Nailed It: Illegal Loan is Absolute Nullity, Not Debt - U.S. Fifth Circuit
U.S. Fifth Circuit - The FindLaw 5th Circuit Court of Appeals Opinion Summaries Blog

Nailed It: Illegal Loan is Absolute Nullity, Not Debt

Most of us don't like to be judged. Pageant participants and models may willingly endure endless scrutiny, but the rest of population tries to avoid situations in which someone else tells us if we're smart, attractive, talented, or correct.

District court judges, like pageant princesses, endure a lot of criticism. Their opinions can be reviewed by a federal appellate panel, then the full circuit court, and then the Supreme Court -- each with an opportunity write extensively about how the judge erred in his/her initial analysis. So when the Fifth Circuit Court of Appeals exclaims that a district judge "nailed" an issue, it's cause for applause.

Today, we're discussing one of those rare instances. The Fifth Circuit declared this week that a district court "nailed it" when it dismissed a superseding indictment against Louisiana politician Heulette C. Fontenot, Jr. because the indictment did not state a crime.

In 1999, Fontenot allegedly received a $100,000 cash loan from unnamed businessmen in connection with his campaign for the State Senate, in violation of Louisiana campaign law. Federal prosecutors claimed that Fontenot hid the cash in the insulation in his attic.

(Sidebar: Why are Louisiana politicians always caught hiding large quantities of cash in their homes?)

In the early aughts, Fontenot signed applications for bank loans that supposedly listed all of his debts, but he did not list the $100,000 cash loan on the applications. Fontenot was later prosecuted for knowingly and willfully making false statements to a financial institution insured by the Federal Deposit Insurance Corporation (FDIC), and knowingly making false statements for the purpose of influencing the action of an FDIC-insured bank.

The district court concluded that Fontenot's "statements" were literally true because the illegal loan was an absolute nullity and consequently was not a debt that ever existed. The Fifth Circuit Court of Appeals agreed.

While a lawful debt must be disclosed on a loan application, a debt arising from a contract that has an illegal cause is an absolute nullity and deemed never to have existed under Louisiana law.

Here, Fontenot's agreement with the businessmen was illegal under Louisiana law, so the debt didn't actually exist. Since the debt didn't exist, Fontenot could not have knowingly withheld information about the debt on his loan application.

While Fontenot may have broken a law, it wasn't the law that the U.S. Attorney's office claimed, so the Fifth Circuit Court of Appeals ruled that the indictment was properly dismissed.

Sure, Fontenot's getting off on a technicality, but kudos to his lawyer for cleverly using non-existence of an illegal debt as a defense.

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