Majority
OPINION OF THE COURT
A bank officer or employee who, without more, extends to an individual credit in amounts exceeding civil limits is not guilty of feloniously misapplying bank funds. “Wilful misapplication”, as that term is used in section 673 of the Banking Law, requires that the offender have a personal pecuniary interest in the transactions before criminal liability will attach.
Subdivision 1 of section 103 of the Banking Law generally prohibits a bank from lending to any single customer “an amount which will exceed ten percentum of the [bank’s] capital stock, surplus fund and undivided profits”. To the extent that the loans are secured by collateral having an ascertainable market value, the amount the bank may lend to a customer may rise to 25% of its capital stock, surplus fund, and undivided profits (Banking Law, § 103, subd 1, par [d], cl [2]). Section 103 is a civil regulation only; it does not prescribe penal sanctions for its violation.
Section 673 of the Banking Law, the particular statute that is at the center of controversy here, provides in full: “Any officer, director, trustee, employee or agent of any corporation to which the banking law is applicable, or any employee or agent of any private banker, who abstracts or wilfully misapplies any of the money, funds or property of such corporation or private banker, or wilfully misapplies its or his credit, is guilty of a felony. Nothing in this section shall be deemed or construed to repeal, amend or impair any existing provision of law prescribing a punishment for any such offense.”
With this statutory backdrop, the general events underlying the instant case may be examined. The facts are complex as the prosecution arose from a review of daily bank transactions occurring during the period from December 31, 1975 to June 28, 1976. Only a general recitation of these events is necessary, however, to resolve the issues on appeal.
The transactions at issue were carried on between American Bank & Trust Company (ABT) and a correspondent bank in Belgium, Banque Pour L’Amerique du Sud (BAS), and between ABT and an affiliate, Bankers International (BI). Defendants were connected to ABT in varying capacities. Saul Kagan was chairman of the board of ABT’s holding company, as well as an executive officer and director of ABT itself. He chaired ABT’s executive committee and was particularly involved in developing ABT’s international business. Jean Wolf headed ABT’s international division; although a senior manager, he had limited lend
In spring, 1975, a contract to purchase ABT was made by the Graivers, a prominent Argentinian business family. Among the Graivers’ existing holdings were interests in BAS and BI. These companies began doing business with ABT almost simultaneously with the Graivers’ execution of the contract to purchase ABT. In addition, David Graiver received an office at ABT, became a director of ABT’s holding company in June, 1975, and attended ABT’s board and executive committee meetings as a guest until his election to the board in March, 1976.
In early August, 1975, David Graiver solicited from ABT loans for $2,000,000 each to BI and to Juan Graiver, David’s father. At the time the loans were made, Juan Graiver executed a pledge and security agreement covering both loans and extending to all indebtedness then or thereafter incurred. Stock valued at $8,000,000 was delivered to ABT. Both loans were eventually repaid and a second loan for $2,200,000, also secured by the same stock, was made to Juan Graiver. In March, 1976, Juan Graiver also undertook to guarantee all extensions of credit to BAS, again pledging the stock already in ABT’s possession. Thus, at all times pertinent here, ABT had $8,000,000 worth of stock to cover any extension of credit it made to BI and, after March 4, 1976, to BAS.
The specific transactions that gave rise to the indictments and convictions fall into two categories — deposits and extensions of credit. The former were three overnight deposits in BAS that ABT made at the end of December, 1975 and January and February, 1976, respectively. In each case, these were repaid on the following day. The amounts deposited, however, exceeded the 10% limit imposed by section 106 of the Banking Law.
The extensions of credit took three forms. First, BAS was permitted to overdraw its account on several occasions. This may have violated section 103 of the Banking Law when the amount of the overdraft was added to credit
Defendants’ roles in the transactions varied. For the most part, their activity consisted of authorizing or approving the transactions. Two critical facts must be noted especially: ABT suffered no losses on any of these transactions, even receiving interest when the overdrafts were paid; and none of the defendants made any profit or otherwise had any personal pecuniary interest in the transactions.
Nonetheless, these indictments followed. In essence, defendants were charged with felonies under section 673 for wilfully misapplying bank funds and credit. The indictment was predicated on the theory that defendants knowingly violated sections 103 and 106, and that those acts constituted “wilful misapplication” for purposes of section 673. Before trial, defendants moved to dismiss the indictments on the ground that section 673 requires more than merely violating civil regulations, but instead requires a larcenous intent or an intent to injure or defraud the bank.
Numerous counts were dismissed before the case was submitted to the jury, which eventually acquitted defendants of many more counts. Kagan was convicted on 33 counts and Wolf was convicted on 9 counts. Benestad eventually pleaded guilty to three counts, but sought to reserve a right to appeal the question whether section 673 requires a larcenous intent.
The Appellate Division affirmed the convictions, with one Justice dissenting. The majority, relying on People v Marcus ( 261 NY 268 ), approved the theory that any knowing violation of the Banking Law may provide a basis for prosecution under section 673. The dissent disagreed and would have reversed on the ground that, under the circumstances, defendants were denied due process because they
The primary question to be decided is the meaning of “wilful misapplication” — i.e., what is the nature of the mens rea, if any, that must be alleged and proven in order to sustain a prosecution for violating section 673. The People urge that knowing violation of the Banking Law’s civil regulations suffices to establish a wilful misapplication. On the other hand, defendants argue that an actual intent to injure or defraud a bank is necessary. While it is concluded that the People too broadly interpret section 673, the defendants’ construction similarly is found to be overly narrow.
The predecessor to section 673 was first enacted in 1913 (L 1913, ch 102). The legislation was introduced at the behest of the then Superintendent of Banks so that the State Banking Law would more closely harmonize with the Federal National Banking Act (Superintendent of Banks Ann Rep, p 21 [1912]).
The correlative Federal statute at the time was section 5209 of the Revised Statutes of the United States (since amended and now codified at US Code, tit 18, § 656). That section made it an offense for a bank officer to wilfully misapply funds with the intent to injure or defraud the bank. In United States v Britton ( 107 US 655 ), the Supreme Court determined that “wilful misapplication” meant “a misapplication for the use, benefit, or gain of the party charged, or of some company or person other than the [bank]” (id., at p 666). After concluding that an actual conversion must occur, the court went on to distinguish criminal misapplication from mere maladministration of a bank’s affairs. By way of example, the opinion referred to another law limiting extensions of credit, similar to our subdivision 1 of section 103, and remarked that the directors’ civil liability for such a violation was the proper sanction for what would be nothing more than maladministration (id., at pp 667-668).
This same question was confronted in People v Marcus ( 261 NY 268 , supra). After noting that the New York
In Marcus, the defendants were moving funds among several corporations of which they were the principal shareholders. Their attorney, Kresel, who advised them but did not hold any position with the bank, was held guiltless in a separate trial because of the absence of any “malevolent and criminal intent” (People v Kresel, 243 App Div 137 , 141-142). Similarly, the son of one of the Marcus defendants was a young lawyer working for Kresel and participated in the scheme to the extent of handling paperwork and taking care of details; he, too, was exonerated for lack of criminal intent (People v Marcus, 261 NY, supra, at pp 294-295).
The clear implication is that “wilful misapplication” requires some form of self-dealing, some benefit to the accused’s commercial and material interests. In short, for an individual to be convicted under section 673, there must be alleged and proven some personal pecuniary interest in the transactions. Moreover, this interest must be in more than the simple benefits flowing from the gratitude of a well-served client or owner of the bank. Such an incidental bounty is not the sort of “personal benefit” contemplated by the decision in Marcus.
In the present case, there was no evidence that defendants had any personal investments in BAS or BI. To the contrary, defendants acted solely in their, positions as officers and directors of ABT without any suggestion of personal profit. Consequently, there was no basis for the charges that they wilfully misapplied ABT’s funds and credit.
Judges Gabrielli, Jones, Wachtler, Fuchsberg and Meyer concur with Chief Judge Cooke; Judge Jasen dissents and votes to affirm for reasons stated in the memorandum of the Appellate Division ( 83 AD2d 517 ).
In People v Kagan and Wolf: Orders reversed and indictments dismissed.
In People v Benestad: Order reversed, plea vacated and case remitted to Supreme Court, New York County, for further proceedings on the indictment.
Cases cited
- People v. Stoll 242 NY 453 p. 194
- People v. Vetri 309 NY 401 p. 194
- People v. Caswell-Massey Co. 6 NY2d 497 p. 194, p. 195
- United States v. Britton 107 US 655 p. 194, p. 195, p. 197, p. 203
- People v. Marcus 261 NY 268 p. 194, p. 197, p. 199, p. 202, p. 203
- United States v. Harriss 347 US 612 p. 194, p. 195, p. 197
- People v. Berck 32 NY2d 567 p. 194
- Papachristou v. City of Jacksonville 405 US 156 p. 194
- Lanzetta v. New Jersey 306 US 451 p. 194, p. 195
- People v. Firth 3 NY2d 472 p. 194
- Bihn v. United States 328 US 633 p. 195
- People v. Elmore 277 NY 397 p. 195
- People v. Barbato 254 NY 170 p. 195
- People v. O'Neill 79 AD2d 429 p. 195
- People v. Jones 74 AD2d 515 p. 195
- People v. Cleague 22 NY2d 363 p. 195
- United New York & New Jersey Sandy Hook Pilots Ass'n v. Halecki 358 US 613 p. 195
- People v. Stanard 32 NY2d 143 p. 195
- People v. Piazza 48 NY2d 151 p. 195
- People v. Santos 38 NY2d 173 p. 195
- People v. Lewis 275 NY 33 p. 195
- People v. Yonkers Contracting Co. 17 NY2d 322 p. 195
- People v. McGee 49 NY2d 48 p. 195, p. 197
- People v. Salko 47 NY2d 230 p. 195
- Rabe v. Washington 405 US 313 p. 195
- Winters v. New York 333 US 507 p. 195
- People v. Colozzo 54 Misc 2d 687 p. 195
- People v. Zambino 75 Misc 2d 608 p. 195
- People v. Thompson 79 AD2d 87 p. 195, p. 199
- Swain v. Alabama 380 US 202 p. 195, p. 199
- Taylor v. Louisiana 419 US 522 p. 195
- Duren v. Missouri 439 US 357 p. 195
- Castaneda v. Partida 430 US 482 p. 195
- Peters v. Kiff 407 US 493 p. 195
- Ballard v. United States 329 US 187 p. 195
- Cooper v. Morin 49 NY2d 69 p. 196
- Brady v. Maryland 373 US 83 p. 196
- Cangiano v. United States 419 US 904 p. 196
- Russell v. United States 369 US 749 p. 196
- People v. Miles 289 NY 360 p. 196, p. 198
- People v. Brown 59 AD2d 1006 p. 196, p. 198
- Stirone v. United States 361 US 212 p. 196
- Ex Parte Bain 121 US 1 p. 196
- Blackledge v. Perry 417 US 21 p. 196, p. 198
- North Carolina v. Pearce 395 US 711 p. 196, p. 198
- Brady v. United States 397 US 742 p. 196
- Santobello v. New York 404 US 257 p. 196
- United States v. Gaddis 424 US 544 p. 196, p. 198
- Castle v. United States 368 US 13 p. 196
- Ladner v. United States 358 US 169 p. 196
- Prince v. United States 352 US 322 p. 196
- Bell v. United States 349 US 81 p. 196
- Morissette v. United States 342 US 246 p. 197
- United States v. Northway 120 US 327 p. 197
- Ex parte Collett 337 US 55 p. 197
- Lupo v. Zerbst 303 US 646 p. 197
- Travelers Indemnity Co. v. Flushing National Bank 90 Misc 2d 964 p. 197
- Direct Sales Co. v. United States 319 US 703 p. 197
- People v. Chesler 50 NY2d 203 p. 197
- United States v. National Dairy Products Corp. 372 US 29 p. 197
- People v. Cruz 48 NY2d 419 p. 197
- People v. Berardini 150 Misc 311 p. 197
- Screws v. United States 325 US 91 p. 197
- Boyce Motor Lines, Inc. v. United States 342 US 337 p. 198
- People v. Tutt 38 NY2d 1011 p. 198
- People v. Mulligan 29 NY2d 20 p. 198
- People v. Elfe 37 AD2d 208 p. 198
- People v. Mendez 63 AD2d 69 p. 198
- People v. Hochberg 62 AD2d 239 p. 198
- Salinger v. United States 272 US 542 p. 198
- People v. Ianniello 36 NY2d 137 p. 198, p. 199
- Bordenkircher v. Hayes 434 US 357 p. 198
- People v. Caruso 100 Misc 2d 601 p. 198
- Stevens v. Marks 383 US 234 p. 198
- People v. Masiello 28 NY2d 287 p. 198
- Berger v. United States 295 US 78 p. 198
- People v. Schwartzman 24 NY2d 241 p. 198
- People v. Marino 271 NY 317 p. 198
- Counihan v. J. H. Werbelovsky's Sons, Inc. 5 AD2d 80 p. 199
- Radosh v. Shipstad 20 NY2d 504 p. 199
- People v. Thomas 51 NY2d 466 p. 199
- People v. Leyva 38 NY2d 160 p. 199
- Cupp v. Naughten 414 US 141 p. 199
- People v. Getch 50 NY2d 456 p. 199
- Sandstrom v. Montana 442 US 510 p. 199
- People v. Newton 46 NY2d 877 p. 199
- People v. Kagan 101 Misc 2d 274 p. 199
- People v. McCray 104 Misc 2d 782 p. 199
- People v. Goodrich 80 AD2d 562 p. 199
- People v. Thomas 53 NY2d 338 p. 205
- People v. Kagan 83 AD2d 517 p. 205