Source: https://www.law.cornell.edu/supremecourt/text/483/350/
Timestamp: 2018-01-17 13:29:14
Document Index: 683543037

Matched Legal Cases: ['§1341', '§ 1341', '§ 215', '§ 1341', '§ 1341', '§ 371', '§ 1341', '§ 371', '§ 371', '§ 371', '§ 1341', '§ 371', '§ 1341', '§ 1341', '§ 1341', '§ 371', '§ 371', '§ 1341', '§ 186', '§ 1341', '§ 403']

Charles J. McNALLY, Petitioner, v. UNITED STATES. James E. GRAY, Petitioner, v. UNITED STATES. | LII / Legal Information Institute
483 U.S. 350 (107 S.Ct. 2875, 97 L.Ed.2d 292)
dissent, STEVENS, O'CONNOR [HTML]
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.
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.
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 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 "include 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 "it 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."
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.
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.
The same question of statutory construction has arisen in a variety of contexts over the past few decades. In the public sector, judges, State Governors, chairmen of state political parties, state cabinet officers, city aldermen, Congressmen and many other state and federal officials have been convicted of defrauding citizens of their right to the honest services of their governmental officials. 1 In most of these cases, the officials have secretly made governmental decisions with the objective of benefiting themselves or promoting their own interests, instead of fulfilling their legal commitment to provide the citizens of the State or local government with their loyal service and honest government. Similarly, many elected officials and their campaign workers have been convicted of mail fraud when they have used the mails to falsify votes, thus defrauding the citizenry of its right to an honest election. 2 In the private sector, purchasing agents, brokers, union leaders, and others with clear fiduciary duties to their employers or unions have been found guilty of defrauding their employers or unions by accepting kickbacks or selling confidential information. 3 In other cases, defendants have been found guilty of using the mails to defraud individuals of their rights to privacy and other nonmonetary rights. 4 All of these cases have something in commonthey involved what the Court now refers to as "intangible rights." They also share something else in common. The many federal courts that have confronted the question whether these sorts of schemes constitute a "scheme or artifice to defraud" have uniformly and consistently read the statute in the same, sensible way. They have realized that nothing in the words "any scheme or artifice to defraud," or in the purpose of the statute, justifies limiting its application to schemes intended to deprive victims of money or property.
"1 any scheme or artifice to defraud, 2 or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, 3 or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article. . . ." 18 U.S.C. 1341 (emphasis and brackets added).
As the language makes clear, each of these restrictions is independent. One can violate the second clauseobtaining money or property by false pretenseseven though one does not violate the third clausecounterfeiting. Similarly, one can violate the first clausedevising a scheme or artifice to defraudwithout violating the counterfeiting provision. Until today it was also obvious that one could violate the first clause by devising a scheme or artifice to defraud, even though one did not violate the second clause by seeking to obtain money or property from his victim through false pretenses. Cf. Streep v. United States, 160 U.S. 128, 132-133, 16 S.Ct. 244, 246, 40 L.Ed. 365 (1895). Every court to consider the matter had so held. 5 Yet, today, the Court, for all practical purposes, rejects this longstanding construction of the statute by imposing a requirement that a scheme or artifice to defraud does not violate the statute unless its purpose is to defraud someone of money or property. I am at a loss to understand the source or justification for this holding. Certainly no canon of statutory construction requires us to ignore the plain language of the provision.
In considering the scope of the mail fraud statute it is essential to remember Congress' purpose in enacting it. Congress sought to protect the integrity of the United States mails by not allowing them to be used as "instruments of crime." United States v. Brewer, 528 F.2d 492, 498 (CA4 1975). See Durland v. United States, 161 U.S. 306, 314, 16 S.Ct. 508, 511, 40 L.Ed. 709 (1896); Parr v. United States, 363 U.S. 370, 389, 80 S.Ct. 1171, 1182, 4 L.Ed.2d 1277 (1960); Gouled v. United States, 273 F. 506, 508 (CA2), aff'd, 255 U.S. 298, 41 S.Ct. 261, 65 L.Ed. 647 (1921). "The focus of the statute is upon the misuse of the Postal Service, not the regulation of state affairs, and Congress clearly has the authority to regulate such misuse of the mails. See Badders v. United States, 240 U.S. 391 . . . 36 S.Ct. 367, 60 L.Ed. 706 (1916)." United States v. States, 488 F.2d 761, 767 (CA8 1973), cert. denied, 417 U.S. 909, 94 S.Ct. 2605, 41 L.Ed.2d 212 (1974). Once this purpose is considered, it becomes clear that the construction the Court adopts today is senseless. Can it be that Congress sought to purge the mails of schemes to defraud citizens of money but was willing to tolerate schemes to defraud citizens of their right to an honest government, or to unbiased public officials? Is it at all rational to assume that Congress wanted to ensure that the mails not be used for petty crimes, but did not prohibit election fraud accomplished through mailing fictitious ballots? Given Congress' "broad purpose," I "find it difficult to believe, absent some indication in the statute itself or the legislative history, that Congress would have undercut sharply that purpose by hobbling federal prosecutors in their effort to combat" use of the mails for fraudulent schemes. McElroy v. United States, 455 U.S. 642, 655, 102 S.Ct. 1332, 1339, 71 L.Ed.2d 522 (1982).
The term "defraud" is not unique to § 1341. Another federal statute, 18 U.S.C. 371, uses the identical term in prohibiting conspiracies to "defraud the United States," and the construction we have given to that statute should be virtually dispositive here. In Haas v. Henkel, 216 U.S. 462, 30 S.Ct. 249, 54 L.Ed. 569 (1910), the Court, dealing with the predecessor to § 371, rejected the argument that there could be no conspiracy to defraud in the absence of contemplated monetary or property loss. "The statute is broad enough in its terms to include any conspiracy for the purpose of impairing, obstructing or defeating the lawful function of any department of Government." Id., at 479, 30 S.Ct., at 253. Again, in Hammerschmidt v. United States, 265 U.S. 182, 44 S.Ct. 511, 68 L.Ed. 968 (1924), the Court described the scope of the statute as prohibiting not only conspiracies to "cheat the Government out of property or money, but it also means to interfere with or obstruct one of its lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest." Id., at 188, 44 S.Ct., at 512. 6 It is thus clear that a conspiracy to defraud the United States does not require any evidence that the Government has suffered any property or pecuniary loss. See also United States v. Barnow, 239 U.S. 74, 79, 36 S.Ct. 19, 21, 60 L.Ed. 155 (1915).
There is no basis for concluding that the term "defraud" means something different in § 1341 (first enacted in 1872) than what it means in § 371 (first enacted in 1867). Although § 371 includes the words "in any manner or for any purpose," those words only modify the underlying actfraud, and if that term does not include nonproperty interests then our longstanding interpretation of § 371 is unjustified. In any event, § 1341 itself includes the expansive phrase "any scheme or artifice to defraud."
The Court nonetheless suggests that interpreting the two statutes differently can be justified because § 371 applies exclusively to frauds against the United States, while § 1341 benefits private individuals. Ante, at 358359, n. 8. This argument is wide of the mark. The purpose of § 1341 is to protect the integrity of the United States Postal Service, and, as I have explained, it is ludicrous to think that a Congress intent on preserving the integrity of the Postal Service would have used the term "defraud" in a narrow sense so as to allow mailings whose purpose was merely to defraud citizens of rights other than money or property. There is, therefore, no reason to believe that Congress used the term "defraud" in a more limited way in § 1341 than it did in § 371. 7 The Court is correct in pointing out that Congress intended to go beyond any common-law meaning of the word "defraud" in enacting § 371. See ante, at 358359, n. 8, citing United States v. Keitel, 211 U.S. 370, 393, 29 S.Ct. 123, 130, 53 L.Ed. 230 (1908). But we have also rejected the argument that the common-law meaning of the term "defraud" confines the scope of § 1341. See Durland v. United States, 161 U.S. 306, 16 S.Ct. 508, 40 L.Ed. 709 (1896).
Examination of the way the term "defraud" has long been defined, and was defined at the time of the statute's enactment, makes it clear that Congress' use of the term showed no intent to limit the statute to property loss. Cf. Saint Francis College v. Al-Khazraji, 481 U.S. 604, 107 S.Ct. 2022, 95 L.Ed.2d 582 (1987) (looking to contemporaneous dictionary definitions in construing the word "race"). For example, Justice Story cites the definition of "fraud" as "applied to every artifice made use of by one person for the purpose of deceiving another," or as "any cunning, deception, or artifice used to circumvent cheat, or deceive another." 1 J. Story, Equity Jurisprudence § 186, pp. 189-190 (1870). Similarly, the law dictionaries of the era broadly defined the type of interests subject to deprivation by fraudulent action. One leading dictionary stated that "to defraud is to withhold from another that which is justly due to him, or to deprive him of a right by deception or artifice." 1 Bouvier's Law Dictionary 530 (1897). Another dictionary defined "defraud" as "to cheat; to deceive; to deprive of a right by an act of fraud . . . to withhold from another what is justly due him, or to deprive him of a right, by deception or artifice." W. Anderson, A Dictionary of Law 474 (1893). See also 1 Burrill's Law Dictionary 658-659 (1859). 8
"Fraud in its elementary common law sense of deceitand this is one of the meanings that fraud bears in the statute, see United States v. Dial, 757 F.2d 163, 168 (7th Cir.1985)includes the deliberate concealment of material information in a setting of fiduciary obligation. A public official is a fiduciary toward the public, including, in the case of a judge, the litigants who appear before him, and if he deliberately conceals material information from them he is guilty of fraud. When a judge is busily soliciting loans from counsel to one party, and not telling the opposing counsel (let alone the public), he is concealing material information in violation of his fiduciary obligations.
To begin with, "although 'criminal statutes are to be construed strictly . . . this does not mean that every criminal statute must be given the narrowest possible meaning in complete disregard of the purpose of the legislature.' " McElroy v. United States, 455 U.S., at 658, 102 S.Ct., at 1341, quoting United States v. Bramblett, 348 U.S. 503, 509-510, 75 S.Ct. 504, 508, 99 L.Ed. 594 (1955). Especially in light of the statutory purpose, I believe that § 1341 unambiguously prohibits all schemes to defraud that use the United States mailswhether or not they involve money or property.
In any event, this asserted ambiguity in the meaning of the word "defraud," if it ever existed, was removed by judicial construction long ago. Even if Chief Justice Taft's opinion for the Court in the Hammerschmidt case was not sufficient to make it perfectly clear that a fraud on the public need not deprive it of tangible property, the series of Court of Appeals' opinions applying this very statute to schemes to defraud a State and its citizens of their intangible right to honest and faithful government, notwithstanding the absence of evidence of tangible loss, removed any relevant ambiguity in this statute. Surely these petitioners knew that it would be unlawful to place Kentucky's insurance coverage with an agent who would secretly make hundreds of thousands of dollars available for the private use of petitioners, their relatives, and their paramours. This is, indeed, a strange application of the doctrine of lenity. 9
Perhaps the most distressing aspect of the Court's action today is its casualalmost summaryrejection of the accumulated wisdom of the many distinguished federal judges who have thoughtfully considered and correctly answered the question these cases present. The quality of this Court's work is most suspect when it stands alone, or virtually so, against a tide of well-considered opinions issued by state or federal courts. In these cases I am convinced that those judges correctly understood the intent of the Congress that enacted this statute. Even if I were not so persuaded, I could not join a rejection of such a longstanding, consistent interpretation of a federal statute. See Commissioner of Internal Revenue v. Fink, 483 U.S. 89, 101, 107 S.Ct. 2729, 2736, 97 L.Ed.2d 74 (1987) (STEVENS, J., dissenting); Citicorp Industrial Credit, Inc. v. Brock, 483 U.S. 27, 40, 107 S.Ct. 2694, 2702, 97 L.Ed.2d 23 (1987) (STEVENS, J., dissenting); Runyon v. McCrary, 427 U.S. 160, 189, 96 S.Ct. 2586, 2603, 49 L.Ed.2d 415 (1976) (STEVENS, J., concurring).
In the long run, it is not clear how grave the ramifications of today's decision will be. Congress can, of course, negate it by amending the statute. Even without congressional action, prosecutions of corrupt officials who use the mails to further their schemes may continue since it will frequently be possible to prove some loss of money or property. 10 But many other types of fraudulent use of the mail will now be immune from prosecution. The possibilities that the decision's impact will be mitigated do not moderate my conviction that the Court has made a serious mistake. Nor do they erase my lingering questions about why a Court that has not been particularly receptive to the rights of criminal defendants in recent years has acted so dramatically to protect the elite class of powerful individuals who will benefit from this decision.
Hammerschmidt concerned the scope of the predecessor of 18 U.S.C. 371, which makes criminal any conspiracy "to defraud the United States, or any agency thereof in any manner or for any purpose." Hammerschmidt indicates,
When a person is being paid a salary for his loyal services, any breach of that loyalty would appear to carry with it some loss of money to the employerwho is not getting what he paid for. Additionally, "[i]f an agent receives anything as a result of his violation of a duty of loyalty to the principal, he is subject to a liability to deliver it, its value, or its proceeds, to the principal." Restatement (Second) of Agency § 403 (1958). This duty may fulfill the Court's "money or property" requirement in most kickback schemes.
Of course, "the fact that a scheme may or may not violate State law does not determine whether it is within the proscriptions of the federal statute." United States v. Edwards, 458 F.2d 875, 880 (CA5), cert. denied, sub nom. Huie v. United States, 409 U.S. 891, 93 S.Ct. 118, 34 L.Ed.2d 148 (1972). See Margiotta, 688 F.2d, at 124; Mandel, 591 F.2d, at 1361; Brown, 540 F.2d, at 374, n. 7; Bush, 522 F.2d, at 646, n. 6. The mail fraud statute is a self-contained provision, which does not rely on any state enactments for its force. Cf. 18 U.S.C. 1952(b) (defining "unlawful activity" with reference to state law). The lack of a state statute forbidding the underlying conduct does not immunize a defendant from prosecution when he or she uses the United States mails as part of the scheme.