Article

Note: James Sandlin (Applicant) borrowed US$996,000 from Jim and Mary Louise Ricketts (Ricketts Loan), securing it with property Applicant owned in Cochise Country, Arizona. Following procurement of the Ricketts Loan, Applicant decided to pursue a project developing land in Mohave County, Arizona, which required a performance bond. To secure the bond, Applicant applied for a US$950,000 LC from Independent Bank of Sherman (Issuer). While filling out the personal financial application necessary for issuance of the LC, Applicant omitted information regarding the Ricketts Loan. In addition to failing to note that the Cochise County property, which he listed as an asset, was encumbered, Applicant also listed a certificate of deposit that was partially funded by the Ricketts Loan as collateral for the LC as well. The LC was to be called only upon Applicant's failure to perform-but no call was ever made.

Applicant was later awarded two extensions of credit on the basis of the same incomplete financial information. Applicant received a US$700,000 line of credit from Issuer, for which Issuer took a first lien on the Mohave County property and cross applied the certificates of deposit that had secured the original LC. Applicant also relied on the faulty financial application to obtain a renewal of a different US$1,000,000 LC, providing no additional security.

At the close of the year, Applicant submitted a second financial statement, which also failed to note the Ricketts Loan. The statement was filed in order to have two lines of credit extended, one for US$800,000 and one for US$700,000. On these financial statements, Applicant "checked 'yes' to the question, 'Do any of your assets secure any debts which have not been reported in previous schedules?'" Applicant, however, failed to reveal the character of the debts.

After an investigation into the Ricketts Loan, Applicant was charged with violating 18 U.S.C. §1014 by making false statements on the two loan applications and was convicted in the United States District Court for the Eastern District of Texas. The United States Court of Appeals for the Fifth Circuit, Barksdale, Southwick, and Haynes, J., affirmed. The opinion concluded that the conviction was not in error and that there was no outrageous conduct, but because the trial court's ruling was in plain error and resulted in a dramatic increase in sentencing, the appellate court vacated and remanded for resentencing.

Applicant had argued that there was a lack of evidence to sustain his convictions, that the sentence was improper, and that his conviction should be overturned due to outrageous government contact. In response, the appellate court said that a jury could have reasonably believed that by submitting incomplete applications, Applicant intended to influence Issuer. Furthermore, the court concluded that under plain error review, the already "extremely demanding" standard for proving outrageous governmental conduct was even more challenging to meet and "[would] only be found in the 'rarest' of circumstances." Thus, the court found that because the government's conduct did not "'shock the universal sense of justice,'" it was not outrageous conduct under plain error review.

However, the court did find that there was plain error in the district court's decision, due to a lack of evidence that the loans were made only because of the omissions on Applicant's applications. The little evidence available asserted that Issuer was not interested in confirming Applicant's application, thereby suggesting that the funds were not awarded as a result of the omission.

[JEB/anf]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.