Opinion ID: 497966
Heading Depth: 1
Heading Rank: 3

Heading: intangible rights--mail fraud instruction

Text: 43 On June 24, 1987, the Supreme Court, in McNally v. United States, --- U.S. ----, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), held that a scheme defrauding state citizens of their intangible rights to honest and impartial government did not constitute mail fraud under 18 U.S.C. Sec. 1341. 22 The Court noted, however, that the mail fraud statute clearly protects property rights and that courts should construe the statute broadly with regard to property rights. 23 44 Richerson contends that the McNally decision requires reversal of his conviction because the district court's charge included language regarding intangible rights. 24 The district court instructed the jury that: 45 [A]cceptance by an employee of kickbacks from those supplying materials and equipment to his employer constitutes a scheme to defraud within the scope of the mail fraud statute. 46 Now, the object of a fraudulent scheme need not be the deprivation of a tangible interest. Artifices designed to cause losses of an intangible nature also violate the statute. 47 Employees have a fiduciary duty to their employer not to conceal facts that they have reason to believe are material to their employer's conduct of its business. Such concealment deprives the employer of his honest and loyal services and of the employer's right to have its business conducted honestly. 48 A scheme to defraud an employer of the right to the honest and faithful services of its employee may constitute a scheme or artifice to defraud as that phrase is used in the mail fraud statute. However, mere breach of a fiduciary duty by itself is not enough to support a statutory violation. Where any employee breaches a duty to his employer by concealing material information which he has a duty to disclose and where such non-disclosure may result in harm to the employer, the act constitutes a scheme to defraud within the purview of the statute. Therefore, non-disclosure of material information may constitute mail fraud where an employee conceals information from an employer which the employee has reason to believe would lead a reasonable employer to change its business conduct. 49 Because the charge was given before the Supreme Court decided McNally neither party objected to the intangible violation language at trial. On appeal, however, after the McNally decision, Richerson objects. 50 The McNally majority's new interpretation of the mail fraud statute clearly varies from all of the previous appellate court decisions regarding the intangible rights theory of mail fraud. The McNally majority did not explicitly discuss the effect of its holding on intangible mail fraud cases involving intangibles other than the citizens' intangible right to honest and impartial government. In his dissenting opinion, however, Justice Stevens addressed the issue of McNally's effect on cases involving employee fraud. Justice Stevens said: 51 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 Sec. 403 (1958). This duty may fulfill the Court's money or property requirement in most kickback schemes. 25 52 The McNally majority did not disagree with Justice Stevens' comments regarding employee's breaches of loyalty. See United States v. Fagan, 821 F.2d 1002, 1010 n. 6 (5th Cir.1987). 53 The Supreme Court's November 16, 1987 decision in Carpenter v. United States, --- U.S. ----, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987), provides guidance regarding the Court's application of the mail fraud statute to intangibles. In Carpenter an employee who disclosed his employer's confidential information was convicted of mail and wire fraud under 18 U.S.C. Secs. 1341, 1343 and conspiracy to commit mail fraud under 18 U.S.C. Sec. 371. The Court affirmed the employee's conviction saying that McNally did not limit the scope of Sec. 1341 to tangible as distinguished from intangible property rights. Id. 108 S.Ct. at 320. The Court also said that a scheme to defraud does not require a monetary loss. Id. The Court, however, noted that the defendant's employer was defrauded of much more than its contractual right to his honest and faithful service, an interest too ethereal in itself to fall within the protection of the mail fraud statute, which 'had its origin in the desire to protect individual property rights.'  Id. (quoting McNally, 107 S.Ct. at 2881 n. 8). 54 In this case the overriding and predominant theory of the Government's case involved Pool's loss of money and property. To the extent that this case involved intangibles at all they were related to property as suggested by Justice Stevens' dissent and as required by the Court's decision in Carpenter. Richerson's concealment of material information from his employer is analogous to the Carpenter defendant's disclosure of his employer's material information. Although, in light of the Carpenter Court's dicta, the reference to honest and faithful service of the employee in the instruction given by the district court may have been incorrect the instruction required a finding that Richerson breached his duty of loyalty through concealment of material information. This concealment affected Pool Offshore's property rights. 55 In any event any error in the district court's charge does not rise to the level of plain error. 26 The Government presented substantial evidence of Pool's loss of money and property. The intangible instruction referred to Richerson's deprivation of Pool Offshore's property rights through concealment of material information. As a result, the intangible mail fraud instruction neither affected Richerson's substantial rights, nor prejudicially impacted the jury's deliberations on the conspiracy count. 56