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Churn v. United States

United States District Court, M.D. Tennessee, Nashville Division

September 5, 2017

KEITH CHURN, Movant,
v.
UNITED STATES OF AMERICA, Respondent.

          MEMORANDUM

          Aleta A. Trauger United States District Judge.

         The movant, Keith Churn, filed this pro se action under 28 U.S.C. § 2255, seeking to vacate, set aside, or correct his conviction and sentence for bank fraud in violation of 18 U.S.C. § 1344. (Docket Entry Nos. 1, 6.)

         I. PROCEDURAL AND FACTUAL BACKGROUND

         On May 5, 2010, a federal grand jury indicted the movant in a thirteen-count indictment for bank fraud under 18 U.S.C. § 1344. (Criminal Case No. 3:10-cr-00116, Docket Entry No. 1.) Each count corresponded to a particular bank draw. Id. The government voluntarily dismissed Counts One and Four at trial. Id., Docket Entry No. 81, at 234. On December 6, 2013, the jury convicted the movant on Counts Three, Seven, Eight, Nine, Ten, Eleven, and Twelve and acquitted him on Counts Two, Five, Six, and Thirteen. Id., Docket Entry Nos. 63, 65-68. The court sentenced the movant to 33 months of imprisonment and five years of supervised release. Id., Docket Entry No. 112, at 12.

         The movant timely appealed his convictions. Id., Docket Entry No. 94. The facts underlying the movant's convictions were stated by the Sixth Circuit as follows:

In December 2013, defendant Keith Churn was found guilty of seven counts of bank fraud stemming from two schemes in which he received bank loans ostensibly to construct houses, but performed little to no work.
. . . .
A. Churn Proposes Two Projects.
Defendant Keith Churn owned C & M Construction Management, a Tennessee construction company specializing in remodeling and rehabilitation, since the late 1990s. Around October 2006, Churn entered a business agreement with Dustin Rief, under which Rief would purchase real property at 2408 Clarksville Pike, Nashville, Tennessee, and Churn would install a modular-or prefabricated-house on the property. Churn would pay Rief rent during the six-to-eight months of construction and would purchase the property from him upon completion. For his efforts, Rief would receive $5, 000 initially and an additional $5, 000 after Churn's purchase, for a total of $10, 000.
Rief financed the purchase and construction of the Clarksville Pike property with a $187, 800 construction loan from BancorpSouth Bank (“BSB”). Under the terms of the loan agreement, a portion of the loan would be distributed upfront to purchase the property, and the remaining funds would be distributed in stages to pay for construction. BSB disbursed $66, 758.19 for the purchase, leaving $121, 041.81 for construction.
The same year, Churn proposed a similar investment to Milton Thomas. Thomas agreed to obtain financing to purchase 956 Green Street, Franklin, Tennessee, and Churn agreed to demolish the existing house and install a modular home. The two would split any profits. To finance the project, Thomas received a $226, 500 loan from BSB, $77, 976.83 of which was distributed to fund the property purchase.
BSB distributed the portion of the loan for construction in “draws.” For each draw, the bank would transfer money from the loan to Rief's and Thomas's checking accounts, which they could then use to pay contractors. Before approving a draw, the bank might send an inspector to the property, or it might review contractors' receipts, to ensure that the claimed work was actually being performed.
There were four draws made for the Clarksville Pike property: $25, 000 on October 31, 2006; $15, 000 on December 18, 2006; $30, 000 on January 10, 2007, and $4, 500 on January 12, 2007. On December 5, 2006, Churn submitted an invoice for $17, 733 to BSB for permit fees, disconnecting old utilities, grading, and preparing footings and foundations. Based on the invoice, BSB approved a $15, 000 draw on December 18.
On December 22, 2006, Churn submitted a specification sheet and an invoice to BSB, which purportedly showed an order for a modular house from All American Homes of N.C., LLC (“AAH”). The invoice charged a down payment of $33, 462, or approximately one-third of the total cost of the modular house. Two weeks later, Churn informed a BSB loan officer, Lisa Campsey, that the house would be set on February 8, 2007. Campsey later approved draws of $30, 000 and $4, 500. During this period, a site inspector for BSB submitted periodic reports to BSB indicating that demolition of the existing structure had occurred and the lot was cleared.
There were four draws on the loan for the Green Street property: $20, 000 on December 15, 2006; $8, 000 on January 10, 2007; $12, 000 on January 18, 2007; $22, 000 on January 23, 2007; and $668.91 on February 1, 2007. On January 17, 2007, Churn submitted a specification sheet and an invoice to BSB, which purportedly showed an order for a modular house from AAH. Like the invoice for the Clarksville Pike property, the invoice charged a down payment of approximately one-third of the total cost of the modular house, or $33, 638. Based on the invoice, BSB approved draws of $12, 000 and $22, 000.
B. Questions Arise About the Projects.
At some point, Campsey grew suspicious about the progress of the projects. For the Clarksville Pike property, although some demolition had been done, Campsey learned that the tasks listed on the December 5, 2006, invoice were not actually completed, including “pulling” the construction permit. Nor was the modular house set on February 8 as Churn said it would be. Similarly, she visited the Green Street property, but found no completed work.
An inspector dispatched by BSB made similar observations. On his first visit to the Clarksville Pike property in October 2006, he noted that the existing structure had been torn down and cleared. But a few months later, on March 23, 2007, the inspector estimated that only 1.2 percent of the construction project had been completed. He later found that no additional work was performed from then through July 17. The inspector also assessed the Green Street property on March 16 and determined that only 1.2 percent of the construction project had been completed; when he returned on July 17, he found that no work had been done since his March 16 visit.
Questions about Churn's invoices arose as well. The invoices he submitted to BSB to support draw requests purportedly reflected purchases for two “Hot Tamale”-style modular houses. But AAH never received any orders or payments from Churn. AAH also did not prepare the invoices Churn submitted to BSB. While the submitted invoices reflected a one-third deposit on the total purchases, as well as costs associated with installing electrical and plumbing “tie-ins, ” AAH never required more than a 10-percent deposit, the industry standard. Indeed, AAH was not even able or licensed to provide electrical or plumbing services.
On March 3, 2007, Campsey emailed Churn, stating that an AAH representative told her that it had not received funds from Churn and would not start construction on modular homes until it received the money. She stated that Churn's representations to BSB that he had paid deposits on the houses using the loans “greatly conflicts” with information given by AAH. Since Churn had previously said that he would pay for the purchases through checks, Campsey requested copies of cancelled checks and further information about what charges Churn had paid, but she never received any. She also pointed out to Churn that there was no pad (a part of the foundation) laid on the Green Street property even though Churn told her that it was already installed.
Two days later, Churn told Campsey that she would “have the information that's needed by the end of the business day.” Churn also said that BSB's inspector should “go by [the] site at [the] end of this week” and that Churn “will also have in writing this week [a] guarantee from [the] manuf[acturer] that we will have product this month on the sites.” (Id.) Campsey replied by confirming an inspection date, requesting proof of payment, and asking for a written guarantee from the manufacturer. She never received any of the items. When Campsey later went to the Green Street property, she observed that “nothing had been done since the first time. It was the same every single time....” (Trial Tr., R. 80, PageID 296.)
Campsey later called Churn. He said that the houses were coming, but from IBC instead, a different manufacturer. Churn promised to perform additional work on the properties, but Campsey said that she no longer trusted him.
On March 8, 2007, Churn told Campsey that he “will be moving forward with the work on the projects” and that she was “very wrong about [her] comments.” Churn said that he would provide “[a]ll info” to Rief and Thomas, who would “deal with [her] directly.” (Id.) Campsey, who had been in contact with Rief and Thomas throughout the projects, still never received any documentation.
In early May 2007, BSB sent formal demand letters to Rief and Thomas, requesting written confirmation that modular houses were being completed and verification of the delivery dates. The letters warned that failure to provide the requested documentation or to complete the site and foundation work by May 18, 2007, would result in the loans being payable immediately.
On May 18, Churn sent an email with two attachments to BSB. The first attachment was an invoice from “C & M Construction Managment” [sic] to Rief, stating that the “deposite [sic] has been paid for unit ordered for 2408 [Clarksville Pike] job site, ” and confirming a $33, 463 payment. The second attachment was a photo of modular houses sitting on trailers. Churn told Campsey that the structures depicted would be delivered to the Clarksville Pike property.
Campsey quickly responded that “this information is not sufficient.” She again demanded written confirmation from AAH verifying production of the units and the dates of delivery, site preparation, and foundation work.
Churn responded five days later, on May 23, stating that the units were not from AAH, but that BSB would be getting paperwork from C & M Construction Management directly. BSB never received any paperwork. During its investigation, BSB located the modular houses shown in the photographs. After examining the houses' serial numbers, the bank learned that they were owned by other people, not Churn.
Churn stopped making monthly payments on the loans sometime in April 2007. While Rief attempted to make some payments himself, he was ultimately unable to continue paying, leading to the foreclosure of the Clarksville Pike property and Rief's filing for personal bankruptcy. Thomas also attempted to make some payments himself, but was unable to do so after he lost his job; BSB foreclosed the Green Street property and Thomas also filed for personal bankruptcy.
C. Churn's Explanation.
Churn had a different understanding of events. According to him, he did place orders with AAH, but sometime in mid-February to mid-March, it placed his orders on hold “because of a lot of confusion that they said they were having from the bank.” (Trial Tr., R. 82, PageID 629-30.) Churn attempted to contact other manufacturers to provide him with modular houses, but was unable to locate any that would sell him units at a comparable cost. Later, he found some modular houses at a defunct AAH plant; the houses were initially purchased by a nonprofit that eventually had no use for them after a failed land deal. These, Churn claims, were the units in the photograph he sent to BSB: Churn speculates that the bank was confused because the units were associated with what were likely the names of the original buyers and not his.
Churn placed these newfound units “under contract” and met with Chris Marketti of BSB to discuss a deal. (Trial Tr., R. 82, PageID 632.) Churn purportedly detailed a breakdown of expenses for the Clarksville Pike property and tried to negotiate with BSB to pay him, but only after delivery of the unit. BSB, however, “never followed up.” (Trial Tr., R. 82, PageID 667.) Had the bank not ceased working with him, Churn believed that he could have completed the deals.
D. Churn Is Indicted.
. . . . The Clarksville Pike property is the subject of Counts 1, 2, 3, 7, 8, 9, and 13 in the indictment; the Green Street property is the subject of Counts 4, 5, 6, 10, ...

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