. Agurs, 427 U.S. 97, 112 (1976); then quoting Cone v. Bell, 556 U.S. 449, 470 (2009)). Generally, we review a grant or denial of a motion for a new trial under an abuse of discretion standard. United States v. Lawson, 810 F.3d 1032, 1042 (7th Cir. 2016). Brady violations often implicate both issues of fact and law; we review the dis trict court’s factual findings for clear error, and legal conclu sions de novo. United States v. Griffin, 652 F.3d 793, 797 (7th Cir. 2011); see also United States v. Freeman, 650 F.3d 673, 678– 79 (7th Cir. 2011) (“The district court abuses its discretion when it makes an error of law or when it makes a clearly er roneous finding of fact.”); United States v. Wolf, 860 F.3d 175, 189 (4th Cir. 2017) (“With regard to the district court’s Brady ruling, we apply de novo review to its legal determinations and clear error review to its factual findings.”). 2 On appeal, the government does not contest that the Grant recording was suppressed; thus, we need not further analyze that factor. 6 No. 17 2640 A. Favorability Evidence is favorable “either because it is exculpatory, or because it is impeaching.” Turner, 137 S. Ct. at 1893 (quoting Strickler v. Greene, 527 U.S. 263, 281–282 (1999)). Evidence need only have “some weight” or “tendency” to be favorable to the defendant. Kyles v. Whitley, 514 U.S. 419, 451 (1995). The district court found the Grant recording supported four reasonable inferences: (1) Grant disclosed to Fitts that a Suspicious Activity Report (“SAR”) had been created for one of his transactions3; (2) SBH filled out the SAR related to Fitts’s loan with false information; (3) Grant accepted signed, blank loan applications from Fitts; and (4) Grant believed he was under criminal investigation. The government contends that these factual findings are not supported by the record. We disagree. “Under [the clear error] standard, we will not reverse unless, after reviewing all the evidence, we are left with ‘the definite and firm conviction that a mistake has been committed.’” Buechel v. United States, 746 F.3d 753, 756 (7th Cir. 2014) (quoting Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573 (1985)). Upon a thorough review of the record, including the Grant recording, we have no such conviction here. The district court’s four conclusions “are ‘plausible in 3 A SAR is a report made by a financial institution about suspicious, or potentially suspicious activity, to prevent fraud, money laundering, and other nefarious activities. In the United States, financial institutions and their employees can face civil and criminal penalties for failing to properly file a SAR or for failing to file them within 30 calendar days of detection of behavior that might constitute the basis for their filing. See generally 31 U.S.C. §§ 5311–32. Disclosure of the existence of a SAR is prohibited. 31 U.S.C. § 5318(g)(2). No. 17 2640 7 light of the record viewed in its entirety.’” Id. (quoting Fyrnet ics (Hong Kong) Ltd. v. Quantum Grp., Inc., 293 F.3d 1023, 1028 (7th Cir. 2002)). Thus, we will not disturb them. Based upon these factual findings, the district court made a legal determination that the Grant recording provided “am ple fodder for impeaching Grant’s credibility.” Once again, we cannot say that such a finding was in error. For one, some of the acts arguably admitted by Grant in the recording—such as falsifying a SAR and accepting signed, blank loan applica tions—are probative to attacking his character for truthful ness. See Fed. R. Evid. 608(b)(1). Additionally, the recording supports an inference that Grant not only admitted to illegal activity, but also thought he was being criminally investi gated for his misconduct. Because Grant was never prose cuted, it can be further inferred that Grant received some ben efit from the government. Thus, Grant was arguably biased in favor of the prosecution, especially given that many of the main characters in the Fitts investigation took part in the Bal lard investigation—most notably the prosecutor, investigat ing agent, and Grant. If believed, such a motive would dam age Grant’s credibility as a witness against Ballard. That’s be cause, at trial, Grant’s testimony directly contradicted Bal lard’s statement as to whether Grant and SBH sanctioned Bal lard’s conduct. If a jury did not believe Grant’s testimony, it might have found Ballard generally more credible. This may have made Ballard’s defense that he did not read the loan statements more believable. B. Materiality We must next address whether the favorable evidence is material. A statement is material if “there is a reasonable prob ability that, had the evidence been disclosed, the result of the 8 No. 17 2640 proceeding would have been different.” Cone, 556 U.S. at 470. In order to have “[a] ‘reasonable probability’ of a different re sult,” the suppressed evidence must “undermine[] confidence in the outcome of the trial.” Turner, 137 S. Ct. at 1893 (quoting Kyles, 514 U.S. at 434). As the district court reasoned, “[t]he Defense was entitled to cross examine Grant about his credibility, and had the jury found Grant incredible, it is not a stretch to see the verdict could have been different.” The dissent correctly notes that twelve other witnesses testified at trial. And it is true that it is “the rare case in which impeaching evidence warrants a new trial, because ordinarily such evidence will cast doubt at most on the testimony of only one of the witnesses.” United States v. Taglia, 922 F.2d 413, 415 (7th Cir. 1991). However, as we con tinued in Taglia, “[that] practice should not be taken to imply … the district judge is helpless to grant a new trial. District judges do not in fact consider themselves helpless in such cir cumstances, and they are right not to.” Id. 415–16. Indeed, a trial judge is best equipped to “develop[] a feel for the impact of the witnesses on the jury—and how that impact might have been different had the government played by the rules” and disclosed the suppressed evidence. United States v. Boyd, 55 F.3d 239, 242 (7th Cir. 1995). We, “confined to reading the tran script, cannot duplicate” such a nuanced sense on appeal. Id. Thus, “unless we are convinced that [the trial judge in fact] was mistaken”—and we are not convinced here—“we have no warrant to reverse.” Id. III. Conclusion For the foregoing reasons, we AFFIRM the judgment of the district court. No. 17 2640 9 MANION, Circuit Judge, dissenting. Daniel Ballard needed money to complete an over budget construction project, so he obtained a loan ostensibly to improve two other properties. When it was discovered that he never did any work on the other properties, he was investigated for bank fraud. He was eventually charged with making false representations to a ti tle company in order to obtain a disbursement of funds from the fraudulent loan. His main defense at trial seems to have been that he did not bother to read the admittedly false Sworn Contractor’s Statements submitted to the title company to ob tain the disbursement. Implausible as that may be on its face, the government refuted the defense by calling multiple wit nesses—including an FDIC special agent and the former bank president—who told the jury that Ballard had admitted he knew the representations he made in Sworn Contractor’s Statements were false. The jury convicted him. But after the trial, a recording surfaced of a 2009 conversa tion between Ballard’s loan officer (and government witness) Joe Grant and convicted fraudster Scott Fitts. In the recording, the two men discussed a loan Fitts had obtained from Grant that eventually led to Fitts’ conviction. Ballard moved for a new trial. The district court held that (1) the recording was relevant as potential impeachment of Grant; and (2) the po tential impeachment was material because it may have made Ballard’s “I didn’t read the Statements” defense “much more plausible.” As a result, it ordered a new trial. The court today affirms that decision. I cannot agree. Because I conclude that disclosure of the recording before trial would have had no ef fect on the outcome, I would reverse the decision below and remand with instructions to reinstate the jury verdict. 10 No. 17 2640 As the court recognizes, material evidence for the pur poses of Brady v. Maryland, 373 U.S. 83 (1963), is “evidence that (if disclosed in a timely way) would have created a reasonable probability of a different result.” United States v. Wilson, 237 F.3d 827, 832 (7th Cir. 2001). The question before us is whether the impeachment evidence contained in the recording is sig nificant enough “to undermine confidence in the verdict.” Kyles v. Whitley, 514 U.S. 419, 435 (1995). For several reasons, I believe it is not. First, despite Ballard’s representations to the contrary, the recording is not “exculpatory evidence.” “Exculpatory” refers only to evidence “tending to establish a criminal defendant’s innocence.” Black’s Law Dictionary 577 (7th ed. 1999). The re cording has nothing to do with this case, and thus does not tend to prove that Ballard is innocent. Its only potential value is as impeachment of Grant. But “[t]he practice has been to deny new trials where the only newly discovered evidence was impeaching.” United States v. Taglia, 922 F.2d 413, 415 (7th Cir. 1991). “[I]t will be the rare case in which impeaching evi dence warrants a new trial, because ordinarily such evidence will cast doubt at most on the testimony of only one of the witnesses.” Id. That is certainly the case here.1 And while Bal lard attempts to cast Grant as the government’s “key witness,” in reality he was just one of thirteen witnesses. Several other 1 The court is correct that district courts are not helpless to grant new trials because of suppressed impeachment evidence. Yet the lesson of Ta glia is that withheld impeachment evidence impugning the credibility of only one witness will rarely be enough to undermine confidence in the verdict. That’s especially true when, as in this case, the credibility of the impeached witness is irrelevant to the defense asserted. No. 17 2640 11 witnesses established the facts necessary for Ballard’s convic tion: that Ballard knowingly made false representations to the title company in order to obtain the money. Second, and perhaps most importantly, Grant’s credibility is irrelevant to the dispositive issue: whether Ballard read the Sworn Contractor’s Statements and knew they were false. Bal lard’s counsel indicated at trial that he did not intend to argue that Grant knew the representations made in the Statements were false. That is the missing link in the district court’s anal ysis. After all, if Grant didn’t know whether the Statements were false, it follows that impeaching Grant’s credibility wouldn’t affect the government’s ability to prove that Ballard knew they were false. In other words, the district court’s as sertion that further impeachment of Grant would have helped Ballard’s “I didn’t read the Statements” defense was simply wrong. I would not defer to that finding because it lacks rec ord support. See United States v. Savage, 505 F.3d 754, 760 (7th Cir. 2007) (the abuse of discretion standard means “we will not reverse unless the record contains no evidence upon which the trial judge rationally could have based his deci sion.”). Third, the recording’s weight is further compromised be cause it would be inadmissible at a new trial. Federal Rule of Evidence 608(b) provides that “[e]xcept for a criminal convic tion under Rule 609, extrinsic evidence is not admissible to prove specific instances of a witness’s conduct in order to at tack or support the witness’s character for truthfulness.” So although Ballard’s counsel might make use of the recording to cross examine Grant at a new trial, counsel would be stuck with Grant’s answers. See United States v. Veras, 51 F.3d 1365, 1375 (7th Cir. 1995). The jury will never hear the recording. 12 No. 17 2640 That makes the recording much less valuable than Ballard would like to admit. Finally, I must address Ballard’s continuing assertions that his true defenses have been that the State Bank of Herscher is a “crooked bank” and that Grant knew exactly what was go ing on with the Ballard loan. If these were valid defenses to bank fraud, then perhaps Grant’s credibility—and specifically the subject matter of the recording—would be relevant to the outcome of the trial. But it is settled law that “the loan officer was in on it” is not a defense to bank fraud. See United States v. Allender, 62 F.3d 909, 915–16 (7th Cir. 1995) (finding no error with a jury instruction to that effect). And Ballard provides no authority to support his theory that the supposed corruption all the way to the top of the bank, even if proven, would ab solve him of responsibility for the misrepresentations.2 With these “defenses” out of the picture, further impeachment of Grant would not help Ballard in the least. I conclude that the existence of the Grant Fitts recording does not undermine confidence in the verdict against Ballard. Therefore, I would reverse the decision to grant a new trial and remand with instructions to reinstate the guilty verdict. I respectfully dissent. 2 Failure to cite authority (whether it be from the record or case law) for his assertions is a common problem in Ballard’s brief. Worst of all, Bal lard fails to identify anything Grant said at trial that, had the jury disbe lieved it, would have changed the result. “We will not scour a record to locate evidence supporting a party’s legal argument.” Estate of Moreland v. Dieter, 395 F.3d 747, 759 (7th Cir. 2005). In my view, Ballard failed to de velop several points and waived any response he might have had to many of the government’s well reasoned arguments.

Primary Holding

Seventh Circuit affirms that a defendant, convicted of bank fraud, is entitled to a new trial based on a previously undisclosed audio recording of the loan officer.

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