United States v. Blackwood (735 F.2d 142, 1984)

ERVIN, Circuit Judge:

In June of 1979 Robert Blackwood secured a $60,000 loan from the Citibank of Huntington, West Virginia (“the Bank”) on behalf of Ohio-Kentucky Coal Services, Inc. Fifty thousand dollars of the loan was given to a business associate and officer of the Bank, Rex Whaley, who used the money to pay a personal debt. The Bank was closed in 1980. Subsequently, Blackwood was convicted of aiding and abetting Whaley in the misapplication of bank funds in violation of 18 U.S.C. §§ 2 and 656. Blackwood appeals from that conviction on the grounds that the district court erroneously charged the jury and the evidence was insufficient to support his conviction. Finding merit in the first contention, we reverse the conviction and remand for a new trial.

I.

In 1978 Rex Whaley became acquainted with Robert Blackwood, and the two formed Ohio-Kentucky Coal Services, Inc. (OKCS) with the understanding that each would own fifty percent of the stock. The two men established OKCS in order to build a coal barge loading facility (commonly referred to as a river tipple). OKCS secured funds for this project through bank loans. Under West Virginia law, the Bank was permitted to lend only ten percent of capital surplus to a corporate borrower. According to Whaley’s testimony, this amounted to $180,000 for OKCS. OKCS, however, received an additional $445,000 in Bank funds through loans to three other corporations controlled by Blackwood or Whaley. All the loans, except for the one at issue, were used to fund construction of the river tipple.

On June 27, 1979, Whaley met with Blackwood and explained that he (Whaley) owed Security Bank $50,000 on a loan that Security would not renew. He asked Blackwood to borrow the money in the name of OKCS and turn.it over to him so' that he could pay Security. The next day, Whaley told a loan officer at the Bank, Karl Bennett, that he had spoken with Blackwood and that Blackwood would be coming in to apply for a $50,000 loan. Blackwood applied for and received a $60,-000 loan that day in the name of OKCS. On the loan interview memo, the space marked “purpose of loan” was left blank, and no testimony indicated that Blackwood actively misrepresented the purpose of the loan. That day, Blackwood handed Whaley a check for $50,000.

According to testimony at trial, the Bank’s Board of Directors routinely approved any loans that Whaley requested be approved. In 1979 and 1980, poor liquidity had become a chronic problem for the Bank. This shortage of funds often forced the Bank to turn down mortgage applicants and also was one of the reasons the West Virginia Department of Banking decided to close the Bank in September of 1980.

After the Bank closed, Pilgram Coal Co. bought OKCS’ interest in the unfinished river tipple. Pilgram paid in excess of $1,300,000 for