Indictment — United States v. Eric Shibley (Dkt. 103, W.D. Wash. No. 2:20-cr-00174)

Record facts

U.S. District Court for the Western District of Washington · No. 2:20-cr-00174-JCC · Doc. 103 · 2021-11-08 · Docket on CourtListener

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Honorable John Coughenour 
UNITED STATES DISTRICT COURT  
WESTERN DISTRICT OF WASHINGTON, SEATTLE 
UNITED STATES OF AMERICA, 
) 
No. CR20-174 JCC 
) 
Plaintiff, 
) 
DEFENSE RESPONSE TO 
) 
GOVERNMENT MOTION 
v. 
)          RE:  LENDER NEGLIGENCE 
)          AND PROFITS 
ERIC SHIBLEY, 
) 
                                             Defendant. 
) 
 
  
)  
 
 
Defendant Eric Shibley, through counsel, responds herein to the government’s 
Motion in Limine to Exclude Evidence of Alleged Victim Negligence and Profits (Dkt. 
No. 86). 
I.  Introduction  
         The government has charged Mr. Shibley with committing fraud in connection with 
loans issued through the Paycheck Protection Program (“PPP”).  As it notes, these loans 
1
were issued by private lenders to mitigate the economic effects of the Covid-19 
pandemic. “[S]peed was of the essence” in the approval of these loans, and a 
 The alleged fraud is based on two sorts of purported material misrepresentations in Mr. 
1
Shibley’s PPP applications:  1) that he was not “on probation” in any jurisdiction and 2) 
that he grossly overstated the number of employees and related payroll in prior tax 
quarters.  This argument relies substantially on the lack of materiality of his probation 
status. 
1
Michael Nance  
 
 
 Attorney at Law 
 
 
P.O. Box 11276 
 
 
Bainbridge Island, WA 98110 
 
 
(206) 624-3211
Case 2:20-cr-00174-JCC     Document 103     Filed 11/08/21     Page 1 of 6

streamlined process was instituted to provide for financial institutions to quickly approve 
loan applications.  Notably, the lenders were not ultimately responsible for any loss 
associated with the loans: the government guaranteed all of the loans.  Dkt. No. 86 at  2.  
Those same lenders earned lending fees from the very loans that the government 
guaranteed.  
2
 
The government apparently intends to make the internal processes of the PPP 
program a key feature of its case.  See Dkt.#86 at 2-3.  At the same time, it seeks to 
prohibit the presentation of any evidence or argument by the defense which might call the 
government’s narrative into question.  The government’s request, if granted, would 
deprive the defense of inquiring into the most basic aspects of the government’s case:  the 
loan programs and banks that Mr. Shibley is accused of defrauding.   
II.  Argument 
 A.  Lending industry practice is directly relevant to the issue of                
      materiality  
 
The government cites United States v. Lindsey, 850 F.3d 1009 (9th Cir. 2017) but 
ignores one of its core holdings:  defendants “may attack materiality through industry 
practice.” Id., 850 F.3d at 1016.  “Among other things, defendants can disprove 
 Mr. Shibley allegedly obtained (or sought to obtain) fraudulent loans involving at least 
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ten different financial institutions.  The indictment identifies them as “Financial 
Institution 1”, “Financial Institution #2”, etc.  Together, they form a largely representative 
sample of lenders within the greater lending industry that have chosen to affiliate with the 
PPP program. 
2
Michael Nance  
 
 
 Attorney at Law 
 
 
P.O. Box 11276 
 
 
Bainbridge Island, WA 98110 
 
 
(206) 624-3211
Case 2:20-cr-00174-JCC     Document 103     Filed 11/08/21     Page 2 of 6

materiality through evidence of the lending standards applied throughout the industry.” 
Id.  Evidence of industry-wide standards is relevant and admissible to determine “the 
intrinsic capabilities of a statement to influence” a lender – that is, whether the statements 
at issue were material.  Id. at 1015-17.  
 
Accordingly, the defense should be allowed to show that the alleged victim lenders 
acted in general conformity with lax industry standards to make the loans and were 
financially incentivized by the exigencies of the times to do so.  The early onset of the 
Covid-19 pandemic crisis, accompanied by government shutdowns and mandates, were 
highly disorienting to society in general and small businesses in particular.  Bolstered by 
government guarantees and told “speed was of the essence”, the lenders were poised to 
make the loans in question regardless of the precise answer to whether an applicant was 
“on probation”.   
 
The Ninth Circuit’s ruling in United States v. Green, 698 F. App’x 879, 880 (9th 
Cir. 2017) is instructive.  Green reversed a trial court’s refusal to allow evidence of 
lending standards in the mortgage industry.  It held that the exclusion of evidence 
deprived that defendant of a “meaningful opportunity to present a complete defense” 
because, in large part, materiality was an essential element of wire fraud and his main 
defense to materiality was that mortgage industry lenders at the relevant time were only 
interested in closing on loans and would issue loans regardless of borrower qualifications.  
Id., 698 F. App’x at 880.                             
3
Michael Nance  
 
 
 Attorney at Law 
 
 
P.O. Box 11276 
 
 
Bainbridge Island, WA 98110 
 
 
(206) 624-3211
Case 2:20-cr-00174-JCC     Document 103     Filed 11/08/21     Page 3 of 6

 
In the present matter the government seeks to prohibit the introduction of evidence 
or argument regarding the core issue of whether the statements made to the lenders were 
material.  As defendants in fraud cases should be “permitted to develop fully and fairly all 
of the evidence that would tend to exonerate,” United States v. Thomas, 32 F.3d 418, 421 
(9th Cir. 1994), the Court should allow the defense to present this evidence and argument.  
B.  The financial benefits received by the lenders are probative of   
      the lack of materiality of Mr. Shibley’s probation status.          
      
 
The government acknowledges that all of the PPP loans at issue were fully 
guaranteed by the government:  lenders who participated in the PPP program would be 
fully reimbursed for any and all loans issued under the program.  Dkt. #86 at 3.   As such, 
they were financially incentivized to provide each of the loans and to process them as 
quickly as possible.  
 
A misrepresentation is material if it had a natural tendency to influence, or was 
capable of influencing, a person to part with money or property.  Neder v. United States, 
527 U.S. 1, 16 (1999).  The tendency of a particular misrepresentation to influence 
another person to part with money or property surely lies in tension with the financial 
incentive that person has to overlook the misrepresentation.   The greater the financial 
benefit due a lender the less motivated he or she naturally will be to scrutinize a loan 
application for purported misrepresentations that would deny that benefit.   
4
Michael Nance  
 
 
 Attorney at Law 
 
 
P.O. Box 11276 
 
 
Bainbridge Island, WA 98110 
 
 
(206) 624-3211
Case 2:20-cr-00174-JCC     Document 103     Filed 11/08/21     Page 4 of 6

 
 The benefits received by the lenders—a widely publicized fact undoubtedly 
known to Mr. Shibley—were reflected in the lenders’ behavior and the state of mind of 
both lenders and borrowers.   Any policies, procedures, and representations designed to 
entice borrowers to use a particular service to apply for loans are thus directly relevant as 
well.  The lenders at issue are sophisticated financial institutions, and to the extent that 
they promoted policies designed to solicit borrowers, the defense should be allowed to 
address these policies in light of the profits the lenders received in exchange for issuing 
the loans.  
III.  Conclusion  
 
For these reasons, the Court should permit evidence and argument on the issue of 
industry-wide lender negligence and profits associated with the PPP program. 
 
Respectfully submitted this 8th day of November, 2021. 
 
 
 
 
 
 
 
/s/ Michael Nance 
 
 
 
 
 
 
 
Attorney for defendant Eric Shibley 
5
Michael Nance  
 
 
 Attorney at Law 
 
 
P.O. Box 11276 
 
 
Bainbridge Island, WA 98110 
 
 
(206) 624-3211
Case 2:20-cr-00174-JCC     Document 103     Filed 11/08/21     Page 5 of 6

Certificate of Service 
I hereby certify that on the 8th day of November, 2021, I electronically filed the 
foregoing with the clerk of the court using the CM/ECF system.  Notice of this filing will 
be sent electronically to counsel of record for other parties. 
 
 
 
 
 
 
/s/ Michael Nance WSBA # 13933  
email:  michaelnancelaw@gmail.com  
6
Michael Nance  
 
 
 Attorney at Law 
 
 
P.O. Box 11276 
 
 
Bainbridge Island, WA 98110 
 
 
(206) 624-3211
Case 2:20-cr-00174-JCC     Document 103     Filed 11/08/21     Page 6 of 6

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