Source: http://openjurist.org/print/32953
Timestamp: 2015-05-29 12:43:00
Document Index: 295946097

Matched Legal Cases: ['§ 1341', '§1341', '§ 1341', '§ 1341', '§ 1341', '§ 1341', '§ 1341', '§ 1341', 'art, 602', '§ 215', '§ 1341', '§ 1341', '§ 1341']

483 US 350 McNally v. United States
483 US 350 McNally v. United States 483 U.S. 350
107 S.Ct. 2875
97 L.Ed.2d 292
Charles J. McNALLY, Petitioner,v.UNITED STATES. James E. GRAY, Petitioner, v. UNITED STATES.
Nos. 86-234, 86-286.
Argued April 22, 1987.
The federal mail fraud statute, 18 U.S.C. § 1341, prohibits the use of the mails to execute "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises." Petitioners Gray, a former Kentucky official, and McNally, a private individual, along with one Howard Hunt, the former chairman of the Commonwealth's Democratic Party, were charged with violating §1341 by devising a scheme to defraud the Commonwealth's citizens and government of their "intangible right" to have the Commonwealth's affairs conducted honestly, and to obtain money by means of false pretenses and the concealment of material facts. After informing the jury of the charges, the District Court instructed the jury that the defendants' alleged scheme could be made out either by finding: (1) that Hunt had de facto control over the award of the Commonwealth's workmen's compensation insurance contract; that he obtained commission payments from the company awarded this contract which were mailed to a company he owned and controlled with petitioners, without disclosing his ownership interest to commonwealth officials; and that petitioners aided in the scheme; or (2) that Gray had supervisory authority over the insurance when his company received payments; that he did not disclose his interest in the company to commonwealth officials; and that McNally aided and abetted him. The jury convicted petitioners, and the Court of Appeals affirmed, relying on a line of decisions holding that § 1341 proscribes schemes to defraud citizens of their intangible rights to honest and impartial government.
Held: The jury charge permitted a conviction for conduct not within the reach of § 1341. Pp. 356-361.
(a) The language and legislative history of § 1341 demonstrate that it is limited in scope to the protection of money or property rights, and does not extend to the intangible right of the citizenry to good government. The argument that, because the statutory phrases "to defraud" and "for obtaining money or property by means of false or fraudulent pretenses, representations, or promises" appear in the disjunctive, they should be construed independently so that "a scheme or artifice to defraud" may include a scheme designed to deprive parties of intangible rights is not persuasive. The words "to defraud" commonly refer to wronging one in his property rights by dishonest methods, and there is nothing to indicate that Congress meant to depart from this common understanding when it enacted § 1341 in its present form. Rather, the statute was amended to include the second phrase simply to make it clear that it reaches false promises and misrepresentations as to the future as well as other frauds involving money or property. Pp. 356-360.
(b) A state officer does not violate § 1341 if he chooses an insurance agency to provide the State's insurance but specifies that the agency must share its commissions with another agency in which the officer has an ownership interest and hence profits from the commissions. Here, there was no charge and the jury was not required to find that the Commonwealth itself was defrauded of any money or property or would have paid a lower premium or secured better insurance in the absence of the alleged scheme. In fact, the commissions Hunt and Gray received were not the Commonwealth's money. Nor was the jury charged that to convict it must find that the Commonwealth was deprived of control over how its money was spent. Indeed, it would have paid the insurance premium to some agency, and Hunt and Gray simply asserted control that the Commonwealth might not otherwise have made over the payment of insurance commissions. Moreover, although the Government relies in part on the assertion that petitioners obtained property by means of false representations to the company awarded the insurance contract, there was nothing in the charge that required such a finding. Pp. 360-361.
790 F.2d 1290 (CA 6 1986), reversed and remanded.
WHITE, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BRENNAN, MARSHALL, BLACKMUN, POWELL, and SCALIA, JJ., joined. STEVENS, J., filed a dissenting opinion, in all but Part IV of which O'CONNOR, J., joined, post, p. 362.
Carter G. Phillips, Washington, D.C., for petitioners.
Donald B. Ayer, Sacramento, Cal., for respondents.
This action involves the prosecution of petitioner Gray, a former public official of the Commonwealth of Kentucky, and petitioner McNally, a private individual, for alleged violation of the federal mail fraud statute, 18 U.S.C. § 1341.1 The prosecution's principal theory of the case, which was accepted by the courts below, was that petitioners' participation in a self-dealing patronage scheme defrauded the citizens and government of Kentucky of certain "intangible rights," such as the right to have the Commonwealth's affairs conducted honestly. We must consider whether the jury charge permitted a conviction for conduct not within the scope of the mail fraud statute.
We accept for the sake of argument the Government's view of the evidence, as follows. Petitioners and a third individual, Howard P. "Sonny" Hunt, were politically active in the Democratic Party in the Commonwealth of Kentucky during the 1970's. After Democrat Julian Carroll was elected Governor of Kentucky in 1974, Hunt was made chairman of the state Democratic Party and given de facto control over selecting the insurance agencies from which the Commonwealth would purchase its policies. In 1975, the Wombwell Insurance Company of Lexington, Kentucky (Wombwell), which since 1971 had acted as the Commonwealth's agent for securing a workmen's compensation policy, agreed with Hunt that in exchange for a continued agency relationship it would share any resulting commissions in excess of $50,000 a year with other insurance agencies specified by him. The commissions in question were paid to Wombwell by the large insurance companies from which it secured coverage for the Commonwealth.
On account of the foregoing activities, Hunt was charged with and pleaded guilty to mail and tax fraud and was sentenced to three years' imprisonment. Petitioners were charged with one count of conspiracy and seven counts of mail fraud, six of which were dismissed before trial.2 The remaining mail fraud count was based on the mailing of a commission check to Wombwell by the insurance company from which it had secured coverage for the State. This count alleged that petitioners had devised a scheme (1) to defraud the citizens and government of Kentucky of their right to have the Commonwealth's affairs conducted honestly, and (2) to obtain, directly and indirectly, money and other things of value by means of false pretenses and the concealment of material facts.3 The conspiracy count alleged that petitioners had (1) conspired to violate the mail fraud statute through the scheme just described and (2) conspired to defraud the United States by obstructing the collection of federal taxes.
After informing the jury of the charges in the indictment,4 the District Court instructed that the scheme to defraud the citizens of Kentucky and to obtain money by false pretenses and concealment could be made out by either of two sets of findings: (1) that Hunt had de facto control over the award of the workmen's compensation insurance contract to Wombwell from 1975 to 1979; that he directed payments of commissions from this contract to Seton, an entity in which he had an ownership interest, without disclosing that interest to persons in state government whose actions or deliberations could have been affected by the disclosure; and that petitioners, or either of them, aided and abetted Hunt in that scheme; or (2) that Gray, in either of his appointed positions, had supervisory authority regarding the Commonwealth's workmen's compensation insurance at a time when Seton received commissions; that Gray had an ownership interest in Seton and did not disclose that interest to persons in state government whose actions or deliberations could have been affected by that disclosure; and that McNally aided and abetted Gray (the latter finding going only to McNally's guilt).
The jury convicted petitioners on both the mail fraud and conspiracy counts, and the Court of Appeals affirmed the convictions. 790 F.2d 1290 (CA6 1986). In affirming the substantive mail fraud conviction, the court relied on a line of decisions from the Courts of Appeals holding that the mail fraud statute proscribes schemes to defraud citizens of their intangible rights to honest and impartial government. See, e.g., United States v. Mandel, 591 F.2d 1347 (CA4 1979), aff'd in relevant part, 602 F.2d 653 (en banc), cert. denied, 445 U.S. 961, 100 S.Ct. 1647, 64 L.Ed.2d 236 (1980). Under these cases, a public official owes a fiduciary duty to the public, and misuse of his office for private gain is a fraud. Also, an individual without formal office may be held to be a public fiduciary if others rely on him " 'because of a special relationship in the government' " and he in fact makes governmental decisions. 790 F.2d, at 1296 (quoting United States v. Margiotta, 688 F.2d 108, 122 (CA2 1982), cert. denied, 461 U.S. 913, 103 S.Ct. 1891, 77 L.Ed.2d 282 (1983)). The Court of Appeals held that Hunt was such a fiduciary because he "substantially participated in governmental affairs and exercised significant, if not exclusive, control over awarding the workmen's compensation insurance contract to Wombwell and the payment of monetary kick-backs to Seton." 790 F.2d, at 1296.
We granted certiorari, 479 U.S. 1005, 107 S.Ct. 642, 93 L.Ed.2d 698 (1986), and now reverse.
The mail fraud statute clearly protects property rights, but does not refer to the intangible right of the citizenry to good government. As first enacted in 1872, as part of a recodification of the postal laws, the statute contained a general proscription against using the mails to initiate correspondence in furtherance of "any scheme or artifice to defraud." The sponsor of the recodification stated, in apparent reference to the antifraud provision, that measures were needed "to prevent the frauds which are mostly gotten up in the large cities . . . by thieves, forgers, and rapscallions generally, for the purpose of deceiving and fleecing the innocent people in the country."5 Insofar as the sparse legislative history reveals anything, it indicates that the original impetus behind the mail fraud statute was to protect the people from schemes to deprive them of their money or property.
Durland v. United States, 161 U.S. 306, 16 S.Ct. 508, 40 L.Ed. 709 (1896), the first case in which this Court construed the meaning of the phrase "any scheme or artifice to defraud," held that the phrase is to be interpreted broadly insofar as property rights are concerned, but did not indicate that the statute had a more extensive reach. The Court rejected the argument that "the statute reaches only such cases as, at common law, would come within the definition of 'false pretences,' in order to make out which there must be a misrepresentation as to some existing fact and not a mere promise as to the future." Id., at 312, 16 S.Ct., at 511. Instead, it construed the statute to "includ[e] everything designed to defraud by representations as to the past or present, or suggestions and promises as to the future." Id., at 313, 16 S.Ct., at 511. Accordingly, the defendant's use of the mails to sell bonds which he did not intend to honor was within the statute. The Court explained that "[i]t was with the purpose of protecting the public against all such intentional efforts to despoil, and to prevent the post office from being used to carry them into effect, that this statute was passed. . . ." Id., at 314, 16 S.Ct., at 511.
Congress codified the holding of Durland in 1909, and in doing so gave further indication that the statute's purpose is protecting property rights.6 The amendment added the words "or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises" after the original phrase "any scheme or artifice to defraud." Act of Mar. 4, 1909, ch. 321, § 215, 35 Stat. 1130.7 The new language is based on the statement in Durland that the statute reaches "everything designed to defraud by representations as to the past or present, or suggestions and promises as to the future." 161 U.S., at 313, 16 S.Ct., at 511. However, instead of the phrase "everything designed to defraud" Congress used the words "[any scheme or artifice] for obtaining money or property."
After 1909, therefore, the mail fraud statute criminalized schemes or artifices "to defraud" or "for obtaining money or property by means of false or fraudulent pretenses, representation, or promises. . . ." Because the two phrases identifying the proscribed schemes appear in the disjunctive, it is arguable that they are to be construed independently and that the money-or-property requirement of the latter phrase does not limit schemes to defraud to those aimed at causing deprivation of money or property. This is the approach that has been taken by each of the Courts of Appeals that has addressed the issue: schemes to defraud include those designed to deprive individuals, the people, or the government of intangible rights, such as the right to have public officials perform their duties honestly. See, e.g., United States v. Clapps, 732 F.2d 1148, 1152 (CA3 1984); United States v. States, 488 F.2d 761, 764 (CA8 1973).
As the Court long ago stated, however, the words "to defraud" commonly refer "to wronging one in his property rights by dishonest methods or schemes," and "usually signify the deprivation of something of value by trick, deceit, chicane or overreaching." Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S.Ct. 511, 512, 68 L.Ed. 968 (1924).8 The codification of the holding in Durland in 1909 does not indicate that Congress was departing from this common understanding. As we see it, adding the second phrase simply made it unmistakable that the statute reached false promises and misrepresentations as to the future as well as other frauds involving money or property.
We believe that Congress' intent in passing the mail fraud statute was to prevent the use of the mails in furtherance of such schemes. The Court has often stated that when there are two rational readings of a criminal statute, one harsher than the other, we are to choose the harsher only when Congress has spoken in clear and definite language. United States v. Bass, 404 U.S. 336, 347, 92 S.Ct. 515, 522, 30 L.Ed.2d 488 (1971); United States v. Universal C.I.T. Credit Corp., 344 U.S. 218, 221-222, 73 S.Ct. 227, 229-230, 97 L.Ed. 260 (1952). See also Rewis v. United States, 401 U.S. 808, 812, 91 S.Ct. 1056, 1060, 28 L.Ed.2d 493 (1971). As the Court said in a mail fraud case years ago: "There are no constructive offenses; and before one can be punished, it must be shown that his case is plainly within the statute." Fasulo v. United States, 272 U.S. 620, 629, 47 S.Ct. 200, 202, 71 L.Ed. 443 (1926). Rather than construe the statute in a manner that leaves its outer boundaries ambiguous and involves the Federal Government in setting standards of disclosure and good government for local and state officials, we read § 1341 as limited in scope to the protection of property rights. If Congress desires to go further, it must speak more clearly than it has.
For purposes of this action, we assume that Hunt, as well as Gray, was a state officer. The issue is thus whether a state officer violates the mail fraud statute if he chooses an insurance agent to provide insurance for the State but specifies that the agent must share its commissions with other named insurance agencies, in one of which the officer has an ownership interest and hence profits when his agency receives part of the commissions. We note that as the action comes to us, there was no charge and the jury was not required to find that the Commonwealth itself was defrauded of any money or property. It was not charged that in the absence of the alleged scheme the Commonwealth would have paid a lower premium or secured better insurance. Hunt and Gray received part of the commissions but those commissions were not the Commonwealth's money. Nor was the jury charged that to convict it must find that the Commonwealth was deprived of control over how its money was spent. Indeed, the premium for insurance would have been paid to some agency, and what Hunt and Gray did was to assert control that the Commonwealth might not otherwise have made over the commissions paid by the insurance company to its agent.9 Although the Government now relies in part on the assertion that petitioners obtained property by means of false representations to Wombwell, Brief for United States 20-21, n. 17, there was nothing in the jury charge that required such a finding. We hold, therefore, that the jury instruction on the substantive mail fraud count permitted a conviction for conduct not within the reach of § 1341.
It is so ordered. Justice STEVENS, with whom Justice O'CONNOR joins as to Parts I, II, and III, dissenting.
Congress has broadly prohibited the use of the United States mails to carry out "any scheme or artifice to defraud." 18 U.S.C. § 1341. The question presented is whether that prohibition is restricted to fraudulent schemes to deprive others of money or property, or whether it also includes fraudulent schemes to deprive individuals of other rights to which they are entitled. Specifically, we must decide whether the statute's prohibition embraces a secret agreement by state off