or property” clauses of § 1341 were to be construed conjunctively
rather than disjunctively. McNally further held that § 1341 does
not reach the intangible rights of the citizenry to good
government. McNally, 483 U.S. at 356.

Defendants’ principal argument is that because the City’s only
interest in the set-aside program’s qualification provisions is
purely regulatory and cannot be deemed “property,” no offense has
been stated. They insist that under McNally and subsequent cases
the “property” obtained by scheme or artifice to defraud must have
an economic or pecuniary value.

McNally involved a scheme by which state officials were
alleged to have defrauded the Commonwealth of Virginia when they
failed to advise other Commonwealth officers that they had
pressured the primary broker for the Virginia workmen's
compensation insurance program into splitting commissions on
insurance with an entity the defendants owned. However, no moneys
of the state were involved, because the premiums were actually paid
by private parties. McNally, 483 U.S. at 360. The possibility that
a different result would obtain in a case where the victim had been
deprived of exercising control over how its money should be spent
was expressly recognized. Justice White, writing for the majority,
held that loss of money or property was an essential element of a

violation of § 1341, but noted specifically that



Granberry, 908 F.2d at 280. Thus, Granberry not only follows
McNally in holding the right to control how one’s money is spent is
a property right cognizable under § 1341, it also rejects the
notion that one may avoid the sweep of the Section by showing that
the victim received market value for its money.

The assertion that the businesses owned and controlled by Mr.
Duff performed satisfactorily under the contracts obtained by them
through fraud is not a defense to the indictment. Ranke v. United
States, 873 F.2d 1033, 1038 (7% Cir.1989).

TIt.

Defendants contend that the sub-contracts between the Duff-
owned businesses they allegedly falsely represented as qualified
for set~asides and Waste Management do not support the § 1341
charge of Count Two. Here, they again read McNally incorrectly,
arguing that since the City made no direct payments to a Duff-owned
business under the sub-contracts, the City has not sustained the
monetary or pecuniary loss, which they say McNally requires. As I
have already noted, however, under McNally pecuniary injury or loss
is not an essential element of a § 1341 offense.

Further, using innocent third parties to effect a scheme to
defraud does not shield the perpetrator from criminal penalties.
Defendants argue that cases relied upon by the government for this
proposition arose under the statute generally governing conspiracy

against the government (18 U.S.C. § 371) which has a broader sweep


spent. Under the minority set~asides established in the Ordinance,
the City made it unmistakably clear how it wanted its money spent,
and defendants’ conduct, if true, thwarted the City’s legislative
intent. By allegedly falsely representing the identity of owners
and management in Duff family businesses, defendants are accused of
causing over a hundred million dollars in City money to go to
businesses that were neither MBE’s or WBE’s.

Defendants’ attempt to distinguish other cases cited by the
government is unavailing. United States v. Shyres, 898 F.2d 647 (8*
Cir.), cert. denied, 498 U.S. 821 (1990), followed McNally in
holding that the right to control spending is a property right
within the purview of § 1341. Shyres, 898 F.2d at 652. The
purported distinction of United States v. Fagan, 821 F.2d 1002, (5*
Cir. 1987), cert. denied, 484 U.S. 1005 (1988), on the ground that
it was decided before McNally and did not take into consideration
McNally’s “property” requirement, is also incorrect, The Fagan
opinion was prepared prior to the release of the McNally opinion,
but the Fifth Circuit took pains to demonstrate, prior to its
publication, that it was consistent with McNally. Fagan, 821 F.2d

at 1010-11 n.6.?

‘Defendants’ citations to the opinions of other courts of
appeals and district courts which, allegedly, support their
position are also unpersuasive. None of those cases involved a
scheme to defraud the victim of power over how its money should be
spent. United States v. Ashman, 979 F. 2d 469, 479 (7 Cir. 1992),
held that a failure by the Chicago Board of Trade to execute trades
by public outcry was not a deprivation of property, because the

6


Nor was the jury charged that to convict it must find

that the Commonwealth was deprived of control over how

its money was spent.
McNally, 483 U.S. at 360. A few months after the decision in
McNally, in Carpenter v. United States,484 U.S. 19, 25 (1987), a
unanimous Court held that McNally did not dictate reversal of mail
fraud convictions arising from a scheme by a Wall Street Journal
reporter to deprive his employer of its property right to exclusive
use of information it had collected prior to public disclosure. The
Court expressly rejected the argument that § 1341 could only be
applied to schemes involving the deprivation of tangible property.

Cleveland v United States, 531 U.S. 12, 19 et seq. (2000), on
which Defendants also rely, is distinguishable from the case at
bar. In Cleveland, the defendants had obtained by fraud a license
to operate video poker machines. The Court held that such a license
was not “property” in the government regulator’s hands, and that,
“Such regulations are paradigmatic exercises of the States’
traditional police powers.” 531 U.S. at 23. It distinguished the
regulatory interest of a state from “an interest that ‘has long
been recognized as property.’” 531 U.S. at 23. The defendants in
Carpenter were not alleged to have deprived the State of the power
to control how its money was spent, but merely to have lied in
obtaining a license. In the present case, the defendants’ conduct

deprived the City of the power to control how its money should be



distribution of school bus driving permits did not constitute
“property” within the meaning of § 1341 but were strictly
regulatory in nature. However, the Eighth Circuit found that Item
(A) (1), “Money from the Normandy School District in the form of
wages” fell “within the narrowest reading of the [“property”
clause] of the statute.” Granberry, 908 F.2d at 279-280. Other
items which the court held were essentially the school district’s
“property” within the meaning of the Act were the following: the
exclusive control of the distribution of a limited number of school

bus driving jobs, the exclusive control of how its money is spent,

the exclusive control of who the school district hired, and the
school district’s control over the persons and type of persons with
whom it decided to enter employment agreements.

The Granberry defendant also argued that the school district
did not lose any money, since it sought and hired a competent
driver. The Eighth Circuit disagreed, holding

What the School District wanted was a competent school-

bus driver who was truthful and had not been convicted of

a felony, and this is not what it got. The School

District has been deprived of money in the very

elementary sense that its money had gone to a person who

would not have received it if all the facts had been

known.


¥inute Order Form{0697)

United States District Court, Northern District of Mlinois

Name of Assigned Judge Elaine E. Bucklo Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 03 CR 922 - 1,2,3 &7 DATE 9/21/2004
CASE USA vs. Duff, et al.
TITLE

[ln the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented.]

MOTION:

DOCKET ENTRY:

(1) QO Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

(3) a Answer brief to motion due. . Reply to answer brief due.

(4) Oo Ruling/Hearingon eset fort

(5) Oo Status hearing[held/continued to] {set for/re-set for]on__—sset fora

(6) QO Pretrial conference[held/continued to] [set for/re-set for]on__—_setfor__— se at__

(7) a Trial(set for/re-set for]on___—_at

(8) QO [Bench/Jury trial] [Hearing] held/continued to at__

(9) im] This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OOFRCP4(m) OLocal Rule 41.1 CIFRCP41(a)(1) CO) FRCP41(a)(2).

(10) | {Other docket entry] Defendants’ motion to dismiss counts 2-15 and 24-30 of the second

superseding indictment is denied. Enter Memorandum Opinion and Order.

al) ff (For further detail see order attached to the original minute order.]

No notices required, advised in open court,

No notices required.

ov | Notices mailed by judge’s staff.

Notified counsel by telephone

Docketing to mail notices.

Mail AO 450 form. pura
sia sq

Copy to judge/magistrate judge.

courtroom yr ee 13S "002
MP) deputy’s

initials

Date/time.teccived in |
central Clerk’s Office mailing deputy initials



Vv.

Defendants’ final argument is that where counts alleging
“specified unlawful activity” are dismissed, money-laundering
charges related to the proceeds of such activity must also be
dismissed. On this basis alone, defendants assert, counts 24-30 of
the indictment cannot stand. Since I decline to dismiss any of the
prior counts of the indictment on which the money-laundering

charges are based, this argument is moot.

CONCLUSION
For the foregoing reasons, I deny the defendants’ motion to

dismiss in its entirety.

ENTER ORDER:

Lhai.e L Burkle

Elaine E. Bucklo
United States District Judge

Dated: September al , 2004

11


than § 1341 (See, e.g., United States v. Barker Steel Co., 985 F.2d
1123 (1% Cir. 1993)), but this purported distinction does not make
the cases any less persuasive on the issue of third party
involvement.

Iv.

Defendants ask that Counts Nine Through Fifteen be dismissed
on the ground that all of the mailings of checks from the City
described in those counts were to third party general contractors
Waste Management, Tishman or APMG; that none was a use of the mails
to further a scheme, and that the mailings would have occurred
regardless of defendants’ conduct.

The defendants’ alleged scheme was a continuing one that
lasted through the 1990's. The core element of the scheme was the
masquerade of Duff-owned and controlled businesses as MBE’s and
WBE’s, which allowed those entities to gain, fraudulently, large
fees as sub-contractors of the general contractors to which the
checks were mailed. Under §1341, a mailing will be considered in
furtherance of a scheme to defraud if it is incidental to an
essential part of the scheme. United States v. Fernandez, 282 F.3d
500, 507 (7 Cir. 2002). If the City had not mailed checks to the
prime contractors, defendants’ entities would have gained nothing
from their alleged fraudulently obtained status as qualified sub-
contractors. See United States v. Dacri, 827 F.Supp. 550, 555 (E.D.

Wis. 1993).

10



II.

Defendants also argue that the City suffered no actual loss,
because the indictment does not charge that the Duff-owned
companies gave less than full value in providing their services.
They characterize United Sates v. Granberry, 908 F.2d 278 (9 Cir.
1990) as “not helpful” to the government and argue further that
“Granberry provides no authority for the Court here” (Defendants’
Reply Memorandum 7 n.4). In Granberry, the defendant had obtained
employment with a Missouri school district as a school bus driver
by deliberately concealing his prior conviction for murder. The
indictment alleged that this deception caused the State and the
School District to be deprived of ten separate types of money or
property, all in violation of § 1341. The Eighth Circuit held
that the types of property described in charges B 1-3 of the
Granberry indictment, which all involved either the State’s

processing of employment applications or the control of

buyers would not have received any more money had the commodity
bidding been done in the open pit. In United States v. Bruchhausen,
977 F. 2a 464 (9% Cir. 1992), convictions for wire fraud were
reversed because the rights of the United States to pursue
forfeiture remedies and of manufacturers to control the resale of
their products to parties prohibited by law from purchasing the
products, were held not to be property interests of those parties
that would qualify under the McNally standard. There was no basis
in Bruchhausen for an allegation that the defendant had deprived
any victim of power over how its money would be spent. The same is
true of United States v. F.J. Vollmer & Company, Inc., 1 F.3d 1511,
1520-21 (7 Cir. 1993) (interest of the United States in preventing
the unlawful disposition of weapons was regulatory and not property
within the meaning of McNally).


requirements of the Municipal Code were flouted by similar
deceptions made in subsequent years. As a result, the entities
specifically mentioned above, together with other Duff~owned and
controlled businesses, obtained direct contracts and sub-contracts
worth more than 100 million dollars and generated payments and
distributions for the benefit of the named defendants and other
relatives and associates of Mr. Duff aggregating more than nine
million dollars,
I.

Counts 2-15 allege the facts summarized above and the use of
the mails in connection with the scheme described. Mail fraud is
established as a federal crime by 18 U.S.C. § 1341, which provides
in relevant part:

(W)hoever, having devised or intending to devise any

scheme or artifice to defraud, or for obtaining money or

property by means of false or fraudulent pretenses,...

for the purpose of executing such scheme ..., places in

any ... authorized depository for mail matter, any matter

or thing whatever to be sent or delivered by the Postal

Service, ... or takes or receives therefrom, any such

Matter or thing, ... shall be fined under this title or

imprisoned not more than 20 years, or both ....

In McNally v. United States, 483 U.S. 350 (1987), the Supreme Court

held that the “scheme or artifice to defraud” and “obtaining money


bidding. In order to qualify for the set-asides, businesses must be
at least 51% owned and controlled by one or more minorities or
women.

For purposes of the motion to dismiss, the well-pleaded
allegations of the indictment must be taken as true. United States
v. Yaskas, 166 F.3d 873, 880 (7th Cir.1999)

The charging allegations are numerous and specific. Using the
charges that involve just two of the Duff businesses as examples,
the allegations may be summarized as follows. Windy City
Maintenance, Inc. was certified as a WBE in 1991 on the basis ofa
sworn affidavit and certain other statements made by Patricia Green
Duff to the effect that she was the real owner and controlled the
operations of Windy City Maintenance. In fact, Ms. Green Duff, who
is the mother of James M. Duff, was not the real owner of the
business; it was owned and controlled by Mr. Duff. In 1994,
Remedial Environmental Manpower, Inc. (REM), was qualified by the
City as an MBE on the basis of a sworn affidavit and other
statements of Mr. Stratton, an African-American, who claimed that
he was the real owner and controlled the operations of REM. In
fact, Mr. Duff, not Mr. Stratton, owned and controlled REM. Similar
allegations are made with respect to the other Duff-owned
businesses.

The indictment charges the pattern of deceit did not end with

the initial qualification of the entities; on-going compliance



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

UNITED STATES OF AMERICA,

Plaintiff,

Vv. No. 03 CR 922
JAMES M. DUFF, PATRICIA GREEN DUFF,
WILLIAM E. STRATTON, JOHN J. LEAHY,
EDWARD WISNIEWSKI, STARLING
ALEXANDER, AND TERRENCE DOLAN,

Defendants.

MEMORANDUM OPINION AND ORDER

Defendants James M. Duff, William E. Stratton, Patricia Green
Duff, and Terrence Dolan move to dismiss counts 2-15 and 24-30 of
the second superseding indictment (the “indictment”).

The indictment charges defendants with conspiracy,
racketeering, mail fraud, wire fraud, and money laundering. The
motion is addressed only to the mail fraud and money laundering
charges. The indictment charges that defendants conspired among
themselves and with others, both named and unnamed, to defraud the
City of Chicago (the City) by falsely representing that certain
entities, which were in fact owned and managed by Mr. Duff, were
qualified as Minority-Owned Businesses (“MBE’s”) or Women-Owned
Businesses (“WBE’s”) under Chapter 2-92-420 et seq. of the amended
Municipal Code of the City of Chicago. The Municipal Code’s
provisions are designed to provide set-asides for MBE’s and WBE’s

in connection with large contracts let by the City for competitive